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

Ms. Kavita Rao holds shares in demat form and wants to sell them. Under the depository system, what happens to the ownership records when a transfer takes place on a stock exchange trade?

Transfer of demat securities is done by book entry in the depository system, which records the change in beneficial ownership electronically. No physical certificate is endorsed, cancelled or reissued, which is the main advantage of a depository over the physical system.

  1. APhysical share certificates are endorsed and sent to the company
  2. BThe depository records the change of beneficial ownership by book entry, with no physical movement of certificatesCorrect
  3. CThe issuer company cancels the old certificate and prints a new one
  4. DThe stock exchange maintains the revised register of members

Explanation

A depository holds securities in electronic form and transfers beneficial ownership through book entries in investor accounts. No physical certificates move, so endorsement or reprinting is not needed. The register of members is updated by the depository's records for the depository's own name as registered owner.

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