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When a trader’s account shows a margin shortfall, it means there aren’t enough funds to support the open positions. If this shortfall is not addressed in time, it can lead to penalties, restrictions, or even the forced closure of positions. Let’s understand why it’s crucial to transfer funds on time and the consequences of failing to do so. What is a Margin Shortfall? A margin shortfall occurs when the available margin in your trading account is lower than the required
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In the Indian stock market, trades are expected to be settled on a T+1 basis—meaning shares sold by a trader should be delivered to the exchange the next working day. But in certain cases, especially during short delivery, the seller fails to deliver the shares on time. If the shares are not delivered on T+1 and the exchange fails to procure them through the auction process, the exchange initiates a Close-out Settlement. What is a Close-Out in the Stock Market?
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If the shares are not bought in the auction, the close-out is done by paying compensation to the buyer. A payment equivalent to any of the following is made: The value of the short delivered security at the highest price prevailing in the stock exchange from the day of trading till the auction day or 20% above the official closing price on the auction day, whichever is higher is paid. For all short deliveries for; Companies listed in the “Z
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According to the exchange rules, the auction amount is always debited to the auction seller. It is the seller who is liable for fulfilling the shares’ obligations. If you wish to avoid such situations, it is advisable to sell the shares after confirming the delivery of shares. There are always chances that the shares may come short.
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Scenario1- Internal Process As Per T+2 Basis Internal short settlement is a special case scenario wherein both, the buyer and the seller, belong to the same broker. In such a case, the short delivery is settled internally by the broker. The settlement here is done among the broker’s clients instead of the exchange through a buy-in auction. If there is any short delivery, the funds will be credited to the buyer against shares and funds will be debited to the
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