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What can cause a Short Delivery?

  • Published: Thursday, 15 October 2020

Scenario 1: Stock hits an upper circuit

You have short sold 100 shares of Reliance in intraday (Product code MIS) expecting the price of Reliance to come down during the trading day and make a profit. However due to market volatility, the share price went up steeply and hit the upper circuit (when a stock hits upper circuit there is no sellers). To close your position as a short seller you will have to buy 100 shares of Reliance. Buying will not be possible unless the circuit is released. Assuming the circuit is not released during the day, you will be forced to hold your short position.

Since the short position could not be closed during the trading day, you will have to deliver 100 shares to the buyer on T+2, failing which the shares would be considered short delivered.


Scenario 2: Buy Today Sell Tomorrow (BTST)

You have bought 100 shares of Reliance @ Rs.1000/share (with product code CNC) on Monday, expecting the stock price to rise in the short term. As per your expectation the stock price increases to Rs 1050 the next trading day (Tuesday). To make a quick profit you sell the 100 shares of Reliance @ Rs.1050, thereby earning a profit of Rs. (1050-1000)*100=5,000.

Ideally it should be a smooth transaction as per the Rolling Settlement Cycle. 100 shares of Reliance bought by you on Monday will be received in your Demat account on Wednesday & SAS will pass on this 100 Reliance shares received in your Demat account for pay-in to the exchange on Thursday.


Monday: You bought 100 shares
Tuesday: You sold 100 shares
Wednesday: 100 shares received in your Demat account
Thursday: 100 shares sent by the broker from your Demat account to the exchange for pay-in.


The completion of the entire settlement cycle depends on the premise that you will receive the entire quantity of 100 shares in your Demat account on Wednesday. However, there is a possibility that the person who sold you shares on Monday fails to deliver the shares (Scenario 1). In that case you won’t receive any shares in your Demat account on Wednesday. As a result SAS will have no shares for pay-in to the exchange on Thursday and there will be a short delivery of 100 shares.