Which of the following statements about the demat system is incorrect?

The correct answer is Option (3) → If shares are to be sold through a broker, the depository is instructed to debit the account with the number of shares.

Option (1) Initial Public Offers (IPOs) are now issued in dematerialisation form. — True. All IPOs now come in dematerialisation form. The shares are held as an electronic balance in an account.

Option (2) If shares are applied for in a public offer, the shares on allotment are credited automatically to the demat account. — True. The investor gives only simple details of the DP and the demat account. On allotment the shares reach the demat account automatically.

Option (3) If shares are to be sold through a broker, the depository is instructed to debit the account with the number of shares. — False. The instruction to debit the account goes to the depository participant (DP). The DP is the go-between who deals with the investor. The depository (NSDL or CDSL) works through such DPs.

Option (4) A depository participant may be a bank, a broker or a financial services company. — True. The first step in the demat system is to choose a DP. It may be a bank, a broker or a financial services company.