NISM Series VI · Unit 3 of 12 · about 12% of the paper
Depository and its business partners: NISM Series VI notes and practice questions
Who the depository works with: depository participants, issuers, registrars, clearing corporations and exchanges, and how DPs are admitted and supervised.
What to know in Unit 3
- Who can become a DP.
- Depository participant functions.
- Issuer and registrar.
- Clearing corporation and clearing member.
Key terms, examples and exam traps
Depository participant
A depository participant (DP) is an agent of the depository through which investors access depository services, such as opening BO accounts.
Example. A bank branch acts as a DP and opens demat accounts for its customers.
Exam trap. This statement is false: A DP is an agent of the investor and not of the depository.
Eligibility to be a DP
Entities such as banks, public financial institutions, custodians, clearing corporations, stock brokers, NBFCs and registrars can become DPs, subject to net worth norms and approval.
Example. A SEBI-registered stock broker applies to become a DP.
Exam trap. This statement is false: Any individual can become a DP without registration.
DP registration
A DP must be registered with SEBI and admitted by the depository, and must meet net worth and other requirements.
Example. A stock broker obtains SEBI registration before acting as a DP.
Exam trap. This statement is false: A DP is registered with the depository only.
Depository and DP agreement
The DP enters into an agreement with the depository, and the BO enters into an agreement with the DP when opening an account.
Example. A new account holder signs account-opening documents with the DP.
Exam trap. This statement is false: The BO deals directly with the depository and signs nothing with the DP.
Issuer
An issuer is the company or body that issues securities and may offer them in demat form through the depository.
Example. A listed company makes its shares available in dematerialised form.
Exam trap. This statement is false: The issuer holds securities of BOs.
Registrar and transfer agent
A registrar and transfer agent maintains the issuer's records and handles share transfers and demat requests for the issuer.
Example. The registrar confirms a demat request and updates the issuer's records.
Exam trap. This statement is false: The registrar opens demat accounts for investors.
Clearing corporation and clearing member
The clearing corporation settles exchange trades, and clearing members hold accounts with it to settle obligations on behalf of brokers and clients.
Example. A clearing member delivers shares to the clearing corporation on the settlement day.
Exam trap. This statement is false: The clearing corporation deals directly with each investor.
Inspection and supervision
Depositories inspect DPs, monitor compliance and can take action for violations, and SEBI oversees the system.
Example. The depository audits a DP's records and procedures.
Exam trap. This statement is false: DPs are not subject to inspection.
Segregation of client assets
A DP must keep investors' securities separate from its own and cannot use client securities for its own benefit.
Example. A broker-DP keeps its own demat account separate from clients' accounts.
Exam trap. This statement is false: A DP may use clients' securities for its own dealings.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which statement best describes “Inspection and supervision”?
- An issuer is the company or body that issues securities and may offer them in demat form through the depository.
- Clients give securities as margin to brokers by creating a margin pledge in favour of the clearing member, and the clearing member may re-pledge them to the clearing corporation.
- Depositories inspect DPs, monitor compliance and can take action for violations, and SEBI oversees the system.
- A DP must keep investors' securities separate from its own and cannot use client securities for its own benefit.
Q2. Which term is described here? A DP must be registered with SEBI and admitted by the depository, and must meet net worth and other requirements.
- Rematerialisation
- DP registration
- Demat account for applicants
- ASBA
Q3. Which statement best describes “Clearing corporation and clearing member”?
- Pay-in is the delivery of securities to the clearing corporation by sellers, and pay-out is the delivery of securities from it to buyers.
- The clearing corporation settles exchange trades, and clearing members hold accounts with it to settle obligations on behalf of brokers and clients.
- A foreign portfolio investor (FPI) is a registered foreign investor who invests in Indian securities through a demat account with a DP, and who must be registered through a designated depository participant.
- Clients give securities as margin to brokers by creating a margin pledge in favour of the clearing member, and the clearing member may re-pledge them to the clearing corporation.
Q4. Which term is described here? The clearing corporation settles exchange trades, and clearing members hold accounts with it to settle obligations on behalf of brokers and clients.
- Joint holders
- Clearing corporation and clearing member
- Failed instructions
- Name matching
Q5. Which term is described here? Depositories inspect DPs, monitor compliance and can take action for violations, and SEBI oversees the system.
- Inspection and supervision
- Market intermediaries
- Beneficial owner
- ASBA
Q6. Which term is described here? A depository participant (DP) is an agent of the depository through which investors access depository services, such as opening BO accounts.
- NSDL and CDSL
- Depository participant
- Non-cash benefits
- Primary market
Frequently asked questions
How much of NISM Series VI comes from Unit 3?
Unit 3 (Depository and its business partners) usually carries about 12% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series VI Unit 3?
Who can become a DP. Depository participant functions. Issuer and registrar. Clearing corporation and clearing member.
Are these NISM Series VI practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
Next
UpperCrust Academy is independent study material from UpperCrust Wealth. It is not affiliated with NISM, SEBI or AMFI. For education only. Not investment advice. Always confirm the latest syllabus and rules on the official NISM website.