Share Shortages for NSE

[xtalk]

Hi folks,

I bought few L&T last week and today I got following Mail & SMS from my broker about shortage of shares. What should I do?

Dear Sir,

Please be informed that on 08 Oct 08, you had XXXX share/s of LARSEN & TOUBRO LTD for settlement No. XXXX of which, as per T+2 Settlement system of NSE was on 13 Oct 08.

Against the same, we had received of XXX share/s only. For balance XXX shares there is a shortage.

Settlement in cases where there is a Shortage is deferred till Auction Settlement, which is on 16 Oct 08.

 

[prakashreddy]

I think deficit shares will be purchased in auction and it will be credited to your account. You need not pay extra, in case it is brought in auction for a higher amount. The guy who short sold will be penalised. But there will be delay of some days in getting credit of shares in your account. You can do nothing about it.

 

[xtalk]

How does this auction takes place?

AFAIK....when I sell X unit of shares then those units are blocked in my demat acct for T+1 days and disappear on T+2 days. Then why this shortfall has happened? I'm not sure if my broker is at fault. He only bought for me and money has been fully paid.

Thanks.

 

[kapil123]

How does this auction takes place?

AFAIK....when I sell X unit of shares then those units are blocked in my demat acct for T+1 days and disappear on T+2 days. Then why this shortfall has happened? I'm not sure if my broker is at fault. He only bought for me and money has been fully paid.

Thanks.

One can short the shares without holding them in the demat account. Now, these trades have to closed (i.e. one has to cover the intraday position), but because of whatever reason if one is not able to cover, then this shortfall is covered by auction.

 

[prakashreddy]

How does this auction takes place?

AFAIK....when I sell X unit of shares then those units are blocked in my demat acct for T+1 days and disappear on T+2 days. Then why this shortfall has happened? I'm not sure if my broker is at fault. He only bought for me and money has been fully paid.

Thanks.

You must understand the process of transfer of shares from buyer to seller in India. Please note, I am not talking about off market share dealings and transfer.

If you sell the shares (in the open market), firstly, it will be debited from your account and it will be credited to your broker's pool account. From there, it will credited to the buyer's broker's pool account from where it will be credited to the demat account of the buyer. This is the normal procedure for a normal transaction. I mean where seller had all those shares in his demat account which he has sold in the market. Now the next part, where for any reason there is deficit of shares in the account of seller. Those deficit shares will have to be brought in auction and are to be delivered to the buyer. That is where auction market comes.

We are not allowed to participate in auctioning. Auction market takes place after the normal market is closed. Only brokers will be participating in auction. If one has short sold the shares and failed to cover the position, then his broker will have to purchase those shortfall from the auction, naturally from other brokers. So if he had to purchase it by paying higher price, naturally the short seller will have to pay it ultimately. Plus, penalties. What happens to the buyer? The shares brought by the broker of the short seller in the auction will be credited to the broker's pool account of the buyer. That is how you are going to get deficit shares. You will get it at the rate you brought it in the open market. It is the broker who sold in the auction market (to the broker of short sold guy) who is going to make money. You will not get any share in this booty.

As you said it is L&T shares. Commonly held by almost all brokers. So there will not be any difficulty in getting these shares in auction from some other broker. The real problem comes in case of short selling of some illiquid shares that too where paid up share capital of the company is miniscule. It is extremely difficult to buy brokers who are having shares of these sorts of companies. In such cases, you can imagine the price that can be demanded by the broker who holds these shares.

I hope this post clarifies your doubt.

 

[Prabhjeet]

These kind of happenings happen due to some problem with NSE terminal and not due to broker's inefficiency. It has happened to me many a times and you would have to wait for 2-5 days but you will get your shares at the price at which you were informed that shares have been traded.

Dont worry there is nothing to feel afraid

 

[xtalk]

These things used to happen pre-demat days when one could buy physical shares only. Anyway, thanks for all the input everyone. I'll update the status here after auction date. I guess naked short-selling in the cash market created the trouble.

cheers!

 

[vasa1]

These things used to happen pre-demat days when one could buy physical shares only. Anyway, thanks for all the input everyone. I'll update the status here after auction date. I guess naked short-selling in the cash market created the trouble.

cheers!

Hi xtalk!

Even a bad delivery instruction can cause a similar problem . If some one disputes the signature or finds even a minor mistake in the delivery instruction, it could be cause for auction.

That's why, despite the risk, giving your broker PoA and trading online is better.

Anyway, two requests:

1. Please do keep us informed of your auction progress.

2. If you don't mind, who is your broker (& online, offline?)

Here's my brief experience:

Broker: Geojit online.

I've been buying / selling virtually every trading day since Jan 1, 2008.

Only a few days ago, I got a simple e-mail stating that Rs. XYZ minus stamp duty has been credited to my account as a result of auction of XYZ shares of company XYZ held on 6/10/2008 for NSE settlement # NSE EQ 2008187.

I have not received any contract note relevant to the auction. I also don't understand why Rs. XYZ and not more (or less) was credited.

I still have to receive the shares bought in the original.(The amount I received, Rs. XYZ, is more than what I paid for the shares in the first place.)

So now I'm wondering will I get the shares ultimately?

Will any senior (more reputable ) member please throw light on this auction issue or point to a FAQ?

 

[xtalk]

Hi xtalk!

...
I have not received any contract note relevant to the auction. I also don't understand why Rs. XYZ and not more (or less) was credited.

I still have to receive the shares bought in the original.(The amount I received, Rs. XYZ, is more than what I paid for the shares in the first place.)

So now I'm wondering will I get the shares ultimately?...

vasa,

Since you got more than paid amount I don't think you'll get the shares. Talk to your broker and update here pls.

For me it was investment grade trade for long term. Who'd give you L&T below 1000 at such a low 15-16 forward PE a year from now? If I lose the shares I'll be disappointed. In this transaction my broker was HDFC Sec and it was online transaction. I asked for clarification from my broker.

I'll provide auction update here.

Thanks.

 

[prakashreddy]

Who'd give you L&T below 1000 at such a low 15-16 forward PE a year from now? If I lose the shares I'll be disappointed.

xtalk,

Sorry to poke my nose here. But do not curse me as a doomsayer. I am having some questons. These may be outrageous questions. You may feel them as outright improper. But if you calmly think, you will find some logic in these questions. My questions are

1. On what basis you are having such a strong opinion that you will not get L&T below Rs. 1000/-?

2. Upto what level are you prepared to hold L&T if it goes below Rs.1000/-?

3. If it goes below Rs. 1000/- how long are you going to hold it?

4. Today, it has closed just above Rs.1000/- at Rs.1005/-. Tomorrow there is every likelyhood that it will trade below Rs.1000/-. Are you prepared to buy it tomorrow itself?

5. How much can you buy, I mean how many shares can you buy if L&T quotes below Rs. 1000/-?

Kindly try to answer these questions. I say, answer them for your own benefit. Why I am saying is, even earlier I also had such opinions, but it did not take long for me to realise that my opinions are irrelevant in the market.