Which of these is a disadvantage of holding securities in physical mode?

Risk of loss, theft or damage of certificates. Paper certificates can be lost, stolen, torn or misplaced, and getting duplicates takes time, effort and money.

Automatic credit of bonus shares

No need to fill any transfer form

Nomination facility for the holder

The Depository Act, which introduced the Depository System in India, was passed in the year

1996. The Depository Act of 1996 set up a competitive multi-depository system in India with NSDL and CDSL.

Another name for the Depository System, in which no paper certificates are used, is

Scripless trading system. Since securities are held and transferred electronically, the system is called scripless trading.

The two depositories functioning in India are

NSDL and CDSL. India has a multi-depository system made up of NSDL and CDSL.

The first depository in the world was set up in 1947 in

Germany. The world's first depository was started in Germany in 1947, long before the Indian Act of 1996.

Maharashtra State Board · HSC Commerce · Class 12 (Std XII)

Class 12 Secretarial Practice Chapter 9: Depository System

Short notes, key concepts, quick revision and practice MCQs with answers

Explains how securities are held electronically instead of on paper. Covers the benefits, the four constituents, key terms such as Demat, Remat and ISIN, how trades and IPO allotments work, and the two depositories NSDL and CDSL.

Key concepts: Depository System

Depository System: A system in which securities are held and transferred in electronic form, so no paper certificates are handled. It is also called the scripless trading system and was introduced in India by the Depository Act, 1996.
Depository and Depository Participant: The Depository keeps securities safely in electronic form. The Depository Participant (DP) is its agent and the link between the Depository and the investor, who deals directly with the investor.
Beneficial Owner (BO): The investor who uses a DP's services and opens a Demat account with it. The BO enjoys the rights and benefits of the securities and pays charges to the DP.
Dematerialisation (Demat): Converting physical share certificates into electronic form. The investor surrenders the certificates with a Demat Request Form (DRF) to the DP, and the securities are credited to the Demat account.
Rematerialisation (Remat): The reverse of Demat: electronic holdings are converted back into paper certificates. The investor applies to the DP through a Remat Request Form (RRF).
Fungibility: Demated securities of the same class and issuer are interchangeable and cannot be told apart, because they carry no distinctive, certificate or folio numbers.
ISIN: International Securities Identification Number: a 12 character alpha-numeric code that uniquely identifies a security issue. It has a two letter country prefix, a nine character basic number and a check digit.
Off market and market trade: An off market trade is settled directly between two parties without a broker, exchange or clearing corporation. A market trade is settled through a stock broker and the clearing corporation.

Quick revision: important points

Physical mode problems: risk, duplication effort, delayed allotment, delayed transfer, bad delivery.
Four constituents: Depository, Depository Participant, Beneficial Owner, Issuer Company.
Depository Act 1996 created NSDL (Nov 1996, IDBI, UTI, NSE) and CDSL (Feb 1999, BSE with banks).
ISIN = 12 characters: country code (IN), issuer type, company identity, security type, serial digits, check digit.
Demat uses DRF and is the primary process; Remat uses RRF and is the reverse, secondary process.
A seller instructs the DP using a Delivery Instruction Slip (DIS); market lot of demat shares is one share.

Practice MCQs with answers

Which of these is a disadvantage of holding securities in physical mode?
1. Automatic credit of bonus shares
2. Risk of loss, theft or damage of certificates
3. No need to fill any transfer form
4. Nomination facility for the holder
Show answer
Answer: B. Risk of loss, theft or damage of certificates
Paper certificates can be lost, stolen, torn or misplaced, and getting duplicates takes time, effort and money.
The Depository Act, which introduced the Depository System in India, was passed in the year
1. 1956
2. 1991
3. 1996
4. 1999
Show answer
Answer: C. 1996
The Depository Act of 1996 set up a competitive multi-depository system in India with NSDL and CDSL.
Another name for the Depository System, in which no paper certificates are used, is
1. Scripless trading system
2. Scrip based trading system
3. Bad delivery system
4. Odd lot system
Show answer
Answer: A. Scripless trading system
Since securities are held and transferred electronically, the system is called scripless trading.
The two depositories functioning in India are
1. NSE and BSE
2. SEBI and RBI
3. IDBI and UTI
4. NSDL and CDSL
Show answer
Answer: D. NSDL and CDSL
India has a multi-depository system made up of NSDL and CDSL.
The first depository in the world was set up in 1947 in
1. Germany
2. The USA
3. India
4. Japan
Show answer
Answer: A. Germany
The world's first depository was started in Germany in 1947, long before the Indian Act of 1996.

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