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Unit study guide · NISM Series VI

Functions of Depository Participant – Dematerialisation

18 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

An issuer has ordinary equity and a separate admitted debenture issue. What should the DP use to distinguish the two securities in an instruction?

An ISIN is a code for one security issue. A company name or a customer ID does a different job. Two securities from the same issuer should not be treated as the same. A matching company name does not change that. Getting the security right is essential for demat, transfers, pledges and corporate actions. Remember: Identify both the owner’s account and the exact security being processed.

Hint Common mistake: Matching an issuer name but ignoring the instrument or series.

VI-077

From the practice bank · 2

A client submits physical certificates of two different companies with one DRF. What is the appropriate preparation of the requests?

Demat requests must distinguish securities by ISIN. A common owner does not allow holdings in different issues to be combined under one security identifier. Separate requests also allow the correct issuer or RTA to verify the certificates and respond without mixing unrelated records. Remember: Prepare demat requests at the correct security level.

Hint Common mistake: Grouping all paper holdings together solely because the demat account is the same.

VI-078

From the practice bank · 3

A company’s securities are unlisted but the relevant issue has been admitted to the depository system. Which statement is correct?

Listing and depository admission are different arrangements. An admitted unlisted security can be held in electronic form subject to the applicable conditions. Electronic holding does not itself create exchange listing, or a change in the instrument’s character. Remember: Distinguish eligibility for electronic holding from eligibility for exchange trading.

Hint Common mistake: Assuming “demat” and “listed” mean the same thing.

VI-079

From the practice bank · 4

A client holds three physical certificates of the same free ISIN: 100, 200 and 500 shares. The client wants to dematerialise 300 shares without first subdividing any certificate. Which selection achieves this?

The client can choose whole certificates for demat. Part of one certificate cannot be handed in as if it had been split first. The full 100-share and 200-share certificates make up 300 shares. The other 500-share certificate stays physical. Rematerialisation is different. It can take a chosen number of shares out of a fungible demat balance. Remember: Choose whole certificates whose quantities equal the intended demat amount.

Hint Common mistake: Confusing partial demat of a portfolio with partial surrender of one certificate.

VI-080

From the practice bank · 5

Physical certificates are held by A and B, but their joint demat account is ordered B and A. Both remain the same owners. Which facility addresses the holder-order difference while converting the certificates?

Transposition changes the order of the same joint holders without substituting a new owner. Combined with dematerialisation, it can align the certificate holding pattern with the demat account through the prescribed request. Transmission concerns a legal succession event, while pledge invocation and fresh allotment arise from different transactions. Remember: Transposition reorders the same holders. It is not a sale to a new person.

Hint Common mistake: Using transmission terminology whenever account names appear in a different order.

VI-081

From the practice bank · 6

A and B are named on physical certificates. A asks to use transposition-cum-demat to credit an account held by A and C instead. What is the defect?

Transposition preserves the set of holders and changes their sequence. Replacing B with C changes ownership and cannot be achieved by misdescribing it as transposition. The appropriate ownership-change procedure and supporting documents must be considered separately. One common name is not sufficient. Remember: Compare the full holder set, not just the first or a shared name.

Hint Common mistake: Using transposition to bypass a genuine change of ownership.

VI-082

From the practice bank · 7

Physical certificates remain in a deceased holder’s name. An entitled claimant wishes to obtain the securities directly in electronic form after supplying the required succession documents. Which combined process is relevant?

The combined facility addresses both the change arising from the holder’s death and the conversion from physical certificates into electronic holdings. The claimant’s entitlement must be established through the required documents. Dematerialisation alone cannot be used to ignore the difference between the deceased registered holder and the successor. Remember: Combine the correct legal-event process with the correct form-conversion process.

Hint Common mistake: Treating a deceased-holder certificate as an ordinary certificate in the claimant’s own name.

VI-083

From the practice bank · 8

A certificate is subject to a lock-in that has not expired. What is the effect of a permitted dematerialisation on that restriction?

Dematerialisation changes how the security is recorded, not the remaining legal restriction on its transfer. Lock-in details must be captured and maintained in the electronic system. Free and locked-in holdings require the appropriate separate treatment so that conversion does not accidentally create a freely transferable balance. Remember: Form conversion must preserve restrictions attached to the holding.

Hint Common mistake: Believing paper restrictions disappear when the paper is cancelled.

VI-084

From the practice bank · 9

While processing ordinary equity certificates for dematerialisation, why must prescribed defacing be done without obscuring important certificate details?

The certificate is marked, or defaced, in the prescribed way. This stops it from being wrongly used again after it is handed in. But its identifying details must still be readable. The issuer or RTA needs them to verify the holding and match the records. Defacing is a controlled way to cancel the paper. It gives no power to change the investor’s holding. Certificates of government securities have their own procedure. Do not assume this equity case applies to them. Remember: Preserve evidence while preventing surrendered certificates from circulating again.

Hint Common mistake: Obliterating verification details while trying to cancel a certificate.

VI-085

From the practice bank · 10

The RTA finds that a certificate number submitted with a DRF does not match its valid records. What is the appropriate response to the discrepancy?

A signed request establishes an instruction but not the validity of the claimed security. The issuer/RTA verification is an essential stage, and a record mismatch needs resolution under the rejection or clarification process. Fabricating an identifier or substituting another issue would create unsupported holdings. Remember: Authority to request and evidence of a valid holding must both be established.

Hint Common mistake: Treating acceptance of paperwork as final confirmation of the securities.

VI-086

From the practice bank · 11

A BO has 900 free demat shares. A request for another 250 physical shares is pending with the RTA and has not been credited. With no other restrictions, how many shares are currently available from the demat balance for delivery?

Only the credited free balance is available for the stated delivery. A pending demat request is not an additional settled holding. The current balance is therefore 900, not 900 + 250. If and when the request is confirmed and credited without a restriction, availability can be recalculated. Remember: Do not include pending conversions in an available-delivery calculation.

Hint Common mistake: Counting securities twice across a request register and the holdings ledger.

VI-087

From the practice bank · 12

Which request starts the standard process of converting an eligible demat holding back into physical certificates?

Rematerialisation is the reverse holding-form conversion and uses the prescribed RRF. The DP and issuer/RTA process the request, debit the electronic balance as applicable and arrange the physical holding. The request is not a market sale, change of nominee or new issue subscription. Remember: Use RRF for demat-to-physical conversion and DRF for the reverse direction.

Hint Common mistake: Selecting a form based only on the fact that securities leave the demat balance.

VI-088

From the practice bank · 13

An investor has 1,200 free shares in demat and completes rematerialisation of 350. No other transaction occurs. What electronic balance remains?

Rematerialisation reduces the electronic holding by the quantity converted. The balance is 1,200 − 350 = 850 shares. The investor still holds the converted 350 in physical form after completion. They are not an additional electronic credit and should not remain counted in both records. Remember: Reconcile both forms after conversion without double-counting ownership.

Hint Common mistake: Thinking rematerialisation creates a second copy of the securities.

VI-089

From the practice bank · 14

An investor asks for the exact old certificate and distinctive numbers originally surrendered years ago. What should the DP explain about rematerialisation?

Demat holdings are fungible electronic balances. Fungible means any unit can stand in for any other unit of the same security. The depository does not store the exact paper the investor first handed in. That paper was cancelled. Rematerialisation makes physical securities. It follows the issuer’s current process. The certificates get new details, as applicable. It does not bring back an old certificate that was kept aside. Remember: Fungible electronic holdings do not preserve the identity of old physical certificates.

Hint Common mistake: Treating the depository as a vault of the investor’s original papers.

VI-090

From the practice bank · 15

A holder asks to rematerialise shares that remain subject to an active pledge. Which condition must be addressed first for that quantity?

A physical conversion should not be used to defeat an encumbrance on the electronic holding. The pledge/lien must be closed or released as required before the affected quantity is available for rematerialisation. The holder’s RRF does not represent consent from the secured party, and client assets are not interchangeable across owners. Remember: Check encumbrances before processing an outward conversion.

Hint Common mistake: Assuming changing from demat to paper removes a lender’s security interest.

VI-091

From the practice bank · 16

A mutual-fund investor holds units in Statement of Account form and wants the same units credited to a demat account with matching holders. Which process is relevant?

Destatementisation converts the record of existing mutual-fund units from SOA form into demat form through the prescribed request and RTA confirmation. It is not a redemption, switch or new investment. Scheme/ISIN identity and holder pattern must remain consistent with the units being converted. Remember: SOA-to-demat conversion preserves the investment while changing its holding record.

Hint Common mistake: Assuming every removal of units from an SOA is a redemption.

VI-092

From the practice bank · 17

A holder converts mutual-fund units from demat into Statement of Account form without redeeming. What should the holder expect?

Restatementisation reverses the demat-record form for mutual-fund units. The units continue as an investment recorded outside the demat account under the fund’s SOA process. Because there is no redemption in the scenario, neither a sale price nor a redemption cash credit should be inferred solely from the demat debit. Remember: A debit in the demat record can be a form conversion rather than a sale.

Hint Common mistake: Looking only at the debit and assuming the investor has exited the fund.

VI-093

From the practice bank · 18

An investor holds units of an Alternative Investment Fund in demat form. Which statement correctly describes the asset shown in that investor’s demat account?

The investor owns units of the fund. The fund’s investments are separate assets held under the fund’s arrangements. Recording units electronically does not pass each portfolio security directly into every unitholder’s demat account. Demat form also does not itself make a unit exchange-listed or convert NAV into a withdrawable bank deposit. Remember: Identify the security represented by the demat entry, rather than substituting its underlying investments.

Hint Common mistake: Confusing dematerialised fund units with a direct allocation of the entire fund portfolio.

VI-094
Liquidity

Liquidity describes how easily a given quantity can be traded.

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