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NISM Certifications · NISM-Series-VI: Depository Operations · Depository and its Business Partners

Which of the following is the correct position regarding a Depository Participant's own liability and the depository's relationship with it?

A DP is the depository's agent, so the depository answers for its acts within that agency and can inspect, penalise or suspend a DP for breaching bye-laws and business rules. It is not an independent party free of depository control, nor an agent of the issuer.

  1. AThe depository is not responsible for any acts of the DP because the DP is an independent broker
  2. BThe depository is answerable for the acts of its DP to the extent of the agency relationship, and may take action such as suspension against a DP for violations of its bye-lawsCorrect
  3. COnly SEBI can act against a DP, never the depository
  4. DA DP is treated as the issuer's agent and is governed by the issuer's articles

Explanation

A DP is an agent of the depository under the Depositories Act and regulations, and the depository's bye-laws and business rules bind it. The depository can inspect, penalise or suspend a DP for violations. Statement one ignores the agency, the third wrongly excludes depository powers, and the fourth confuses DP with issuer or RTA.

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