Unit study guide · NISM Series III-A
SEBI (Custodian) Regulations, 1996
4 questions in this unit
What this unit covers
- Which activity is a typical part of custodial services for a client’s securities?
- A custodian proposes using one client’s securities temporarily to meet another client’s delivery obligation without authority. Which requirement is directly threatened?
- Which matter must the custodian’s agreement with a client address under regulation 17?
- A 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?
Key ideas
From the practice bank · 1
Which activity is a typical part of custodial services for a client’s securities?
Custodial services include safekeeping and relevant administration of securities entitlements for clients. Remember: Custody concerns secure holding and administration, not guaranteed investment performance.
Hint 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-144From the practice bank · 2
A custodian proposes using one client’s securities temporarily to meet another client’s delivery obligation without authority. Which requirement is directly threatened?
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 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-145From the practice bank · 3
Which matter must the custodian’s agreement with a client address under regulation 17?
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 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-146From the practice bank · 4
A 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?
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 Common mistake: Assuming a protective intention permits an unauthorised sale. Separate safekeeping authority from authority to choose an investment transaction.
III-A-147