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

Ms. Kavita Rao holds shares of Tata Steel in a demat account with a depository participant (DP). Which statement correctly describes the role of the depository in this arrangement?

A depository holds investors' securities in electronic form and transfers ownership through book entries. It does not discover prices, which is the exchange's job, nor guarantee trade settlement, which is the clearing corporation's role, nor issue new shares, which is done by the issuing company.

  1. AIt holds her securities in electronic form and records ownership transfers through book entriesCorrect
  2. BIt decides the market price at which her shares are traded on the exchange
  3. CIt guarantees the settlement of her trades as a clearing corporation
  4. DIt issues new shares to her on behalf of the company in the primary market

Explanation

A depository holds securities in dematerialised form and effects transfers by book entry. Price discovery happens on the exchange, settlement guarantee is provided by the clearing corporation, and issuing shares is the company's function. Hence only the first option is correct.

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