The Demat Debit and Pledge Instruction (DDPI) system is a significant advancement in India's securities market, designed to enhance the security, transparency, and efficiency of transactions. The DDPI form is used to authorise depository participants to seamlessly debit securities from the Demat account of their clients and send them to the exchange without the clients having to input a T-PIN or OTP for every trade.
This article provides a comprehensive overview of DDPI, including its functions, how to submit it, its comparison with the Power of Attorney (POA) system, and its future outlook for investors.
What is Demat Debit and Pledge Instruction (DDPI)?
Demat Debit and Pledge Instruction (DDPI) is a document that allows a broker take securities from a client's Demat account and deliver them to the exchange. After submitting the DDPI, the client doesn't need to use the CDSL T-PIN and OTP to sell shares. The broker or DP will have the right to transfer securities from your Demat account to the stock exchange. It will happen when you place a sell order via your trading account. It replaced POA on the November 18, 2022, in India, as per SEBI’s circular.
In addition, SEBI widened the scope of 'Demat Debit and Pledge Instruction' (DDPI)to include the below:
- Mutual Fund Transactions being executed on Stock Exchange order entry platforms; and
- Tendering shares in open offers through Stock Exchange platforms.
Functions of DDPI
Let us now look at the different functions of DDPI:
1. Enhanced security
DDPI is designed to enhance the safety of securities transactions. With DDPI, the scope of authorisation is more specific and limited to Demat debit and pledge activities, reducing the risk of misuse or unauthorised transactions.
2. Transparent transactions
DDPI brings greater transparency to the process of debiting and pledging securities. Investors can have a clearer understanding of the actions authorised by them and can monitor these activities more effectively.
3. Investor control
The shift to DDPI gives investors more control over their Demat accounts. Investors can exercise greater discretion in authorising specific actions, making it a more investor-friendly mechanism.
4. Compliance with regulatory changes
SEBI's decision to replace POA with DDPI aligns with the regulator's commitment to strengthening investor protection and ensuring the integrity of the securities market. Investors who transition to DDPI will be compliant with the latest regulatory requirements.
5. Efficient settlements
DDPI facilitates smoother and more efficient settlement processes by streamlining the authorisation for debiting and pledging securities. This can contribute to faster and more reliable trade settlements.
How to submit DDPI?
With the meaning and functions of Demat Debit and Pledge Instruction (DDPI) clear, let us now illustrate how you can submit the DDPI. Do note that it can be possible to submit the DDPI offline or online (or either). This completely depends on your choice of the depository participant. If your broker does offer the option to submit the DDPI online, it may save you a significant amount of time and effort.
If the online option is unavailable to you, you can either request it from your broker or download and print it from the broker’s official website. Once you physically fill in all the requisite details, the form can be submitted to your broker’s local office for verification. The details you fill in will then be authenticated by the broker,
Compared to this, filling and submitting the DDPI form is easier online. We have explained the steps to submit the DDPI form below:
- The first step is to choose a depository participant to open a trading and Demat account. Once you have selected a reliable broker to open your account, you must provide your details (personal and bank details, among others).
- The next step is to visit the ‘Profile’ section in your account and click on the ‘Submit DDPI’ option.
- This will open a new window with an online form. Here, you have to input accurate details for Demat Debit and Pledge Instruction.
- As per the regulatory framework, it is mandatory to submit an e-stamp form along with the DDPI form.
- Verify your inputs and sign both forms electronically.
- Depending on your broker, you may have to provide your Aadhaar details and confirm your contact details through an OTP.
- After your mobile number is verified through OTP, you can submit the DDPI request form. The processing for this may take up to three business days on the broker’s end.
How is DDPI better than POA?
The transition from POA to DDPI, mandated by the Securities and Exchange Board of India (SEBI), represents a shift towards a more secure and transparent authorisation mechanism. Here are the key distinctions between the two:
1. Authorisation scope:
- POA: A Power of Attorney is a comprehensive legal document that grants broad authority to the broker or depository participant. It allows them to act on behalf of the investor not only for trading activities but also for various other purposes, including fund withdrawals and corporate actions.
- DDPI: DDPI, on the other hand, is specifically designed for Demat debit and pledge activities. It has a more focused scope, providing authorisation only for transactions related to the debiting and pledging of securities in the Demat account.
2. Limited purpose:
- POA: POA is a versatile document that can be used for multiple functions, both trading and non-trading related. This versatility can potentially expose investors to a broader range of risks and activities carried out on their behalf by the authorised entity.
- DDPI: DDPI, being narrowly focused on Demat transactions, limits the authority to actions directly related to securities held in the Demat account. This specificity enhances transparency and control for investors in the context of securities trading.
3. Risk and security:
- POA: The broad authorisation granted by POA may pose risks, as it allows the authorised entity to handle various aspects of the investor's account. Investors need to scrutinise the terms and conditions of the POA to mitigate potential risks.
- DDPI: DDPI is designed to address the specific risks associated with Demat transactions. By providing a more targeted authorisation, it reduces the risk of misuse or unauthorised actions in areas outside the Demat debit and pledge activities.
4. Regulatory compliance:
- POA: Prior to the introduction of DDPI, POA was the conventional mechanism for facilitating securities transactions. However, regulatory concerns related to the potential misuse of POA led to the development of a more secure and focused alternative.
- DDPI: The introduction of DDPI by SEBI reflects a regulatory shift towards a more standardised and secure system for Demat transactions. Investors are now mandated to use DDPI for authorising Demat debit and pledge activities.
Future of the existing POAs and DDPIs
If an investor in the financial market has not completed the transaction of a power of attorney to their depository participant, they can now directly opt for the DDPI. In cases where investors have not opted for either POA or DDPI, every transaction would require the submission of an electronic (or physical) Delivery Instruction Slip (DIS).
You can think of DIS as a chequebook but for your trading and demand account. Thus, an investor must submit a DIS every time a trade has to be made. It is recommended that investors submit the DDPI form to avoid this hassle.
A key point to remember is that the DDPI system came into effect in the second half of 2022. Thus, new investors who have entered the financial market after November 18, 2022, must submit the DDPI form, and the POA form is only used for investors who submitted it before 1st September 2022.
As a newer system, DDPI will pave the way for the future. POA is only used by older investors who have been in the market for at least a couple of years. Thus, as new people enter the stock market every year, the use and prevalence of DDPI will only increase over time.
Is DDPI compulsory?
At present, DDPI is not compulsory for trading in the stock market. The two existing systems of DDPI and POA can be ignored as you utilise DIS to trade. However, do keep in mind that every trade requires a DIS. Practically, this is a hassle for most investors. Thus, you may want to explore submitting the DDPI.
When it comes to POA, only investors who submitted a POA request before 1st September 2022 are allowed to trade under that system. They also have the freedom to switch to the DDPI system if they want to.
While DDPI is not mandatory, it is a seamless option for trading in the market. Not only is it more seamless, but it is also more secure. Since its implementation, the DDPI system has brought stability and reduced the number of demat account fraud cases. DDPI requests can also be easily submitted online in most cases, as traders enjoy the benefits of safe and seamless trading.
DDPI in Stock Market
DDPI, or Demat Debit and Pledge Instruction, streamlines stock market trading by allowing brokers or Depository Participants (DPs) to sell shares directly from a Demat account without needing additional verification, such as OTPs or T-PINs. This simplifies and speeds up the selling process, making it more efficient and secure. DDPI also enables brokers to pledge or re-pledge shares for margin trading and manage tender offers, further enhancing the flexibility and security of trading activities.
Conclusion
In conclusion, the compulsory nature of DDPI is a crucial aspect of SEBI's efforts to modernise and secure the securities market infrastructure. Investors, along with their brokers and depository participants, are expected to adopt DDPI to ensure compliance with the regulatory framework. It is advisable for investors to stay informed about any updates or changes in regulations and work closely with their financial intermediaries to ensure a smooth transition to the mandated DDPI system.
