NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market
A client of a Mumbai depository participant asks why shares bought on the exchange are no longer received as paper certificates. Which statement best describes the main benefit of the depository system the DP should explain?
The key benefit is that securities are held and transferred electronically through book entries, which eliminates risks of forgery, theft, loss and bad delivery associated with physical certificates, and speeds up settlement.
- ASecurities are held and transferred in electronic form, removing risks such as bad delivery and forgeryCorrect
- BSecurities can be held only by resident individuals
- CShare transfers need physical signature verification by the issuer on every trade
- DInvestors must hold a separate account for each company
Explanation
A depository holds securities in electronic book-entry form, so transfer happens by account debit and credit. This removes paper risks such as forged or lost certificates and bad delivery. The other options describe features that do not exist in a depository system.
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