NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market
Mr. Arvind Nair asks why India moved from paper share certificates to demat. Which problem of the physical system was directly eliminated by the introduction of depositories?
Depositories eliminated the physical-form risks of bad delivery, forgery, theft or loss of certificates, and slow transfer registration by holding securities as electronic book entries. Price volatility and dividends are unaffected by the form of holding.
- AMarket price fluctuations of shares
- BRisks of bad delivery, forgery, loss and delays in transfer of certificatesCorrect
- CThe need to pay any charges to a broker
- DCompanies declaring dividends
Explanation
Physical certificates carried risks of forged or lost certificates, bad delivery and delays in transfer registration. Depositories remove these through book-entry transfer. Price fluctuation and dividends are unrelated to the form of holding, and broker charges still apply.
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