Depository participant

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.

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:

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 Mumbai stockbroker with a net worth of Rs 4.2 crore wants to become a DP.

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.

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.

• 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.