NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to Depository
Rahul Mehta wants to know why a depository is considered to reduce risks of bad delivery and forgery compared with the physical form. Which feature of depository system mainly explains this?
Electronic book-entry transfer removes physical certificates, so risks of forgery, loss, theft and bad delivery largely disappear. Ownership changes by debiting and crediting accounts maintained through depository participants, rather than by moving paper, which also speeds up settlement and transfer.
- ATransfer of ownership by electronic book-entry without physical certificatesCorrect
- BIssuers directly maintain each investor's account balance
- CInvestors hold securities only in the name of the DP
- DShare prices are guaranteed by the depository
Explanation
Securities are held in electronic form and ownership moves by book-entry debits and credits, so there are no certificates to forge, lose or deliver badly. Depositories do not hold securities in the DP's name, and they do not guarantee prices.
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