NISM Certifications Operations, Compliance and Risk Management Syllabus

What is a Depository Participant (DP)?

A DP is an agent of the depository (such as a bank, broker, or financial institution) that acts as the interface between the investor and the depository, offering demat account services to clients.

What are the main functions of a Depository Participant?

Opening and maintaining demat accounts, dematerialization and rematerialization, facilitating transfers/settlements, crediting corporate action benefits, pledging securities, and providing account statements.

What is dematerialization?

Dematerialization is the process of converting physical share certificates into electronic form held in a demat account, initiated by submitting a Dematerialization Request Form (DRF) to the DP.

What is rematerialization?

Rematerialization is the reverse of dematerialization - converting electronic securities back into physical certificate form, initiated via a Rematerialization Request Form (RRF).

What is an ISIN?

ISIN (International Securities Identification Number) is a unique 12-character alphanumeric code that identifies a specific security, used by depositories to standardize and track securities.

What is a corporate action?

A corporate action is an event initiated by a company that affects its securities and shareholders, such as dividends, bonus issues, stock splits, rights issues, mergers, or buybacks.

Distinguish between a bonus issue and a stock split.

A bonus issue gives existing shareholders additional free shares from reserves (capital is capitalized). A stock split divides existing shares into more shares of lower face value; reserves are unchanged. Both increase share count without cash inflow.

What is a rights issue?

A rights issue offers existing shareholders the right to buy additional shares, usually at a discount, in proportion to their existing holdings, allowing the company to raise capital.

What is the record date in a corporate action?

The record date is the cut-off date set by a company to determine which shareholders are eligible to receive a corporate action benefit (such as dividend or bonus).

What is a pledge in the depository system?

A pledge is the creation of a charge on dematerialized securities as collateral for a loan; the securities remain in the pledgor's demat account but are marked/blocked in favor of the pledgee.

Which regulator governs depositories in India and under which Act?

SEBI (Securities and Exchange Board of India) regulates depositories under the Depositories Act, 1996, and the SEBI (Depositories and Participants) Regulations.

What is a Beneficial Owner (BO) in the depository context?

A Beneficial Owner is the investor in whose name securities are held in a demat account; the BO enjoys all rights and benefits of ownership even though securities are held electronically via the depository.

What is the difference between NSDL and CDSL?

Both are SEBI-registered depositories holding securities in electronic form. NSDL (National Securities Depository Limited) is promoted mainly by NSE/IDBI; CDSL (Central Depository Services Limited) is promoted mainly by BSE. They perform the same core functions.

What is the role of the Compliance Function in an intermediary?

The compliance function ensures the firm adheres to all applicable laws, SEBI regulations, exchange rules, and internal policies; it monitors, advises, reports breaches, and helps prevent regulatory violations.

What is a Compliance Officer required to do under SEBI regulations?

The Compliance Officer monitors regulatory compliance, ensures timely reporting/disclosures to SEBI and exchanges, handles investor grievances, and independently reports compliance status to the board/senior management and to regulators.

Why must the compliance function be independent within an intermediary?

Independence ensures objective monitoring and reporting of violations without conflict of interest or pressure from business/revenue functions, preserving the integrity of compliance oversight.

What is AML and which law governs it in India?

AML (Anti-Money Laundering) measures prevent the use of the financial system for laundering illicit funds. In India it is governed by the Prevention of Money Laundering Act (PMLA), 2002.

What are the three stages of money laundering?

1) Placement - introducing illicit cash into the financial system; 2) Layering - moving funds through complex transactions to obscure the source; 3) Integration - reintroducing 'cleaned' funds as legitimate assets.

What is the role of FIU-IND in the AML framework?

The Financial Intelligence Unit-India (FIU-IND) is the central national agency that receives, analyzes, and disseminates information on suspicious and cash transactions (STRs and CTRs) to combat money laundering and terror financing.

What is a Suspicious Transaction Report (STR)?

An STR is a report filed with FIU-IND when a transaction appears unusual, has no economic rationale, or is suspected to involve proceeds of crime, regardless of the transaction amount.

What is a Cash Transaction Report (CTR)?

A CTR is a report to FIU-IND of cash transactions exceeding Rs. 10 lakh (or equivalent in foreign currency), or a series of integrally connected cash transactions exceeding that threshold in a month.

What is Customer Due Diligence (CDD) under PMLA?

CDD is the process of identifying and verifying a customer's identity, understanding the nature of their activity, and assessing money-laundering risk, performed at onboarding and on an ongoing basis.

What is Enhanced Due Diligence (EDD) and when is it applied?

EDD is a deeper level of scrutiny applied to higher-risk customers (e.g., PEPs, non-face-to-face clients, high-risk countries), involving additional verification, source-of-funds checks, and senior management approval.

For how long must intermediaries retain transaction and KYC records under PMLA?

Records of transactions must be maintained for at least five years from the date of the transaction, and KYC/identity records for at least five years after the business relationship ends.

Who is the Principal Officer under PMLA in an intermediary?

The Principal Officer is the designated official responsible for ensuring AML compliance, monitoring transactions, and filing STRs/CTRs with FIU-IND on behalf of the intermediary.

What is the purpose of a Code of Conduct for market intermediaries?

It sets standards of professional behavior, integrity, fairness, and ethics that intermediaries and their personnel must follow to protect investors and maintain market integrity and confidence.

What does 'fiduciary duty' mean for a securities market professional?

A fiduciary duty is the obligation to act in the best interests of the client, placing the client's interests above one's own and avoiding conflicts of interest.

What is front-running and why is it prohibited?

Front-running is trading on advance knowledge of a pending large client order to profit from the expected price move. It is an unfair, unethical, and illegal practice that breaches client trust and fiduciary duty.

What is insider trading?

Insider trading is dealing in securities based on unpublished price-sensitive information (UPSI). It is prohibited under SEBI (Prohibition of Insider Trading) Regulations as it gives an unfair advantage and harms market fairness.

Under a code of ethics, how should an intermediary handle a conflict of interest?

By disclosing the conflict to the client, avoiding it where possible, and always acting in the client's best interest rather than exploiting the conflict for personal or firm gain.

Why is confidentiality of client information an ethical obligation for intermediaries?

Clients entrust sensitive financial and personal data; intermediaries must protect it, use it only for legitimate purposes, and not disclose or misuse it, except as required by law or regulation.