What is the meaning of Short delivery & Bad delivery and About Auction Market?
Introduction
When a seller in the stock market fails to provide the purchased shares to the buyer, this is referred to as a short delivery or bad delivery. There is a distinction between the two words despite their similarities.
Short Delivery
When a seller does not hand over the agreed upon number of shares to a buyer before the end of the settlement period, this is known as short delivery. This may occur if the seller fails to meet their delivery commitment, for example, because the shares are not in the seller's demat account or because the seller's broker is unable to arrange for delivery.
Bad Delivery
When a seller gives a buyer share that aren't in excellent deliverable condition, it's bad delivery. This may occur if the shares are not eligible for delivery due to pledges, liens, or the fact that they are not registered in the buyer's name.
Auction market
Shares that have been short delivered are auctioned to bidders in a separate market known as an auction market. At the close of each trading day, only stock exchange members are permitted to take part in the auction market.
Consequences of short delivery and bad delivery
Both the buyer and the seller face potential problems in the event of late or defective shipment delivery. Short delivery means that the purchaser does not get the full number of shares ordered, whereas poor delivery means that the buyer receives shares that are not in acceptable deliverable shape. Both of these scenarios put purchasers at risk for losing money.
Penalties for sellers include fines, trading suspensions, and even debarment from the stock market in the case of short delivery or defective delivery.
How to avoid short delivery and bad delivery
Many options exist for both buyers and sellers to prevent delivery problems.
Buyer should:
Deal only with established brokerage houses.
Verify that they have enough money in their trading account to pay for the shares.
Know the settlement time for the shares you are purchasing.
Seller Should:
have them in their demat account.
Make sure that their stock is not pledged or otherwise burdened in any way.
Know when their shares will really change hands throughout the settlement process.
Conclusion
Best Stock Market Coaching Classes Institute in Hyderabad : There are two major issues that might arise in the stock market: short delivery and bad delivery. Both the buyer and the seller need to be aware of the potential for these issues and take precautions.
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