DDPI
What is DDPI in stock market and how is it used?
The Demat Debit and Pledge Instruction (DDPI) is a document which authorizes the Stock Brokers to debit the securities from the Demat Account of their clients. This is needed by the Broker to seamlessly settle the trades that are executed by their customers.
In addition, this agreement can also be used by the investors to meet the Margin requirements, by authorizing the Brokers to pledge the securities of the investor.
The DDPI agreement ensures that the debit and pledge of the securities cannot be done randomly by the Stock Broker. The Broker is only authorized to take these actions when they are fulfilling the delivery obligations of their clients or acting on a pledge request from the clients.
Settlement of transactions
In order to invest in the Stock market, an investor needs to create a Trading Account and a Demat Account. The Trading Account is opened with a Stock Broker and it is primarily used to place orders on the Stock Exchange.
Whereas the Demat Account is opened with a Depository Organization and it is used to take delivery of the securities. So, the Demat Account is used to hold the securities that are owned by the investor.
When any investor sells the securities on the Stock Exchange, he/she will have an obligation to deliver the securities to the buyer. On the other hand, the buyer has the obligation to transfer cash to the seller for the securities.
Delivery of securities
The Stock Brokers help to fulfill the obligations of their customers in the Settlement Process. For this purpose, the Stock Broker would need to access the securities of their clients. These securities have to be earmarked for the settlement purpose and the Broker has to ensure that the investor will give delivery of the securities.
But since the securities are owned and held by the investor, the Broker cannot simply access the account and debit the securities. The client has to provide a clear pre-authorization, which allows the Stock Broker to withdraw the securities for Settlement purpose.
This is where the Power of Attorney (PoA) and the Demat Debit and Pledge Instruction come into the picture. These are 2 popular ways through which the investor can allow the Broker to debit the securities for settling the transaction.
DDPI vs PoA
The Power of Attorney (PoA) in stock markets is executed by the investor in favor of their Stock Brokers. This concept gained popularity when internet-based trading services were newly provided by the Stock Brokers. Through the PoA, the clients can authorize their Stock Broker to operate the Demat Account and the Bank account of the client, to fulfill the pay-in and pay-out obligations.
The PoA used to give a broad range of permissions to the Broker and it is now being replaced by the Demat Debit and Pledge Instruction. This is because there have been instances in the past where the Brokers misused the PoA and transferred the securities of their customers, without the knowledge or consent of the customer.
The Power of Attorney is a generic term which can be used in different ways in different fields. To make the process more transparent, the investors have to now give explicit permission to their Stock Brokers through the DDPI.
This strictly restricts the activities that can be done with the securities of the Beneficiary Owner (BO) and it can help in preventing any misuse of the securities through the PoA.
Using the Demat Debit and Pledge Instruction
The DDPI can be executed by the investor when they are opening a new Trading Account and Demat Account. This form would be present in the bunch of forms that have to be signed to open an account with a Stock Broker.
However, execution of the Demat Debit and Pledge Instruction is not mandatory to open a new account. The investor can even sign this form at a later date, after the account has already been created.
The DDPI facility can be availed by the investors for the following purposes:
- To seamlessly deliver the securities for the Settlement Process
- Pledging of securities to meet the margin requirements
- In Mutual Fund transactions that happen through the Stock Exchange
- To give the securities for participating in Open Offers, through the Stock Exchange
Alternatives of DDPI
An important point to note is that the execution of DDPI is optional for the investors. If the clients do not want to provide this authorization to their Stock Brokers, then they can use other alternatives to settle the transactions. Some of the most popular ways to give delivery of the securities are mentioned below.
Delivery Instruction Slip
The Delivery Instruction Slip (DIS) is a special form that can be used to transfer the securities from 1 Demat Account to another. When the client has to provide delivery of shares to settle the trade, the securities can be transferred to the Stock Broker through the DIS. The Broker can then settle the transaction on behalf of the client.
The Delivery Instruction Slips are physical documents and they were used actively when the Settlement Cycle was longer. But with the introduction of online trading and T+1 Settlement Cycle, the physical DIS is slowly losing importance in regular trading. However, the DIS can still be used to perform off-market sale or transfer of securities.
eDIS / TPIN
As the name suggests, the Electronic Delivery Instruction Slip (eDIS) refers to the electronic version of the DIS. Instead of filling physical forms and sending them to the Broker, the investors can now authorize the transfer of securities electronically through the eDIS system of the Depository Organization.
Through eDIS mechanism, the Broker can only withdraw the securities from the Demat Account of their clients, after the client has authorized the debit on the platform of the Depository. To make the process more secure, the debit has to be verified by the client through One Time Password (OTP), PIN etc.
For example, CDSL Depository requires the investors to authorize the debit of securities through a TPIN, that can be directly generated by the investor on CDSL website.
Disclaimer
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- Some information could be outdated / inaccurate
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