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NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Account Operations

A BO submits a DIS to transfer 500 shares of a company, but the DP finds that the BO's account has only 400 free shares of that ISIN and 100 shares are pledged. What is the correct treatment of the instruction by the DP?

The DP should reject the instruction. Only 400 free shares exist, while 100 are pledged and cannot be transferred through a normal debit. With insufficient free balance, the DP cannot execute the 500-share instruction, partially or otherwise, and the BO must submit a revised instruction.

  1. AReject the instruction, since the free balance is insufficient and pledged shares cannot be transferredCorrect
  2. BExecute it by transferring 400 shares and ignoring the shortfall
  3. CExecute it fully by using the pledged shares
  4. DTransfer 500 shares after debiting the pledgee's account

Explanation

The DP can act only on instructions where sufficient free balance exists for the ISIN. Pledged shares are in the pledgee-restricted state and cannot be debited through an ordinary transfer. Since the free quantity is 400 against 500 requested, the instruction must be rejected or the BO must submit a fresh instruction for the available quantity. Partial execution is not done automatically.

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