Introduction

To begin trading in India, you need a demat account. Any securities you buy are credited to this account and debited when sold. These accounts are maintained by depository participants (DPs) or brokers. Usually, to make a trade, you need to place an order with the DP, and they execute it on your behalf. To do all this, they need your authorization. Previously, this authority was given through a POA (Power of Attorney). This has now been replaced by the Demat Debit and Pledge Instruction (DDPI) framework.

Wondering what DDPI means? After going through this article, you will know what it means, why it was introduced, and the simple steps to submit it.

DDPI Meaning

Brokers used the POA system to manage their clients' demat accounts, which facilitated easy transactions. It also gave brokers unrestricted access to the client accounts since brokers no longer needed to seek their clients' permission to trade. The Securities and Exchange Board of India (SEBI) introduced the DDPI system to check this situation and curb potential misuse, especially unauthorised trades. This regulatory framework introduced in 2022 aims to improve investor trust and trade transparency and create an investor-friendly investment ecosystem.

What Does DDPI Do?

The only two activities brokers can be authorised to perform via a DDPI are:

• Debiting the Demat Account

Brokers are permitted to debit securities from a client's demat account only to fulfil any sell transactions. So, the securities needed will be automatically debited whenever you decide to sell on the stock market.

• Pledging of Securities

Brokers are permitted to pledge their clients' securities as collateral. This means the securities can be pledged only to fulfil any margin requirements while trading derivatives and nothing more.

• Why Was DDPI Introduced?

The introduction of DDPI by SEBI is beneficial not only for you as an investor but also for the entire securities market. Here are the different benefits it offers.

• Improved Transparency

The DDPI system facilitates SEBI's aim of creating a transparent market. It gives you a better visibility of how your demat account is handled. Simultaneously, it also places accountability on brokers to maintain a thorough record of all their DDPI transactions.

• Better Security

The introduction of DDPI by SEBI has effectively restrained brokers' authority over their clients' demat accounts. This focused framework of DDPI reduces the potential for misuse.

• Improved Investor Trust

A wonderful aspect of DDPI is that it can be revoked per your requirements. This added flexibility and knowledge of the only two actions a broker is authorised to perform further improve investor trust in the market.

• Enhanced Operational Efficiency

Previously, you needed to give your brokers a Delivery Instruction Slip (DIS) or grant them Power of Attorney (POA) to place trades. Both these can now be replaced by a single DDPI. Eliminating repeated manual authorisations makes it easier to execute trades and especially benefits you if you are actively involved in the derivatives market.

Difference Between DDPI and POA

SEBI's introduction of DDPI is a positive regulatory move needed to improve market transparency and accountability. Before DDPI, the two means you could trade through brokerages on the market were DIS and POA. The issue with the former is it's a cumbersome process, and a DIS must be submitted before any trade can be placed. This means an equal number of DIS are needed if you wanted to do multiple trades. The problem with the latter is it places excessive control in the hands of brokers. DDPI effectively eliminates both of these problems.

Another key distinction between POA and DDPI is that the former gives you more control over your demat account. Simultaneously, it reduces the risk of brokers misusing other people's accounts for unauthorised fund transfers, securities pledging, or securities sales. Since DDPI focuses only on two activities and is revocable, unlike the POA, it's a better fit for prudent investors.

How to Submit DDPI?

Follow the simple steps given below to submit your DDPI.

1. Open a trading account with a depository partner of your choice by providing the required personal and banking details.

2. Log into your online trading account and visit your profile. Usually, the option to submit DDPI exists in a similar section.

3. Enter the required details, including those related to your demat account, to file a request for DDPI.

4. An e-stamp must be submitted along with the application according to the SEBI framework.

5. Once the forms are signed electronically, you might be required to submit Aadhaar details for contact confirmation. However, this policy varies from one brokerage to another.

6. Upon verification, the brokerage usually processes the DDPI request within three business days.

7. If the online option isn't available, the DDPI form can be submitted directly to the brokerage's local office with the required details.

Conclusion

The DDPI system introduced by SEBI is another step in the right direction to ensure investor protection and empowerment, operational efficiency, and transparency in the financial market. This investor-friendly framework brings us closer to a well-regulated, secure, modern securities market. Staying informed is a primary condition for becoming a well-informed investor. So, you must regularly check for any updates or changes proposed by the regulatory authorities.

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