NISM Series - VI Depository Operations Cert. - Full-Length Test

R&T Agent will reject the demat request if its incomplete / wrong and forward the rejected documents to the DP. DP has to contact the client and inform the client accordingly.

Commercial Paper (CP) : An investor can subscribe to minimum of Rs. 5,00,000 or multiples thereof, as the face value of a Commercial Paper in the depository system is taken as Rs. 5,00,000.

On IPO allotment, the Issuer / its R&T agent provides the details of successful allottees who have opted for receiving securities in demat form, to the depository. The depository will credit the securities to the allottee accounts on the execution date and the Issuer / its R&T agent inform the investors of the credit of securities in the electronic form by sending the allotment advice.

In the procedure for transferring Government Securities in SGL Form to Depository account, the DP will fill the relevant portion viz., the Authorisation portion of the request form.

The rules regarding reconciliation of Destat (Destatementisation) requests and maintenance records will be same as applicable for dematerialisation of securities.

When a rematerialisation request is sent, the securities in the client account will not be available for delivery/transfer immediately. The client will have to wait for physical certificates to reach him before they can be sold.

Thus the client would encounter temporary illiquidity on the securities requested for in rematerialised form.

The Depository Participant may also initiate closure of a client’s account if the client has defaulted in performing its obligations laid out in the Rights and Obligations document. The DP should give sufficient notice to the client before initiating closure of his account.

Transferee however, can give ‘Standing Instructions’ [SI] to its DP for securities to be received. If SI is not given, the transferee has to give separate receipt instructions each time securities have to be received.

Admission of Debt Instrument to the Depository System – An Issuer may offer demat facility for its debt instruments by sending a request to the depositories detailing the type of instrument, along with a Letter of Intent. On receipt of the request, a tripartite agreement is signed between the depository, the Issuer and Registrar & Transfer Agent. Once admitted, these securities are made available for dematerialisation by the depository.

The Executive Committee /Securities Committee (as it may be called by the depositories) of the depository determines the securities that are eligible for dematerialisation.

All accounts opened by illiterate person(s) with NSDL DPs must be either introduced by an existing account holder or must be attested by applicant’s bank. CDSL however does not need an introducer for accounts to be opened by an illiterate person(s). The Client(s) must come in-person to open the account and submit instruction forms and affix his/her thumb impression in the presence of the official of the DP.

There are two types of clearing members: – All the members of a stock exchange are clearing members; and – Custodians who have been permitted by the stock exchange to act as a clearing member.

ISIN is a 12-character long identification code. It has three components –(1) a pre-fix, (2) a basic number and (3) a check digit. The pre-fix is a two-letter country code as stated under ISO 3166 (IN for India).

The photograph of the Nominee is annexed to the nomination form in case of NSDL.

Brokers of stock exchanges that offer settlement through depository are required to open a ‘clearing member account’. In addition to the brokers, custodians registered with SEBI and approved by stock exchanges can open a clearing member account.

Eligibility criteria of Designated Depository Participant : SEBI shall not consider an application for the grant of approval as designated depository participant unless the applicant satisfies the following conditions, namely: (a) the applicant is a participant registered with SEBI; (b) the applicant is a custodian of securities registered with SEBI; (c) the applicant is an Authorised Dealer Category-1 bank authorised by the Reserve Bank of India; (d) the applicant has multinational presence either through its branches or through agency relationships with intermediaries regulated in their respective home jurisdictions; (e) the applicant has systems and procedures to comply with the requirements of Prevention of Money Laundering Act (f) the applicant is a fit and proper person and (g) any other criteria specified by SEBI from time to time.

The pledge/hypothecation so created can either be closed on repayment of loan or invoked if there is a default. After the pledgor has repaid the loan to the pledgee, the pledgor initiates the closure of pledge/hypothecation through its DP and the pledgee instructs its DP to confirm the closure of the pledge/hypothecation.

A facility for unilateral closure (Unpledge) of Pledge by the Pledgee has also been provided by the depositories. In this case, the pledgee submits an instruction in the prescribed form to its DP to initiate unilateral closure of pledge / hypothecation.

Note – A Depository cannot instruct the Pledgee to initiate the closure of the pledge.

In the depository system, the securities in dematerialised form are NOT identified by distinctive numbers and certificate numbers as in the physical environment. Thus all securities in the same class are identical and interchangeable. For example, all equity shares in the class of fully paid up shares are interchangeable. This is also called “fungibility.”

The Depositories Act, 1996 gives option to investors to hold their securities either in physical form or in book entry form with the depository. Issuer of the security i.e. company may offer a facility to hold the securities issued by it in demat form by entering into an agreement with the depository. The issuers who intend to offer demat facility will have to first establish connectivity with the depository either directly or through a Registrar & Transfer Agent which in turn have connectivity with the depositories.

For Off-market transactions, the seller gives Delivery Instructions to his DP to move securities from his account to the buyers account.

Procedure for Confirmation of Creation of Pledge/Hypothecation by Pledgee : Once a pledge/hypothecation request has been created and verified, the pledgor submits the duly stamped and signed PRF to the pledgee along with the letter generated confirming the pledge set-up. The details of the pledge/hypothecation are also electronically communicated to Depository Participant’s system of pledgee’s DP for confirmation.

A certificate of registration is valid unless it is suspended or cancelled by SEBI.

An Issuer may offer demat facility for its instruments by sending a request to the depositories detailing the type of instrument, along with a Letter of Intent. On receipt of the request, a tripartite agreement is signed between the depository, the Issuer and Registrar & Transfer Agent. Once admitted, these securities are made available for dematerialisation by the depository.

A Client may withdraw its security balances with the Depository at any point of time by making an application for rematerialisation to the Depository through its DP.

Clearing Member Account: This account is opened by a broker or by a clearing member for the purpose of settlement of trades executed on a recognised stock exchange.

The securities pledged/hypothecated are transferred to a segregated or collateral account through book entries in the records of NSDL. In case of CDSL, the securities pledged/hypothecated are not transferred to a segregated or collateral account through book entries in their records.

U.N. entities/multilateral agencies which are exempt from paying taxes/filing tax returns in India are exempted from the mandatory requirement of PAN while opening a Demat account.

For a Basic Services Demat Account (BSDA), no annual maintenance charges (AMC) shall be levied in case the value of holdings of debt securities is up to Rs. 1 lakh. A maximum AMC of Rs. 100 shall be levied if the value of holdings of debt securities is between Rs. 1,00,001 and Rs.2,00,000.

Trading periods of each of the market segments is identified by a settlement number.

Before the introduction of the dematerialization (demat) system in India, securities were held in physical form. When pledging these securities as collateral, they needed to be physically verified for authenticity, and often, they had to be transferred into the name of the lender to complete the pledge process. This was a cumbersome and time-consuming process compared to the current electronic system where securities can be pledged in dematerialized form with much greater ease.

When a client account no. begins with IN , this is an NSDL client account no. In CDSL the 16 digit client account no.has no alphabets.

A depository may handle corporate actions in two ways. In the first case, it merely provides information to the issuer about the persons entitled to receive the corporate benefits. In the other case, depository itself takes the responsibility of distribution of corporate benefits.

Coupon Rate means the Interest Rate.

One of the major differences between an equity security (like stocks) and a debt security (like bonds) is that debt securities typically have a limited life period. Debt securities usually have a maturity date upon which the issuer is obligated to repay the principal amount to the holder. In contrast, equity securities represent ownership in a company and do not have a fixed maturity date.

SMS alert facility is one of the services offered to Basic Services Demat Account Holders (BSDA). All BOs opting for the facility of BSDA, shall register their mobile number for availing the SMS alert facility for debit transactions.

There are mainly two types of demat accounts which can be opened with a depository participant viz., (a) Beneficial Owners Account, and (b) Clearing Member Account.

Transfer of shares held in dematerialised form takes place freely through electronic book-entry system.

In a demat account which is held jointly, all the holders should sign the nomination form.

Corporate actions affect the holder of the securities. Thus, whenever any corporate action takes place it is necessary to determine the eligible BOs as of a particular date who are entitled to the corporate benefits. The issuer thus announces a cut-off date to determine the BOs of the securities as of that date. This date is referred to as the `Record Date’ and depository system provides holding report i.e. list of BOs having holdings in the ISIN of the issuer as of end of the day of record date.

In CDSL, account closure can be initiated even if balances are present in the account. CDSL system will change status of such an account to ‘TO BE CLOSED’ and close the account when all balances are reduced to zero.

In the depository system both transferor and transferee have to give instructions to its DPs (Depository Participants) for delivering (transferring out) and receiving of securities.

At least one officials of the applicant has to successfully complete the in-depth training conducted by the depository.

A depository must apply for and obtain a certificate of commencement of business from SEBI (Securities and Exchange Board of India) within 1 year from the date of receiving the certificate of registration from SEBI. This allows the depository to officially begin its operations in compliance with regulatory requirements.

Ownership of the pledged/hypothecated securities remains with the pledgor (borrower) until the pledge is invoked. When ever securities are given as pledge (say for borrowing money), the ownership will remain with the pledgor – that is the person who has given the securities to borrow money. Only if the pledgor defaults and the pledge agreement is invoked, the ownership is transferred to the pledgee (lender) as per the terms.

As per the rules of Rematerialisation Process – Issuer / R & T Agent should send the certificate to Beneficial Owner within 30 days from the date of confirming the request in the depository system.

SEBI (Depositories & Participants) Regulations, 2018 prescribe a minimum net worth criteria for different kind of applicants: Applicants who are stock brokers are required to have a networth of Rs. 3 crores {within one year of the date of notification of the SEBI (Depositories and Participants) (Amendment) Regulations, 2022}, which shall be increased to Rs. 5 crores {within two years of the date of notification of the SEBI (Depositories and Participants) (Amendment) Regulations, 2022}.

An entity desirous of becoming a DP of a depository should make an application to SEBI. The application, complete in all respects should be submitted to depository in which membership is sought for, forwarding to SEBI. The depository would then evaluate the application and if found suitable for admission as a DP, the same application would then be forwarded to the SEBI within 30 days with its recommendations.

Securities that have been dematerialized are identified by a distinctive ISIN (International Securities Identification Number), which is a 12-character long identification mark. This ISIN uniquely identifies each security and facilitates electronic trading and settlement processes.

The surviving joint holder(s) CAN get the name(s) of the deceased removed from the security certificate(s) and get them dematerialized.

The main reason why bank account details such as the 9-digit code number of the bank and branch are asked while opening a demat account is because companies use this information for printing them on dividend/interest warrants, bonus issue forms, and other communication related to corporate actions. This ensures that dividends, interest payments, or other entitlements are directly credited to the investor’s bank account linked to their demat account. Therefore, the statement is true.

In the case of debt securities, when they are redeemed (i.e., when the issuer repays the principal amount to the holders), the ISIN (International Securities Identification Number) associated with that particular instrument is typically deactivated or marked as inactive in the depository system. This indicates that the security has been redeemed and is no longer active or tradable. Therefore, the statement is true.

As per the regulations, Registrars & Transfer Agents (R&T Agents) must have a minimum net worth of Rs. 10 crore to become a Depository Participant (DP). This requirement ensures that they have sufficient financial stability and capability to manage the responsibilities associated with being a DP in the depository system.

One of the most important and basic services provided by the depositories in India is to facilitate transfer of securities from one account to another at the instruction of the account holder. In the depository system both transferor and transferee have to give instructions to its DPs for delivering (transferring out) and receiving of securities. Transferee however, can give ‘Standing Instructions’ [SI] to its DP for securities to be received. If SI is not given, the transferee has to give separate receipt instructions each time securities have to be received.

The Certificates of Deposits can be dematerialised as per SEBI (Depositories and Participants) Regulations 1996.

The procedure for dematerialisation of debt instrument is same as that for equity shares.

In NSDL the DP ID starts with the alphabets IN and not in CDSL.

Securities dematerialised bear a distinctive ISIN – International Securities Identification Number. ISIN is a 12-character long identification code.

The third digit in an ISIN may be E, F, A, B or 9.

Each one carries the following meaning: E – Company F – Mutual fund unit A – Central Government Security B – State Government Security 9 – Equity shares with rights which are different from equity shares bearing INE numbers..

The creation of pledge and hypothecation against securities which are held in demat mode is permitted under section 12 of the Depositories Act, 1996.

The bank deatils need not be mentioned as the same is already available in the Demat Account.

The Client can make a request in writing specifying reasons for change in signature.

SEBI Complaints Redress System (SCORES) platform is a web based centralized system to capture investor complaints against listed companies and registered intermediaries and is available 24×7. The complainant may use SCORES to submit the grievance directly to companies / intermediaries and the complaint shall be forwarded to the entity for resolution. The entity is required to redress the grievance within 30 days, failing which the complaint shall be registered in SCORES.

As per the provisions of the PMLA Act, all concerned shall have to maintain a record of all the transactions; the nature and value of which has been prescribed in the Rules under the PMLA and this includes – All cash transactions of the value of more than Rs 10 lakhs or its equivalent in foreign currency.

In case the R&T Agent rejects any dematerialisation request, it has to electronically intimate the depository regarding such rejection within a period of 15 days. After intimating such rejection to the depository, the Issuer or its R&T Agent returns the Demat Requisition Form along with the rejection reason and relevant security certificates.

If the name on the share certificate in initial format (M. K. Mehta) and the demat account is in the name of Manish Kumar Mehta, the Registrar and Transfer Agent can give permission of demat. However, if they have any doubt, they can ask for additional documents.

NSDL provides SMS alert facility for demat account holders whereby they can receive SMS alerts directly from NSDL. NSDL does not levy any charges on the DPs for providing this facility to investors.

Bonds, debentures, and commercial paper are indeed examples of debt securities. Debt securities represent loans made by an investor to an entity (such as a corporation or government) in exchange for periodic interest payments and the return of the loaned amount at maturity. Therefore, the statement is true.

Where the account is to be jointly held, the POI and POA documents must be collected in respect of all the account holders.

A minor can nominate through a guardian.

True. Inter-depository transfer is only possible for securities that are available for dematerialization on both the depositories involved in the transfer process. Both depositories must recognize and support the dematerialization of the specific securities being transferred to ensure the transaction can be completed smoothly. Therefore, the statement is true.

As per Investor Education and Protection Fund Authority, where the seven year period provided under sub-section (5) of section 124 is completed during September 7, 2016 to May 31, 2017, the due date for transfer of such shares by companies is May 31, 2017. All companies are required to transfer such shares to Investor Education and Protection Fund, whether held in dematerialized form or physical form, to the demat account of IEPF Authority by way of corporate action.

In case, where there is a specific order of Court or Tribunal or Statutory Authority restraining any transfer of such shares and payment of dividend or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996, the company shall not transfer such shares to the Fund. The company is required to furnish a statement of shares not transferred to the Investor Education and Protection Fund.

The client cannot stamp it; only the DP can do the stamping.

The statement is true. The company announces a cut-off date known as the “Record Date” to determine the beneficial owners of securities as of that date. Shareholders registered as of the Record Date are entitled to receive dividends, attend shareholder meetings, and participate in corporate actions.

There is no requirement of a minimum balance of securities to be maintained in a demat account. Unlike bank accounts which may have minimum balance requirements, demat accounts do not impose such conditions. Investors can hold any number of securities ranging from zero to any amount without facing penalties or account closure due to low balance. Therefore, the correct answer is True.

For opening a Corporate Demat Account, it is compulsory to submit the Memorandum & Articles of Association (MOA & AOA) and the Certificate of Incorporation. These documents are required to verify the legal existence and authorization of the corporate entity seeking to open the demat account. Therefore, the statement is true.

The Depositories Act, 1996 provides for a multi-depository system. Currently in India we have two depositories NSDL and CDSL.

A beneficial owner’s account is an ownership account. The holder of securities in this type of account owns the securities.

The Bank Alc details are not needed as the DP will capture these details from the Demat account of the applicant.

In the process of Rematerialisation, the depository account of a beneficial owner is debited, and an equivalent number of securities are issued in physical form. This allows the investor to convert electronic holdings back into physical certificates if desired. Therefore, the statement is correct and true.

It is known as PAY OUT.

Since the legal status of warehouse receipts is different from that of securities, it is necessary for DPs to enter into a separate agreement with members/investors, seeking to open a demat account for the purpose of holding and dealing in electronic warehouse receipts.

The Facility for unilateral closure (Unpledge) of Pledge by the Pledgee has also been provided by the depositories. In this case, the pledgee submits an instruction in the prescribed form to its DP to initiate unilateral closure of pledge / hypothecation.

Corporate actions affect the beneficial owners ie. the holders of the securities.

The Client-Participant agreement, which outlines the terms and conditions between a client (investor) and a Participant (like a Depository Participant or DP), is a standard agreement that is approved by SEBI (Securities and Exchange Board of India). SEBI regulates the securities market in India and ensures that such agreements adhere to regulatory standards to protect the interests of investors.

According to the Companies Act, 1956 (section 68B) every listed public company, making an initial offer of any security of Rs. 10 crore and above has to issue it only in dematerialised form in accordance with the Depositories Act, 1996.

The Depositories need to maintain the following records for 10 years :

• Records of securities dematerialised and rematerialised.

• The names of the transferor, transferee, and the dates of transfer of securities.

• A register and an index of beneficial owners.

• Details of the holdings of the securities of beneficial owners as at the end of each day.

• Records of instructions received from, and sent to, participants, issuers, issuers’ agents and beneficial owners.

• Records of approval, notice, entry and cancellation of pledge or hypothecation.

• Details of participants.

• Details of securities declared to be eligible for dematerialisation in the depository.

• Such other records as may be specified by SEBI for carrying on the activities as a depository

As per Prevention of Money Laundering Act (PMLA), the documents have to be maintained for a period of 5 years. (The period of maintaining the documents as per the PMLA have been reduced from 10 years to 5 years vide Gazette notification dated January 04, 2013.)

The depositories also provide depository facility to the commodity exchanges for settlement of trades pertaining to warehouse receipts for commodities. For this the depositories have provided a model agreement format to the DPs.

A Demat Requisition Form (DRF) can be rejected by a Registrar and Transfer Agent (RTA) if any of the following conditions are not met:

• The signatures on the DRF do not match with those on record.
• The securities to be dematerialized are not attached with the DRF.
• The ISIN number (International Securities Identification Number) of the security is wrongly mentioned or missing.

Therefore, all the options provided in “All of the above” are correct reasons for an RTA to reject a DRF.

Remember – Demat request form for dematerializing government securities is different and is called “DRF – GS”.

Securities and Exchange Board of India (SEBI) regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities and all intermediaries and persons associated with securities market. It can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act.

No DP can assign or delegate its functions as a depository participant to any other person without prior approval of the depository in which it is a participant.

Freezing an account means temporarily suspending any further transactions from a depository account. This action is typically taken to prevent unauthorized transactions or in cases of suspected fraud or illegal activity. It is a precautionary measure that can be lifted once the issues are resolved or clarified.

The Issuer or its Registrar & Transfer (R&T) Agent will not return the Dematerialization Request Form (DRF) along with the relevant security certificates to the applicant if the reason for rejection of dematerialization is due to any of the mentioned reasons: in the event of an order from a court or a competent statutory authority prohibiting the transfer of such securities, if the security certificates are stolen or fake, or if duplicate certificates have been issued in respect of the securities with the same distinctive numbers. In such cases, returning the certificates could jeopardize the security and integrity of the securities involved.

When a corporate action is announced, such as dividends, rights issues, or mergers, the Issuer or its Registrar & Transfer (R&T) Agent informs the Depository about the proposed corporate action. The Depository then disseminates this information to the Depository Participants (DPs), who in turn inform the beneficial owners of the securities held in dematerialized form. This ensures that all relevant stakeholders are notified and can take appropriate actions regarding the corporate event.

The CC gives pay-out and securities are transferred to the buying broker’s account. The broker then gives delivery instructions to his DP to transfer securities from its CM account to the buyer’s account. If a broker gives pay-out breakup of his clients to CC then pay-out securities are directly credited in the clients account by the CC.

Records to be maintained by Depository are –

• Records of securities dematerialised and rematerialised.
• The names of the transferor, transferee, and the dates of transfer of securities.
• A register and an index of beneficial owners.
• Details of the holdings of the securities of beneficial owners as at the end of each day.
• Records of instructions received from, and sent to, participants, issuers, issuers’ agents and beneficial owners.
• Records of approval, notice, entry and cancellation of pledge or hypothecation.
• Details of participants.
• Details of securities declared to be eligible for dematerialisation in the depository.
• Such other records as may be specified by SEBI for carrying on the activities as a depository.

As per the provisions of SEBI [Depositories and Participants] Regulations, 1996, a DP can offer depository related services only after obtaining a certificate of registration from SEBI.