NISM Certifications · NISM-Series-VI: Depository Operations
Functions of Depository Participant in Trading and Settlement
A depository participant (DP) is the agent of the depository that holds and moves your securities in demat form. In trading and settlement, the DP executes delivery instructions: it moves securities for pay-in, receives them at pay-out, handles off-market transfers and pledges, and processes inter-depository transfers. Learn each flow step by step.
What this chapter covers
This chapter covers what a DP does once a trade is done on the exchange. Securities must move from the seller's demat account to the buyer's. The DP carries out these movements on instructions from clients and, for market trades, from clearing members and the clearing corporation.
You will study the settlement cycle, pay-in and pay-out, the Delivery Instruction Slip (DIS) used for off-market transfers, early pay-in, margin pledge, settlement risks, and transfers between the two depositories, NSDL and CDSL.
This chapter links to the rest of the paper. Account opening and the DP-client relationship set up who can give instructions. Later chapters on pledge, charges, risk management and investor protection reuse the same ideas. If you understand how an instruction moves from client to DP to depository, many questions in other chapters become easier.
Questions here test precise processes: who gives an instruction, what the DP checks, which account is debited or credited, and what happens on a failure. Series VI has negative marking of 25% of the marks assigned to a question, so a wrong guess costs you. These are rule-based topics where careful study turns directly into marks. The same flows also appear in practical DP work, so the effort pays beyond the exam.
Functions of Depository Participant - Trading and Settlement: topics in the order to study them
- 1Trading and Settlement Cycle BasicsStart here because pay-in, pay-out and every later flow depend on knowing how a trade becomes a settlement obligation.
- 2Pay-in and Pay-out of SecuritiesThis is the core market flow, and you need it before studying early pay-in or risks.
- 3Delivery Instruction Slip (DIS) and Off-Market TransfersNext, study the client-initiated side, which uses the DIS and sits outside exchange trades.
- 4Early Pay-in, Margin Pledge and Settlement RisksIt builds on pay-in and on instruction handling, and adds the risk controls around them.
- 5Inter-Depository Transfers and Settlement InstructionsStudy it last because it combines the flows above across NSDL and CDSL.
How to prepare Functions of Depository Participant - Trading and Settlement
Treat this chapter as a set of flows. For each one, know the initiator, the checks, the accounts affected and the failure case.
- Read the settlement cycle topic and write down the sequence from trade to pay-out in your own words.
- For pay-in and pay-out, draw a simple line: seller's demat account, clearing account, buyer's demat account. Name who instructs at each step.
- List what a DP checks before executing a DIS, such as signature match, account status and available balance. Learn the reasons for rejection.
- Make a comparison list of market transfers versus off-market transfers, and early pay-in versus normal pay-in.
- Learn the margin pledge steps and the main settlement risks, and note which party bears each risk.
- Solve MCQs topic by topic. For each wrong answer, note the exact rule you missed.
- In the last two days, re-read only your notes and the questions you got wrong.
Common mistakes in Functions of Depository Participant - Trading and Settlement
Mixing up pay-in and pay-out directions
Fix: Draw the flow once. Pay-in is from the seller towards the clearing corporation. Pay-out is from it to the buyer.
Thinking the DP can act without an instruction
Fix: For each flow, name the person who gives the instruction before you name the DP's action.
Confusing a margin pledge with a transfer of ownership
Fix: Remember that a pledge creates a lien. The client remains the owner unless the pledge is invoked.
Missing the checks a DP does on a DIS
Fix: Keep a short checklist: signature, account status, balance, and instruction details.
Treating off-market and market transfers as the same
Fix: Note who initiates each one and why. Market transfers come from trades, off-market ones from client instructions.
Guessing on unfamiliar process questions
Fix: Answer only when you can eliminate options by a rule you know, and leave the rest.
Last-day revision: Functions of Depository Participant - Trading and Settlement
- 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.
Functions of Depository Participant - Trading and Settlement practice questions
- A client sold shares on the exchange and gave the delivery instruction to his DP, but the broker's pool account did not receive the shares b…
- In an on-market trade settled through the clearing corporation, where do securities received by the clearing member on pay-out first get cre…
- A clearing member's pool account holds shares after pay-out. If the shares are not transferred to the client and remain unallocated, which s…
- A client sold shares and wants to deliver them before the normal pay-in date so the securities are blocked early, to be released when the tr…
- A client's demat account has 1,000 shares that are pledged with a bank, with the pledge status confirmed. The client also placed an on-marke…
- A client bought shares, and the broker failed to deliver the purchased securities on the pay-out day because the selling member short-delive…
- After a market trade, a buyer finds that shares have not been credited to his demat account although the broker received them in pay-out. Wh…
- A client buys shares and the broker's pool account receives them on pay-out day. What must happen for the shares to appear in the client's d…
Functions of Depository Participant - Trading and Settlement in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Functions of Depository Participant - Trading and Settlement: frequently asked questions
What is the main role of a DP in settlement?
The DP executes instructions to debit or credit securities in demat accounts. It acts as the depository's agent and does not own the securities it handles.
Is Series VI negatively marked?
Yes. A wrong answer costs 25% of the marks assigned to that question. The paper has 100 questions, 100 marks, 2 hours, and the pass mark is 60%.
Which topic should I study first in this chapter?
Start with the trading and settlement cycle basics. Pay-in, pay-out, early pay-in and risks all depend on it.
How do I remember the DIS rules?
Learn them as a checklist of what the DP verifies before executing. Then practise MCQs on rejection reasons and compare your answers with your notes.