Introduction to Depository
12 questions. Each answer is explained.
Question 1 of 10Practice · Series VI — Depository Operations
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Learn these topics
More units in NISM Series VI
- Introduction to the Indian Capital Market8
- 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
- Functions of Depository Participant – Trading and Settlement16
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 12 questions on Introduction to Depository, with answers
Q1Which difficulty of physical certificates is most directly reduced by holding securities in demat form?
Option A. Loss, theft or forgery of the paper certificate — Correct answer
Option B. Changes in the investor’s tax position
Why it is wrong: Tax consequences depend on law and transactions, not simply on removal of paper.
Option C. The issuer’s business losses
Why it is wrong: The issuer’s financial performance is independent of the form in which shares are held.
Option D. A fall in the market price of the security
Why it is wrong: Dematerialisation does not prevent market prices from falling.
Answer: A. Electronic book-entry holdings remove the need to keep and deliver individual paper certificates. That directly addresses paper-related risks such as loss and forgery. It does not insure against a poor investment outcome, issuer default or tax liabilities. Safer recordkeeping and safer investment performance are different ideas. Remember: Depository infrastructure reduces certificate and transfer frictions, not all investment risk.
Hint, shown before you answer in practice mode: Common mistake: Equating an electronic holding with a guaranteed investment.
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Q2An investor wants an electronic record of ownership in admitted shares and bonds, not an interest-bearing cash deposit. Which institution performs the central securities-recording function through its participants?
Option A. A securities depository — Correct answer
Option B. A credit-rating agency
Why it is wrong: A rating agency assesses creditworthiness rather than maintaining BO balances.
Option C. An insurance repository holding only insurance policies
Why it is wrong: An insurance repository concerns insurance policies, not this securities portfolio.
Option D. A commercial bank acting only as deposit-taker
Why it is wrong: A bank deposit is a money claim. The question asks about admitted securities ownership records.
Answer: A. A securities depository maintains electronic holdings and supports changes to those holdings through its participants. The everyday word deposit should not cause confusion with a bank cash deposit. A demat account records securities units and their status. Interest, where relevant, arises from the underlying security’s terms rather than from keeping it in the depository. Remember: Identify the asset being recorded before choosing the relevant infrastructure provider.
Hint, shown before you answer in practice mode: Common mistake: Assuming “depository” is another word for an ordinary savings bank.
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Q3For securities held through a depository, who is treated as registered owner for the limited purpose of effecting transfers?
Option A. The depository participant
Why it is wrong: The DP services the account. The law does not make it a stand-in for the depository as registered owner.
Option B. The beneficial owner
Why it is wrong: The BO keeps the beneficial rights. But section 10 gives the limited role of registered owner to the depository.
Option C. The clearing member
Why it is wrong: A clearing member does not hold the registered-owner role for every depository security.
Option D. The depository — Correct answer
Answer: D. The Act keeps two kinds of ownership apart. One is limited registered ownership. The other is beneficial ownership. The depository is deemed the registered owner, but only to carry out transfers. The beneficial owner has the rights tied to the securities. That owner also bears the liabilities tied to them. This limited registration does not make the depository the real investor. Remember: Limited registered ownership facilitates book-entry transfer. It is not beneficial ownership.
Hint, shown before you answer in practice mode: Common mistake: Assuming that whoever is registered for transfers also holds the investor's full ownership rights.
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Q4Who normally retains the voting rights attached to ordinary shares held in a demat account?
Option A. The clearing corporation permanently after settlement
Why it is wrong: Settlement infrastructure does not retain permanent shareholder rights after delivery.
Option B. The DP merely because it maintains the account
Why it is wrong: Account maintenance does not transfer the customer’s vote to the DP.
Option C. The depository merely because it is registered owner
Why it is wrong: Section 10 expressly distinguishes the depository’s transfer role from voting rights.
Option D. The beneficial owner — Correct answer
Answer: D. The beneficial owner remains the investor entitled to the rights attached to the shares. The depository’s registered-owner status is limited to transfer facilitation and does not grant it voting rights. A DP may provide access to services, but servicing an account is not the same as acquiring the customer’s shareholder rights. Remember: Electronic custody does not surrender the investor’s corporate rights.
Hint, shown before you answer in practice mode: Common mistake: Confusing the entity maintaining records with the person entitled to vote.
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Q5Two investors each hold fully paid shares of the same class under the same ISIN. Why does an electronic transfer not require matching the original certificate numbers?
Option A. The original certificate numbers remain mandatory for every debit
Why it is wrong: Because demat units are fungible, a transfer does not need to track particular old certificates.
Option B. The dematerialised units are held in fungible form — Correct answer
Option C. The DP substitutes a new issue for each transferred unit
Why it is wrong: A transfer moves existing units. It does not issue a different security.
Option D. Fungibility eliminates the need to distinguish beneficial owners
Why it is wrong: The units can be swapped. But they still belong to beneficial owners with separate records.
Answer: B. Fungibility means equal units of the same admitted security can replace each other. This is how the depository record treats them. So a holding is known by its security and its quantity. The identity of each old paper certificate is not kept. Different classes of security, or different ISINs, must still be kept apart. Remember: Interchangeability applies within the same security, not across unrelated ISINs.
Hint, shown before you answer in practice mode: Common mistake: Thinking loss of certificate numbers means loss of the ownership trail.
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Q6A demat statement shows 600 shares under an ISIN. Which information is the statement primarily evidence of?
Option A. The recorded quantity and status of securities held in the account — Correct answer
Option B. A guarantee that the entire quantity is free of all restrictions
Why it is wrong: The quantity can include blocked or encumbered holdings whose status must be checked.
Option C. Every exchange order the investor has entered, whether executed or not
Why it is wrong: Unexecuted orders do not necessarily appear as securities holdings.
Option D. The amount of cash available in the investor’s bank account
Why it is wrong: A securities statement is not a bank-account balance statement.
Answer: A. The statement is an ownership and transaction record. It helps the investor verify quantity, credits, debits and restrictions reflected in the system. It does not promise a sale price, dividend or freedom from a court or regulatory restriction. Quantity and available quantity may also differ where some units are pledged or frozen. Remember: Read balances together with their status. A statement is not a performance guarantee.
Hint, shown before you answer in practice mode: Common mistake: Using total holdings as proof of unrestricted sale availability.
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Q7A beneficial owner proves loss caused by a DP’s negligence within section 16 of the Depositories Act. What does that provision contemplate?
Option A. The stock exchange automatically repays every market loss on the owner’s shares in full
Why it is wrong: The question is about proven negligent service. It is not about paying back all market losses.
Option B. Payment, but only if the issuer has first declared sufficient dividends for that year
Why it is wrong: This payment does not depend on the issuer’s dividend policy.
Option C. No indemnification, because only the DP and not the depository dealt with the investor
Why it is wrong: The Act deals directly with a participant’s negligence within this framework.
Option D. The depository indemnifies the owner and can recover the amount from the negligent DP — Correct answer
Answer: D. Section 16 provides for indemnification, which means making good a loss. It covers a loss caused by negligence of the depository or a participant. Negligence means not taking proper care. Suppose a participant caused the loss and the depository made it good. The depository can then recover the amount from that participant. This protection comes from the law and rests on negligence. It is not general insurance against an investor’s trading losses. Remember: Distinguish a negligence claim from a loss caused by market movement.
Hint, shown before you answer in practice mode: Common mistake: Promising depository compensation for any investment that performs badly.
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Q8Under the Depositories Act, depository bye-laws regulating its operations are made subject to whose previous approval?
Option A. Each issuer’s stock exchange’s
Why it is wrong: The law requires approval for all depository bye-laws. A single stock exchange does not give it.
Option B. SEBI’s — Correct answer
Option C. The Reserve Bank of India’s
Why it is wrong: The part of the Depositories Act cited here asks for SEBI’s prior approval.
Option D. The Ministry of Corporate Affairs’ alone
Why it is wrong: The MCA’s role does not replace SEBI’s approval that section 26 requires.
Answer: B. The Act lets a depository make bye-laws, which are its detailed working rules. The bye-laws must fit the Act and the regulations. They also need SEBI’s previous approval. This ties the working rules to the supervision set up by law. So a depository’s own rule-making has limits. It cannot be used to set aside investor rights or regulatory directions. Remember: Operational bye-laws sit below the Act and regulations and require regulatory approval.
Hint, shown before you answer in practice mode: Common mistake: Treating a depository’s operating rules as unregulated private preferences.
VI-016mediumregulatory
Q9Why must a depository and an issuer/RTA exchange and reconcile securities information?
Option A. To make sure demat holdings match the issuer’s own securities records — Correct answer
Option B. To replace all issuer records with the trade book kept by the stock broker
Why it is wrong: A broker’s trade book is not a substitute for the issuer and depository records.
Option C. To let the DP decide which investors get the next dividend
Why it is wrong: Entitlements follow the issuer’s terms and applicable holdings, not DP preference.
Option D. To keep one uniform market price for the share at both of the depositories
Why it is wrong: Reconciliation concerns quantities and records, not fixing market prices.
Answer: A. An electronic holding must correspond to securities validly recorded by the issuer. Information exchange and reconciliation help identify differences in balances or processing, including dematerialisation and corporate actions. They protect record integrity rather than determining market prices or allowing a service provider to alter entitlements at will. Remember: Reconciliation is a control over completeness and accuracy across connected records.
Hint, shown before you answer in practice mode: Common mistake: Assuming one successful system entry proves all connected records agree.
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Q10A shareholder converts 250 paper shares into 250 demat shares in the same ownership. What changes solely because of this conversion?
Option A. The shareholder necessarily sells the shares to the DP
Why it is wrong: The DP is a processing intermediary, not the purchaser in this scenario.
Option B. The company’s issued share capital necessarily increases by 250
Why it is wrong: Conversion of existing shares does not itself create fresh issued capital.
Option C. The form in which the holding is recorded — Correct answer
Option D. The shareholder automatically acquires an additional 250 shares
Why it is wrong: A credit replaces the paper representation. It is not an extra holding in addition to it.
Answer: C. Dematerialisation converts the existing holding into electronic form. With the same owner and quantity, there is neither a sale to the DP nor a new issue merely because the form changes. The issuer cancels the surrendered physical representation and confirms the corresponding electronic credit, avoiding double representation. Remember: Conversion of form must not be mistaken for creation or transfer of ownership.
Hint, shown before you answer in practice mode: Common mistake: Adding the demat credit to the still-visible paper certificate as if both remain valid holdings.
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Q11A client’s company securities are held through DP A. Must the client open a different demat account for every additional issuer admitted to that depository?
Option A. Yes. Each issuer requires a separate BO account
Why it is wrong: The account can hold multiple admitted issues.
Option B. Yes. Shares and all admitted bonds must always use separate BO accounts
Why it is wrong: The cited depository facilities allow admitted debt alongside other securities.
Option C. No. The different issuers are recorded under one common ISIN
Why it is wrong: One account can contain multiple securities, but each issue retains its own identifier.
Option D. No. One demat account can hold securities of multiple admitted issuers — Correct answer
Answer: D. A demat account can hold multiple admitted securities, with each security tracked separately. Convenience at the account level does not merge the legal identity or balance of different issuers. The account holder should still check the correct ISIN, quantity and holding status for each line item. Remember: One account can contain many securities without losing security-level identification.
Hint, shown before you answer in practice mode: Common mistake: Confusing a demat account identifier with an ISIN.
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Q12A BO authorises transfer of 40 existing shares to another BO. Which description fits the depository’s core role?
Option A. Setting the interest rate on a loan taken against the transferred shares
Why it is wrong: Loan pricing belongs to the lender’s arrangement, not routine securities transfer.
Option B. Approving the issuer’s financial statements before each transfer goes through
Why it is wrong: Financial-statement approval is not the depository’s role in every authorised transfer.
Option C. Recording the authorised debit and the matching credit as book entries — Correct answer
Option D. Matching buyers’ bids with sellers’ offers to discover a fair price
Why it is wrong: Order matching is a trading-market function, not the book-entry function stated.
Answer: C. The depository system effects authorised ownership movements through debit and credit entries, subject to controls and available balances. It is not the commercial counterparty setting the price or promising a return. It also does not decide how the new beneficial owner will exercise shareholder rights. Remember: Distinguish infrastructure that records a transaction from parties that decide its commercial terms.
Hint, shown before you answer in practice mode: Common mistake: Treating an accepted transfer instruction as an endorsement of the investment.
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Introduction to Depository: common questions
How many practice questions are there on Introduction to Depository?
12 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 Introduction to Depository?
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.
Depository and its Business Partners
10 questions on Depository and its Business Partners. Its quiz opens on that unit.
Open Depository and its Business Partners