The settlement for equity delivery (pay-in of shares to the exchange) occurs on a T+1 basis. This means that shares bought on the trading day (“T” day, e.g., Monday) are to be received by the buyer on T+1 (i.e., Tuesday).

Similarly, shares sold on “T” day (e.g., Monday) must be delivered to the exchange by the seller on T+1 (Tuesday) to receive the proceeds (cash) from the sale.

Failure by the seller to deliver shares to the buyer on T+1 as obligated is termed Short Delivery.

When there is a default in delivery by a broker, an auction is conducted. The auction is a stock exchange mechanism through which, in a settlement, the buyer’s broker procures shares in the event of a default by the seller’s broker. Such defaults can occur when a short seller fails to square off the position, a seller does not deliver shares on time, or a seller delivers incorrect or defective shares.