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Market Intelligence › Basic Terminologies
The auction settlement mechanism, and the penalty that falls on the seller, not the buyer
Published by The Retail Trader · AUG 02, 2026 · Order Flow
If, after a sale in the delivery segment, the seller does not have the shares to deliver, the exchange makes up that shortfall itself. That process is called an auction, and its cost is recovered from the defaulter.
If shares are short on settlement day, the clearing corporation buys those shares in the auction market and gives them to the buyer. The buyer does not lose out — they get the shares.
The amount is recovered from the seller at the auction price, and that price is often considerably worse than that day's market price.
For retail, short delivery arises in these situations:
• Sold in BTST and the delivery never arrived.
• The holding was blocked under a pledge or some other process.
• A sell order was placed from the wrong account.
• The quantity was not credited in time because of a corporate action.
The loss from an auction is not predictable — it depends on that day's auction bidding, so it can be much bigger than the loss you had in mind. For this one reason, BTST should not be treated as a casual trade.
This article is for education only — it is not a buy or sell recommendation, makes no claim of a guaranteed return, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or the official source.