The Settlement for Equity Delivery (Payin of shares to the exchange) takes place on T+2 basis. It means the shares bought on “T” or Trading day (e.g. Monday) are to be received by the Buyer on T+2 day (i.e. Wednesday).
Similarly the shares sold on “T” (e.g. Monday) are to be delivered to the exchange by the seller on T+2 (Wednesday) to get the proceeds (cash) from the sale.
The failure of the seller to deliver the shares to the buyer on T+2 as obligated is called Short Delivery.
An auction is resorted to when there is a default in delivery by a broker. An auction is the stock exchange’s mechanism through which, in a settlement, a buyer broker gets shares in the eventuality of default by the selling broker. This default occurs when a short seller fails to square up the position, or a seller fails to deliver shares on time, or a seller delivers bad/wrong shares.