What is DDPI in the stock market?

DDPI stands for Demat Debit and Pledge Instruction. Before we understand DDPI, let’s first see what a power of attorney is for a demat account.

What is Power of Attorney (PoA) for a demat account?

A Power of Attorney (PoA) is a document that a client submits to a broker, giving the broker permission or legal authority to debit securities from the client’s demat account and deliver them to the exchange. Before PoA was introduced, clients had to fill out a Delivery Instruction Slip (DIS), sign it, and physically send it to the broker for every sale transaction, which was tedious and time-consuming.

With PoA in place, selling stocks became much easier and faster as it eliminated the need to fill out and send DIS. Once signed and sent, the PoA remained valid for all sell transactions until the client revoked it or closed the account with the specific broker. Submitting PoA was optional, and clients could still opt for DIS.

CDSL introduced eDIS in 2020, making it easier for non-PoA clients to authorize their holdings online. However, eDIS authorizations were only valid for a day, so clients still had to authorize their holdings each time they wanted to sell something. For this reason, PoA still remained widely relevant.

Why was Demat Debit and Pledge Instruction (DDPI) introduced?

The authorization provided by the PoA allowed some brokers in the past to debit holdings from clients’ demat accounts, leading to instances of misuse and unauthorized debits from these accounts. A notable example is when one of the brokers misused the Power of Attorney (PoA) in the past by pledging client securities and obtaining loans against them without proper authorization from the clients. 

Due to the risks associated with PoAs, SEBI introduced the Demat Debit and Pledge Instruction (DDPI) document in 2022, which significantly mitigated the risks associated with PoAs. DDPI is comparatively safer than PoA as it is only limited to four purposes:

• Transfer of securities from the client’s demat account to the stock exchange when a sell order is placed
• Pledging/re-pledging of securities in the demat account for margin trading
• Debit mutual fund units from the demat account when they are sold
• Enable tendering of shares when the client participates in a tender offer like takeover, buyback, or delisting

How is DDPI different from PoA?

DDPI offers a more secure method by restricting authorization strictly to trade-related debits.

The primary difference between PoA and DDPI is that PoA was restricted to offline submission due to IT Act regulations, while DDPI can be enabled online. Clients who submitted PoA before the introduction of DDPI can still rely on their existing PoA to sell securities. Submitting DDPI is optional, and clients can also still opt for DIS or eDIS to sell their securities.

If you have multiple demat accounts with different brokers and want to activate DDPI, you’ll need to do so separately for each broker. Activating DDPI with one broker does not allow you to sell shares held in the other broker’s demat account.

To learn how to activate DDPI in Zerodha, check out this article.