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In this process, the buyer is compensated by paying 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.
For all short deliveries for a,) companies listed in the ‘Z group’ of BSE and b) trade for trade securities at both Exchanges, the trades are compulsorily closed out. During the auction process if there are no bids received from the trading members then also close out is resorted to.
When the auction seller fails to deliver the securities (partly or fully) on the auction pay‐in day, the deal will be closed out at the highest price prevailing on the Exchange from the day on which the trade was originally executed till the day of closing out or 20 percent over the official closing price on the closeout day whichever is higher and will be charged to the auction seller unless otherwise specified.