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NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement

Ravi sold 200 shares on the exchange and gave a delivery instruction slip to his DP for an on-market transfer to the clearing member. Which statement about the DP's handling of this instruction is correct?

The DP must verify the signature and the free balance before executing the delivery instruction. This is a basic due-diligence step for every debit instruction. It does not need broker approval, and it cannot skip checks on the assumption that the exchange will reject any shortfall.

  1. AThe DP must verify the instruction against the client's signature and available balance before executing itCorrect
  2. BThe DP may execute it without checking the balance because the exchange will reject any shortfall
  3. CThe DP must wait for the broker's written approval before executing it
  4. DThe DP must charge the transfer to the clearing corporation, not the client

Explanation

Before executing any debit instruction, a DP checks that the instruction is complete, the signature matches the specimen and the account holds sufficient free balance. The DP does not need the broker's approval for a client's own delivery instruction. Relying on the exchange to reject a shortfall is not a valid practice.

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