What is Auction Charges?

When a seller fails to deliver shares as per the settlement cycle, the exchange steps in and conducts an auction to procure the shares and ensure the buyer receives them. This leads to auction charges, depending on how the exchange or broker handles the settlement.

1. Market Auction Charges

When the exchange buys shares from the open market through an auction, the auction price is determined by demand and supply during the auction. An additional 1% auction settlement charge is applied to this price, which is borne by the seller.

Example:

• Original sell price: ₹1,000
• Auction purchase price: ₹1,050
• Total charged to defaulter: ₹1,050 + 1% = ₹1,060.50

2. Internal Auction Charges

In an internal auction, the broker settles the short delivery internally—for example, by obtaining shares from another client. The auction price is based on the buyer’s original purchase price, with an additional 1% auction settlement charge applied. This cost is also borne by the seller.

Example:

• Buyer’s purchase price: ₹980
• Broker arranges internal delivery
• Total charged to defaulter: ₹980 + 1% = ₹989.80