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NISM Certifications · NISM-Series-VI: Depository Operations · Depository and its Business Partners

A depository participant's net worth falls below the minimum prescribed requirement for its category. Which of the following is the most appropriate characterisation of the consequence under the depository framework?

A net worth shortfall breaches the continuing eligibility conditions for a DP, so the depository and SEBI may act, including restricting operations or terminating the participation. Having many accounts is no substitute, and there is no automatic conversion to a clearing member.

  1. AIt is a failure to meet eligibility conditions, and the depository and SEBI may take action such as restricting operations or cancelling participationCorrect
  2. BThe shortfall is permitted so long as the DP has more than 1,000 active accounts
  3. CThe DP must merely inform clients, with no action by the depository
  4. DThe DP is automatically converted into a clearing member

Explanation

Net worth is a continuing eligibility condition for a DP. A shortfall can lead to action by the depository or SEBI, such as restrictions or termination of participation. Account count does not substitute for net worth, and no automatic conversion exists.

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