Auction process.

A buying-in auction is conducted for the security shortages on the day after the pay-out day through NSE/BSE trading system i.e. on T+3 day. An Auction Tender Notice is issued to the Members informing them about the names of the securities short or not delivered, quantity slated for auction and the date and time of the auction session. The session is open on BSE between 11:00 a.m. and 12 noon for all the scrips under Compulsory Rolling Settlements except those in "Z" group and scrips on "trade to trade" basis (T group scrips) which are directly closed-out. The Members, who participate in the auction session, can download the Delivery Orders in respect of the auction obligations on the same day, if their offers are accepted. The Members are required to deliver the shares in the Clearing House on the auction Pay-in day, i.e. T+4. Pay-out of auction shares and funds is also done on the same day, i.e., T+4. On NSE the auction is carried out on T+3 rd day and auction settlement happens on T+5th day. Auction is carried out in the following two cases Short deliveries Bad deliveries

 

Short Deliveries: If a member is not able to deliver securities on the day of pay-in then it is considered as Short delivery. It happens when a speculator who sells shares that he doesnt own (short selling) fails to square up his transaction within a trading cycle. Bad Delivery: Bad delivery exists only in the case of physical share transfers. It doesnt exist in demat form of securities. If a physical transfer deed is torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer then it is considered as bad delivery. Clearing agency identifies members who are fully/partially short of securities delivery on securities pay-in day and debits their account by an amount calculated at the valuation price. The valuation price is the closing price of the security on the preceding trading day of securities pay-in day. Then the exchanges conduct auction to get the securities and delivers them to the buyers who have not received the securities. Auction is a separate trading mechanism which is different from the normal trading. There is separate trading session wherein brokers are allowed to quote offer prices. Unlike normal trading session, where order matching is done continuously, the quotes are captured and placed in ascending order of price and matched at the end of the session. If the auction price is more than the valuation price the member who defaulted will have to pay the differing amount.

All brokers/trading members can participate in an auction. Clearing corporation prepares a list of short securities and sends it across all brokers/trading members who participate in the trading session on the day of Auction and place orders. A broker can place the orders of his own or his clients orders. A Member who has failed to deliver the securities of a particular company on the payin day is not allowed to offer the same in auction. The following are different auction participants. Initiator: The trading member who initiates the Auction. The initiator can give quotes either for buy or for sell order. Competitor: The auction participant who quotes the orders on the same side of the initiator i.e. if the initiator gives bid quotes (buy order) then competitor also gives bid quotes. Solicitor: The trading member who quotes the orders on the other side of the initiator i.e. if the initiator gives bid quotes (buy order) then competitor gives offer quotes (sell order).