---
title: "When does cash settlement happen to close out short delivery?"
description: "If the exchange cannot obtain shares in the auction to cover a short delivery, it credits cash to your trading account instead. This usually happens on…"
category: arrow
subcategory: trading-faqs
slug: when-does-cash-settlement-happen-to-close-out-short-delivery
canonical: https://support.arrow.trade/arrow/trading-faqs/when-does-cash-settlement-happen-to-close-out-short-delivery/
---

# When does cash settlement happen to close out short delivery?

> If the exchange cannot obtain shares in the auction to cover a short delivery, it credits cash to your trading account instead. This usually happens on…

## Short answer

If the exchange cannot obtain shares in the auction to cover a short delivery, it credits cash to your trading account instead. This usually happens on T+2 day. Cash settlements are less likely for liquid stocks and more likely for illiquid ones.

## How the exchange calculates your cash settlement

Your cash settlement is always the higher of:

Settlement price on auction day + 20%

The highest price of the stock from the trading day until the auction date

## Special scenarios

## Trade-for-trade (T2T) scrips

For T2T scrips, the exchange does not conduct an auction. Instead, it settles shortages through closeout at the higher of:

The highest price on T day across all exchanges, or

20% above the settlement price on T day.

## Securities under corporate action

For scrips that cannot be auctioned due to a corporate action, the exchange compulsorily closes out the position at the higher of:

10% above the official settlement price on the auction day, or

The highest traded price from the first trading day of the settlement until the auction day.

## Closeout for bonds

AAA and above-rated bonds or debentures: the closeout price is the higher of the highest exchange rate from the start of the trading period to the closeout day, or 5% above the auction day's official settlement price.

Bonds and debentures rated below AAA: a 20% closeout markup applies.

## Closeout price for unsuccessful shortages

As per the exchange circular, if the exchange cannot buy all the required shares in an auction, it uses a Weighted Average Price (WAP) for auction settlement.

## Example scenario

There is a shortage of 1,000 shares. The exchange tries to buy them in an auction, but only finds some:

800 shares are bought at ₹100 (Auction Price).

200 shares could not be bought, so they are closed out at ₹120 (Closeout Price).

How the exchange calculates the Weighted Average Price (WAP)

Instead of charging two different prices, the exchange blends them into one:

(800 shares × ₹100) + (200 shares × ₹120) = ₹1,04,000 (Total Cost).

₹1,04,000 ÷ 1,000 shares = ₹104 per share (Weighted Average Price).

The final settlement

For you as the seller: you are debited a flat rate of ₹104 per share for the entire 1,000 shares (Total: ₹1,04,000).

For the buyer: they receive the 800 shares that were bought, plus a cash credit of ₹120 per share for the 200 shares that were not available in the auction.

If no shares are purchased in the auction, the closeout price (₹120) applies to the full 1,000 shares for both the buyer and the seller.

## Related

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Source: https://support.arrow.trade/arrow/trading-faqs/when-does-cash-settlement-happen-to-close-out-short-delivery/
Publisher: Arrow / iRage Broking Services LLP