NISM Certifications · NISM-Series-VI: Depository Operations · Depository and its Business Partners
A Depository Participant wants to close its business and surrender its registration. Which position correctly reflects the relationship between a DP and the depository?
The DP is the depository's agent, and client securities remain the clients' property. Before ceasing business, the DP must close or transfer client accounts as per the depository's procedure. It cannot move holdings arbitrarily without client consent, and the securities do not disappear when the DP exits.
- AThe DP's agreement is with the depository, and the DP must ensure that its clients' accounts are transferred or closed as per the depository's procedure before ceasing operationsCorrect
- BThe DP may keep client accounts open indefinitely as the depository has no role after surrender
- CThe DP may unilaterally transfer client holdings to any other DP without client consent
- DThe clients' securities are extinguished once the DP ceases business
Explanation
A DP acts as agent under an agreement with the depository, and clients' securities remain the clients' property. On cessation, the DP must follow the depository's process so clients' accounts are closed or moved to another DP. Securities are not extinguished, and transfers need client instruction.
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