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S h o r t S e l l i n g

&

Auction ProcessTo

iVENTURES CAPITAL

FromAshok Kumar Maity

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Short Selling

y Short Selling is a strategy that means to sell

something that you do not own. When you buy back a

short position, you "close your short position.

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How To Get Shares After Short Sell

y Market

y Broker

y Borrowing

y SLBS (Security Lending and Borrowing Scheme)

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Auction Market

y A market in which buyers enter competitive bids and sellersenter competitive offers at the same time. Matching bidsand offers are then paired together and the orders areexecuted.

When to go for auction market?

y

When someone goes for short sell and was not able to shortcover his position.

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Valuation Debit

y The minimum amount that is to be kept with the

exchange by the broker to enter into the auction

market.

y The minimum amount will be the highest price of

T+0,T+1, and T+2 or 20% extra on closing price of T+2.

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Example

Opening Price Lowest Price Highest Price Closing Price

T+0 98 89 107 101

T+1 104 91 110 98

T+2 101 94 109 100

Selling price on T+0 is Rs. 105

No. of Shares= 100

Let us consider Stock X

* Highest price = 110/-

Total amount = 110*100 = 11000/-

* 20% of closing price of T+2 + closing price of T+2 = 120/-

Total amount = 120* 100= 12000/-

Prices are in Rs.

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Function of Auction Markety Auction market opens on T+3 *.

* Exchange allows only brokers to participate in the auction

process. It doesnt allow any individual.

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Contd

On T+3:

y 12:00 Noon:- Brokers enter into the auction market.

y 12:00noon 12:30pm:- Bidding is allowed.

y 12:30pm 1:00pm:- Matching is done by the exchange.

y 1:00pm:- Exchange declares whether broker gets shares ornot.

* In auction process brokers are allowed to bid up to 120% ofthe previous closing price (closing price on T+2).

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Contd

y In the case of short sell settlement is done on T+2

though seller is not having shares in his/her D-mat

account.

y Here settlement is done by exchange by saying the

buyer that he/she will be getting shares on T+3 or T+4

or T+5 or etc.

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If broker doesnt get shares in auction

market:Possibilities for not getting shares:

y Non availability of shares from participated brokers.

y If matching is not done.

In this case exchange pays compensation to the buyer.

The process is

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Contd

y Exchange takes 20% extra amount on selling price of the

shares (on T+0).

y Out of this exchange pays the amount buyer paid on

T+0 and also be paid a compensation around 16.5% on

selling price.

y Remaining 3.5% on selling price will be kept by the

exchange in IPF (Investor Protection Fund), & SGF

(Settlement Guarantee Fund).

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Thanks for your patience

listening