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

Ms. Ritu Bansal wants to understand the meaning of 'fungibility' in the context of securities held with a depository. What does it mean?

Fungibility means securities of the same class and issue are interchangeable, so the depository keeps records by quantity and does not track distinctive certificate numbers. Holders own a number of securities rather than specific numbered certificates.

  1. ASecurities of the same class and issue are interchangeable and individual certificate numbers are not trackedCorrect
  2. BSecurities can be converted into cash instantly without a buyer
  3. CSecurities held by one investor can be pledged only to the DP
  4. DSecurities are tied to distinctive numbers that identify each holder

Explanation

Fungibility means securities of the same issue and class are identical and interchangeable, so the depository does not track distinctive numbers. Investors hold quantities rather than particular numbered certificates. The other options confuse it with liquidity, pledge restrictions or physical identification.

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