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

Mr. Sanjay Gupta is told that a depository's core activity is to hold securities in electronic form and facilitate their transfer. Which of the following is NOT a benefit of this to investors compared with physical holding?

A guaranteed rise in market price is not a benefit of a depository. Depositories remove risks like theft, forgery and loss, speed up transfer and settlement, and reduce paperwork, but they cannot influence or guarantee the market price of securities, which depends on market factors.

  1. AElimination of risks like theft, forgery and loss of certificates
  2. BFaster transfer and settlement of securities
  3. CGuaranteed rise in the market price of securitiesCorrect
  4. DReduced paperwork and no stamp duty on transfers of demat securities

Explanation

Depositories reduce risks of bad delivery, forgery, loss and theft, speed up settlement, and reduce paperwork. They have no effect on market prices, so no guaranteed price rise exists. Hence the price-rise option is not a benefit.

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