Unit study guide · NISM Series VI
Special Services – Public Offering / Corporate Actions
12 questions in this unit
What this unit covers
- An issuer determines a corporate-action entitlement from a record-date beneficial-owner list. Which holding information is relevant under that stated process?
- An investor is entitled to dividend on 320 shares. The declared dividend is ₹7.50 per share. Ignoring withholding and other deductions, what cash amount is due?
- A company announces three bonus shares for every five eligible shares held. A BO has 400 eligible shares and no fractional entitlement arises. How many bonus shares are credited?
- A company splits each ₹10 face-value share into five ₹2 face-value shares. A BO holds 180 old shares. What quantity should result after the split, ignoring any unrelated transaction?
- A rights issue offers one new share for every four eligible shares at ₹80 per new share. An investor holds 600 eligible shares and subscribes fully to this entitlement. What subscription amount is required?
- Under an approved merger scheme, holders receive two shares of Company Y for every five shares of Company X. A BO has 750 eligible X shares. How many Y shares are allotted under that ratio?
- Which statement correctly distinguishes an ordinary bonus credit from a rights subscription?
- Before any invocation, an ordinary pledge remains recorded on a shareholder’s demat holding. To whom are the corporate benefits ordinarily associated under the depository pledge treatment, subject to applicable arrangements?
- An IPO applicant enters another person’s BO ID while using the applicant’s own identity particulars. Why is this a material error?
- A public-issue application requests 300 shares, but the confirmed allotment is only 120 shares. No other credit applies. What quantity should be reconciled as the demat allotment credit?
- An investor has an allotment confirmation but no corresponding demat credit. Which set of details is most useful for investigating the missing allotment with the RTA/DP?
- A completed capital reorganisation has replaced the old security with a new ISIN. A client submits a debit using the inactive old ISIN. What should the DP check before processing?
Key ideas
From the practice bank · 1
An issuer determines a corporate-action entitlement from a record-date beneficial-owner list. Which holding information is relevant under that stated process?
The record-date process identifies eligible holders and quantities at the prescribed reference point. The later date on which cash is paid or securities are credited is not a general substitute for that eligibility point. Unexecuted orders and hoped-for purchases do not establish recorded entitlement. Remember: Separate the eligibility date from the later delivery or payment date.
Hint Common mistake: Assuming eligibility is always based on holdings when the benefit arrives.
VI-123From the practice bank · 2
An investor is entitled to dividend on 320 shares. The declared dividend is ₹7.50 per share. Ignoring withholding and other deductions, what cash amount is due?
Gross dividend equals the eligible quantity multiplied by the declared amount per share: 320 × ₹7.50 = ₹2,400. The per-share declaration should not be confused with a percentage of the current market price. The calculation assumes eligibility is already established and excludes deductions expressly. Remember: Use eligible shares times the declared per-share benefit.
Hint Common mistake: Applying a per-share cash dividend as a percentage of market value.
VI-124From the practice bank · 3
A company announces three bonus shares for every five eligible shares held. A BO has 400 eligible shares and no fractional entitlement arises. How many bonus shares are credited?
Bonus shares are 400 × 3/5 = 240. After the credit, the total holding would be 640, but the question asks only for the new bonus quantity. A bonus issue is not a cash dividend, and the arithmetic alone does not mean the total market value rises proportionately. Remember: Distinguish the incremental corporate-action credit from the final total balance.
Hint Common mistake: Answering with the total holding when the question asks for bonus shares.
VI-125From the practice bank · 4
A company splits each ₹10 face-value share into five ₹2 face-value shares. A BO holds 180 old shares. What quantity should result after the split, ignoring any unrelated transaction?
Each old share becomes five new shares, so 180 × 5 = 900. The aggregate face value is preserved: 180 × ₹10 = 900 × ₹2 = ₹1,800. More shares do not by themselves represent additional economic wealth. The denomination has changed. Remember: For a split, reconcile both quantity and aggregate face value.
Hint Common mistake: Confusing rupee face value with the count of shares.
VI-126From the practice bank · 5
A rights issue offers one new share for every four eligible shares at ₹80 per new share. An investor holds 600 eligible shares and subscribes fully to this entitlement. What subscription amount is required?
The entitlement is 600 ÷ 4 = 150 new shares. Full subscription at ₹80 each requires 150 × ₹80 = ₹12,000. A rights entitlement is an opportunity to subscribe under the terms. It should not be treated as a free bonus credit. Remember: Calculate rights quantity first, then multiply by the subscription price.
Hint Common mistake: Treating rights shares as free or charging the issue price on the old holding.
VI-127From the practice bank · 6
Under an approved merger scheme, holders receive two shares of Company Y for every five shares of Company X. A BO has 750 eligible X shares. How many Y shares are allotted under that ratio?
The consideration quantity is 750 × 2/5 = 300 Y shares. The issuer/RTA and depository implement the approved scheme’s record and credit instructions. The old X holding and the new Y entitlement should not be added as though both necessarily remain outstanding after the merger. Remember: Apply the scheme’s exchange ratio to the eligible old-security quantity.
Hint Common mistake: Carrying the old quantity unchanged into the new ISIN despite a non-unit ratio.
VI-128From the practice bank · 7
Which statement correctly distinguishes an ordinary bonus credit from a rights subscription?
A bonus issue capitalises reserves through an additional share allocation under the declared entitlement. A rights issue offers an opportunity to acquire new shares on specified terms, normally requiring exercise and payment. The two may both result in demat credits, but their preconditions and cash consequences differ. Remember: A similar final demat credit can arise from very different investor actions and cash flows.
Hint Common mistake: Assuming all corporate-action share credits are automatic and free.
VI-129From the practice bank · 8
Before any invocation, an ordinary pledge remains recorded on a shareholder’s demat holding. To whom are the corporate benefits ordinarily associated under the depository pledge treatment, subject to applicable arrangements?
Pledge creation records an encumbrance while the holding remains with the pledgor. Under the ordinary depository treatment, corporate benefits remain associated with that beneficial holding before invocation. Additional security or treatment of a particular non-cash benefit can depend on the agreement and relevant process, so one should not infer that a pledge is already an outright ownership transfer. Remember: Check ownership status and corporate-action treatment separately from the existence of a pledge.
Hint Common mistake: Awarding every benefit to the lender merely because collateral has been accepted.
VI-130From the practice bank · 9
An IPO applicant enters another person’s BO ID while using the applicant’s own identity particulars. Why is this a material error?
Demat allotment requires accurate and consistent applicant and destination-account details. A mismatched BO ID can prevent validation or credit even where the applicant otherwise paid or blocked funds. The process does not permit arbitrary correction to an unrelated account without the prescribed checks. Remember: Verify investor identity and demat destination together before submitting an application.
Hint Common mistake: Assuming a valid PAN alone makes all application details correct.
VI-131From the practice bank · 10
A public-issue application requests 300 shares, but the confirmed allotment is only 120 shares. No other credit applies. What quantity should be reconciled as the demat allotment credit?
The allotment confirmation, not the original demand, determines the shares due for credit. Here the BO should reconcile 120. The unallotted balance of 180 relates to the application’s unfulfilled quantity and any associated money-release process. It is not a second demat entitlement. Remember: Reconcile corporate-action credits to confirmed entitlement rather than the amount requested.
Hint Common mistake: Treating subscription demand as proof of allotment.
VI-132From the practice bank · 11
An investor has an allotment confirmation but no corresponding demat credit. Which set of details is most useful for investigating the missing allotment with the RTA/DP?
The investigation must connect the allotment record to the intended security and account. Application and allotment references help the RTA trace the issuer-side instruction, while demat identifiers help verify the destination and credit status. Reapplying for a different account event would not resolve that reconciliation. Remember: An exception investigation needs identifiers from both sides of the process.
Hint Common mistake: Raising an untraceable complaint without application or account references.
VI-133From the practice bank · 12
A completed capital reorganisation has replaced the old security with a new ISIN. A client submits a debit using the inactive old ISIN. What should the DP check before processing?
Corporate actions can change the security identifier and quantity available in an account. A debit must refer to the active, available holding actually resulting from the action. Staff must reconcile the issuer’s conversion terms and depository entries rather than reuse an obsolete identifier or substitute an unrelated asset. Remember: After a corporate action, verify the new security master and transformed balance.
Hint Common mistake: Continuing to use an old ISIN after the underlying holding has been replaced.
VI-134