On the settlement day NSE Clearing accepts pay-in of securities made by members through depositories and identifies the shortages. The members are debited by an amount equivalent to the securities not delivered and valued at a valuation price. This is known as valuation debit. For all such short deliveries NSE Clearing conducts a buying-in auction on the T+1 day, after completion of the pay-out, through the NSE trading system.
If the buy-in auction price is more than the valuation price, the CM is required to make good the difference. All shortages not bought-in are deemed closed out.
Valuation prices at which valuation debits are conducted are calculated as below:
Valuation Price for failure to deliver
The valuation price for securities which were not delivered on the settlement day for securities, shall be the settlement price of such securities, on the immediate trading day preceding the pay-in day for the securities unless prescribed otherwise from time to time by the relevant authority. For the purpose of this clause, the settlement price shall be based on the last 30 minutes volume weighted average price across Exchanges and the day of valuation shall be the day as decided by the relevant authority of the Clearing Corporation from time to time.
Closing out in the case of failure to give delivery for Normal Market
Any shortages in Normal Market that cannot be bought in the Auction Market shall be closed out as specified by SEBI vide Circ. Ref No. SMD/Policy/Cir-03/2002 dated January 30, 2002. Close out shall be at the highest price prevailing across the Exchanges from the day of trading till the auction day or 20% above the settlement price on the auction day, whichever is higher.
Closing out in case of failure to give delivery for ‘BL’ Market Deals
Any shortages in the ‘Block trades’ – BL window shall be directly closed-out on the settlement at the highest price prevailing across the Exchanges from the day of trading till the T day or 20% above the settlement price on the T day, whichever is higher, or as declared from time to time.
Closing out in case of failure to give delivery for Trade-for-trade – Surveillance (TFT-S) deals
Any shortages in TFT-S shall be directly closed-out on the settlement at the highest price prevailing across the Exchanges from the day of trading till the T day or 20% above the settlement price on the T day, whichever is higher, or as declared from time to time.
Closing out in case of failure to give delivery in Auction Market
When the auction seller fails to deliver in part or full on auction pay-in day, the deal shall be closed out at the highest price prevailing across the Exchanges from the day on which the trade was originally executed till the day of auction or 20% over the settlement price on the auction day whichever is higher and will be charged to the auction seller unless otherwise specified.
Compulsory Close-out of securities under Corporate Action
‘No delivery’ is abolished in respect of all types of corporate actions for securities traded in the compulsory dematerialized mode.
In case a company announces any corporate action for securities in compulsory dematerialized mode then, as specified by SEBI vide Cir. Ref No MRD/DoP/SE/Cir-07/2009 dated July 21, 2009 short deliveries, if any, of the shares traded on cum basis shall be directly closed out. The Clearing Corporation shall announce an ex-date and all cum-transactions shall go for auction if the auction payout happens on or before Record date / Book closure – 1 business day.
Where auction pay-out cannot be done on or before Record Date/ Book closure – 1 business day, shortages shall be directly closed out at the highest price prevailing across the Exchanges from the day of trading till the day of auction or 10% above the settlement price on the auction day, whichever is higher, or as declared from time to time.
Close out price for deleted security
Security for which trading has been discontinued on the Exchange close out will be the last 26 weeks average trade price on the exchange with a close out mark up of 20%.
Close out price for bonds
In case of failure to give delivery, auction non-delivery, closing out price will be the highest rate prevailing across the Exchanges from the first day of the relevant trading period till the day of auction or the mark up of 20% on the settlement price on day of auction shall be applicable.
Members are required to ensure that adequate funds are available in the clearing account towards all obligations, on the scheduled date and time.
Trading and/or clearing facility of members failing to fulfill their funds obligations, in all markets including the valuation debit raised on account of securities shortages to Clearing Corporation, shall be withdrawn. Further, securities pay-out, due to such clearing member shall also be withheld.
The above provisions apply if net cumulative fund shortage for a member is:
- Equal to or greater than Rs. Five (5) lakhs at the end of pay-in.
- Equal to or greater than Rs. Two (2) lakhs for six (6) or more occasions in the last three (3) months on any given day
In case, the member is disabled on account of (2) above, on making good the shortage amount, the member shall be permitted to trade subject to its providing a deposit equivalent to its cumulative funds shortage as the 'funds shortage collateral'. Such deposit shall be kept with the Clearing Corporation for a period of ten settlements and shall be released only if no further funds shortages are reported for the member in next ten consecutive settlements. Members may further note that there shall not be any margin benefit or any interest payment on the amount so deposited as 'funds shortage collateral'. The amount may be provided by way of cash, fixed deposit receipts, or bank guarantee, equivalent to the cumulative funds shortage.
Apart from the above, the member will be required to pay a penal charge on the amount outstanding at the end of the day, till the amount is recovered