What is DDPI and how it is different from POA for your Demat account?

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The Securities and Exchange Board of India (SEBI) introduced a new document called Demat Debit and Pledge Instruction (DDPI), which replaced POA (Power of Attorney) and took effect on September 1st, 2022 to protect the rights of investors.

One can utilise DDPI to grant access to their Demat account to their broker and depository participant solely for the purpose of meeting pay-in obligations for the settlement of trades and margin requirements for the Trades executed. 

Under DDPI, clients authorise their stock broker and depository participant to access their beneficiary ownership account only for the purpose of meeting in-pay obligations and margin for the settlement of trades executed by them. – This is repeated with Para-2 

Let us understand the meanings of these terms in detail. 

Basics of POA and DDPI 

A POA is a document that gives permission to a stockbroker to debit shares from the Demat account of a client and delivers them to the exchange. 

Investors must give their consent before stockbrokers and depositories can carry out transactions on their behalf. Brokers would typically get Delivery instruction slips (DIS)for each and every transaction, but this is impractical for brokers and firms due to paucity of time for pay-in and margin obligations with significant client base 

Brokers had therefore started employing PoAs as an all-encompassing solution. Additionally, both clients and brokers had to stamp and sign PoAs. Due to the disallowance of digital execution facilities for PoAs, brokers and investment firms were forced to revert to manual stamp paper procurement. 

However, the market watchdog decided to curb instances of misuse of POAs like debiting shares without selling trades or breaking POA clauses. Hence, SEBI introduced DDPI whereby debiting shares from a client’s account is limited only to secondary market transactions. 

How DDPI is different from POA? 
The basic use of DDPI will only be limited for four purposes, effective from 15/11/2022- 

  1. For transfer of securities held in the beneficial owner account of the client towards stock exchange-related deliveries or settlement obligations arising out of trades executed by such client.

  2. For pledging or re-pledging of securities in favour of the Trading Member or Clearing Member (TM or CM) for the purpose of meeting the margin requirements of the client.

  3. For Mutual Fund transactions being executed on Stock Exchange order entry platforms.

  4. For Tendering shares in open offers through Stock Exchange platforms. 

DDPI was mainly introduced to curb possible misuse of POA given by the client to stock brokers. In its circular, SEBI mentioned that the DDPI shall serve the same purpose as POA and significantly mitigate the misuse of the POA. 

SEBI further added that the client can use the DDPI or opt to complete the settlement by issuing a physical Delivery Instruction Slip (DIS) or an electronic Delivery Instruction Slip (eDIS) themselves.  

Explanation of the SEBI Circular with regard to DDPI 

Moreover, SEBI added that the existing PoAs will continue to remain valid till the time the client revokes the same. Thus, the stockbroker and Depository Participant will not directly or indirectly compel the clients to execute the DDPI or deny services to the client if the client refuses to execute the DDPI. 

Only the trading member pool account of the customer will receive credit for securities transferred based on the DDPI provided by the client. The DDPI provided by the client will be recorded in the customer's Demat account by TM/CM. 

To make sure that stock brokers and Depository Participants offering DDPI facilities allow their clients to revoke or terminate the DDPI issued by them, SEBI has requested stock exchanges and depositories to keep a check. 

The circular also stated that the PoA will be optional, thus the stock broker and depository participant shouldn't impose it when a client’s account is opened. The sub-heading "Additional Rights and Obligations" of the Rights and Obligations Document will include a section in this regard. 

To Conclude 

The main distinction between DDPIs and PoAs is that DDPIs can be electronically stamped and signed, whereas Schedule 1 of the IT Act prohibits the digital execution of PoAs. 

With limited purposes for which DDPI can be used, the move by SEBI will mitigate the misuse of POAs granted by the clients to the stockbrokers.