What is short delivery. What are its consequences

Short Delivery occurs in the stock market when a seller fails to deliver the shares they sold to the buyer by the settlement date. This typically happens due to insufficient holdings in the seller’s Demat account or errors during trade settlement.

Consequences of Short Delivery:

• Auction Process: To fulfill the buyer’s order, the exchange conducts an auction to procure the required shares. The seller responsible for the short delivery is liable for any price difference between the original trade price and the auction price.
• Penalties: The seller may incur penalties or fines imposed by the stock exchange for failing to deliver the shares on time.
• Financial Loss: If the auction price is higher than the original trade price, the seller bears the cost of the difference, leading to financial loss.
• Reputational Impact: Repeated short deliveries may harm the seller’s reputation with brokers and trading partners.