Short delivery in the stock market refers to a scenario where a seller fails to deliver the committed shares during settlement. This usually happens if a seller unintentionally sells shares which they do not possess or if a particular stock faces liquidity issues.

How it Unfolds:

Identification and Notification: On T+1 day (a day after the transaction), Tradejini identifies short deliveries and notifies the concerned clients

Auction by Exchange: On T+1 day, an auction is conducted by exchange to purchase shares from other potential sellers in the market. 

Delivery to the Buyer: Shares obtained from the auction are delivered to buyers by T+2 day. Buyers can view these shares in their Demat account by T+2 EOD.

Penalty on Defaulting Sellers: Sellers unable to deliver the shares face penalties. The penalty is the difference between the auction price and the original valuation rate. If auction rates are lower than the valuation rates, then the difference between these two rates will be deducted from the seller’s account on T+2.

Cash Settlement: Any shortages in Normal Market that cannot be bought in the Auction Market shall be closed out as specified by SEBI vide Circ.Ref No. SMD/Policy/Cir-03/2002 dated January 30, 2002. Close out shall be at the highest price prevailing across the Exchanges from the day of trading till the auction day or 20% above the settlement price on the auction day, whichever is higher. This amount is credited to the buyer and debited from the seller by T+2 .

Impact on Buyers:

Delayed Delivery: Buyers may experience a delay in receiving shares or might receive a cash settlement in lieu of shares at the close-out price.

Missing Corporate Actions: During this period, buyers might miss out on corporate benefits like dividends, bonus, rights or buy backs declared by the company. However the client will be compensated financially by the close out process in lieu of corporate benefits.

Impact on Sellers:

Penalty Charges: Sellers face penalties in addition to the difference between selling price and valuation price which can go up to 20% of the closing price on T+1, if they cannot deliver the committed shares.

In essence, while buyers may face inconvenience, they do not suffer financial losses. Sellers, however, may encounter penalties and other repercussions.

At Tradejini we do not allow shares to be sold if the same is not available in the client's account.   Even then there can be instances of short delivery, when a client sells shares before the actual settlement of shares from the exchange.  Further in case of MIS (Margin intraday square off) orders where short sales is allowed, it may result in short delivery in extreme cases where either the scrip is in buying freeze mode or the system is unable to square of pending MIS positions due to technical or network issues.