NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to Depository
Mr. Arvind Menon asks why a depository is considered to reduce risks such as bad delivery and forged transfers that arose in physical share trading. Which feature of the depository system chiefly addresses this?
Book-entry transfer of electronically held securities addresses these risks. Since no physical certificates or transfer deeds are involved, forgery, fake certificates, bad delivery and loss or theft of certificates are largely eliminated, and transfers become faster.
- ASecurities are held in electronic form and transferred by book entryCorrect
- BSecurities are held in certificates that are verified by the stock exchange
- CSecurities are transferred only through the issuer's registrar by physical endorsement
- DSecurities are held by the DP in its own name for each investor
Explanation
Holding securities electronically and moving them through account debits and credits removes the need for certificates and transfer deeds. This eliminates forged, fake or bad delivery risks and delays in transfer. The other options describe physical handling or incorrect ownership arrangements.
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