Short selling trade hits UPPERCIRCUIT

Trading
1

Hello recently I had short selling a script and unfortunately the share hit upper circuit.. I had positive balance of 40000₹ now I m having 67000(-) balance. . Can u reply me n tell. What’s next step to do when a short selling share hits Uppercircit

2

Hi @KIRAN_31852934,

When you short sell a stock and it subsequently hits an*upper circuit, the situation becomes tricky because there is no liquidity available to square off your position. Since buyers are locked in and no sellers are available, your short position remains open. This is why you are now seeing a negative balance in your ledger.

Here’s what happens and the possible next steps:

  1. Obligation to Deliver Shares
    As a short seller, you have to deliver the shares to the exchange on settlement (T+1 for most equities now). If you don’t have the shares in your demat, it results in a short delivery.

  2. Exchange Auction Mechanism
    The exchange will attempt to procure the required quantity in the auction market. The auction price can be much higher than the prevailing market price, and the difference is debited from your account, which is why you are seeing a higher negative balance.

  3. Penalty & Charges
    In addition to the auction settlement difference, there can be penalties imposed by the exchange for short delivery.

  4. Your Next Steps

  • Arrange funds immediately to cover the negative balance so that your account doesn’t fall into a debit state for long.
  • Monitor margin requirements closely, as prolonged shortfalls can lead to further penalties and restrictions on trading.
  • Avoid shorting stocks with circuit limits or low liquidity in the future, since the inability to square off exposes you to unlimited risk.

In summary, the loss you’re seeing is due to the auction settlement difference. The only practical step now is to fund your account at the earliest to regularise your ledger and avoid further penalties.

3

my concern is that will this negative balance is my sure shot loss or it will be adjusted/ reduces loss ) as auction nears

4

@KIRAN_31852934 - The negative balance showing right now is provisional, not always the final loss. Here’s how it works:

  1. Provisional Debit
    The system immediately debits an estimated amount to cover potential auction losses. This is a temporary figure, based on the day’s last traded price plus a buffer (usually up to 20–25%) since the final auction price isn’t known yet.

  2. Auction Process
    The exchange will conduct the buy-in auction (generally T+1 day around 2:00–2:45 PM) to purchase the required quantity of shares you shorted.

  • If the auction price turns out lower than the estimated amoun*, your debit will reduce, and the balance will be adjusted accordingly.
  • If the auction price is higher, the debit might increase slightly.
  1. Final Adjustment
    Once the exchange completes the auction, the final auction difference is posted to your account on the next settlement day (T+2). Only then will your actual profit/loss be finalised.

So, in short, your current negative balance isn’t necessarily your final loss. It can reduce (or increase slightly) once the auction price is known. You’ll receive the final adjustment after the auction settlement.