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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market

Mr. Sanjay Bhatt, a retail investor, buys shares on an exchange and wants them credited to his demat account. A fellow investor says that on a depository the beneficial owner and the registered owner are the same person for all purposes. Which statement correctly describes the position under the depository system?

In the depository system the depository appears as the registered owner in the issuer's register, but the investor is the beneficial owner entitled to dividends, bonus, rights and voting. The depository does not enjoy any benefits of the securities, and a Depository Participant is only an intermediary.

  1. AThe depository is the registered owner in the issuer's records, while the investor is the beneficial owner who enjoys the economic benefits of the securitiesCorrect
  2. BThe investor is the registered owner and the depository is the beneficial owner
  3. CBoth the depository and investor are beneficial owners with equal voting rights
  4. DThe Depository Participant is the registered owner of the securities

Explanation

Under the Depositories Act, when securities are held in a depository, the depository's name appears in the issuer's register as registered owner, but it has no voting rights or benefits. The investor is the beneficial owner entitled to dividends, bonus and voting. Hence the statements in the other options reverse or confuse these roles.

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