Given below are two statements:Statement I: The investor opens a dema…

Given below are two statements:

Statement I: The investor opens a demat account with the stock exchange for holding and transferring securities in the demat form.

Statement II: After the broker-client agreement is signed, the broker opens a trading account in the name of the investor.

In the light of the above statements, choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Statement I is incorrect but Statement II is correct.

Statement I: The investor opens a demat account with the stock exchange for holding and transferring securities in the demat form. — Incorrect. The demat account, or beneficial owner account, is opened with a depository participant. It is not opened with the stock exchange.

Statement II: After the broker-client agreement is signed, the broker opens a trading account in the name of the investor. — Correct. The investor first signs the broker-client agreement and the client registration form. The broker then opens a trading account in the investor’s name.

NCERT (Pre-rationalised Edition): “Steps in the Trading and Settlement Procedure … 1. If an investor wishes to buy or sell any security he has to first approach a registered broker or sub-broker and enter into an agreement with him. The investor has to sign a broker-client agreement and a client registration form before placing an order to buy or sell securities. He has also to provide certain other details and information. These include:
• PAN number (This is mandatory)
• Date of birth and address.
• Educational qualification and occupation.
• Residential status (Indian/NRI).
• Bank account details.
• Depository account details.
• Name of any other broker with whom registered.
• Client code number in the client registration form.
The broker then opens a trading account in the name of the investor.
2. The investor has to open a ‘demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the demat form. He will also have to open a bank account for cash transactions in the securities market.”