Buying and selling of securities are now settled through an electronic book entry form. This is mainly done to eliminate problems such as:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → theft, fake or forged transfers and transfer delays
Option (1) speculation and sudden rise and fall in share prices — Incorrect. Speculation and sudden price changes came from settling trades on specified dates under the old weekly or fortnightly cycle.
Option (2) defaults by brokers on fixed settlement dates — Incorrect. Defaults by brokers also belonged to the old settlement cycle, which rolling settlement replaced.
Option (3) time, cost and risk of error in trading operations — Incorrect. Cutting time, cost and risk of error is an advantage of screen-based trading.
Option (4) theft, fake or forged transfers and transfer delays — Correct. Share certificates and debentures on paper could be stolen, forged or held up in transfer, and needed much paperwork. Settling through an electronic book entry form removes these problems.
NCERT (Pre-rationalised Edition): “Dematerialisation and Depositories All trading in securities is now done through computer terminals. Since all systems are computerised, buying and selling of securities are settled through an electronic book entry form. This is mainly done to eliminate problems like theft, fake/forged transfers, transfer delays and paperwork associated with share certificates or debentures held in physical form. This is a process where securities held by the investor in the physical form are cancelled and the investor is given an electronic entry or number so that she/he can hold it as an electronic balance in an account. This process of holding securities in an electronic form is called dematerialisation. …” |