When a broker finds that a client hasn't delivered shares before the settlement deadline, it triggers a "close-out" process where the broker buys the shares in the market to meet the delivery obligation. The client will then be charged the cost of buying those shares, including any penalties or fees incurred by the broker.

1. Short Delivery: If a client sells shares but doesn't have them in their demat account to deliver on the settlement date, this is considered a "short delivery".

2. Broker's Obligation: The broker is obligated to deliver the shares to the buyer.

3. Close-Out Process: To fulfill this obligation, the broker buys the required number of shares in the open market.

4. Cash Settlement: Instead of delivering actual shares, the broker may settle the transaction with cash, compensating the buyer with the equivalent value of the shares at the settlement date.

5. Client Liability: The client who failed to deliver will be charged for the cost of buying the shares (including any fees) and the difference between the sale price and the repurchase price (if applicable).

6. Auction System: In some cases, exchanges may conduct auctions to facilitate the buy-in of shares when a short delivery occurs. In essence, the broker acts as an intermediary to resolve the short delivery situation, and the client is ultimately responsible for the costs and any penalties incurred due to their failure to deliver.