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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to Depository

Mr. Arjun Mehta asks his DP whether the depository can refuse to register transfers of securities in its name to the investor's account because the company dislikes the buyer. Which statement best reflects the legal position of a depository under the Depositories Act, 1996?

A depository, though the registered owner, has no voting rights or other rights over securities held in its name on behalf of beneficial owners. Those rights rest with the beneficial owners, so the depository cannot vote the shares or use them for its own borrowing.

  1. AA depository must register transfer of securities in its name only with the company's board approval in every case
  2. BA depository, as registered owner, has no voting rights or other rights in respect of securities held on behalf of beneficial ownersCorrect
  3. CA depository can vote the shares at general meetings at its discretion
  4. DA depository can pledge investors' securities for its own borrowings

Explanation

Under the Depositories Act, a depository as registered owner has no voting right or other right in respect of securities held in its name; such rights belong to the beneficial owner. It cannot vote or pledge them for its own purposes, so the other options are wrong.

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