Depository Operations

Syllabus and chapter weightage

Weightages are taken from the official syllabus table published in the NISM workbook, so you can see exactly where the marks are.

Every chapter can be read free, no account needed — tap a chapter to open its plain-English Foundation lesson.

Sample questions

5 questions from the chapter tests, one per chapter. Pick your answer before you open the explanation.

1. Question 1 · Chapter 1: Introduction to the Indian Capital Market

   Which of the following is NOT directly a part of the primary market?

   1. A.Merchant bankers
   2. B.Mutual funds
   3. C.Stock exchanges
   4. D.Individual investors
   Show the answer

   Answer: C. Stock exchanges

   There are several major players in the primary market. These include the merchant bankers, mutual funds, financial institutions, foreign portfolio investors (FPIs) and individual investors.

   Stock exchanges do not appear on that list. They belong to the other segment: in the secondary market, there are the stock exchanges, stock brokers (who are members of the stock exchanges), the mutual funds, financial institutions, foreign portfolio investors (FPIs), and individual investors.

   Compare the two lists and the pattern is clear. Merchant bankers appear only in the primary market — their business is issuing securities. Stock exchanges and stock brokers appear only in the secondary market — their business is trading them. Mutual funds, financial institutions, FPIs and individual investors appear in both, because an investor can subscribe to a new issue and also trade existing ones.

   And a third group belongs to neither list but serves both: the Registrars and Transfer Agents, Custodians and Depositories are capital market intermediaries which provide important infrastructure services to both the primary and secondary markets.

   What each segment does: the primary market is used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt; on the other hand, the secondary market provides liquidity to these instruments, through trading and settlement on the stock exchanges.

   The two are described as interdependent — the capital market has two interdependent segments, the primary market (new issuers) and secondary market (stock market).

2. Question 2 · Chapter 2: Introduction to Depository

   During the time when there was no demat of securities, what was the evidence of a change of ownership on transfer of securities?

   1. A.Proof of delivery
   2. B.Endorsement of the physical security
   3. C.A letter of acknowledgement from the transferee
   4. D.The broker's contract note
   Show the answer

   Answer: B. Endorsement of the physical security

   Endorsement of the physical security. Every transfer involved physical movement of paper securities to the issuer for registration and endorsement of change in ownership on the security certificate.

   The distinction matters. Settlement has two legs — transfer of securities and funds, and transfer of ownership. Handing over a certificate completed the first leg only. Until the certificate travelled to the company and came back endorsed, the buyer was not the owner in the company's records.

   That round trip is why in most cases the process of transfer took more than the stipulated time in the Companies Act, and why a significant proportion of transactions were recorded as bad deliveries due to faulty compliance of paper work.

   Proof of delivery and an acknowledgement letter evidence movement of paper, not change of ownership. A contract note evidences a trade, not a transfer.

3. Question 3 · Chapter 3: Depository and its business partners

   For registering as a DP, the application should be submitted ________.

   1. A.Separately to the depository and to SEBI
   2. B.To the depository, who will in turn forward it to SEBI after evaluation
   3. C.To the depository, who will evaluate and register the DP
   4. D.Directly to SEBI, with a copy sent to the depository for information only
   Show the answer

   Answer: B. To the depository, who will in turn forward it to SEBI after evaluation

   An entity desirous of becoming a DP of a depository should make an application to SEBI through the Depository. The complete application goes to the depository whose membership is sought, and the depository evaluates the application and, if it finds that the applicant has the potential to be admitted as a DP, forwards that application to SEBI along with its recommendations.

   Option C is the most tempting wrong answer because the depository does a great deal of the work — it evaluates, it recommends, and it may reject an application found to be incomplete or not as per the given instructions. But it cannot register anyone. On being satisfied that the applicant is eligible, SEBI grants the registration certificate.

   Options A and D both bypass the depository's gatekeeping role, which is the whole point of routing the application through it.

4. Question 4 · Chapter 4: Functions of DP-Account opening

   The two main types of demat accounts that can be opened with a depository participant are:

   1. A.Savings account and current account
   2. B.Beneficial Owners Account and Clearing Member Account
   3. C.Trading account and settlement account
   4. D.Proprietary account and pool account
   Show the answer

   Answer: B. Beneficial Owners Account and Clearing Member Account

   There are mainly two types of demat accounts which can be opened with a depository participant viz., (a) Beneficial Owners Account, and (b) Clearing Member Account. The type of depository account depends on the operations to be performed.

   Beneficiary Account: a beneficial owner's account is an ownership account. The holder/(s) of securities in this type of account owns the securities. The workbook's example is Mr. Ram who is a retail investor... The securities which he buys or sells will be kept in his beneficial owner account which he would have to open with a DP.

   Clearing Member Account: this account is opened by a broker or by a clearing member for the purpose of settlement of trades executed on a recognised stock exchange.

   Three features of the CM account to remember: the clearing member account is a transitory account · the securities in this account are held for a commercial purpose only · the securities in this account will be eligible for any corporate action benefit declared.

   Option D names two of the seven categories a stock broker may maintain, which is a different classification: Proprietary Account (hold own securities) · Pool account (settlement purpose) · Client Unpaid Securities Account · Client Securities Margin Pledge Account · Client Securities under Margin Funding Account · Client Nodal Mutual Fund Overnight Scheme (MFOS) Account · Client Unpaid Securities Pledgee Account (CUSPA).

   And note: clearing members and brokers have to open a beneficiary account if they have to deal with their own holdings.

5. Question 5 · Chapter 5: Functions of DP-Account operations

   How many Delivery Instruction Slips (DIS) are issued to a BO at the time of opening a BSDA?

   1. A.One
   2. B.Two
   3. C.Three
   4. D.Four
   Show the answer

   Answer: B. Two

   At least Two Delivery Instruction Slips (DIS) shall be issued at the time of account opening.

   Note the phrasing — at least two, so two is the minimum rather than a fixed number.

   The other services offered to BSDA holders:

   Transaction statements shall be sent to the BO at the end of each quarter. If there are no transactions in any quarter, no transaction statement may be sent for that quarter.

   One annual statement of holding shall be sent in respect of remaining accounts in physical or electronic form as opted for by the BO.

   Electronic statements shall be provided free of cost. In case of physical statements, the DP shall provide at least two statements free of cost during the billing cycle. Additional physical statement may be charged at a fee not exceeding Rs.25/- per statement.

   All BOs opting for the facility of BSDA, shall register their mobile number for availing the SMS alert facility for debit transactions.

   And the catch-all: all other conditions as applicable to regular demat accounts, other than the ones mentioned above shall continue to apply to basic services demat account.

   Why BSDA exists: with a view to achieve wider financial inclusion, encourage holding of demat accounts and to reduce the cost of maintaining securities in demat accounts for retail individual investors.

Frequently asked questions

What is the passing mark for NISM Series VI?

You need 60% to pass NISM-Series-VI: Depository Operations. On a 100-mark paper that is 60 marks.

Is there negative marking in NISM Series VI?

There is negative marking of 25% of the marks for that question, so a wrong answer costs you 0.25 marks on a 1-mark question. Guess only when you can eliminate at least two options.

How long is the NISM Series VI exam?

The exam runs for 120 minutes and carries 100 marks in total.

How long is the NISM Series VI certificate valid?

NISM certifications are generally valid for 3 years from the date of passing, after which they must be renewed. Confirm the current position on nism.ac.in before your certificate lapses.