Depository participant
Also written DP · Depository Participant (DP) · Participant · Depository participant (DP)
The SEBI-registered agent through whom an investor reaches a depository — NSDL and CDSL cannot open investor accounts themselves, so every demat account is opened and operated through a DP.
In plain language
A depository holds the country's securities in electronic form. It does not, however, deal with you.
The Depositories Act, 1996 built the system with a deliberate gap in the middle: the depository keeps the records, and a Depository Participant — a bank, a broker, an NBFC, a custodian, a registrar — stands between it and the investor. The DP opens your account, accepts your forms, keys your instructions into the depository system and answers your complaints.
So the DP is an agent of the depository, not an agent of yours. That single fact decides who is liable when something goes wrong, and it is the most reliably examined idea in the whole chapter.
How it works
A DP must hold a certificate of registration from SEBI under the SEBI (Depositories and Participants) Regulations, 2018 before it can offer any depository service. The application does not go to SEBI directly — it goes through the depository, which evaluates it and forwards it to SEBI within 30 days along with its own recommendation.
Net worth is the gate, and it differs by category:
| Applicant | Minimum net worth |
|---|---|
| Stockbroker (SEBI, 2022 amendment) | Rs 3 crore within one year, rising to Rs 5 crore within two years |
| Stockbroker — NSDL | Rs 3 crore (Rs 1–3 crore may be admitted as a Limited Participant) |
| Stockbroker — CDSL | Rs 5 crore |
| Registrar & Transfer Agent | Rs 10 crore |
| NBFC acting only for itself | Rs 50 lakh |
| NBFC acting on behalf of others | Rs 50 crore, over and above any other authority's requirement |
A stockbroker who wants to be a DP of both depositories must meet the criterion separately for each. Registration stays valid unless suspended or cancelled, subject to a fee payable every five years from the sixth year, one month before the block expires. Records are preserved for eight years, internal audit is half-yearly, and grievances must be redressed within 30 days of the complaint.
A worked example
A Mumbai stockbroker with a net worth of Rs 4.2 crore wants to become a DP.
| Route | Net worth needed | Outcome |
|---|---|---|
| NSDL only | Rs 3 crore | Eligible |
| CDSL only | Rs 5 crore | Not eligible — short by Rs 80 lakh |
| Both NSDL and CDSL | Rs 3 crore + Rs 5 crore, met separately | Not eligible |
The same Rs 4.2 crore cannot be counted twice. To be a DP of both depositories the broker must satisfy each depository's criterion on its own, so it raises capital to Rs 8 crore before applying to CDSL.
Now the liability question. A client of this DP loses Rs 6,40,000 because a clerk keys the wrong client ID and 800 shares of a Rs 800 scrip land in a stranger's account. Under the Depositories Act the depository indemnifies the beneficial owner for loss caused by the negligence of its DP — and the depository then has the right to recover that Rs 6,40,000 from the DP. The investor is not left chasing the DP; the depository stands in front, then turns around.
Why NISM asks about it
Chapter 2 (Introduction to Depository) and Chapter 3 (Depository and its Business Partners) together carry the heaviest weight in this paper. Expect direct recall — with whom is a DP registered (SEBI, not the exchange), which net worth applies to which category of applicant, how many days the depository has to forward an application, and who indemnifies the investor when a DP is negligent.
Common exam traps
- A DP is registered with SEBI, admitted by the depository. The workbook's own review question tests exactly this; "registered with the depository" is the wrong answer.
- A DP is the agent of the depository, not of the client. It is nonetheless liable to the client for its own acts and deeds.
- The net worth numbers differ between NSDL and CDSL for the same category. NSDL prescribes Rs 3 crore for stockbrokers, CDSL Rs 5 crore — and the SEBI regulation sets its own staged Rs 3 crore to Rs 5 crore path.
- Rs 50 lakh versus Rs 50 crore for an NBFC turns entirely on whether it acts only for itself or for other persons. The zero is the question.
- A DP terminating its participation must give not less than 30 days notice; the depository then notifies clients, other DPs and SEBI within seven days. Two different periods, easily swapped.
- No Rights and Obligations document is needed for a SEBI-registered FPI that has filed its agreement with SEBI, or for an International Multilateral Agency — the general rule has exceptions.
Where this is taught
- Series V-A · Chapter 3: Legal Structure of Mutual Funds in Indiaintroduced here
- Series XXI-B · Chapter 2: Introduction to Securities Marketsintroduced here
- Series IX · Chapter 1: Introduction to the Capital Marketintroduced here
- Series II-A · Chapter 11: Depository Servicesintroduced here
- Series VI · Chapter 2: Introduction to Depositoryintroduced here
- Series XXI-A · Chapter 2: Introduction to Securities Marketsintroduced here
- Series SEBI-ICE · Chapter 5: Investment in Securities Marketintroduced here
- Series XIX-E · Chapter 1: Investments Landscapeintroduced here
- Series XIX-D · Chapter 1: Investments Landscapeintroduced here
- Series X-A · Chapter 5: Introduction to Indian Financial Marketsintroduced here
- Series VI · Chapter 3: Depository and its business partners
Related terms
- DematerialisationConverting securities held as physical certificates into book-entry holdings: the certificates are defaced, mutilated and surrendered to the issuer, and an equivalent quantity is credited to the holder's demat account.
- Beneficial ownerThe investor who owns dematerialised securities for every practical purpose — the depository is the registered owner on the company's books, but the dividends, bonus, rights and votes are the investor's.
- Registrar and Transfer AgentThe SEBI-registered agency that keeps the investor records of a mutual fund — processing purchases and redemptions, updating folios and unit capital, and issuing account statements.
- Certificate of registrationThe SEBI registration without which a depository cannot deal in securities, no entity may act as a DP, and no FPI may invest. It is valid unless SEBI suspends or cancels it.
- DepositoryAn institution that holds investors' securities in electronic form and provides the services needed to transact in them — the securities equivalent of a bank holding money rather than cash.
- Tripartite agreementThe agreement signed by the depository, the issuer and the issuer's R&T Agent before that issuer's securities can be admitted for dematerialisation — it is the contract that makes a scrip demat-eligible.
- Share transfer agentThe intermediary that keeps a body corporate's register of security holders and handles transfers and redemptions — a SEBI-registered outside agency, or the company's own department once its holder count passes one lakh.
- Designated Depository ParticipantA SEBI-approved custodian and DP, also an AD Category-1 bank, that registers Foreign Portfolio Investors on SEBI's behalf after due diligence - and must be the same entity as the FPI's custodian.
- Client Master ReportThe depository-system report of a demat account's recorded details - holders, address, bank, contact and other static data - sent to the client on account opening and used as proof of account details.
- Mass shifting facilityThe depository facility that lets a DP move a whole group of client accounts from one DP module or location to another in one go - for example when it opens a new centre - without clients re-opening accounts.
- DP agreementThe contract between a depository participant and a Category III AIF as beneficial owner, setting out each side's rights and duties for depository services such as dematerialisation.
- easiCDSL's internet facility for viewing a demat account — real-time holdings, instruction status, past transactions and daily portfolio valuation — with no ability to submit debit or credit instructions.
- Net worth certificateA chartered accountant-certified statement of an intermediary's net worth, computed from audited books, submitted to the depository in the format its bye-laws prescribe — an annual filing obligation for every DP.
- Registered ownerThe depository itself, recorded in the issuer's books as the holder of dematerialised securities — while the investor, recorded by the depository as Beneficial Owner, retains all the actual rights and benefits.
- Capital market intermediariesRegistrars and Transfer Agents, Custodians and Depositories: the firms that service both the primary and secondary market, as distinct from brokers, merchant bankers and mutual funds, which trade or manage money.
- Book entryRecording ownership and transfer of securities as electronic entries in a depository's records, instead of on paper certificates that move physically between parties.
- Bye-LawsThe depository's own rulebook governing its operations, its participants, issuers and beneficial owners, which must conform to the Depositories Act and be approved by SEBI before it takes effect.
- CDSLCentral Depository Services (India) Limited — one of India's two depositories, promoted by leading Indian banks and the Bombay Stock Exchange, registered in February 1999 and operational from 22 March 1999.
- Certificate of commencement of businessThe second SEBI approval a depository needs before it can operate — granted within a year of registration, only once SEBI is satisfied the depository's systems, safeguards and Rs 100 crore net worth are adequate.
- Cancellation of certificateSEBI's power to permanently withdraw a Depository Participant's certificate of registration, used only for fraud, conviction for moral turpitude, or repeated defaults of the kind that could otherwise trigger suspension.
- DP-IDThe unique identification number a depository issues to a Depository Participant once its system connectivity is activated in the live environment, allowing it to start functioning.
- Beneficial owner accountThe ownership demat account investors open with a DP to hold and trade securities in electronic form, distinct from a broker's clearing member account, which only holds securities in transit.
- CM-BP-IDThe identification number NSDL allots to a clearing member's settlement account, combining with the Clearing Corporation's CC-CM-ID and the DP's Client-ID to identify the account uniquely.
- DRNThe unique number the DP system generates once a dematerialisation request is entered, used to track that request through the Issuer or R&T Agent until it is confirmed or rejected.
- DefacingMarking a physical certificate "Surrendered for Dematerialisation" with the DP name, DP-ID and Client-ID, and punching two holes at the top, before it is sent to the Issuer or R&T Agent — a safeguard against misuse.
- Bid-cum-Application formThe completed form an investor submits to a Depository Participant to subscribe to a public issue, which the DP acknowledges and then uploads into the stock exchanges' electronic bidding system.
- IssuerThe company or body corporate that issued the securities — one of the institutions in the depository system, and the party that signs the tripartite agreement admitting its securities for dematerialisation.
- Limited ParticipantA stockbroker admitted by NSDL as a DP with net worth between Rs 1 crore and Rs 3 crore, permitted to operate only with restrictions on business or for a limited period.
- NSDLNational Securities Depository Limited, India's first depository, incorporated on 12 December 1995 by IDBI, UTI and the NSE, and one of the two depositories the Depositories Act, 1996 has produced.
- Operating InstructionsThe depository's own detailed operational rulebook, listed in Chapter 2's legal framework beside the Depositories Act and SEBI regulations, and invoked for procedural specifics like defacement and account forms.
- Legal Entity IdentifierA 20-character alphanumeric code that DPs must capture in a non-individual's demat account, under an RBI direction, to identify parties to large-value payment transactions of Rs 50 crore and above.
- Minor correction in nameA limited fix to how a name is written in a demat account — spelling, expansion of initials, or abbreviation — accepted on an ink-signed request and one identity document, and distinct from an actual change of name.
- Password UserA SPEED-e access mode that lets a demat account holder submit delivery instructions online but only to a maximum of six pre-notified Clearing Member accounts, unlike a Smart Card/e-Token user who faces no such cap.
- Objection memoThe document by which an Issuer or R&T Agent flags a defect in a dematerialisation request, giving the DP 15 days to resolve the objection or supply further information before the request can be rejected.
- Rights and Obligations documentThe document a DP must hand every client, and get an acknowledgement for, before acting for them — its form and content set jointly by SEBI and the DP's own Operating Instructions.
- Surveillance PolicyThe internal monitoring framework NSDL requires each DP to build, sized to its own business and client base, to generate alerts that catch suspicious client transactions.
- Transit accountAn NSDL-only holding account, such as a settlement or intermediary account, that must be cleared of balances well before a book closure or record date so the right beneficial owner gets the corporate benefit.
- UCC mappingThe SEBI-mandated linking of a client's trading-member-allotted Unique Client Code to their demat account, so exchanges and depositories can jointly detect diversion of client securities.
- Letter of ConfirmationThe letter an RTA issues instead of a physical certificate after processing a duplicate, transmission, split or similar request — valid for 120 days, within which the holder must demat the shares through a DP.
- Suspense Escrow Demat AccountA separate demat account a listed company opens to hold securities nobody has claimed — chiefly Letter of Confirmation cases not dematerialised within 120 days — purely on the rightful holders' behalf.
- Early warning signalsIndicators that stock exchanges, depositories and clearing corporations monitor to catch a stock broker's deteriorating finances or diversion of client securities early, triggering joint preventive action.
- Composition of offencesClosing a criminal case under the Depositories Act by agreement instead of a trial — available for any offence except one punishable with imprisonment only, or with imprisonment and also fine.
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- Basic Services Demat AccountA low-cost demat account for a small investor who holds only one demat account and whose holdings stay within Rs 2 lakh of debt and Rs 2 lakh of non-debt securities — its annual charge can be nil.
- Demat accountAn account with a depository participant of NSDL or CDSL that holds your shares and other securities in electronic form. Since April 1, 2019, shares must be in demat form to be transferred.
- Annual Maintenance ChargesThe yearly fee a depository participant charges to keep your demat account running, linked to the value of your holdings. In a Basic Services Demat Account it can be nil for small holdings.
- KYC Registration AgencyA SEBI-created agency that holds an investor's verified KYC record centrally, so that one KYC completed with any securities market intermediary works with all the others.