NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to Depository
Mr. Iyer wants to know why a depository is described as a 'custodian of securities' that works without physical certificates. Which statement correctly captures the benefit of the depository's book-entry system?
A depository transfers securities through book entries, debiting the seller's account and crediting the buyer's. This eliminates physical certificate risks such as theft, forgery, loss and bad delivery, and makes transfers faster and safer than paper-based transfers.
- ATransfers are effected by debit and credit entries in accounts, removing risks such as bad delivery and forgery of certificatesCorrect
- BTransfers still need physical share certificates, but they are stamped faster
- CThe investor must surrender the account to the depository before every sale
- DOwnership changes only after the issuer's board approves each transfer
Explanation
Book-entry transfer means securities move by debiting one account and crediting another. This removes physical risks like loss, theft, forgery and bad delivery and also avoids stamp duty on transfer procedures of physical certificates. The other statements describe processes that are not part of demat transfers.
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