There was a technical issue at one of the depositories this week that disrupted settlement and had a cascading effect on the market. Since many people may not fully understand how settlement works, let me explain what happened.

When you buy or sell stocks, the trade settles on T+1. The Clearing Corporation (CC) determines the net obligations. Meaning who owes shares and who owes money and instructs the depositories (NSDL/CDSL) to move shares between sellers’ and buyers’ demat accounts via their brokers (Depository Participants).

This movement, pay-in from sellers and payout to buyers, is the backbone of settlement. Once complete, the CC knows exactly which obligations were met and which weren’t met—these are called short deliveries.

On Wednesday, a technical issue affecting inter-depository transfers at one of the depositories disrupted the process, and shares were neither credited nor debited in investor demat accounts for Tuesday’s trades.

This created a few cascading problems:

Without a completed settlement, the CC couldn’t identify short deliveries. So if clients who bought shares on Tuesday wanted to sell them, there was no way to know if those shares were actually delivered, potentially causing further short deliveries down the chain.

The CC also couldn’t conduct auction sessions to resolve existing short delivery obligations.

For brokers like us, shares bought by clients were stuck in a pending settlement (T+1) status. Since these couldn’t be earmarked at the depository when a sale transaction was made, clients selling these shares couldn’t receive their sell credit.

The issues persisted through Thursday and Friday, with settlements running slowly and incomplete for trades from those previous days.

From what we understand, the backlog is being cleared over the weekend, and things should be back to normal by Monday, hopefully.

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