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Unit study guide · NISM Series VI

Functions of Depository Participant – Trading and Settlement

16 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

A holder transfers shares directly to another person as a gift without an exchange trade. Which transaction description is appropriate?

The ownership movement occurs outside an exchange-matched transaction and is therefore an off-market transfer. It still requires a valid instruction, correct account and security details and compliance with applicable reporting and charge requirements. “Off-market” describes the transaction route, not an exemption from controls. Remember: Classify the route by the underlying transaction, not by whether a depository entry occurs.

Hint Common mistake: Assuming a gift between two people must go through an exchange trade.

VI-095

From the practice bank · 2

A BO moves eligible securities from an NSDL account to a CDSL account. Which additional transfer distinction is relevant?

An inter-depository transfer moves electronic holdings between accounts in different depositories through the applicable arrangements. A movement between two DPs within the same depository is not inter-depository merely because the intermediaries differ. The underlying transaction may be a same-owner movement or another permitted transfer. The depository distinction is separate. Remember: Different DPs and different depositories are not the same distinction.

Hint Common mistake: Calling every change of DP an inter-depository transfer.

VI-096

From the practice bank · 3

An exchange sale requires delivery into a specified settlement. The quantity and ISIN are correct, but the instruction carries the wrong settlement identifier. What is the principal risk?

Market delivery must be allocated to the correct settlement and participant details. A valid security and quantity sent against the wrong obligation may not satisfy the intended sale, producing a shortage or misallocation. Financial capacity does not correct an operational identifier error. Remember: Validate transaction context as well as asset and quantity.

Hint Common mistake: Checking ISIN and quantity while treating settlement details as optional.

VI-097

From the practice bank · 4

Assume a particular trade settles on T+1, counted in settlement business days. The trade is executed on Friday. Saturday, Sunday and Monday are non-settlement days. On which day is settlement due?

in this example means the next settlement business day, not the next calendar date. The three specified closed days are skipped, so Tuesday is the first available settlement day after Friday. The question states its cycle explicitly and does not claim that every market segment or trade uses the same cycle. Remember: Apply the stated settlement calendar, not calendar-day addition.

Hint Common mistake: Ignoring settlement holidays when counting T+1.

VI-098

From the practice bank · 5

An account holds 1,000 shares of an ISIN: 250 are pledged and a separate 150 are debit-frozen. The remaining shares are free, with no other restrictions. What quantity is available for an ordinary delivery?

The pledge and freeze affect separate quantities, so both must be deducted once: 1,000 − 250 − 150 = 600. Total holding is not the same as transferable free balance. If restrictions overlapped, simply adding them could double-count. The question explicitly states that they are separate. Remember: Calculate free balance from distinct restrictions without double-counting them.

Hint Common mistake: Using total holdings as the available quantity for a debit.

VI-099

From the practice bank · 6

Which pairing describes securities pay-in and securities pay-out in exchange settlement?

Pay-in brings the securities required to meet settlement obligations into the clearing/settlement process. Pay-out distributes securities due to the receiving side according to that process. The terminology concerns completion of trades and should not be confused with issuer cash benefits or account-administration events. Remember: Track the direction of delivery relative to the settlement obligation.

Hint Common mistake: Using pay-in and pay-out as generic names for every account event.

VI-100

From the practice bank · 7

Under NSE Clearing’s current direct securities pay-out framework, where is the normal client-level pay-out intended to be credited when validated demat details and other required conditions are available?

The current framework provides direct credit to validated client demat accounts, subject to specified exceptions and operational arrangements. An older description in which every client purchase first passes through a broker pool should not be treated as the universal current default. Correct client mapping remains essential. Remember: Use the current direct-client default while recognising that defined exceptions exist.

Hint Common mistake: Learning an older broker-pool description as an exception-free rule.

VI-101

From the practice bank · 8

A direct client securities pay-out cannot be completed because the depository rejects the destination account details. What is the appropriate operational interpretation?

Direct pay-out depends on valid account details and acceptance by the depository. NSE Clearing specifies exception cases, including depository rejection, for which the prescribed alternative handling applies. Staff must establish the actual outcome and rectify the cause. A rejected credit must not be represented to the client as a completed delivery. Remember: Distinguish normal routing, exception routing and final credited status.

Hint Common mistake: Reporting successful delivery merely because the normal pay-out date has arrived.

VI-102

From the practice bank · 9

In a simplified net-settlement example for one client, ISIN and settlement, purchases total 420 shares and sales total 170 shares. Assume these trades are nettable and no other obligation exists. What is the net securities receivable?

Under the explicitly stated netting assumption, purchases create a receivable of 420 and sales offset it by 170, leaving 250 shares to receive. Gross trading volume is 590, but that is not the same as a net settlement obligation. Different settlements or non-nettable trades must not be combined using this shortcut. Remember: Use netting only within the scope in which it is permitted.

Hint Common mistake: Confusing gross activity with the quantity due in settlement.

VI-103

From the practice bank · 10

A seller completes a correctly tagged early pay-in of the required securities. What operational risk does this most directly help reduce?

Providing the required securities in advance reduces the risk that a late or missing delivery prevents completion of the stated obligation. Identification and allocation controls still matter. This does not insure the client against unrelated market losses or remove the need for correct settlement tagging. Remember: Early completion reduces timing risk but does not replace accuracy.

Hint Common mistake: Treating an advance transfer as adequate regardless of its settlement mapping.

VI-104

From the practice bank · 11

What is the central purpose of interoperability among clearing corporations for eligible exchange trades?

Interoperability links clearing arrangements across participating trading venues and clearing corporations under a regulated framework. It concerns where eligible trades are cleared, not automatic merger of depositories or the disappearance of risk controls. Client account identification and valid settlement obligations continue to matter. Remember: Keep exchange, clearing corporation and depository functions distinct.

Hint Common mistake: Confusing clearing interoperability with an inter-depository securities transfer.

VI-105

From the practice bank · 12

A valid redemption instruction covers 240 demat mutual-fund units. For this illustration, the applicable redemption NAV is ₹52.50 and there is no exit load, tax or other deduction. What are the proceeds?

Proceeds equal units redeemed multiplied by the stated applicable NAV: 240 × ₹52.50 = ₹12,600. The question supplies the NAV and explicitly removes deductions, so no current cut-off or tax assumption is required. In an actual transaction, the applicable NAV and charges must be established under the scheme and regulatory rules. Remember: Calculate proceeds from the number of units and the applicable net redemption terms.

Hint Common mistake: Multiplying by a displayed but inapplicable NAV from another date.

VI-106

From the practice bank · 13

A demat investor gives a valid redemption request for mutual-fund units. Which event distinguishes this from transferring the same units to another investor’s demat account?

A transfer moves an existing holding to another account, whereas redemption processes the investor’s exit from the requested units through the fund/AMC arrangements. An accepted redemption is not merely a change in who holds the same transferable position. The two processes require different transaction codes, destinations and treatment. Remember: Identify whether the instruction changes the holder or exits units through the fund.

Hint Common mistake: Using an ordinary transfer route for a redemption request.

VI-107

From the practice bank · 14

For a training example only, assume an off-market transfer charge is 0.02% of a declared consideration of ₹4,50,000. Ignore minimums, maximums and taxes. What is the charge?

Convert the percentage to decimal: 0.02% = 0.0002. Multiplying ₹4,50,000 by 0.0002 gives ₹90. This is an explicitly hypothetical charge, not a statement of the current Indian stamp-duty rate or a particular DP’s tariff. Actual transaction charges must be taken from the applicable rule and tariff. Remember: Distinguish a percentage from its decimal multiplier, and do not treat illustrative rates as current law.

Hint Common mistake: Dropping the division by 100 when applying a percentage charge.

VI-108

From the practice bank · 15

A holder moves 500 shares between two demat accounts with exactly the same ownership pattern. No sale or corporate action occurs. What happens to that holder’s combined share quantity?

A completed same-owner movement debits the source and credits the target. It does not issue additional shares or sell the position in this scenario. Across both accounts, the economic quantity remains 500. Pending and completed entries must be distinguished during reconciliation to avoid temporary double-counting. Remember: Consolidated ownership is unchanged by a pure movement between matching own accounts.

Hint Common mistake: Adding both sides of an internal transfer as separate holdings.

VI-109

From the practice bank · 16

A broker proposes to use Client A’s delivery securities temporarily to meet Client B’s shortage, without A’s authority. Which principle is violated?

Fungibility means units within an issue are interchangeable as securities. It does not erase ownership records or consent requirements. Intermediaries must not use one client’s assets to solve another client’s obligation without lawful authority. Operational convenience and a same-ISIN match do not justify diversion. Remember: Fungibility of securities is compatible with strict segregation of client entitlements.

Hint Common mistake: Using fungibility as an excuse for cross-client asset substitution.

VI-110

Read the related lesson

T+1 Settlement

T+1 settlement is the Indian cash-market rolling settlement convention.

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