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

Ms. Kavita Rao wants to hold her shares in electronic form instead of paper certificates. Which statement best describes the basic function of a depository in this arrangement?

A depository holds investors' securities in dematerialised electronic form and facilitates transfer of ownership through book entries, without physical certificates. It does not issue shares, determine market prices or guarantee returns, which are roles of companies, exchanges and market forces.

  1. AIt holds securities of investors in electronic form and enables their transfer through book entriesCorrect
  2. BIt issues fresh shares to the public on behalf of the company
  3. CIt fixes the market price of securities traded on the exchange
  4. DIt guarantees the returns on securities held by investors

Explanation

A depository is like a securities bank that holds investors' securities in electronic form and transfers ownership by book entry. It does not issue shares, set prices or guarantee returns, so the other options describe functions of issuers, exchanges or nobody at all.

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