Auction Settlement
The exchange process that buys shares in a special auction when a seller fails to deliver them on the settlement date.
Formula
Cost to the defaulting seller = Auction Price - Original Sale Price, plus penalties, with the auction price capped at a stated band
Unit
₹
In depth
When delivery fails, the clearing corporation must still deliver to the buyer, so it buys the shares in an auction and charges the difference to the defaulter. Auction prices are typically unfavourable to the defaulter by design, which is what makes short delivery expensive rather than merely inconvenient. This is the mechanism that punishes an uncovered intraday short left open past the close. The buyer is fully protected throughout and usually never learns that anything went wrong.
Worked example
A seller fails to deliver 200 shares sold at ₹500. The auction settles at ₹540, so the defaulter bears (540 - 500) x 200 = ₹8,000 plus penalty charges, while the original buyer receives the shares as normal.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Auction Settlement” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.