NISM Series II-A: Registrars to an Issue & Share Transfer Agents (Corp) – Free Demo

Explanation:

Government securities, also known as gilts, are issued by governments and are considered to be one of the safest investments available. They are backed by the creditworthiness and taxing power of the issuing government, making them virtually free from credit or default risk. Therefore, government securities typically do not have credit or default risk associated with them, making them a low-risk investment option.

Explanation:

Employees who have been granted stock options typically need to stay with the company during the vesting period if they want to exercise their options and become shareholders in the future. The vesting period is the duration during which employees must remain employed by the company to earn the right to exercise their options. If an employee leaves the company before the options vest, they may forfeit their right to exercise those options. Therefore, staying in the company during the vesting period is usually a requirement for employees to become shareholders through stock options.

Explanation:

An Initial Public Offer (IPO) is made by a company whose shares are not listed on a stock exchange. It is the first time that the company offers its shares to the public for subscription and trading on a stock exchange. Through an IPO, the company raises capital by selling a portion of its ownership to investors in the form of shares. This process allows the company to access the capital markets and provides an opportunity for investors to become shareholders of the company. Therefore, an IPO is the appropriate term for the scenario described.

Explanation:

When the lead manager undertakes the task of managing a public offer of shares for an issue by an unlisted company, they may get the IPO graded by an approved credit rating agency. IPO grading involves assessing the fundamental aspects of the issuer company and assigning a grade indicating the quality of the IPO and its underlying fundamentals. This grading helps investors make informed decisions about whether to subscribe to the IPO. Therefore, the appropriate entity to grade the IPO is a credit rating agency.

Explanation:

Companies may raise capital in a form that combines the features of both debt and equity. These instruments are called hybrid instruments because they possess characteristics of both debt and equity securities. Hybrid instruments provide companies with flexibility in structuring their capital, allowing them to tailor the features of the instrument to meet their financing needs and investor preferences. Examples of hybrid instruments include convertible bonds, preference shares with convertible features, and other innovative financial instruments that blend debt and equity characteristics. Therefore, the term “hybrid instruments” accurately describes securities that combine features of both debt and equity.

Explanation:

A fresh issue does not change the holding of shares of the investors prior to the issue in terms of the number of shares held. In a fresh issue, the company issues new shares to the market, increasing the total number of outstanding shares. Existing shareholders may have the opportunity to participate in the fresh issue through rights offerings or other means, but their ownership percentage remains the same unless they choose to subscribe to additional shares. Therefore, a fresh issue does not directly alter the number of shares held by investors prior to the issue.

Explanation:

The definition of a Qualified Institutional Buyer (QIB) is not dependent upon the company issuing securities. QIBs are defined by securities regulations and are typically institutional investors such as mutual funds, insurance companies, pension funds, and certain categories of banks and financial institutions. These entities are deemed to possess sufficient financial sophistication and resources to participate in capital markets transactions. The definition of QIBs is standardized and regulated by securities authorities to ensure consistency and fairness in capital markets. Therefore, the definition of a QIB is not contingent upon the company issuing securities but rather on the investor’s qualifications and status as per regulatory criteria.

Explanation:

The Registrar to an issue is responsible for handling all matters connected with the transfer and redemption of a company’s securities. This includes maintaining records of shareholders, processing share transfers, issuing share certificates, handling dividend payments, and managing other administrative tasks related to securities issuance and ownership. The Registrar plays a crucial role in ensuring the smooth functioning of the securities transfer and redemption process, thereby facilitating efficient trading and ownership of securities in the market. Therefore, the Registrar to an issue deals with all matters connected with the transfer and redemption of a company’s securities.

Explanation:

When companies transfer shares to the Investor Education and Protection Fund (IEPF) Account, it is deemed to be transmission of shares. Transmission of shares refers to the transfer of shares from one person to another due to events such as inheritance, death, or bankruptcy. In the case of shares transferred to the IEPF Account, it is treated as transmission because the shares are transferred from the shareholders’ accounts to the IEPF Account due to non-claiming or non-receipt of dividends or other corporate benefits for a specified period. Therefore, the transfer of shares to the IEPF Account is considered transmission of shares.

Explanation:

Under SEBI Regulations, 2019, Designated Depository Participants (DDPs) are entities responsible for granting registration to Foreign Portfolio Investors (FPIs) on behalf of SEBI. Additionally, DDPs carry out other allied activities in compliance with the Regulations and other guidelines and circulars issued thereunder. These activities may include facilitating FPI registration, providing necessary documentation, and ensuring compliance with regulatory requirements related to foreign portfolio investment in Indian markets. Therefore, DDPs play a key role in the registration process and ongoing compliance of FPIs as per SEBI Regulations, 2019.

Explanation:

ME (Small and Medium Enterprise) initial public offer (IPO) issues are typically fully underwritten. This means that the underwriter commits to purchasing the entire issue of shares from the issuing company, regardless of the level of investor interest. Fully underwritten IPOs provide assurance to the issuing company that the shares will be sold, mitigating the risk of undersubscription. It also ensures that the company receives the intended amount of capital from the IPO. Therefore, SME IPO issues are generally 100% underwritten.

Explanation:

When a shareholder informs the Registrar & Transfer (R&T) agent about the loss of share certificates, the shareholder is typically required to file a First Information Report (FIR) with the police and submit the same to the R&T agent within 30 days. This requirement is aimed at ensuring that proper legal documentation is provided to verify the loss of share certificates and to prevent any unauthorized transfer or misuse of the shares. Adhering to this timeframe helps expedite the process of replacing the lost share certificates and safeguarding the shareholder’s interests. Therefore, the shareholder is usually given 30 days to file the FIR and submit it to the R&T agent.

Explanation:

Rights under a collective investment scheme, such as mutual funds, are typically not eligible for dematerialization. Dematerialization refers to the process of converting physical securities into electronic form, commonly known as demat form. However, collective investment schemes like mutual funds are structured as units rather than individual securities, and these units are held in electronic form through the fund’s registrar or depository participant. Since mutual fund units are already maintained electronically, they do not undergo dematerialization like traditional securities such as shares and debentures. Therefore, the statement that rights under a collective investment scheme are not eligible for dematerialization is correct.

Explanation:

If the rights issue ratio proportion results in a fractional entitlement, the decision regarding how to handle these fractional entitlements is typically left to the discretion of the company’s board of directors. The board of directors may decide to round up or down the fractional entitlements, or they may adopt any other suitable method to address the issue. This discretion allows the board to make decisions in the best interest of the company and its shareholders, ensuring fairness and efficiency in the rights issue process. Therefore, the board of directors is responsible for determining the approach to deal with fractional entitlements in a rights issue.

Explanation:

The credit rating assigned to an instrument is not static; it can change over time. Credit ratings provided by rating agencies are based on an assessment of the creditworthiness of the issuer and the risk associated with the instrument. These ratings are subject to periodic review and may be upgraded, downgraded, or reaffirmed based on changes in the issuer’s financial condition, market conditions, or other relevant factors. Therefore, credit ratings are dynamic and can change to reflect the evolving credit risk associated with the instrument.

Explanation:

In a delivery instruction slip, the account holder typically needs to fill in various details related to the transaction, including the settlement number of market trades. The settlement number is a unique identifier assigned to each market trade and is crucial for facilitating the transfer of securities from one party to another during the settlement process. By providing the settlement number, the account holder ensures that the delivery instruction slip corresponds to the specific market trade for which securities are being transferred. Therefore, the settlement number of market trades is an essential detail that the account holder must include in the delivery instruction slip.

Explanation:

The net asset value (NAV) of a mutual fund unit represents the per-unit value of the mutual fund’s assets after deducting its liabilities. It is calculated by dividing the net assets (total assets minus liabilities) of the mutual fund by the total number of outstanding units. This calculation gives investors an indication of the value of each unit of the mutual fund and is typically calculated at the end of each trading day. Therefore, the correct formula for calculating the NAV of a mutual fund unit is total assets minus liabilities divided by the number of outstanding units

Explanation:

ASBA (Applications Supported by Blocked Amount) is a process that allows investors to apply for public issues without making the payment upfront. Instead, the application amount is blocked in the investor’s bank account until the shares are allotted. Contrary to the statement, the ASBA process is not limited to high net worth investors; it is available to all categories of investors, including retail investors. Retail investors can also apply through the ASBA process, making it more convenient and efficient for them to participate in public issues. Therefore, the statement that only high net worth investors will be eligible to apply through the ASBA process is false.

Explanation:

Closed-ended mutual funds issue a fixed number of shares through an initial public offering (IPO), and thereafter, these shares are traded on the stock exchange like any other listed security. Investors can buy or sell shares of closed-ended mutual funds on the secondary market, similar to stocks. In contrast, open-ended mutual funds continuously issue and redeem shares based on investor demand and do not have their shares listed on the stock exchange. Therefore, only closed-ended mutual funds are listed and can be bought and sold on the stock exchange.

Explanation:

The Red Herring Prospectus is a document that contains all the relevant information about an investment opportunity in a public issue of shares made through a fixed price offer. It provides details about the issuing company, its business operations, financial performance, risk factors, and terms of the offering. Investors rely on the information provided in the Red Herring Prospectus to make informed investment decisions. It is called “Red Herring” because it contains all information about the company except for the final offer price and the size of the issue, which are disclosed later. Therefore, the Red Herring Prospectus serves as a comprehensive guide for investors considering participation in a public issue.