Depository Operations
What this domain tests
Depository Operations covers how dematerialised securities are held, moved, pledged and serviced in India through NSDL and CDSL, and how a Depository Participant (DP) sits between the investor and the depository. Expect process questions on account opening, delivery instruction slips (DIS), settlement, pledges, corporate actions, transmission and freeze, plus the liability boundaries between depository, DP, RTA and clearing corporation.
Core rules and concepts
- A depository holds securities in fungible electronic form; each security is identified by a 12-character alphanumeric ISIN. The DP is an agent and registered intermediary - it does not own the securities and is not the depository.
- A demat account is opened after KYC; nomination is permitted, and for sole-holder accounts nomination has been made mandatory for new accounts, while joint accounts may opt out.
- Settlement in the cash market runs on T+1. Sellers deliver shares through pay-in; buyers receive through pay-out. Early pay-in lets a seller deliver before the settlement deadline.
- Transfers happen by market transfer (exchange-linked), off-market transfer (DIS/PIN), transmission (on death), or pledge/hypothecation. Off-market transfers do not involve the exchange, and stamp duty applies.
- Corporate actions - dividends, bonuses, splits, rights - are credited or adjusted through the depository on the record date; the ex-date determines entitlement for market trades.
Worked example
An investor holds 1,000 shares and pledges 600 to a broker as margin. The pledge is created electronically: the 600 shares remain in the investor's account but are blocked, not debited. The broker may repledge them to the clearing corporation. If the investor defaults, the clearing corporation invokes the pledge and the shares move to it; if the obligation is met, the pledge is closed and the block is released. Reasoning: a pledge is a lien, not a transfer of beneficial ownership, so the shares stay in the pledgor's account until invocation.
Traps that cost marks
- Confusing the DP with the depository, or treating a demat balance as a physical certificate.
- Mixing pledge (possession-style lien, invokable) with hypothecation (charge without the same invocation route).
- Assuming a freeze stops corporate benefits - an investor-requested freeze blocks debits but dividends and bonuses still flow.
- Forgetting that transmission is not a transfer and needs death certificate, succession documents and KYC of the claimant.