@nithin sir out of 102001 share not a single share has been considered for auction settlement.
Yeah. No one was willing to sell on auction market as the stock I guess had gone up even in the normal market on the T+1 day.
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@nithin sir, Share will go for auction on T+2 i.e 13 Dec and only Exchange can do that as per my understanding. Zerodha RMS can place order on my behalf and close my position on 12 dec or allow me to close myself which can help me to minimize my losses but nothing happens even after i called on 12 dec morning. If there was any possibility which can save me, Zerodha should help me with, i would appreciate that.
Was it mandatory to buy all my short position share in auction market? can’t it be considered as internal shortage if me as a seller and someone who buy was the client of Zerodha? Also can you please confirm that same settlement has been done for all other users who has Short sell IREDA on 11 dec?
Shares short sold on 12th, will need to be delivered on 13th morning. So your “buying” on 13th would have no affect since the short delivery would have happened for your transaction of 12th. To cover, we attempted to buy shares, but weren’t able to buy the entire short quantity, thereby resulting in a close out.
@VenuMadhav i short sold on 11 dec 2023, Your RMS tried buying on 12 Dec and I got a Contract note on 13 dec. Can you please share the Order id where RMS tried to buy shares on my behalf on 12 dec in Auction/Open Market?
- Also i am not able to download Auction contract note from portal : ref link : How to track the previous auction market trades?
- Can you provide auction script qty list for 11,12 & 13 Dec 2023 ref: Auction market- List of stocks available for trade today - Google Drive
- Also can you respond to other queries as well in previous thread.
As per this article auction happens on T+1 and only Exchange can be buyer how Zerodha RMS is trying to buy from auction market?
We attempted buying shares in the regular market, not auction. In the auction market, as the article says, one can only fill the sell side. Pending orders get canceled at eod, I’m not sure if there’s a way to verify orders. Will have someone from our team reach out an help you with this.
@nithin @VenuMadhav if it is in regular market then i am expecting to get my position settled as shares were trading.
I have gone through the various posts on short selling and auction. i think there is lack of clarity on few points. I will mention them and it will be helpful if you could elaborate it over here to settle it for all. Also elaborate process can be updated on varsity.
Suppose for whatever reasons a client has a short delivery of stock on a particular day. Now EOD two things can happen. At broker level you have a short delivery to exchange or you don’t have a short delivery to exchange as some of your clients have bought the same stock.
- Now for case 1 moving forward on T+1 what is being done by you as a broker if you were net short on previous day. when you say you try to buy shares in open market on t+1 what do you exactly mean by it as you wont get the the delivery of it on same day unless it is being sold by one of your clients. Please walk us through step by step process till the final auction settlement
2)For case 2 if as a broker you didn’t have any obligation to the exchange on day T.How do you settle the process internally. On T+1 how do you transfer the shares to real buyer even if you manage to buy from open market that day as delivery of any new new order might happen next day. Incase you are not able to buy and as you were not short at broker level previous day ,so i assume this wont go through auction markets.Then how do you settle this.
I really want to know full elaborate process as i have suffered through this before and lack of complete knowledge of process still leaves me confused. Also for the above person @d_p was the close out settlement done by exchange or was it done by you as an internal adjustment and his short delivery never made to auction market as you as a broker had no obligation to exchange as at broker level you had not short delivered. if latter is the case then it is really sad as it would have been better for him had his underdelivered position got a chance to be filled at auction market.
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Ok, let me clarify. I’m attempting to give you a summary of what happens as a practice in general and then will answer the specific case.
As you’ve rightly said, there are 2 forms of shortages - internal shortage & exchange level broker shortage. A shortage is when a client sells stocks but doesn’t deliver.
You must know that the settlement of stocks happens at a broker level on a net basis. Positions are net off at client level, then at TM level and then the net deliverable/receivable obligation is calculated. If client A sells 100 shares of RIL (and does not deliver) and client B of the same broker buys 100 shares of RIL, then the net deliverable obligation of the broker to the CC is 0. This is a case of internal shortage since there’s no deliverable obligation on part of the broker. In a usual case of internal shortage, the policy is to take part in a facility offered by the Stock exchange called “Voluntary auction”. We upload a file to the exchange on T+1 (settlement date) and ask them to buy securities in the auction market. In the auction market, the exchange is filling the buy side, whereas the sell side can be filled by investors including Zerodha clients. If the exchange is able to procure shares in the auction market, then on T+2, the shares are credited to the broker and the auction settlement amount is debited from the broker’s account. The broker will then proceed with crediting securities to the investor who bought them and did not get delivery (credit to investor on T+2), and will debit the short delivering client with the auction settlement amount.
If the exchange is not able to buy securities in the auction market, then the exchange notifies broker of the same. The broker is required to handle it internally (since it’s a case of internal auction) and the usual process is to close out the trade where you give credit to the buying client (instead of securities) & debit the short selling client. We follow the exchange’s policy of closing out trades which is: “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.”
If it’s not a case of internal shortage, the Exchange just carries out an auction on T+1, settlement of which is done on T+2. Same policy applies as stated above ^ except that the Exchange closes out the trades and debits the obligation sum themselves which the broker then passes on to the short delivering client.
In the case of IREDA, we did not take part in the voluntary auction. This is because, the stock was hitting upper circuits continuously and we were not hopeful of being able to obtain the shares in the voluntary auction (at the time of uploading files to voluntary auction, the stock had hit upper circuit already). Hence, the team decided to buy the securities in the open market, post the purchase obligation to the short delivering client & then deliver the securities to the purchasing clients on T+2. Since we had a large quantity of shortage, we were not able to find a fill for all securities at the desired price and thus had to resort to closing out. Would we have procured shares in the auction market? It’s anybody’s guess, but at the moment, we did what we thought was in the best interest of our client. You must note that Zerodha does not stand to gain anything by posting the close out price to the short delivering client, the credit is received by the client who purchased securities and did not get it.
You’re looking at it from the seller’s side. Put yourself in the shoes of the buyer. You’ve bought securities on T day, the stock has hit upper circuit (which is good for you as a buyer). On T+1, the seller defaults. On T+1 too, the stock hits upper circuit. As a buyer, you’re to get delivery of your securities, but you don’t. Ultimately, if you don’t end up getting securities at all, aren’t you losing out on the opportunity of being able to sell securities at a price much higher than what your original price was? If the client had plans of holding on to the securities, shouldn’t they be compensated to the extent that they can buy securities at increased prices?
Would I be disappointed if I suffered a loss - absolutely, given the sum involved is higher. But there’s a degree of risk that comes with trading the markets, especially when someone’s trading in scrips which have circuit limits, in large quantities. We understand the grievance of the investor and have also offered a fair and transparent resolution process.
@VenuMadhav can you please share few more details for further clarification and transparency :
- Total no IREDA shares ZERODHA tried to buy on 12 Dec 2023
- Total no of IREDA shares ZERODHA were able to buy
- TIME/ORDER id
- Did Zerodha bought any Shares of IREDA internally on 11 or 13 Dec too?
“at the time of uploading files to voluntary auction, the stock had hit upper circuit already). Hence, the team decided to buy the securities in the open market”
- Not sure what time you are referring but the IREDA script HITS upper circuit twice ~9:45 am (for only 1 minute ) & 3:04pm (till closing)
I
I’m sorry, I cannot give account specific details on a public forum. Please raise a support ticket and someone from the team will respond.
Yes, we upload the Voluntary auction file to NSE around the same time.
@VenuMadhav From 9:46 am onward IREDA stocks were consistently trading until 3:04 pm.
- Why was the RMS (Risk Management System) unable to execute a purchase? Isn’t it strange?
- Also in support of the Zerodha’s responses/statements there is no supportive document available/accessible anywhere.
- What happens to other people who has Short Position in IREDA, are the settlements happened as same as me on close out price or differently.
Thanks for such elaborate answer @VenuMadhav . It answers most of the queries . Also feel that such nitty gritty details could be added to official varsity posts.
It just leaves me with 2 more questions.
1)So in case of internal settlement a manual call is taken at the time of submitting voluntary auction file from your end whether you want to go through voluntary auction route or buy directly from market on T+1 ? Assuming it is done in the best interest of client to close out short delivered position internally as soon as possible.
2)when you said team decided to buy ireda from open market. how couldn’t the team procure it as it was actively trading majority of time during T+1. why were they unable to procure it as it was actively traded for 5 hours that day. Also you mention ‘desired price’. how broker decides ‘desired price’ .Best available ask should do the task right. And even as broker if you still procured some quantity shouldn’t you pro rate it across all short delivered clients to make process fair for all clients than a few clients facing all the consequences.
Just sharing my thoughts because as a broker you guys have always inculcated such practice of fairness.
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After knowing all these complex stuff I feel 20rs per order makes sense 
Thanks for sharing
And a 20rs SL order… 