Hi Dhan team,
Had short selled equity intraday , unfortunately it went to upper circuit and went to auction
Total value : 10L
Stock at close : 200 rs
Stock at open 195
How does the auction process work and what are the charges incurred
It was many years back. I went through this intraday short sell trap on an upper circuit stock.
On the listing date, I short sold the company. It went into the upper circuit a few minutes later. Then it went into auction to close the short-sell position.
You need to look at the circuit limit for the stock. Say the stock is at a circuit limit of 20%, expect it to settle at around a 20% premium from the last closing day. They will sell to you at the maximum allowed price.
Say if they can’t find a seller on the next auction day, they go to the auction the day after, whatever is the circuit limit on the 3rd day applies. (T close + 20% premium) + 20%/10% premium and so on.
The charges are not what you need to be looking at, it’s the circuit limit of the stock and pray you find a seller. Lucky for me, it was only some 10k position, and I think I paid around 30% more to close the position on the 3rd day auction.
For a retail client, the auction process is automatic, and the broker does everything for you. You will only need to worry about the funds needed to settle the outstanding amount in your broker’s ledger.
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I observed the next day around. 9.15 it was gap down by 2% .
Which in fact was net positive but for 8.4L I have been charged 35k total which looks strange. ( Funds available ) Got back only 8.05L.
This is one of these things. I suppose that still remains a gray area in the capital markets. The retail client has no direct say in what price the auction gets bought at.
From what I can remember from my experience many years ago, looking at all the vague ledger entries surrounding this. Even though the broker can procure at a much cheaper price, in the ledger they will sell to you at the maximum amount possible and pocket the difference. (this might have changed with new guidelines that may have been implemented).
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