If you actively trade, you would’ve faced a short delivery and a large auction penalty at least once. Such penalties are due to illiquid auction markets.

We are now trying to improve liquidity in auctions by allowing our customers to participate.

Short delivery happens when the seller doesn’t deliver the shares. This can happen if:

1. Stocks sold for intraday hit an upper circuit.
2. Buy today, sell tomorrow (BTST) traders don’t deliver.
3. Failure to deliver shares to cover physical delivery of F&O.

To settle short-delivered trades, exchanges conduct a 30-minute auction from 2 PM on T+1 (used to be T+2). If the short-delivered stock is a mid or small-cap stock, then the price can trade as much as 20% away from the current market price due to low participation in auctions

Now that you can participate in auctions, they are also an opportunity to make a risk-free profit if there is a price difference. This will also improve liquidity, ensuring that traders stuck with short delivery positions don’t lose a lot due to an auction penalty.

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