NISM Series VI · Unit 7 of 12 · about 12% of the paper
Functions of DP: trading and settlement: NISM Series VI notes and practice questions
How securities move after a trade: on-market and off-market transfers, delivery instructions, pay-in and pay-out, and the settlement cycle.
What to know in Unit 7
- Delivery instruction slip.
- On-market and off-market.
- Pay-in and pay-out.
- T+1 settlement.
Key terms, examples and exam traps
Settlement cycle
Equity trades on exchanges settle on a T+1 rolling basis, meaning one working day after the trade day.
Example. A trade made on Tuesday settles on Wednesday.
Exam trap. This statement is false: Equity trades settle on T+5.
Delivery instruction slip
The BO gives a signed delivery instruction slip (DIS), issued by the DP in a booklet with pre-printed serial numbers, to debit securities from her account.
Example. A client submits a DIS to deliver shares for a sale.
Exam trap. This statement is false: A DIS is used to credit securities to an account.
Electronic delivery instruction
BOs can give delivery instructions online using e-DIS authorised by a TPIN and one-time password.
Example. A client authorises delivery through the depository's online facility.
Exam trap. This statement is false: Online instructions need no authorisation.
On-market transfer
An on-market transfer settles a trade executed on a stock exchange, with delivery through the clearing corporation.
Example. A seller's securities move to the clearing corporation for settlement of her trade.
Exam trap. This statement is false: An on-market transfer happens only between two relatives.
Off-market transfer
An off-market transfer is a transfer of securities directly between two BOs without a trade on an exchange, such as a gift or family transfer.
Example. A father transfers shares to his daughter's account directly.
Exam trap. This statement is false: An off-market transfer settles through the stock exchange's clearing corporation.
Inter-depository transfer
An inter-depository transfer moves securities between accounts held with different depositories.
Example. A holder shifts shares from an NSDL account to a CDSL account.
Exam trap. This statement is false: Securities cannot be moved between NSDL and CDSL accounts.
Pay-in and pay-out
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.
Example. The seller's DP delivers shares at pay-in and the buyer receives them at pay-out.
Exam trap. This statement is false: Pay-in is the delivery of securities to the buyer.
Early pay-in
Securities may be delivered at the usual pay-in time or earlier, called early pay-in, and the DP processes instructions before the deadline.
Example. A seller delivers shares a day before the settlement day.
Exam trap. This statement is false: Delivery can be made only on the settlement day itself.
Failed instructions
An instruction fails if securities are insufficient, the account is frozen or details are wrong, and the DP must tell the BO or correct it.
Example. A delivery fails because the account holds fewer shares than needed.
Exam trap. This statement is false: A failed delivery is carried out anyway.
Freeze or suspension
A BO or an authority can freeze an account or particular securities, with a debit freeze stopping outgoing transfers and a total freeze stopping both debits and credits.
Example. A debit freeze stops sales but allows credits.
Exam trap. This statement is false: A debit freeze blocks both credits and debits.
Settlement guarantee and risk
The clearing corporation guarantees the settlement of exchange trades, which lowers counterparty risk.
Example. The buyer is protected if the seller defaults on delivery.
Exam trap. This statement is false: Settlement of exchange trades is not guaranteed by anyone.
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 “Electronic delivery instruction”?
- The registrar verifies the request and certificates, cancels them, confirms to the depository, and the depository credits the account.
- An inter-depository transfer moves securities between accounts held with different depositories.
- A BO may authorise a broker or another person to act through a power of attorney or demat debit and pledge instruction, which is optional and must follow SEBI rules.
- BOs can give delivery instructions online using e-DIS authorised by a TPIN and one-time password.
Q2. Which term is described here? Securities may be delivered at the usual pay-in time or earlier, called early pay-in, and the DP processes instructions before the deadline.
- Pledge creation and confirmation
- Benefits of the depository system
- Nomination for minors
- Early pay-in
Q3. Which statement best describes “Settlement cycle”?
- A stock exchange provides a platform on which members trade securities under rules and surveillance.
- A basic services demat account (BSDA) is a low-cost demat account for small investors with limited holdings, and an investor can hold only one BSDA.
- Equity trades on exchanges settle on a T+1 rolling basis, meaning one working day after the trade day.
- The names and order on the certificates must match the demat account, and unmatched requests are rejected or need further steps.
Q4. Which term is described here? 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.
- Defacing certificates
- Pay-in and pay-out
- BO ID
- Transmission
Q5. Which term is described here? The clearing corporation guarantees the settlement of exchange trades, which lowers counterparty risk.
- Power of attorney and DDPI
- Role of the registrar in demat
- Settlement guarantee and risk
- Registered owner
Q6. Which statement best describes “Failed instructions”?
- SEBI does not permit the transfer of listed securities in physical form, other than for transmission and transposition, so securities must be dematerialised before transfer.
- A BO may authorise a broker or another person to act through a power of attorney or demat debit and pledge instruction, which is optional and must follow SEBI rules.
- Transposition is a change in the order of names of joint holders, and it is done by the issuer or registrar.
- An instruction fails if securities are insufficient, the account is frozen or details are wrong, and the DP must tell the BO or correct it.
Frequently asked questions
How much of NISM Series VI comes from Unit 7?
Unit 7 (Functions of DP: trading and settlement) 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 7?
Delivery instruction slip. On-market and off-market. Pay-in and pay-out. T+1 settlement.
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.
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