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NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Securities Market

An investor buys shares on the Indian exchanges on a normal trading day (T) under the standard T+1 rolling settlement. An investor sells those shares on T+1 before receiving delivery of the purchased shares. Which statement is correct?

If the seller lacks shares to deliver on the settlement day, the result is a short delivery, which the exchange handles through an auction at the seller's cost. Trades are not simply cancelled, nor does the clearing corporation supply shares free, and settlement is T+1, not T+5.

  1. AThe sale is permissible intraday-style only if shares are in the investor's demat or the sale is covered under a regulated mechanism; an uncovered delivery sale can result in short delivery and auctionCorrect
  2. BSelling before receipt is always prohibited and the trade is cancelled by SEBI
  3. CThe sale settles automatically using the clearing corporation's own shares at no cost
  4. DThe sale settles on T+5 so no risk arises

Explanation

If a seller does not have shares to deliver on settlement day, short delivery occurs and the exchange conducts an auction, with the seller bearing the cost. Trades are not cancelled by SEBI, the clearing corporation does not lend its own shares free, and T+5 settlement is not applicable.

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