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Unit study guide · NISM Series VI

Functions of Depository Participant – Account Opening

18 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

A prospective BO submits an account form with inconsistent identity details. A relationship manager asks the DP to activate it first and resolve the mismatch later. What is the appropriate response?

Customer due diligence must establish whose account is being opened and that the supporting details are consistent. Commercial urgency or an introduction does not cure a material mismatch. Temporary substitution of another person’s identity would undermine the entire ownership and audit trail, rather than provide a legitimate workaround. Remember: Account activation must follow satisfactory identification, not precede it as a sales favour.

Hint Common mistake: Treating KYC discrepancies as harmless clerical issues regardless of their effect on identity.

VI-031

From the practice bank · 2

Why should a BO provide accurate bank-account details in the demat account?

Bank details help the issuer/RTA route cash benefits to the investor. Securities and cash remain distinct records, so a correct bank mandate does not replace a demat identifier or authorise securities debits. Errors can result in failed or misdirected payment attempts even when the share balance itself is correct. Remember: Keep ownership data and payment mandates accurate for different operational reasons.

Hint Common mistake: Assuming a correct demat balance ensures that dividend payment details are also correct.

VI-032

From the practice bank · 3

Under the depository account-opening framework, how is a demat account for a minor ordinarily operated?

A minor can be the account holder, with a guardian handling the account under the applicable documentation and authority. The minor’s ownership should not be confused with the guardian’s separate personal holdings. The guardian relationship is recorded and must be revisited when the minor attains majority. Remember: Ownership in the minor’s name and authority of the guardian are separate facts.

Hint Common mistake: Putting a minor’s investment into an adult’s personal account as though it were equivalent.

VI-033

From the practice bank · 4

A minor BO reaches majority. What should the DP do before allowing operations on the adult-holder basis?

Attaining majority changes who can validly operate the account. The DP must complete the prescribed documentation and update the operating authority and relevant records. The securities do not become the guardian’s property, and the historical trail remains relevant. The precise account-continuation route must follow the depository’s current procedure. Remember: A change in legal capacity requires an update to the account’s authority framework.

Hint Common mistake: Treating a date-of-birth milestone as a change that needs no operational follow-through.

VI-034

From the practice bank · 5

A company asks the DP to act on instructions signed by an employee. What is the key authority check?

A company acts through authorised persons. The DP must verify the relevant resolution/mandate and the signatory details maintained for the account. Personal shareholding, familiarity or knowledge of an account number does not establish corporate authority to move the company’s securities. Remember: For a non-individual BO, verify both the entity and the human authorised to act for it.

Hint Common mistake: Equating an employee’s seniority or familiarity with a valid recorded mandate.

VI-035

From the practice bank · 6

For an HUF demat account, why is it important to distinguish the HUF from the Karta’s personal account?

The Karta operates in a representative capacity for the HUF. That does not make the HUF’s securities the Karta’s separate personal holding. Account naming, PAN and authority documentation must reflect the entity and representative correctly. This question does not assume a particular gender for the Karta or an outdated restriction on joint holders. Remember: Entity ownership must remain distinct from the individual authorised to represent it.

Hint Common mistake: Merging HUF and personal holdings because the same Karta gives instructions.

VI-036

From the practice bank · 7

Must an investor use the DP that is linked to the broker through whom the investor trades?

Broker selection and DP selection are separate customer choices. Operational arrangements must still ensure that settlement instructions are accurate and timely, but there is no general requirement that the broker and DP be the same provider. A firm may perform both roles if appropriately authorised. Remember: Convenient integration is an option, not proof of a mandatory provider tie.

Hint Common mistake: Believing a three-in-one account is the only possible market-access structure.

VI-037

From the practice bank · 8

An investor has sold all securities and has a nil demat balance. Does nil balance alone mean the account must immediately be closed?

A demat account records securities when held. It need not always contain a minimum quantity. A nil balance is different from a properly completed closure request. Applicable account charges and compliance requirements may continue while the account remains open, so the client should not confuse empty with closed. Remember: Zero holdings and account closure are different states.

Hint Common mistake: Assuming all account obligations stop automatically after selling the last holding.

VI-038

From the practice bank · 9

A settlement file contains an investor’s broker UCC and demat account identifier. Why must the mapping be checked rather than treating the two identifiers as interchangeable?

Trading-client identification and depository-account identification serve different systems. Correct linkage helps direct the securities to the intended beneficiary account. An error can obstruct or misdirect payout even when the trade itself was entered under the correct UCC. Verification of the mapped demat account is therefore a substantive control. Remember: Check the relationship between identifiers. Do not replace one with another.

Hint Common mistake: Using PAN, UCC, BO ID and ISIN as though they describe the same object.

VI-039

From the practice bank · 10

A BO gives a standing instruction to receive securities credits. What does that instruction normally permit?

A standing receipt instruction simplifies inward securities processing. It should not be read as an outward-transfer authorisation or a power to trade for the client. Debits continue to require the applicable valid instruction or authority, and client holdings remain segregated. Remember: Permission to credit an account is not permission to debit it.

Hint Common mistake: Interpreting a purchase waiver as a general power of attorney.

VI-040

From the practice bank · 11

A BO requests a debit-only freeze on the whole demat account. Which ordinary movement is restricted by that freeze?

A debit-only freeze blocks outward securities movements within its scope. It is distinct from a credit freeze or a freeze on both sides. The account can still hold the same beneficial interest, and the market value can change even though debit processing is restricted. Other independent restrictions, if present, must also be considered. Remember: Read the freeze’s direction and scope before deciding which instruction is permitted.

Hint Common mistake: Assuming the word “freeze” always means every account function stops.

VI-041

From the practice bank · 12

A CDSL account is frozen under a court order. The BO later sends a normal unfreeze request without any release from that authority. What should the DP do?

The authority that caused a freeze matters. A voluntary BO freeze can be handled through the BO’s prescribed release instruction, but a statutory-order freeze cannot be cancelled simply on customer request. The DP must respect the order and the required release authority. Shifting the account is not a lawful workaround. Remember: For unfreezing, verify not only identity but also the legal source of the freeze.

Hint Common mistake: Applying voluntary-freeze release rules to statutory freezes.

VI-042

From the practice bank · 13

A caller claiming to be the BO asks the DP to change the registered bank account immediately. What is the appropriate next step?

Payment-detail changes can redirect cash benefits and therefore need proper authentication and verification. Knowledge of holdings or caller identification is not a reliable substitute for the prescribed process. A control performed only after money is misdirected would not adequately protect the account. Remember: Sensitive account changes require authenticated instructions, not informal familiarity.

Hint Common mistake: Treating service speed as a reason to waive verification of payment details.

VI-043

From the practice bank · 14

For a standard closure-cum-transfer of a joint CDSL account held as A, B and C into another account of the same holders, which destination is appropriate?

The standard shifting/closure route requires the destination holders and their order to match. This shows that the transfer is a movement of the same ownership relationship rather than an undisclosed change in ownership. A different holder pattern needs the appropriate separate process. It is not cured merely by calling the request consolidation. Remember: For closure-cum-transfer, match holder identity and order as well as account number.

Hint Common mistake: Checking only that familiar names appear somewhere in the target account.

VI-044

From the practice bank · 15

Why is a target account’s Client Master Report useful in a closure-and-shift request?

The Client Master Report supplies authenticated account-identification and holder information for the proposed destination. It supports checking that securities will move to the intended account. It does not replace the source account holders’ valid closure instruction, remove encumbrances or promise a market outcome. Remember: Destination verification and source authorisation are separate requirements.

Hint Common mistake: Treating one supporting document as a substitute for every other closure control.

VI-045

From the practice bank · 16

A client declines to execute a Demat Debit and Pledge Instruction (DDPI) and offers to authorise deliveries through valid DIS/eDIS. Which response is consistent with the SEBI framework?

SEBI identifies DDPI as a voluntary document requiring explicit client consent and recognises physical or electronic delivery instructions as alternatives. The client must still meet settlement obligations through a valid process. Voluntary does not mean that delivery itself is optional. It means that this particular authorisation need not be imposed. Remember: An optional standing authority and the underlying settlement obligation are different things.

Hint Common mistake: Equating refusal of DDPI with refusal or inability to settle a sale.

VI-046

From the practice bank · 17

An investor’s residential status changes in a way relevant to the demat account category. What should the investor do?

An unchanged PAN does not mean that all regulatory and account attributes remain unchanged. The DP must receive the relevant status information and apply the appropriate documentation and account treatment. The specific repatriation and investment rules depend on the investor’s circumstances, so they should not be inferred solely from an identifier. Remember: Identity and regulatory account status are related but distinct data.

Hint Common mistake: Using a permanent identifier as a reason never to update customer classification.

VI-047

From the practice bank · 18

An applicant claims accredited-investor status but has not completed the applicable accreditation process. Which account-servicing approach is appropriate?

Accreditation is a formal status under the applicable framework, not a label that follows automatically from a customer’s assertion of wealth. Required evidence and verification must be completed before special treatment is applied. An ordinary demat account, trading identifier or self-reported portfolio value is not, by itself, proof of completed accreditation. Remember: Eligibility indicators are not the same as completed accreditation.

Hint Common mistake: Applying a special-investor treatment based only on a verbal claim.

VI-048