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NISM Series VI Depository Operations – Part 2: Depository Participant, Clearing Corporation, Issuers & RT&A

12 Apr 2026 • NISM-Series-6: Depository Operations Mock Tests

NISM Series VI Depository Operations – Part 2: Depository Participant, Clearing Corporation, Issuers & RT&A

Quick Summary: Part 2 of our NISM Series VI short notes covers Depository Participants (DPs) – their registration, responsibilities, operational rules, and restrictions. It also explains the roles of Clearing Corporations, Issuers, and Registrar & Transfer Agents in the depository ecosystem.

What is a Depository Participant (DP)?

A Depository Participant (DP) is an agent of the depository. Under the Depositories Act, 1996, DPs act as intermediaries between the depository and investors. They are the direct point of contact for investors who want to use depository services.

An entity can offer depository-related services only after obtaining a certificate of registration from SEBI as a DP. SEBI regulations also define the eligibility criteria for DP registration.

Business Restrictions for DPs

As per SEBI (Depositories & Participants) Regulations, 1996:

  • The aggregate value of securities held in dematerialised form through a stockbroker DP cannot exceed 100 times the net worth of that stockbroker at any point.

How to Apply for DP Registration

  1. A complete application is submitted to the depository where membership is being sought.
  2. The depository evaluates the application and, if satisfied, submits its recommendation to SEBI along with the application.
  3. The applicant pays SEBI application fees at this stage.
  4. SEBI may ask for additional information or clarification from the applicant or the depository.
  5. If the application is found incomplete, SEBI may reject it after giving the applicant a chance to address the objection(s).

Important: A certificate of registration granted to a DP is valid unless it is suspended or cancelled by SEBI (the Board).

Rights and Obligations Document

Before acting on behalf of a client, the DP must:

  • Provide a copy of the Rights and Obligations document to the client.
  • Keep an acknowledgement of the same on record.

Key Operational Rules for DPs Separate Accounts

A DP must open a separate account in the name of each beneficial owner (BO). The securities of each BO must be kept separate from the securities of other BOs and from the DP's own securities. This prevents co-mingling of assets.

Client / Beneficial Owner Instructions

Securities can be transferred to or from a BO's account only on receipt of written instructions from the beneficial owner.

Transaction Statements – Consolidated Account Statement (CAS)

SEBI has mandated the issuance of a Consolidated Account Statement (CAS). This gives investors a single view of all their investments in mutual funds and securities held in demat form across all depositories.

Connectivity

A DP must maintain continuous electronic communication with the depository. If primary connectivity fails, the DP must connect through a fallback medium.

Monitoring, Reviewing, and Evaluating Internal Systems

Every DP must have an adequate mechanism for regularly reviewing, monitoring, and evaluating its internal systems and accounting controls.

Reconciliation

A DP must reconcile its records with the depository on a daily basis. The depository system is designed to perform this reconciliation automatically at End of Day (EOD).

Returns

DPs must submit periodic returns to SEBI and to every depository in which they are a participant, in the format specified by SEBI or the depository's Bye-Laws.

DP to Indemnify Depository

A DP must indemnify the depository, its officers, and employees against all costs, losses, taxes, and damages that arise due to the DP's actions or failures.

Prohibition of Assignment

A DP cannot assign or delegate its functions to any other person without prior approval of the depository in which it is a participant.

Insurance

DPs must take appropriate insurance coverage to protect against losses from business risk and system failure.

Record Keeping

DPs must maintain records and documents for a minimum period of 5 years.

Data Integrity and Backup

DPs that maintain electronic records must ensure the integrity of their data processing systems. All necessary precautions must be taken to ensure that records are not lost, destroyed, or tampered with.

Suspension, Cancellation, and Termination of DP Registration

  • SEBI can suspend or cancel the registration of a DP on the basis of pre-specified regulations.
  • A DP can also voluntarily terminate its participation by giving a notice of not less than 30 days to the depository.
  • On receiving such notice, the depository may cease providing services to the DP.
  • The depository must notify the DP, other participants, affected clients, and SEBI within 7 days of taking this action.

What is a Clearing Corporation?

A Clearing Corporation (CC) is responsible for clearing and settling trades executed by clearing members on recognised stock exchanges. Clearing Corporations are admitted to the depository system for clearing and settlement of securities traded on their respective stock exchanges.

A Clearing Corporation may be admitted as a user on the depository after entering into an agreement with the depository as per the depository's Bye-Laws.

Issuers and Registrar & Transfer Agents (RT&As) Role of Issuers

Under the Depositories Act, 1996, investors can hold securities either in physical form or in book-entry form with the depository. A company (issuer) can offer demat facility for its securities by entering into an agreement with the depository.

To offer demat services, issuers must first establish connectivity with the depository either directly or through a Registrar & Transfer Agent (RT&A) that has connectivity with the depositories.

Securities Eligible for Dematerialisation

The following types of securities are eligible for dematerialisation as per SEBI (Depositories & Participants) Regulations, 1996:

  • Shares, scripts, stocks, bonds, debentures, debenture stock, or other marketable securities of any incorporated company or body corporate
  • Units of Mutual Funds (MFs), units of InvITs, rights under Collective Investment Schemes (CISs), Venture Capital Funds (VCFs)
  • Commercial Paper (CP), Certificates of Deposit (CD), securitised debt, money market instruments
  • Government Securities
  • Unlisted securities

Role of Issuer / RT&A in Dematerialisation

  1. The depository electronically intimates all dematerialisation requests to the relevant Issuer or RT&A on a daily basis.
  2. After verification, the Issuer / RT&A authorises an electronic credit for the security in favour of the client.
  3. The depository then makes the credit entry in the client's account.

Demat requests can be rejected in the following cases:

  • The security certificates are stolen
  • The certificates are fake or forged
  • There is a court or statutory authority order prohibiting the transfer
  • Duplicate certificates have been issued for the same securities

After verification, the Issuer / RT&A represents to the depository that the securities exist, are validly issued, and it has full authority to transfer them.

A client can withdraw securities from the depository at any time by applying for rematerialisation through its DP using a Remat Request Form (RRF).

Role of Issuer / RT&A in Corporate Benefits

The Issuer / RT&A is responsible for:

  • Informing the depository about corporate actions – book closure dates, record dates, redemption dates, conversion dates, call money dates, etc.
  • Distributing dividends, interest, and other monetary benefits directly to eligible beneficial owners based on the list provided by the depository.

Quick Revision Points for NISM Series VI Exam

  • DP = Agent of the depository; must register with SEBI
  • Stockbroker DP: Aggregate client securities ≤ 100 times net worth of stockbroker
  • DP registration is valid until suspended or cancelled by SEBI
  • DP cannot delegate its functions without depository approval
  • Voluntary termination requires minimum 30 days notice
  • Depository must notify SEBI and others within 7 days of DP termination
  • Records must be maintained for at least 5 years
  • Daily reconciliation is mandatory for DPs
  • CAS = Consolidated Account Statement – gives investors a single investment view
  • Issuers must connect with the depository to offer demat facility
  • RT&A must confirm or reject a demat request within 15 days from receipt of physical shares

Up Next: Part 3 – Account Opening, KYC, and Types of Demat Accounts

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