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Secretarial Practice Justify the following statement.

Depository System · Maharashtra Board STD 12 Commerce / Arts (MSBSHSE - English Medium). 11 questions.

Questions

Justify the following statement.

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11 questions · self-marked practice — reveal the answer and mark yourself.

Question 14 Marks
It is necessary for the Beneficial Owner to open a DEMAT account with the DP.
Answer
  • The beneficial Owner is the investor of the company.
  • For holding the securities in electronic form, it is necessary to open a DEMAT account.
  • DEMAT account can be opened with the help of DP.
  • The BO can also be called a client of Depository and DP.
  • BO has to pay charges to the DP for availing the services of DP.
  • BO is entitled to all rights, benefits and is subject to all liabilities with respect to securities.
  • BO is given a unique account number in which securities are held.
  • Thus, it is rightly said that it is necessary for the Beneficial Owner to open a DEMAT account with the DP.
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Question 24 Marks
Better and quicker services of the Depository system attract investment from abroad.
Answer
  • Paperless trading is a boon for company management.
  • Automatic and transparent screen-based trading in securities, shorter settlement periods have improved liquidity in investment in securities.
  • The transfer process under the depository system is prompt and free from defects.
  • The company is able to know the particulars of beneficial owners and their holdings periodically.
  • Thus, it is rightly said that Better and quicker services of the Depository system attract investment from abroad.
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Question 34 Marks
An investor can raise loan against dematerialized securities.
Answer
  • Investors can take a loan against securities (shares, debentures, bonds, mutual fund units) that are held in their Demat accounts.
  • The time required for the documentation process to take loans is less.
  • In order to raise a loan against dematerialized securities, both the borrower and lender should have Demat accounts with the same depository
  • The Demat accounts can be held with the same or different depository participant (DP).
  • Thus, it is rightly said that investors can raise loans against dematerialized securities.
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Question 44 Marks
The depository system has some advantages to the Investor.
Answer
  • The depository system holds certificates of the Investor in an electronic form.
  • Safety is ensured as the entire system functions under the Depository Act and is monitored by SEBI.
  • The investor even can freeze his account to avoid fraud.
  • Investors can easily transfer the securities in electronic form.
  • The investor receives a statement of account periodically which keeps him updated.
  • Investors can raise easy loans against the Dematerialized securities.
  • A nomination facility is also available for investors.
  • Dividend, Bonus Shares, Right Issue, Redemption amount gets automatically credited to Investors account.
  • Thus, it is rightly justified that Depository systems have some advantages to the investor.
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Question 54 Marks
ISIN is a necessary component of Demat.
Answer
  • International Securities Identification Number (ISIN) is a code that uniquely identifies a specific securities issue.
  • ISINs are allotted by that country’s NNA (National Numbering Agency).
  • ISIN is a standard numbering system that is accepted globally.
  • The ISIN’s structure is currently defined by the International Organization of Standardization (ISO).
  • ISIN consists of a 12 (twelve) digit alpha-numeric code which is divided into 3 (three) parts.
  • The company has to apply for ISIN for its securities with documents like a prospectus.
  • In India, issuing ISIN to securities is assigned by SEBI to NSDL (for Demat shares). SEBI works as NNA in India.
  • Thus, from the above points, it is rightly justified that ISIN is a necessary component of Demat.
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Question 64 Marks
Depository system allows both: Physical to electronic and electronic to physical conversion.
Answer
  • Under the Depository system, physical certificates can be converted into electronic ones known as ‘Dematerialization’.
  • Similarly, the conversion of electronic securities into physical certificates is known as ‘Rematerialization’.
  • Due to Dematerialization transfer of securities takes place fast and transactions are also settled immediately. Whereas in Rematerialization, settlement of transactions in the physical system takes more time.
  • In Rematerialization, storing and handling physical certificates is more time-consuming. Whereas in dematerialization, there is no handling of certificates.
  • There are chances of certificates getting lost, damaged, torn, stolen, misplaced during transit, etc.
  • In this technological world, Demat securities are more preferred over Rematerialized securities.
  • Thus, it is rightly justified that the Depository system allows both: Physical to electronic and electronic to physical conversion.
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Question 74 Marks
DP is an important constituent of the Depository system.
Answer
  • Depository Participant acts as a link between the Depository and the Investor. In other words, it is an agent of the depository.
  • DP is registered under the SEBI Act. It enjoys rights and obligations as specified under SEBI Regulations of 1996.
  • It is an intermediary appointed by Depository.
  • DP directly deals with customers and sends a statement of accounts periodically.
  • The DP has a unique number for identification.
  • Banks, Financial Institutions, Stock Brokers, etc. can function as Depository Participants.
  • Thus, it is rightly justified that DP is an important constituent of the Depository system.
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Question 84 Marks
The depository system is very similar to the Banking system.
Answer
  • The depository system is similar to the Banking system in many aspects.
  • Depository keeps the securities safe, just like the bank keeps the money of the account holder safe.
  • In banks, funds are held in accounts having unique numbers. Similarly, securities are held in accounts having unique IDs.
  • There is no physical handling of money in the bank. Similarly, there is no physical handling of securities by the depository.
  • Bank facilitates the transfer of funds between accounts. Depository facilitates the transfer of securities between accounts.
  • Thus, it is rightly justified that the Depository system is very similar to the Banking system.
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Question 94 Marks
Depository System results in reduced time, cost and efforts.
Answer
  • The depository System has a very important role to play in the successful functioning of the Capital market.
  • Under Depository System, securities are held in electronic form.
  • The transfer and settlement of securities are done electronically.
  • The Depository system maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder.
  • It eliminates a huge volume of paperwork, storage, and handling of physical certificates.
  • Thus, it is rightly justified that, Depository system results in reduced time, cost and efforts.
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Question 104 Marks
Depository provides easy and quicker transfer of shares.
Answer
  • Under the Depository system, securities are held in electronic form.
  • Not only the transfer and settlement of securities are done electronically but it also maintains the accounts of the shareholder, collects dividends, bonus shares, etc. on behalf of the shareholder.
  • Depository Participant acts as a link between the Depository and the Investor.
  • No stamp duty is levied on the depository system.
  • Processing time in the transfer of securities is reduced and neither the securities nor the cash is held up for an unnecessarily long time.
  • Hence it is also called a “Scripless trading system”. Thus, it is rightly justified that the Depository provides easy and quicker transfer of shares.
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Question 114 Marks
Electronic holding of securities is safer than physical holding.
Answer
  • Electronic holding of securities means holding the securities in dematerialized form.
  • Conversion of physical certificates into electronic form is known as ‘Dematerialization’.
  • Holding securities in electronic form eliminates a huge volume of paperwork.
  • The use of technology facilitates paperless trading which eliminates storage and handling of certificates. It also helps in reducing costs and efforts.
  • There is no risk of getting lost, damaged, torn, stolen, misplaced during transit, etc.
  • Delay in transfer and allotment of securities is also avoided.
  • Thus, it is rightly justified that, electronic holding of securities is safer than physical holding.
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