Unit study guide · NISM Series III-A
Depositories Act 1996
3 questions in this unit
What this unit covers
- For securities held through a depository, who is entitled to their ownership benefits and related liabilities?
- What does fungibility mean for equivalent securities of the same class held in dematerialised form?
- An investor wants to create a pledge over dematerialised securities. Which route is consistent with the depository framework?
Key ideas
From the practice bank · 1
For securities held through a depository, who is entitled to their ownership benefits and related liabilities?
The beneficial owner gets the rights, the benefits and the liabilities that come with the securities. Section 10 says so. Remember: The depository is shown as the registered owner only to make transfers work. The beneficial owner is the real owner.
Hint Common mistake: Thinking the depository keeps the investor’s dividends and votes for itself. Keep the investor’s rights apart from the depository’s job of moving shares.
III-A-119From the practice bank · 2
What does fungibility mean for equivalent securities of the same class held in dematerialised form?
Fungibility means each unit is the same as any other unit of that kind. One can be swapped for another. No unit is tied to its own paper certificate. Remember: Fungibility applies to units that are the same, not to every security in a demat account.
Hint Common mistake: Thinking fungibility lets you swap shares of two different companies. Compare only units of the same security and the same class.
III-A-120From the practice bank · 3
An investor wants to create a pledge over dematerialised securities. Which route is consistent with the depository framework?
The investor should use the set process through the depository participant. That way the pledge is properly recorded. Remember: A pledge on demat shares must go through the set process and be recorded.
Hint Common mistake: Thinking that holding an account statement is enough to create a pledge. Think about how the pledge gets written into the electronic record.
III-A-121