Question

What happens in case of short delivery of securities by clearing members?

• A. The NSCCL conducts a buying-in auction.
• B. The transaction is voided automatically.
• C. Clearing banks cover the shortfall.
• D. RBI intervenes to resolve the issue.

Hint:

Short delivery leads to a buying-in auction by NSCCL to maintain timely settlement and market integrity.

Answer 1

The Correct Option is A

In the settlement process managed by NSCCL, if a clearing member fails to deliver the securities they are obligated to provide (called short delivery), NSCCL initiates a buying-in auction. This auction mechanism involves:

Purchasing the required securities from the market to cover the shortfall.
The cost incurred due to this buy-in is charged to the defaulting clearing member.
This process ensures the settlement obligations are fulfilled on time, maintaining market discipline and investor confidence.
Explanation of Other Options:

(B) Transaction is voided automatically: Incorrect — transactions are not voided; they are enforced.
(C) Clearing banks cover the shortfall: Clearing banks are involved in funds settlement, not securities delivery.
(D) RBI intervenes: RBI does not intervene in routine securities settlement shortfalls.
Therefore, option (A) is the correct answer.