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Two Factor Authentication: Why Your Demat Account Wont Work Without It From 1st October

The first step of investing in the stock markets today is to open a demat account. The process to do so has been simplified and made convenient, and this has encouraged many investors to enter the universe of trading in stocks and shares. Easily available online, a demat account can be a boon to traders, but when you open one, you should be cognizant of any new functions and ways of operations that apply to demat accounts. In case you don’t keep up-to-date with such information, your demat account may be rendered inoperable by you and cause you unnecessary concern. 

The NSE Announcement

In a recent announcement by the National Stock exchange, or NSE, it was reported in a circular dated 14 June, 2022, that holders of demat accounts would be unable to log into their respective accounts if they had not enabled something known as “two-factor authentication” by 30 September, 2022. When you open a demat account to trade in the share market today, you can log into your account easily. Logging in to a demat account after you have gone through the process to open a demat account can be done either by a biometric method of authentication, or a “knowledge-based” authentication. 

How Authentication Works

With primary safety considerations in mind, logging into your demat account should assure you that you are protected from dubious activity by others. The knowledge-based authentication involves having a password, unique to the individual holder of a demat account, which is generated by the holder when they open a demat account. This password is something that only the demat account holder would know. The authentication could also be done with a PIN, a one-time password generation, or a security token. Either one of these can be used by a demat account holder to access their demat accounts presently. These knowledge-based authentication methods are used when biometric measures are not possible. 

The Mandate of the New Circular

If you want to trade and invest in the share market today, you must open a Demat account. You may not have to do so if you invest in stocks in any other way, such as subscribing to any upcoming IPO. With the advent of the new circular by the NSE, demat account holders will now (from the date stipulated as the 30 September) have to undergo a two-factor authentication to gain access to their demat accounts. This may translate to using a knowledge factor like a PIN or a password, a user ID, and an OTP or a security token (three factors may be necessary, but in the interest of security, there is no compromise according to the NSE). 

Necessary Security Measures

As of now, the majority of brokers use a two-factor method of authentication, like a PIN and a password, but since these are both considered as “knowledge-based”, they may not be represented as two distinct factors. The NSE and the BSE have stressed that authentication factors must be dual and different in the interest of all those individuals who open a demat account. Such authentication should compel you to open a Demat account and start your trading activity even if you have already subscribed to any upcoming IPO or have other investments. 


Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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