A Square up happens when 2 clients of a particular broker have bought & sold the same stock on particular day and when the selling client doesn’t deliver. A Square up results in the buying client getting credit of funds while debiting the selling client for the same amount.
Assume X & Y trading with Broker Z. X buys 100 shares of TATA Steel and Y sells 100 shares of TATA Steel. Ideally Y is to deliver these 100 shares to the broker who will in-turn credit these 100 shares to the buying client - X. Now if Y doesn’t deliver, the broker does a square up of the trades wherein the selling client (Y) is debited and buying client (X) is credited with funds instead of stock.