Skip to content

NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement

A client sold 500 shares, and before the pay-in deadline only 400 shares were available in his demat account and transferred to the pool. The other 100 shares were short. Which outcome is the most accurate in the settlement process?

A shortfall in delivery is dealt with by the clearing corporation through its auction or close-out mechanism. The depository never takes shares from other investors' accounts, the DP is not bound to buy at its own cost, and the buyer is compensated through the close-out process.

  1. AThe 100 short shares are treated as a shortage at the clearing level and handled through the clearing corporation's auction or close-out processCorrect
  2. BThe depository automatically borrows the 100 shares from other investors' accounts
  3. CThe buyer is obliged to accept 400 shares and forgo the balance without compensation
  4. DThe DP must buy the shares from the market on behalf of the client at its own cost

Explanation

Shortage of delivery is handled by the clearing corporation through auction or close-out under its rules. Depositories do not take shares from other accounts, and DPs are not obliged to buy shares at their cost. The buyer is compensated via close-out rather than forgoing the shares.

Did you get it right without looking?

One question tells you little. A timed set on Functions of Depository Participant - Trading and Settlement shows your real accuracy, how long you take and where you lose marks.

Practise Functions of Depository Participant - Trading and SettlementFree diagnostic mock

More Functions of Depository Participant - Trading and Settlement questions