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Internal Short Settlement is a special case when both the buyer and the seller belong to the same broker. In this process, short delivery is settled by the broker internally among his clients instead of the exchange through buy-in auction. In case of any short delivery, funds will be credited to the buyer against shares and funds will be debited to the seller on T+2.
In case shares are not received from the exchange on T+2, then settlement (via funds/shares) is done by the exchange on T+3 (except ‘Z’ category & trade to trade share).