Functions of Depository Participant – Trading and Settlement
16 questions. Each answer is explained.
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Learn these topics
More units in NISM Series VI
- Introduction to the Indian Capital Market8
- Introduction to Depository12
- Depository and its Business Partners10
- Functions of Depository Participant – Account Opening18
- Functions of Depository Participant – Account Operations14
- Functions of Depository Participant – Transmission and Nomination14
- Functions of Depository Participant – Dematerialisation18
- Special Services – Pledge & Hypothecation12
- Special Services – Public Offering / Corporate Actions12
- Special Services – Debt Instruments & Government Securities6
- Foreign Portfolio Investors (FPI)4
- Investor Services6
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 VI Depository Operations
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 16 questions on Functions of Depository Participant – Trading and Settlement, with answers
Q1A holder transfers shares directly to another person as a gift without an exchange trade. Which transaction description is appropriate?
Option A. Off-market transfer — Correct answer
Option B. Transmission following death of the holder
Why it is wrong: The holder is making a voluntary gift rather than a succession transfer after death.
Option C. Dematerialisation of physical certificates
Why it is wrong: The existing electronic holding is being transferred, not converted from paper.
Option D. Market pay-in against an exchange settlement
Why it is wrong: The gift is not generated by an exchange trade obligation.
Answer: A. The ownership movement occurs outside an exchange-matched transaction and is therefore an off-market transfer. It still requires a valid instruction, correct account and security details and compliance with applicable reporting and charge requirements. “Off-market” describes the transaction route, not an exemption from controls. Remember: Classify the route by the underlying transaction, not by whether a depository entry occurs.
Hint, shown before you answer in practice mode: Common mistake: Assuming a gift between two people must go through an exchange trade.
VI-095easyapplication
Q2A BO moves eligible securities from an NSDL account to a CDSL account. Which additional transfer distinction is relevant?
Option A. It is an inter-depository transfer — Correct answer
Option B. It can occur only if the issuer changes its name
Why it is wrong: Issuer renaming is not a prerequisite for this transfer route.
Option C. It is necessarily a rematerialisation into paper
Why it is wrong: A cross-depository movement does not necessarily pass through physical form.
Option D. It is automatically a fresh allotment
Why it is wrong: Existing electronic holdings need not be newly issued.
Answer: A. An inter-depository transfer moves electronic holdings between accounts in different depositories through the applicable arrangements. A movement between two DPs within the same depository is not inter-depository merely because the intermediaries differ. The underlying transaction may be a same-owner movement or another permitted transfer. The depository distinction is separate. Remember: Different DPs and different depositories are not the same distinction.
Hint, shown before you answer in practice mode: Common mistake: Calling every change of DP an inter-depository transfer.
VI-096mediumapplication
Q3An exchange sale requires delivery into a specified settlement. The quantity and ISIN are correct, but the instruction carries the wrong settlement identifier. What is the principal risk?
Option A. The delivery may fail to meet the intended settlement obligation — Correct answer
Option B. The wrong identifier has no significance if the client is solvent
Why it is wrong: Solvency is not a substitute for correct settlement allocation.
Option C. The bank must treat the transaction as a dividend
Why it is wrong: Sale settlement and dividend payment are different flows.
Option D. The issuer automatically changes the share’s face value
Why it is wrong: A settlement reference does not initiate a capital restructuring.
Answer: A. Market delivery must be allocated to the correct settlement and participant details. A valid security and quantity sent against the wrong obligation may not satisfy the intended sale, producing a shortage or misallocation. Financial capacity does not correct an operational identifier error. Remember: Validate transaction context as well as asset and quantity.
Hint, shown before you answer in practice mode: Common mistake: Checking ISIN and quantity while treating settlement details as optional.
VI-097mediumapplication
Q4Assume a particular trade settles on T+1, counted in settlement business days. The trade is executed on Friday. Saturday, Sunday and Monday are non-settlement days. On which day is settlement due?
Option A. The following Friday
Why it is wrong: Waiting another week would add days not required by T+1.
Option B. Saturday
Why it is wrong: Saturday is expressly excluded as a settlement day.
Option C. Monday
Why it is wrong: Monday is also expressly excluded.
Option D. Tuesday — Correct answer
Answer: D. T+1 in this example means the next settlement business day, not the next calendar date. The three specified closed days are skipped, so Tuesday is the first available settlement day after Friday. The question states its cycle explicitly and does not claim that every market segment or trade uses the same cycle. Remember: Apply the stated settlement calendar, not calendar-day addition.
Hint, shown before you answer in practice mode: Common mistake: Ignoring settlement holidays when counting T+1.
VI-098mediumnumerical
Q5An account holds 1,000 shares of an ISIN: 250 are pledged and a separate 150 are debit-frozen. The remaining shares are free, with no other restrictions. What quantity is available for an ordinary delivery?
Option A. 600 shares — Correct answer
Option B. 850 shares
Why it is wrong: This deducts the freeze but ignores the pledge.
Option C. 750 shares
Why it is wrong: This deducts the pledge but ignores the separate freeze.
Option D. 1,000 shares
Why it is wrong: This treats all encumbered and frozen holdings as freely transferable.
Answer: A. The pledge and freeze affect separate quantities, so both must be deducted once: 1,000 − 250 − 150 = 600. Total holding is not the same as transferable free balance. If restrictions overlapped, simply adding them could double-count. The question explicitly states that they are separate. Remember: Calculate free balance from distinct restrictions without double-counting them.
Hint, shown before you answer in practice mode: Common mistake: Using total holdings as the available quantity for a debit.
VI-099hardnumerical
Q6Which pairing describes securities pay-in and securities pay-out in exchange settlement?
Option A. Pay-in: securities due to the buyer. Pay-out: securities delivered by the seller
Why it is wrong: This reverses the securities delivery directions relative to settlement.
Option B. Pay-in: only collection of funds. Pay-out: only paying out dividends to holders
Why it is wrong: The question asks for securities pay-in/pay-out, not solely cash movements or issuer benefits.
Option C. Pay-in: the seller delivers what it owes. Pay-out: securities due go to the buyer — Correct answer
Option D. Pay-in and pay-out: just two names for the step of submitting the same sale order
Why it is wrong: Order submission precedes settlement and is not synonymous with both delivery stages.
Answer: C. Pay-in brings the securities required to meet settlement obligations into the clearing/settlement process. Pay-out distributes securities due to the receiving side according to that process. The terminology concerns completion of trades and should not be confused with issuer cash benefits or account-administration events. Remember: Track the direction of delivery relative to the settlement obligation.
Hint, shown before you answer in practice mode: Common mistake: Using pay-in and pay-out as generic names for every account event.
VI-100easyconceptual
Q7Under NSE Clearing’s current direct securities pay-out framework, where is the normal client-level pay-out intended to be credited when validated demat details and other required conditions are available?
Option A. Directly to the client’s demat account — Correct answer
Option B. Always to the broker’s proprietary demat account first
Why it is wrong: A proprietary account is not the default destination for a client’s securities.
Option C. To the issuer’s treasury account
Why it is wrong: The issuer is not receiving back all client purchases through pay-out.
Option D. To an unrelated client’s account with the same broker
Why it is wrong: One client’s entitlement cannot be routinely credited to another client.
Answer: A. The current framework provides direct credit to validated client demat accounts, subject to specified exceptions and operational arrangements. An older description in which every client purchase first passes through a broker pool should not be treated as the universal current default. Correct client mapping remains essential. Remember: Use the current direct-client default while recognising that defined exceptions exist.
Hint, shown before you answer in practice mode: Common mistake: Learning an older broker-pool description as an exception-free rule.
VI-101mediumconceptual
Q8A direct client securities pay-out cannot be completed because the depository rejects the destination account details. What is the appropriate operational interpretation?
Option A. Assume the shares have automatically become the broker’s investment
Why it is wrong: Exception processing does not transfer the economic entitlement to the broker.
Option B. Treat the rejection as proof that the client has been fully credited
Why it is wrong: Rejection is not an effective credit.
Option C. Treat it under the prescribed exception-handling process and resolve the account issue — Correct answer
Option D. Replace the securities with an arbitrary cash amount without following the settlement rules
Why it is wrong: Cash substitution cannot be invented outside the governing settlement process.
Answer: C. Direct pay-out depends on valid account details and acceptance by the depository. NSE Clearing specifies exception cases, including depository rejection, for which the prescribed alternative handling applies. Staff must establish the actual outcome and rectify the cause. A rejected credit must not be represented to the client as a completed delivery. Remember: Distinguish normal routing, exception routing and final credited status.
Hint, shown before you answer in practice mode: Common mistake: Reporting successful delivery merely because the normal pay-out date has arrived.
VI-102hardapplication
Q9In a simplified net-settlement example for one client, ISIN and settlement, purchases total 420 shares and sales total 170 shares. Assume these trades are nettable and no other obligation exists. What is the net securities receivable?
Option A. 170 shares
Why it is wrong: 170 is only the sell quantity.
Option B. 250 shares — Correct answer
Option C. 590 shares
Why it is wrong: 590 is the sum of traded quantities rather than the net receivable.
Option D. 420 shares
Why it is wrong: 420 ignores the offsetting nettable sale.
Answer: B. Under the explicitly stated netting assumption, purchases create a receivable of 420 and sales offset it by 170, leaving 250 shares to receive. Gross trading volume is 590, but that is not the same as a net settlement obligation. Different settlements or non-nettable trades must not be combined using this shortcut. Remember: Use netting only within the scope in which it is permitted.
Hint, shown before you answer in practice mode: Common mistake: Confusing gross activity with the quantity due in settlement.
VI-103mediumnumerical
Q10A seller completes a correctly tagged early pay-in of the required securities. What operational risk does this most directly help reduce?
Option A. The risk that the issuer will ever report a loss in its accounts
Why it is wrong: Issuer profitability is not controlled by securities pay-in.
Option B. The need to match the delivered security to the correct settlement
Why it is wrong: An early but wrongly tagged delivery may still fail to meet the intended obligation.
Option C. All the price risk on every other position the client holds
Why it is wrong: An early delivery does not hedge every other market position.
Option D. The risk of not delivering those securities by the pay-in deadline — Correct answer
Answer: D. Providing the required securities in advance reduces the risk that a late or missing delivery prevents completion of the stated obligation. Identification and allocation controls still matter. This does not insure the client against unrelated market losses or remove the need for correct settlement tagging. Remember: Early completion reduces timing risk but does not replace accuracy.
Hint, shown before you answer in practice mode: Common mistake: Treating an advance transfer as adequate regardless of its settlement mapping.
VI-104mediumapplication
Q11What is the central purpose of interoperability among clearing corporations for eligible exchange trades?
Option A. To make each broker its own market regulator for all the trades it clears
Why it is wrong: Brokers do not become regulators through clearing choice.
Option B. To remove every obligation that clearing members and their clients have
Why it is wrong: Interoperability does not abolish delivery, payment or risk-management requirements.
Option C. To merge NSDL and CDSL so that each investor has one single demat account
Why it is wrong: Depository-account consolidation is a different issue.
Option D. To allow clearing through a chosen clearing corporation, within the rules — Correct answer
Answer: D. Interoperability links clearing arrangements across participating trading venues and clearing corporations under a regulated framework. It concerns where eligible trades are cleared, not automatic merger of depositories or the disappearance of risk controls. Client account identification and valid settlement obligations continue to matter. Remember: Keep exchange, clearing corporation and depository functions distinct.
Hint, shown before you answer in practice mode: Common mistake: Confusing clearing interoperability with an inter-depository securities transfer.
VI-105mediumconceptual
Q12A valid redemption instruction covers 240 demat mutual-fund units. For this illustration, the applicable redemption NAV is ₹52.50 and there is no exit load, tax or other deduction. What are the proceeds?
Option A. ₹12,840
Why it is wrong: ₹12,840 uses ₹53.50 rather than the stated NAV.
Option B. ₹12,600 — Correct answer
Option C. ₹12,000
Why it is wrong: ₹12,000 incorrectly values each unit at ₹50.
Option D. ₹52.50
Why it is wrong: ₹52.50 is the value of one unit, not all 240.
Answer: B. Proceeds equal units redeemed multiplied by the stated applicable NAV: 240 × ₹52.50 = ₹12,600. The question supplies the NAV and explicitly removes deductions, so no current cut-off or tax assumption is required. In an actual transaction, the applicable NAV and charges must be established under the scheme and regulatory rules. Remember: Calculate proceeds from the number of units and the applicable net redemption terms.
Hint, shown before you answer in practice mode: Common mistake: Multiplying by a displayed but inapplicable NAV from another date.
VI-106mediumnumerical
Q13A demat investor gives a valid redemption request for mutual-fund units. Which event distinguishes this from transferring the same units to another investor’s demat account?
Option A. Redemption merely changes the recipient account while leaving the investor’s fund units untouched
Why it is wrong: The redeemed units do not remain as an unchanged investment of the redeeming holder.
Option B. A redemption always increases the investor’s remaining unit balance
Why it is wrong: Redeeming units reduces the position being exited rather than increasing it.
Option C. Every demat transfer is necessarily a fund redemption
Why it is wrong: A gift or sale transfer can occur without the fund redeeming units.
Option D. Redemption exits the specified units through the fund’s process for proceeds — Correct answer
Answer: D. A transfer moves an existing holding to another account, whereas redemption processes the investor’s exit from the requested units through the fund/AMC arrangements. An accepted redemption is not merely a change in who holds the same transferable position. The two processes require different transaction codes, destinations and treatment. Remember: Identify whether the instruction changes the holder or exits units through the fund.
Hint, shown before you answer in practice mode: Common mistake: Using an ordinary transfer route for a redemption request.
VI-107hardapplication
Q14For a training example only, assume an off-market transfer charge is 0.02% of a declared consideration of ₹4,50,000. Ignore minimums, maximums and taxes. What is the charge?
Option A. ₹90 — Correct answer
Option B. ₹9
Why it is wrong: ₹9 understates the rate by a factor of ten.
Option C. ₹900
Why it is wrong: ₹900 uses 0.2%, ten times the stated rate.
Option D. ₹9,000
Why it is wrong: ₹9,000 uses 2%, one hundred times the stated rate.
Answer: A. Convert the percentage to decimal: 0.02% = 0.0002. Multiplying ₹4,50,000 by 0.0002 gives ₹90. This is an explicitly hypothetical charge, not a statement of the current Indian stamp-duty rate or a particular DP’s tariff. Actual transaction charges must be taken from the applicable rule and tariff. Remember: Distinguish a percentage from its decimal multiplier, and do not treat illustrative rates as current law.
Hint, shown before you answer in practice mode: Common mistake: Dropping the division by 100 when applying a percentage charge.
VI-108mediumnumerical
Q15A holder moves 500 shares between two demat accounts with exactly the same ownership pattern. No sale or corporate action occurs. What happens to that holder’s combined share quantity?
Option A. It remains 500 across the two accounts after completion — Correct answer
Option B. It becomes 500 shares in each of two different issuers
Why it is wrong: A transfer does not substitute the issuer or create another security.
Option C. It falls to zero because every debit is a sale
Why it is wrong: A debit can move custody location without a sale.
Option D. It doubles to 1,000 because both accounts show a transaction
Why it is wrong: A source debit and destination credit represent the same transferred quantity.
Answer: A. A completed same-owner movement debits the source and credits the target. It does not issue additional shares or sell the position in this scenario. Across both accounts, the economic quantity remains 500. Pending and completed entries must be distinguished during reconciliation to avoid temporary double-counting. Remember: Consolidated ownership is unchanged by a pure movement between matching own accounts.
Hint, shown before you answer in practice mode: Common mistake: Adding both sides of an internal transfer as separate holdings.
VI-109mediumnumerical
Q16A broker proposes to use Client A’s delivery securities temporarily to meet Client B’s shortage, without A’s authority. Which principle is violated?
Option A. A shortage at clearing automatically overrides the authority of the customer
Why it is wrong: A shortage creates a settlement problem, not a blanket right over unrelated client assets.
Option B. Securities of the same ISIN stop having any identifiable beneficial owner once pooled
Why it is wrong: Fungibility does not abolish distinct beneficial-owner records.
Option C. A broker becomes the owner of any security placed in its operational custody
Why it is wrong: Custody or operational access is not unrestricted beneficial ownership.
Option D. Client securities may be used only as authorised, not for another client’s obligation — Correct answer
Answer: D. Fungibility means units within an issue are interchangeable as securities. It does not erase ownership records or consent requirements. Intermediaries must not use one client’s assets to solve another client’s obligation without lawful authority. Operational convenience and a same-ISIN match do not justify diversion. Remember: Fungibility of securities is compatible with strict segregation of client entitlements.
Hint, shown before you answer in practice mode: Common mistake: Using fungibility as an excuse for cross-client asset substitution.
VI-110hardapplication
Functions of Depository Participant – Trading and Settlement: common questions
How many practice questions are there on Functions of Depository Participant – Trading and Settlement?
16 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 13 practice topics for NISM Series VI, which has 150 questions in total.
Are these real NISM Series VI questions on Functions of Depository Participant – Trading and Settlement?
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 VI?
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.
Special Services – Pledge & Hypothecation
12 questions on Special Services – Pledge & Hypothecation. Its quiz opens on that unit.
Open Special Services – Pledge & Hypothecation