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

Mr. Dinesh Patel holds 500 shares jointly with his wife in one demat account and says that the depository can pledge the shares if the DP asks. Which statement is correct about the depository's position on the securities in the account?

The depository cannot pledge, transfer or vote on the securities by itself. As the registered owner without beneficial interest, it acts only on the instructions of the beneficial owner routed through the DP, so the DP's request alone cannot authorise such actions.

  1. AThe depository cannot create any pledge or deal in the shares on its own; it acts only on the beneficial owner's instructionsCorrect
  2. BThe depository may pledge shares at its discretion to meet DP liabilities
  3. CThe depository can transfer shares to any account if the DP requests it
  4. DThe depository can vote on the shares in the issuer's general meeting

Explanation

The depository is only a registered owner and has no beneficial interest, so it cannot deal with, vote on, or pledge the securities on its own. It acts on the instruction of the beneficial owner via the DP. The other options would defeat the fiduciary nature of the depository's role.

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