Hey @nithin , my question is little bit different from this topic, If I sell Put (of stocks) and the same is in the money on expiry, but the same is not delivered to me on T+2 days due to short delivery by buyer, and auction took place, and the same is delivered to me on T+5 days. IS THERE AUCTION NOTE FOR THE SAME OR NOT.
@ShubhS9 , With due respect, I already read that article, I just want to know, how I come to know that the shares delivered to me are from auction, or my broker purchase the same in open market and delivered to me, and kept margin penalty (i.e. 20%) with them.
The shares which are short delivered are bought and delivered to you by the exchange. The penalty amount which will be imposed in defaulter (person who Short delivered), doesn’t go to any party but Investor Protection Fund.
Suppose I sold a put (say SBIN) , strike price Rs 200, on expiry the closing price of SBIN was Rs 198, there is no square off and same is went for physical settlement. On T+2 days, the buyer of options haven’t shares and therefore it was short delivered. After that auction took place, but there is no seller in auction market, then it’s went for cash settled @ 20% above the price.
My question is if my broker kept 20% with them, and purchase the SBIN in open market and delivered it to me on T+5 days. THEN HOW I COME TO KNOW ABOUT THIS FRAUD.
There’s no straight forward way to determine this. Ideally, your broker is required to pass on all benefits accrued to the client and not book such gains in their own books. You wouldn’t want to trade with a broker who you don’t trust.
The issues here are: Say, you’re a client who has a receive delivery position, while there’s another client of the broker who has a give delivery position in the same stock. At the Exchange level, positions are net off at broker level. So 1 long position and 1 short position between 2 different clients of the same broker get net off and there’s no shares to receive/deliver from/to the Exchange. The broker is required to internally settle these trade by debiting the selling client and crediting the buying client. In such a case, if the selling client doesn’t delivery, the broker has to carry out the settlement of trades usually through an internal policy that he may have. At Zerodha, we buy shares in our account, transfer the debit fund obligation to the client who sold but did not deliver shares and credit the shares to the buyer who did not receive. The buyer receives shares with a 1 day delay.
But if there’s no internal netting off, there’s a way to determine if the broker passed you the 20% close out credit or not. When the Exchange has to credit shares to a broker’s pool account, it always does it with a ‘settlement number’ tag. When the shares are then transferred to your account, the settlement number shows up in your demat statement. Each trading day of the week is assigned a unique settlement number. Likewise, the settlement numbers for shares under ‘physical delivery’ payout are also defined.
Now to determine if your broker bought shares and credited it to you instead of passing on the 20% benefit, here’s how you can figure:
(a) Ask your broker to send you your ‘statement of transaction’ for the demat account to which you’ve received the shares
(b) Every demat credit in the statement, will have an accompanying settlement number from where shares are transferred
('c) If the payout of SBIN was received from an auction for physical delivery shares, the respective settlement number would show up in the statement. (you may have to refer ICCL’s settlement numbers if your broker is clearing through ICCL).
(d) If the payout of SBIN is received in regular settlement, then you can sort of conclude that the transfer was made from purchase of shares by the broker. Do ask with your broker about this anomaly if exists.
I’ve checked this internally, it’s a case of internal shortage not Exchange auction.
On the said day, there were more purchases made by clients of Zerodha than Sale. Let me explain it with an example for easier understanding. The numbers mentioned are for example’s sake only.
We had a total of 5 lots of long HDFCLife and 3 short HDFCLife position for the Nov expiry. This made a net receivable of 2 lots of shares from the Exchange which we received. The shares were credited to client X & Y. There were clients A,B and C who had to receive shares from the debits made by clients who sold - Clients 1 and 2.
Clients 1 & 2 defaulted and did not delivery. As I’ve said earlier, Zerodha buys shares in the open markets and credits the buyers account and debits the settlement value to the short delivered clients. We did the same, bought 3300 shares of HDFC Life in regular market, to deliver the same to the buying clients. What happened on the day we bought was that one client sold shares and did not deliver. Again, settlements are net off, which is why we received lesser number of shares. We did not want to delay delivery further, which is why we transferred shares to the tune of what we received as payout in regular market and posted a close out at 20% higher for the other shares. You would have received a contract note for the closed out shares.
Dear Mr.Singh, this forum is not to address account specific queries. Please dm me your client ID and I’ll have someone call and explain you in detail. You can be assured that Zerodha has passed on all benefits accrued to you.