Short Delivery Auction in India: NSE Rules

A short delivery auction in India is the buy-in that NSE Clearing runs when a seller fails to hand over shares on settlement day. Under the T+1 cycle the clearing corporation buys the missing shares in an auction session on T+1 and delivers them to the buyer by T+2. The defaulting seller is billed for the auction price plus a penalty, and if nobody offers shares the trade is closed out in cash at a formula price that can sit 20% above the closing price.

What is short delivery on NSE and BSE?

Indian cash-market trades settle on T+1, the trade day plus one working day. NSE moved every security to T+1 on January 27, 2023 (circular NSE/CMTR/61813, April 29, 2024, Part C item 1.5). SEBI's T+1 activity schedule puts the pay-in of securities and funds at "By 11:00 AM" on T+1 and the pay-out at "By 01.30 PM" the same day (SEBI Master Circular for Stock Exchanges and Clearing Corporations, October 16, 2023, Chapter 3, para 1.4).

Pay-in is the moment the seller's broker moves the sold shares from the client's demat account to the clearing corporation. Shares missing at 11:00 AM on T+1 are a shortage, and the trade is a short delivery. The buyer's side is guaranteed by the clearing corporation, which now has to source the shares itself. That buy-in is the "auction", and it has nothing to do with the price-discovery call that sets the day's open (how an opening auction works covers that one).

When is the NSE auction session held?

NSE's own description, from its Capital Market Consolidated Circular:

Auctions are initiated by the Exchange on behalf of trading members for settlement related reasons. The main reason is Shortages. The trading members can participate in the Exchange initiated auctions by entering orders as a solicitor. The auction market opens at 14:30 hours. The solicitor period is 30 minutes from the time it is initiated. The price band applicable in auction market is 20%.

NSE, circular NSE/CMTR/61813, April 29, 2024, Part C item 1.9, "Auction Market"

A solicitor is a member offering to sell shares into the auction. The exchange is the buyer. The 2:30 PM open is recent: circular NSE/CMTR/61805, issued the same day, moved the "Auction Market Open time" from 14:00 hrs to 14:30 hrs, effective May 6, 2024. The 20% is the price band, the range around the reference price within which offers are accepted.

The calendar is SEBI's. Its master circular sets the "auction schedule for default by the selling broker" under T+1 as "By T+1: Auction session" and "By T+2: Pay-in/pay-out and close-out of auction" (Chapter 3, para 1.6.1). It also allows one attempt only:

In no case the auction would be held more than once unless the same is approved by a special resolution of the governing board of the CC. The outstanding position at the end of the first auction cycle shall be automatically closed out.

SEBI Master Circular for Stock Exchanges and Clearing Corporations, October 16, 2023, Chapter 3, para 2.2.1

For a Monday sale that fails, the shortage is identified at Tuesday's 11:00 AM pay-in and the auction runs from 2:30 PM the same day. The buyer gets shares or cash on Wednesday.

What does the defaulting seller pay?

Four charges stack on the seller's ledger.

1. The valuation debit. At Tuesday's pay-out the seller receives no sale proceeds. The clearing corporation debits the value of the shortage at a reference price (the valuation price) and holds the money until the shares are found.
2. The auction price difference. Angel One's Knowledge Center article on the auction process (updated March 11, 2026) describes the seller being debited the higher of the auction price and the valuation price. The auction can print anywhere inside the 20% band, so a stock sold at ₹100 can be bought back for the buyer at up to ₹120.
3. The clearing-corporation penalty. Zerodha's support article "What is short delivery and what are its consequences?" and the Angel One article both give it as 0.05% of the shortage value, plus 18% GST on the penalty, as of September 2026.
4. Brokerage on the auction trade.

The 0.05% is small. The price difference is where the real cost sits, and Zerodha's BTST risk note frames the exposure in exactly those terms:

If the seller defaults on delivering your shares, in the event of short delivery, your obligation as a seller to deliver shares won't be met, and you will face the risk of auction penalty, which can be up to 20% of the value of stock short delivered.

Zerodha Support, "What are the risks involved in BTST?", accessed September 16, 2026

SEBI adds a twist for the defaulter: auction or close-out proceeds settle the buyer's claim, and "Any amount remaining thereof should be credited to the Core Settlement Guarantee Fund ("Core SGF") instead of crediting it to the defaulting party's account" (Chapter 3, para 2.3). A seller who defaults on a stock that has since fallen does not pocket the gap.

What happens if the auction fails? The close-out formula

When no solicitor offers the shares, or offers fewer than needed, the unfilled quantity is closed out in cash. SEBI's rule, in full:

"The close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and up to the date of auction or close out" OR "20% above the latest available closing price at the exchange on the day on which auction offers are called for" whichever is higher

SEBI Master Circular for Stock Exchanges and Clearing Corporations, October 16, 2023, Chapter 3, para 2.1.1

A hypothetical shows how punitive that is. You sell 100 shares at ₹100 on Monday. The stock trades as high as ₹112 across Monday and Tuesday and closes Tuesday at ₹110. The candidates are ₹112 (the highest traded price) and ₹132 (₹110 plus 20%), so the close-out price is ₹132. The buyer receives ₹13,200 in cash on Wednesday instead of shares, and you are debited the ₹3,200 gap plus the penalty and brokerage. Zerodha's support page on cash settlement adds that a partly filled auction is blended: shares bought in the auction and shares closed out are averaged into one rate for the whole shortage.

The same arithmetic can be run on a real tape. Indian scrips are not covered here, so the panel applies SEBI's two-leg formula to Apple's US sessions over the trailing three weeks, in dollars: each row treats that date as the sale day, takes the highest price traded on it and the next session, and sets it against 20% above the next session's close.

SELECT
    toString(session_date)                                  AS trade_date,
    round(two_session_high, 2)                              AS highest_traded_two_sessions,
    round(next_close * 1.2, 2)                              AS twenty_pct_above_next_close,
    round(greatest(two_session_high, next_close * 1.2), 2)  AS close_out_price
FROM
(
    SELECT
        session_date,
        max(day_high)      OVER (ORDER BY session_date ROWS BETWEEN CURRENT ROW AND 1 FOLLOWING) AS two_session_high,
        anyLast(day_close) OVER (ORDER BY session_date ROWS BETWEEN CURRENT ROW AND 1 FOLLOWING) AS next_close,
        count()            OVER (ORDER BY session_date ROWS BETWEEN CURRENT ROW AND 1 FOLLOWING) AS sessions_in_frame
    FROM
    (
        SELECT
            date                  AS session_date,
            max(toFloat64(high))  AS day_high,
            max(toFloat64(close)) AS day_close
        FROM global_markets.stocks_daily_aggs
        WHERE ticker = 'AAPL'
          AND date >= today() - 21
        GROUP BY date
    )
)
WHERE sessions_in_frame = 2
ORDER BY session_date

On the latest row, a sale on 2026-09-15, the two-session high was 331.94 and 20% above the following close was 398.28, which makes 398.28 the close-out price for that sale. Across the 14 sale days shown, the high can only outrank the 20% leg on a day when the stock traded more than 20% above where it closed the following session.

The broker view: why an "auction" line appears in your ledger

Neither Zerodha nor Angel One runs the auction. They pass through what NSE Clearing bills the member. On T+1 the sale proceeds fail to arrive and a margin block appears instead: Zerodha's article says it blocks a short-delivery margin of 120% of the settlement price on T day. On T+2 the ledger shows the auction or close-out debit for the full shortage and a separate penalty line for the 0.05% plus GST. On the buying side, Angel One's article says the auctioned shares reach the demat account on T+2 and show in the portfolio on T+3.

One variation matters: an internal shortage, where the buyer and the failing seller are clients of the same broker. The exchange nets the two at member level and sees no shortage, so the broker runs its own buy-in. Zerodha's page lists a 1% charge plus GST for that case, twenty times the exchange figure.

The two ways retail traders end up in the auction

Selling BTST shares before they arrive. Buy Today, Sell Tomorrow is a Monday buy sold on Tuesday. Under T+1 the Monday shares are paid out by 1:30 PM Tuesday, in time for Wednesday's 11:00 AM pay-in on the Tuesday sale, so BTST normally settles cleanly. The failure case is a chain: your Monday seller short-delivers, your shares come through Wednesday's auction settlement instead of Tuesday's pay-out, your own Tuesday sale is short at Wednesday's pay-in, and you are the defaulter. The penalty is computed on your sale, whoever started the chain.

An intraday short that never closed. A retail short sale in India's cash segment is intraday only; sellers do not borrow shares first, unlike a US short seller whose broker locates a borrow before the sale (hard-to-borrow lists and borrow fees cover that side). An intraday sell still open at the close is converted to a delivery sale, and a seller with no shares in demat is short at the next morning's pay-in. Zerodha's article names the classic trap: a stock that hits its upper circuit after you have sold it intraday has no sellers, so the position cannot be bought back. The same page lists a third route, a stock futures or in-the-money option position carried into expiry, since stock derivatives are physically settled in India (how India's expiry days are settled).

How the US handles a fail to deliver instead

There is no exchange auction in the United States. A fail sits as an open position at the clearing house (NSCC's Continuous Net Settlement system), and the close-out duty falls on the broker that clears the trade, under SEC Regulation SHO Rule 204:

The participant must close out a failure to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date.

SEC, "Key Points About Regulation SHO", May 31, 2022

For a long sale, or a bona fide market-making fail, the deadline is the third settlement day after the settlement date. US equities have settled on T+1 since May 28, 2024, so a short-sale fail from a Monday trade must be closed by Wednesday's open (how T+1 settlement works walks the full cycle). Weekends and holidays stretch that clock. The panel below walks the SPY session calendar for the trailing weeks and marks, for each trade date, the T+1 settlement session and the session after it, whose open is the Rule 204 deadline for a short-sale fail.

SELECT
    toString(t_day)                     AS trade_date,
    formatDateTime(t_day, '%a')         AS trade_weekday,
    toString(s_day)                     AS settlement_date,
    toString(c_day)                     AS rule_204_deadline,
    formatDateTime(c_day, '%a')         AS deadline_weekday,
    dateDiff('day', t_day, c_day)       AS calendar_days_to_deadline
FROM
(
    SELECT
        session_date                                                                                AS t_day,
        anyLast(session_date) OVER (ORDER BY session_date ROWS BETWEEN CURRENT ROW AND 1 FOLLOWING) AS s_day,
        anyLast(session_date) OVER (ORDER BY session_date ROWS BETWEEN CURRENT ROW AND 2 FOLLOWING) AS c_day,
        count()               OVER (ORDER BY session_date ROWS BETWEEN CURRENT ROW AND 2 FOLLOWING) AS sessions_in_frame
    FROM
    (
        SELECT DISTINCT date AS session_date
        FROM global_markets.stocks_daily_aggs
        WHERE ticker = 'SPY'
          AND date >= today() - 24
    )
)
WHERE sessions_in_frame = 3
ORDER BY t_day

For the latest trade date shown, 2026-09-14, a Mon, settlement falls on 2026-09-15 and the deadline is the open of 2026-09-16, 2 calendar days after the trade. A Friday sale runs to Tuesday's open. There is no published penalty rate. The clearing broker buys the shares in the open market and charges the client, and a firm that misses the deadline may not accept further short sales in that stock without a pre-arranged borrow until the fail is closed. India puts the same job on the clearing corporation, in a public session, at a formula price.

FAQ

What time is the NSE auction session?

The NSE auction market opens at 14:30 hours (2:30 PM IST) and the solicitor period runs for 30 minutes, per NSE circular NSE/CMTR/61813 of April 29, 2024. The 2:30 PM open took effect on May 6, 2024, replacing a 2:00 PM open.

How much is the short delivery penalty in India?

Zerodha and Angel One documentation, as of September 2026, puts the clearing-corporation penalty at 0.05% of the shortage value plus 18% GST. The larger cost is the auction or close-out price, up to 20% above the closing price, charged to the seller in full.

What is the close-out price if no shares are found in the auction?

SEBI's master circular sets it as the higher of the highest price recorded in the scrip from the trade date up to the auction day, or 20% above the latest closing price on the auction day. The buyer receives cash at that price and the seller pays the difference from the sale price.

Is BTST risky under T+1 settlement?

The trade itself settles: shares bought on Monday are paid out Tuesday afternoon, before Wednesday's pay-in on the Tuesday sale. The risk is inherited. If the original seller short-delivers, the BTST seller also short-delivers and pays the auction charges on their own sale.

Every rule above is quoted from the dated official document it comes from. The price and volume history around any settlement date is a question you can ask in plain English on the Strasmore terminal.