SEBI (Custodian) Regulations, 1996
4 questions. Each answer is explained.
Question 1 of 4Practice · Series III-A — Securities Intermediaries Compliance (Non-Fund)
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Learn these topics
More units in NISM Series III-A
- Introduction to the Financial System8
- Regulatory Framework – General View14
- Introduction to Compliance6
- Securities and Exchange Board of India Act, 199211
- Securities Contracts (Regulation) Act, 1956 and Rules, 19576
- SEBI (Intermediaries) Regulations, 20089
- SEBI (Prohibition of Insider Trading) Regulations, 20159
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 20039
- Prevention of Money Laundering Act, 200211
- SEBI (KYC Registration Agency) Regulations, 20113
- SEBI (Foreign Portfolio Investors) Regulations, 20195
- SEBI (Stock Brokers) Regulations, 19929
- SEBI (Merchant Bankers) Regulations 1992, etc.9
- SEBI (Issue of Capital and Disclosure Requirements) Regulations 20189
- Depositories Act 19963
- SEBI (Depositories and Participants) Regulations 20184
- SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 19934
- SEBI (Research Analyst) Regulations, 20143
- SEBI (Investment Advisers) Regulations, 20133
- SEBI (Debenture Trustees) Regulations, 19934
- SEBI (Credit Rating Agencies) Regulations, 19994
- Proxy Advisors3
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series III-A Securities Intermediaries Compliance (Non-Fund)
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 4 questions on SEBI (Custodian) Regulations, 1996, with answers
Q1Which activity is a typical part of custodial services for a client’s securities?
Option A. Selecting investments under an unrestricted discretionary mandate
Why it is wrong: Investment selection under a discretionary mandate describes portfolio management, not basic custody.
Option B. Safekeeping securities and processing client entitlements — Correct answer
Option C. Assessing the issuer’s creditworthiness and publishing a rating
Why it is wrong: Credit assessment and rating publication are rating-agency functions.
Option D. Processing issue applications and determining investor allotments
Why it is wrong: Issue application and allotment administration primarily describes the registrar’s role.
Answer: B. Custodial services include safekeeping and relevant administration of securities entitlements for clients. Remember: Custody concerns secure holding and administration, not guaranteed investment performance.
Hint, shown before you answer in practice mode: Common mistake: Confusing a custodian’s operational role with a portfolio manager’s investment role. Focus on holding assets and administering the rights attached to them.
III-A-144easyconceptual
Q2A custodian proposes using one client’s securities temporarily to meet another client’s delivery obligation without authority. Which requirement is directly threatened?
Option A. Assessment of whether each client’s investment is suitable
Why it is wrong: The direct issue is unauthorised use and segregation, not the suitability of an investment choice.
Option B. Timely publication of the issuer’s financial statements
Why it is wrong: No issuer financial-reporting failure is described.
Option C. Segregation of each client’s securities — Correct answer
Option D. Independent review of the security’s credit rating
Why it is wrong: A credit-rating review does not authorise the use of another client’s securities.
Answer: C. The proposal threatens client-asset separation because one client’s assets cannot simply be mixed or used as another’s. Remember: Operational convenience does not justify using one client’s assets for another.
Hint, shown before you answer in practice mode: Common mistake: Assuming a short-lived transfer creates no segregation problem. Consider whether each client’s assets remain available only for that client’s authorised purposes.
III-A-145mediumapplication
Q3Which matter must the custodian’s agreement with a client address under regulation 17?
Option A. The stock-selection rules for discretionary portfolio decisions
Why it is wrong: A basic custody agreement does not itself provide discretionary portfolio-management powers.
Option B. Conditions for accepting or releasing assets and monies — Correct answer
Option C. The eligibility rules for underwriting a company’s public issue
Why it is wrong: Issue underwriting is a separate intermediary function.
Option D. The methodology used to assign the issuer a credit rating
Why it is wrong: A credit-rating methodology is not the custody-agreement matter specified by regulation 17.
Answer: B. The agreement must specify relevant conditions for accepting or releasing securities, assets and monies, among other prescribed matters. Remember: The custody agreement should clearly define operational authority and responsibilities.
Hint, shown before you answer in practice mode: Common mistake: Treating custody as asset possession without an agreed authority framework. Think about the agreed authority governing movements into and out of custody.
III-A-146mediumregulatory
Q4A custody-only client gives no investment discretion. The custodian sees a price fall and wants to sell the client’s shares for protection. What should it do?
Option A. Sell because a falling price automatically creates discretion
Why it is wrong: A market movement does not by itself grant investment discretion.
Option B. Sell because safeguarding assets always includes investment selection
Why it is wrong: Safekeeping does not automatically include discretionary investment decisions.
Option C. Sell and treat a later account statement as prior authorisation
Why it is wrong: A later statement does not establish the required prior client authority.
Option D. Obtain valid client authority before selling — Correct answer
Answer: D. The custodian must obtain valid authority because a custody-only mandate does not itself authorise discretionary investment decisions. Remember: Act within the custody mandate rather than expanding it during market stress.
Hint, shown before you answer in practice mode: Common mistake: Assuming a protective intention permits an unauthorised sale. Separate safekeeping authority from authority to choose an investment transaction.
III-A-147hardapplication
SEBI (Custodian) Regulations, 1996: common questions
How many practice questions are there on SEBI (Custodian) Regulations, 1996?
4 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 23 practice topics for NISM Series III-A, which has 150 questions in total.
Are these real NISM Series III-A questions on SEBI (Custodian) Regulations, 1996?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series III-A?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Proxy Advisors
3 questions on Proxy Advisors. Its quiz opens on that unit.
Open Proxy AdvisorsPaper Trading Try it on the practice trading desk