The Auction trading typically happens as separate trading sessions and is usually done on Settlement Payout day. During 97 timeframe (settlement periods of 1 week), in BSE it usually used to happen on Mondays. Through auction, the exchange compensates for getting shares
of buyer (during normal trading sessions)in case of a default by a seller.
of buyer (during normal trading sessions)in case of a default by a seller.
Typically auction session is different from normal trading sessions as orders are matched only after all the auction by and sell orders enter the system during the Auction Opening session. Auction prices are subject to fixed price bands. the matching happens on the normal price time priority principle. Fixed buy quantities are matched with the lowest price sell orders and that's how the trading price is auction price.
In case of a short, the maximum price can be higher of:
1. Highest traded price during the settlement period and settlement day
2. 20% above last closing price.
But generally defaults in auction doesn't happen as Exchanges apply separate margins as well on the brokers hence all short seller defaulters mandatorily participate in the auction trading sessions.
