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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

A client of a broker wants to start trading in the securities market but has not yet opened a demat account. For delivery-based trades, what is the correct position regarding the use of the broker's services?

The client must open a demat account with a depository participant to hold securities in dematerialised form. Many brokers offer this service when they are also registered as depository participants. Brokers cannot hold client shares in their own name or trade physical certificates for delivery settlement.

  1. AClients can trade for delivery without a demat account, as the broker holds shares in its own name
  2. BThe client must open a demat account with a depository participant, which may be offered by the broker if it is a registered DP, to hold securities in dematerialised formCorrect
  3. CThe broker can hold the client's physical share certificates and trade on them
  4. DDelivery trades are settled only in the client's trading account, not a demat account

Explanation

Securities traded on exchanges are settled in dematerialised form, so a client needs a demat account to receive delivery. A broker can provide this only if it is also a registered depository participant, which is a service that brokers commonly offer. Holding shares in the broker's own name for clients is not permitted.

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