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NISM Certifications · NISM-Series-VI: Depository Operations · Depository and its Business Partners

Mr. Sharma's DP, a bank, wants to hold a demat account with the depository in its own name for its proprietary holdings, and also serves clients. Which statement about the relationship between a depository and its participants is correct?

The depository serves investors only through its Depository Participants, which remain accountable to it under its bye-laws. Investors do not open accounts directly with the depository, DPs do not own client securities, and they cannot transfer holdings without valid client instructions.

  1. AThe depository deals with investors only through DPs, and the DP is accountable to the depository for its operationsCorrect
  2. BThe depository opens accounts directly for investors without involving any DP
  3. CThe DP owns the securities held in its clients' accounts
  4. DThe DP can transfer client securities without client instruction

Explanation

Investors access the depository only through DPs, which are accountable under the bye-laws. Beneficial ownership stays with the investor, so DPs do not own client securities. DPs also need client authorisation (such as a delivery instruction) to transfer holdings.

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