NISM Certifications · NISM-Series-VI: Depository Operations · Depository and its Business Partners
Which of the following best describes the relationship between a depository and its Depository Participants under the Depositories Act, 1996 framework?
A Depository Participant is the agent of the depository, bound by an agreement and by the depository's bye-laws and business rules. The depository is the principal. The DP is not the issuer's agent, and the two are certainly not without a contractual relationship.
- AThe DP acts as an agent of the depository, and the depository remains responsible to the investor for the DP's acts within the depository framework as set by its bye-lawsCorrect
- BThe DP is the principal and the depository is merely its agent
- CThe DP and depository have no contractual relationship
- DThe DP acts as an agent of the issuer only
Explanation
Under the Depositories Act, a DP is an agent of the depository, and an agreement between them governs the relationship. The depository's bye-laws and business rules bind the DP. Hence the principal-agent relationship runs from depository to DP, not the reverse, and not to the issuer.
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