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Unit study guide · NISM Series VII

Market Participants in the Securities Market

15 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

In providing demat services to an investor, a depository participant acts as an agent of the:

A DP provides depository services as an agent of the depository. The participant is the investor-facing channel through which depository services are provided. The agency relationship being tested is with the depository, not with the issuer or the trading venue. Remember: For the depository agency relationship, connect DP with depository.

Hint Common mistake: Confusing the organisation whose securities are held with the infrastructure that holds them.

VII-006

From the practice bank · 2

Outside an IFSC, which authority has the principal regulatory role in India's money and foreign-exchange markets?

RBI is the authority relevant to both markets in the scope stated. The question asks about the ordinary Indian money and foreign-exchange framework, not the IFSC regime. RBI exercises the relevant money-market powers and foreign-exchange management functions. This does not imply that every intermediary or exchange-traded product has no other applicable regulator. Remember: Read both the market and the jurisdiction before choosing its principal regulator.

Hint Common mistake: Turning a principal-regulator question into a claim that only one regulator can ever be involved.

VII-007

From the practice bank · 3

An institutional investor needs safekeeping of securities and support for settling its securities transactions. Which intermediary is primarily associated with this service?

Custody is the role associated with safeguarding client securities and related settlement support. The requirement concerns holding and servicing securities for the investing client. A custodian is the relevant role. The appointment is not mainly for maintaining the issuer register, rating a debt issue or managing a new issue. Remember: Match the client need to the intermediary function, not just to a familiar registration label.

Hint Common mistake: Confusing investor asset custody with administration performed on behalf of the issuer.

VII-008

From the practice bank · 4

For handling its securities-holder records and related issue services, a company appoints an RTA to act on behalf of the:

The RTA acts for the issuing company in the role described. The records and services described relate to the company issuing the securities. The RTA represents that issuer. Being involved in a depository process does not make the RTA the agent of every other institution in that process. Remember: Connect RTA with issuer and DP with depository.

Hint Common mistake: Choosing the institution that processes a transaction rather than the principal represented by the agent.

VII-009

From the practice bank · 5

Which description distinguishes a professional clearing member from a trading-cum-clearing member?

This states the membership distinction being tested. A professional clearing member provides clearing services without itself being a trading member. A trading-cum-clearing member combines trading membership with a clearing role. Clearing another participant's obligations does not by itself amount to executing that participant's trades. Remember: Ask whether the member executes trades, clears them, or has permission for both roles.

Hint Common mistake: Assuming that every clearing member must also be an exchange trading member.

VII-010

From the practice bank · 6

An investor asks for an electronic security balance to be converted into physical certificates. This process is called:

Rematerialisation converts electronic balances into physical certificates. The starting point is an electronic holding and the requested output is a physical certificate. CDSL identifies that conversion as rematerialisation. Reversing the direction would describe dematerialisation. Remember: First identify whether the holding starts in physical or electronic form.

Hint Common mistake: Selecting the familiar term dematerialisation without checking the direction.

VII-042

From the practice bank · 7

A member has self-clearing status and no broader clearing membership. Which trades may it clear under that status?

This answer includes both proprietary trades and the member’s own client trades. Self-clearing does not mean proprietary trades alone. It includes the member’s client business. It does not, by itself, authorise clearing for another trading member. Remember: Self-clearing includes own clients but not other trading members.

Hint Common mistake: Treating self-clearing as either proprietary-only or a permission to clear everyone’s trades.

VII-053

From the practice bank · 8

Two investors’ demat statements show the same ISIN for an equity holding. What does this matching identifier establish?

The matching code identifies the same security in both statements. The identifier is assigned to the security. Different investors may hold that security. A matching ISIN therefore does not establish matching account numbers or a common broker. Remember: Match the ISIN to the instrument, not to the holder.

Hint Common mistake: Treating a security code as a client-account code.

VII-054

From the practice bank · 9

An Indian company issues foreign-currency bonds that may be converted into its own ordinary shares under the issue terms. Which instrument is described?

This answer combines foreign-currency debt with conversion into the issuer’s own shares. The instrument starts as a bond denominated in foreign currency. Its stated conversion delivers the issuing company’s ordinary shares. That identifies an FCCB. The question tests the instrument’s character, not current borrowing permissions or limits. Remember: For this distinction, convertible points to the issuer’s own shares and exchangeable to another company’s shares.

Hint Common mistake: Ignoring whose shares are delivered on conversion or exchange.

VII-079

From the practice bank · 10

Under NSE’s Authorised Person framework, which entity is responsible for the acts and omissions of an Authorised Person appointed by a trading member?

NSE places responsibility for the appointed Authorised Person’s acts and omissions on that trading member. Identify the member that appointed the Authorised Person. NSE’s framework places responsibility for that Authorised Person’s acts and omissions on the trading member. This does not by itself decide an actual damages claim. Remember: The appointing trading member remains responsible under the Authorised Person framework.

Hint Common mistake: Assuming that using a separate office or appointed agent removes member responsibility.

VII-080

From the practice bank · 11

Which statement best describes a credit rating assigned to a debt instrument?

The rating addresses credit risk associated with the debt obligation. The rated issue has interest and principal obligations. The rating expresses an opinion about full and timely repayment. It does not decide whether the current market price makes the investment attractive. Remember: Use a credit rating as a credit-risk opinion, not a substitute for an investment decision.

Hint Common mistake: Treating a rating symbol as a buy recommendation or a guarantee of every investment outcome.

VII-095

From the practice bank · 12

A fund manager places a securities trade for a mutual fund scheme using the scheme’s pooled assets. How is the investing scheme classified?

The investing entity is the mutual fund scheme. The investment belongs to the mutual fund scheme and uses pooled assets. The scheme is an institutional investor. The manager’s act of placing the order does not make it a personal trade. Remember: Look at whose assets are invested and who owns the position.

Hint Common mistake: Classifying an institutional order by the individual who submits it.

VII-103

From the practice bank · 13

A living investor holds shares in demat form with no transfer of beneficial ownership. Who is entitled to the ownership benefits attached to that holding?

The benefits belong to the investor as beneficial owner. The depository’s registered-owner role is distinct from the investor’s beneficial-owner role. The investor retains the benefits of the holding. A DP relationship or a recorded nomination does not change the stated beneficial ownership. Remember: Distinguish registered ownership in the depository mechanism from beneficial ownership.

Hint Common mistake: Treating an intermediary’s record-keeping role as ownership of client assets.

VII-104

From the practice bank · 14

Under an issue’s stated terms, each Global Depository Receipt represents three ordinary shares. How many underlying shares do 450 GDRs represent?

This answer multiplies 450 receipts by three underlying shares each. Each receipt represents three shares under the hypothetical terms. Underlying share quantity = 450 receipts × 3 shares per receipt = 1,350 shares. The ratio is supplied for this issue. It is not presented as a standard ratio for all GDRs. Remember: Multiply the receipt count by the stated underlying-share ratio.

Hint Common mistake: Assuming every depository receipt always represents one share.

VII-129

From the practice bank · 15

Which agency’s database is used to retrieve a securities-market client’s KYC registration details, rather than the client’s securities holdings or settlement positions?

KRA stands for KYC Registration Agency and matches the requested record. The requested information is the client’s KYC registration record. SEBI’s SCORES instructions refer to retrieving registration details from a KRA database. The relevant entity is a KYC Registration Agency. This does not equate KRA records with demat balances or claim that one KRA is the only database used by the entire financial sector. Remember: Identify the information being retrieved before choosing its record-keeping agency.

Hint Common mistake: Confusing KYC registration data with a demat holding statement.

VII-130

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