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

Which of the following is a key difference between a depository and a bank in the way they hold client assets?

A depository holds securities in electronic form and effects transfers by book entries, much like a bank holds money and moves funds between accounts. It does not lend securities, pay interest on holdings or merely accept physical certificates, so the analogy rests on safekeeping and book-entry transfer.

  1. AA depository holds securities in electronic form and transfers them by book entry, while a bank holds money and moves fundsCorrect
  2. BA depository lends securities to investors, while a bank only holds deposits
  3. CA depository pays interest on securities held, while a bank does not
  4. DA depository accepts only physical share certificates, while a bank accepts electronic funds

Explanation

The depository is often compared to a bank: a bank holds funds and transfers them between accounts by entries, while a depository holds securities in electronic form and transfers ownership by book entry. Depositories do not lend securities or pay interest on holdings, and they work in dematerialised form.

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