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

Mr. Raghav Iyer holds shares of an Indian company in a demat account. Which statement correctly describes the legal nature of the holding in a depository system under the Depositories Act, 1996?

In a depository system the depository is the registered owner in the issuer's books, but the investor is the beneficial owner. The depository holds no beneficial interest, so rights such as dividends and voting benefits belong to the investor holding the securities in the demat account.

  1. AThe depository becomes the beneficial owner and the investor only a registered holder
  2. BThe investor is the beneficial owner while the depository is the registered owner in the company's recordsCorrect
  3. CThe Depository Participant becomes the registered owner of the securities
  4. DThe issuer company holds the securities on behalf of the investor

Explanation

Under the Depositories Act, 1996, the depository appears as the registered owner in the issuer's records, but it has no beneficial interest. The investor remains the beneficial owner with all rights and benefits. The option naming the depository as beneficial owner reverses this position.

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