Indivisible securities rule
When a nominated percentage split cannot be exactly divided at the ISIN level among multiple nominees, the DP divides what is divisible and gives the remaining indivisible securities to the nominee named first.
In plain language
An account holder can name more than one nominee and split his holding between them by percentage. Percentages divide neatly on paper; share quantities do not always divide neatly in practice.
Say 100 shares are to be split 33:33:34 between three nominees. The maths gives 33, 33 and 34 — that works. But many holdings and many splits will not divide into whole shares so cleanly. The workbook's answer to the leftover is what it calls, in effect, the indivisible securities rule: divide as far as the numbers allow, and give whatever is left over to the nominee named first.
How it works
From Chapter 6, section 6.3.1: where there are multiple nominees, the Participant distributes securities to them at the ISIN level, in the proportion the account holder specified at the time of nomination — which must total 100 percent.
Where the number of securities is not exactly divisible in the specified proportion for a particular ISIN, the Participant divides the securities to the extent they are divisible, and the remaining indivisible securities are transmitted to the nominee whose name is recorded first.
The workbook gives no separate numeric threshold for how small the remainder must be before this rule applies — it applies to whatever quantity cannot be split exactly, however small.
A worked example
Mrs Kelkar nominates two people for her demat account: 60% to her son, recorded first, and 40% to her daughter, recorded second. At her death, the account holds 101 shares of one ISIN.
60% of 101 = 60.6 shares
40% of 101 = 40.4 shares
Neither is a whole number. The Participant divides what it can — 60 shares to the son and 40 to the daughter — and the 1 remaining indivisible share goes to the son, because he is the nominee recorded first, not because he holds the larger percentage on this particular leftover share.
Had the daughter been recorded first instead, that 1 remaining share would have gone to her, even though her overall percentage share (40%) is smaller.
Why NISM asks about it
Chapter 6, section 6.3.1, sets out this rule immediately after the mechanics of multiple nomination by percentage. Expect a question testing that the remainder goes to the first-recorded nominee, not the nominee with the largest percentage — a distinction the workbook's own trap questions repeat.
Common exam traps
- The leftover goes to the nominee named first on the account, not the one with the largest percentage.
- Nomination percentages must total 100 percent — this is the underlying rule that can produce an indivisible remainder in the first place.
- Division happens at the ISIN level — a remainder on one ISIN does not affect how a different ISIN in the same account is split.
Where this is taught
Free preparation for NISM Series VIRelated terms
- NominationThe account holder's written direction naming who receives the securities on death — up to ten nominees for a demat account, with percentages that must total 100, mandatory for single holdings.
- First holderThe first-named holder of a joint demat account: all communications, dividend and interest warrants, annual reports and meeting notices go to them, though beneficial ownership vests in all joint holders.
- Ten-nominee ruleThe cap of ten nominees a demat account holder may name for a single-holding account, each given a percentage share of the securities that must together add up to 100 percent.