Consider the following statements about depository participants and the demat system:
(A) A depository participant serves as an intermediary between the investor and the depository.
(B) If the investor buys and sells securities through a bank, the bank acts as a DP for the investor and completes the formalities.
(C) When shares are sold, the broker gives instruction to his DP for delivery of the shares to the depository.
(D) When shares are sold, the investor receives payment for the shares directly from the stock exchange.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) and (B) only
(A) A depository participant serves as an intermediary between the investor and the depository. — Correct. The DP stands between the investor and the depository (NSDL or CDSL). It is the investor’s contact point with the depository.
(B) If the investor buys and sells securities through a bank, the bank acts as a DP for the investor and completes the formalities. — Correct. Banks may become DPs. When the investor deals through a bank, the bank acts as his DP and completes the formalities.
(C) When shares are sold, the broker gives instruction to his DP for delivery of the shares to the depository. — Incorrect. After the sale, the broker tells his DP to deliver the shares to the stock exchange.
(D) When shares are sold, the investor receives payment for the shares directly from the stock exchange. — Incorrect. The broker receives the payment for the shares sold. He then pays the investor.
NCERT (Pre-rationalised Edition): “Depository … The depository participant (DP) serves as an intermediary between the investor and the Depository (NSDL or CSDL) who is authorised to maintain the accounts of dematerialised shares. Financial institutions, banks, clearing corporations, stock brokers and non-banking finance corporations are permitted to become depository participants. If the investor is buying and selling the securities through the broker or the bank or a non-banking finance corporation, it acts as a DP for the investor and complete the formalities. …” “Working of the Demat System … 5. If shares are to be sold through a broker, the DP is to be instructed to debit the account with the number of shares. |