NISM Certifications · NISM-Series-VI: Depository Operations

Functions of Depository Participant - Trading and Settlement: formula sheet

Full chapter guide

Key formulas

Rolling settlement timing: Settlement day = T + 1 working day; T is the trading day. Count working days only. Weekends and exchange holidays are not counted.
Pay-in: Pay-in = members give funds and securities to the clearing corporation; The seller's securities and the buyer's funds go in. Securities are delivered from the demat account.
Pay-out: Pay-out = clearing corporation gives funds and securities to members entitled; The buyer's demat account is credited with securities and the seller receives funds.
Role of clearing corporation: Clearing corporation = counterparty to trades + settlement guarantee; It determines obligations and manages settlement risk. Check the workbook wording for the exact term used.
Trade flow: Order → Trade → Clearing → Settlement (pay-in, pay-out); Use this sequence to place any term in the right stage.
Pay-in: Seller's demat account → Clearing corporation; Securities are debited from the seller's side (via the clearing member's pool account) and delivered to the clearing corporation.
Pay-out: Clearing corporation → Buyer's demat account; Securities are credited to the buyer, via the clearing member's pool account, then to the client account.
Role of the clearing corporation: Counterparty to every trade (buyer to seller, seller to buyer); This is why the seller delivers to it and the buyer receives from it.
Who moves the securities: Clearing member instruction → Depository debit and credit; Movement is electronic. No physical delivery takes place.
DIS issuance: DIS booklet → issued by DP → only to the BO of that account; Slips are serially numbered and carry the DP ID and client ID. A new booklet is issued against the requisition slip of the earlier booklet.
Signature rule: Instruction valid only if signed by the holder(s) required under the account's operating instructions (all holders if 'jointly'; the guardian for a minor's account); Joint accounts may be operated 'jointly', 'either or survivor' or 'anyone or survivor'. The DP verifies signatures against its records. A mismatch or a missing required signature means rejection.
On-market transfer: DIS + settlement number + market type + clearing member ID and pool account details → securities to the clearing member's pool account for exchange settlement; Used for delivery of securities sold on an exchange. An e-DIS or a POA can be used as an alternative authorisation to the paper slip.
Off-market transfer: DIS + target DP ID and client ID + ISIN + quantity + reason → direct transfer, not tied to exchange settlement; Used for gifts, own-account transfers and private sales. It can be intra-depository or inter-depository.
Corrections on a DIS: Any alteration must be authenticated by the same holder(s) who signed the slip, as required by the operating instructions; An unauthenticated correction is a ground for rejection.
Pre-execution checks: Own series + signature match + complete details + no debit freeze + sufficient free balance; If any one fails, the DP does not execute.
Early pay-in: Delivery before scheduled pay-in day → securities moved to clearing corporation's account early; Used to cover a sale. It gives margin benefit on that sale, subject to exchange and clearing corporation rules.
Margin pledge chain: Client → (pledge) Trading member → (re-pledge) Clearing member → (re-pledge) Clearing corporation; Securities stay in the client's demat account. The client stays the beneficial owner.
Pledge creation rule: Pledge initiated by trading member (pledgee) in depository system → client confirms with OTP or authentication; The client does not initiate the margin pledge. The broker cannot complete it without the client's confirmation.
Shortage handling: Pay-in → short delivery identified → auction → auction pay-in/pay-out → if auction fails, close-out; The shortage cost falls on the seller who defaulted.
Auction outcome: Auction succeeds → buyer gets the securities through auction settlement; auction fails → buyer is paid in cash by close-out; Check the exchange's rules for the exact close-out price.
IDT flow: Client instruction → client's DP verifies and enters it in the depository system → depositories use their inter-depository interface → delivering account debited, receiving account credited; This is for off-market account-to-account transfers between depositories. In an exchange trade, the seller's DP delivers to the clearing member's pool account at the seller's depository (pay-in), and pay-out goes to the buyer's account at the buyer's depository.
Instruction essentials: ISIN + quantity + target account (DP ID + client ID) + settlement ID + execution date; These details must be correct. A mismatch can cause the instruction to fail.
Settlement ID meaning: Settlement ID = settlement type + settlement number; It links the instruction to the right settlement; do not confuse it with the client ID or the ISIN.
Execution date: Execution date = date on which the instruction is to be executed; For market trades, it is the pay-in date of the settlement.
DP duty: Process only valid, authorised instructions, accurately and so that they can be executed on the execution date; The DP must check the signatures against the account records and does not alter client instructions.

Quick revision

A DP is an agent of the depository and acts on instructions; it does not decide on its own.
Trades done on the exchange lead to pay-in by the seller and pay-out to the buyer through the clearing corporation.
In pay-in, securities move from the seller's demat account towards the clearing corporation's account.
In pay-out, securities are credited to the buyer's demat account, usually through the clearing member.
Off-market transfers are made through a DIS or an electronic instruction, not through exchange trades.
Before executing a DIS, the DP checks the signature, the account status and the available balance.
Early pay-in means delivering securities before the normal pay-in deadline.
A margin pledge creates a lien on securities without moving ownership away from the client.
Pledge and settlement flows differ, so do not mix up their accounts.
Transfers between NSDL and CDSL are inter-depository transfers and need correct instruction details.
Under negative marking, skip a question unless you can remove at least two options.

Common mistakes

Counting calendar days instead of working days for T+1. Fix: Always count only working days. A Friday trade settles on the next working day, normally Monday.
Confusing pay-in with pay-out. Fix: Pay-in means giving to the clearing corporation. Pay-out means receiving from it. Both apply to funds and securities.
Reversing pay-in and pay-out Fix: For securities: pay-in is delivery into the clearing corporation by the seller, pay-out is delivery out to the buyer.
Thinking the seller delivers directly to the buyer Fix: Remember all delivery goes via the clearing corporation.
Treating off-market transfers as only gifts. Fix: Remember off-market means not linked to exchange settlement. It covers own-account moves, gifts and private sales.
Assuming one joint holder's signature is always enough, or that all holders must always sign. Fix: Read the operating instructions. If the account is operated jointly, all holders sign. Under 'either or survivor' or 'anyone or survivor', one holder may sign. The DP checks every required signature against its records.
Saying margin pledge transfers the shares to the broker. Fix: Remember the shares remain in the client's account and only a pledge is created. The client keeps ownership and corporate benefits.
Confusing re-pledge with a fresh pledge by the client. Fix: The client pledges to the trading member. The trading member re-pledges to the clearing member, and the clearing member re-pledges to the clearing corporation.
Treating the settlement ID as the client ID or DP ID. Fix: Remember that the settlement ID identifies the settlement. DP ID and client ID identify the account.
Thinking an IDT needs the securities to be rematerialised first. Fix: Securities stay in electronic form. The transfer is carried out electronically through the depositories' interface, so no physical certificate is involved.

Exam tips

Know T+1 exactly: next working day after the trade day. Watch for holiday traps in date questions.
Learn the difference between pay-in and pay-out as both funds and securities movements.
Separate roles: exchange for trading, clearing corporation for obligations and guarantee, depository for holding securities.
Questions on this paper carry negative marking of 25% of the marks for a question, so skip an option you cannot defend rather than guess blindly.
Questions are mostly definitional. Learn the direction: seller to clearing corporation is pay-in, clearing corporation to buyer is pay-out.
Watch for options that swap the two terms. These are the usual trap.
If an option mentions physical delivery or a direct seller-to-buyer transfer, it is almost always wrong.
On negative-marked papers, skip a question if you cannot recall a timeline. Do not guess a number.