IPA certificate
The certificate an Issuing and Paying Agent provides on the allotment date of a commercial paper issue, confirming the allotment, and which the seller must forward to the buyer in every secondary-market trade.
In plain language
A commercial paper issue does not credit itself into investors' demat accounts. Someone independent must first confirm the allotment happened as agreed. That confirmation is the IPA certificate. The Issuing and Paying Agent issues it on the allotment date.
Its job does not end there. Every time the CP changes hands in the secondary market, a copy of the same certificate travels with it, from seller to buyer.
How it works
From Chapter 11, section 11.3 (Commercial Paper): on the allotment date, the IPA provides the IPA certificate and shares a file with investor details — demat account numbers and the quantities to be credited. Based on this, the issuer, through its RTA, initiates a corporate action to credit the CPs directly into investors' demat accounts.
In the secondary market, buyer and seller agree price and quantity, the seller's DP debits and the buyer receives immediately (with standing instructions), and funds settle between the parties, outside the depository system. For every secondary-market transaction, the workbook is explicit: "the seller forwards a copy of the IPA certificate to the buyer" — the certificate is the document that follows the paper through every subsequent hand it passes through.
A worked example
On the allotment date of a Rs 10 crore commercial paper issue by a finance company, the IPA issues the IPA certificate confirming the allotment and sends the depository a file crediting 200 units (at Rs 5,00,000 face value per unit) to the subscribing mutual fund's demat account.
A month later, the fund sells 50 of those units to an insurance company in the secondary market. As part of that trade, the fund, as seller, forwards a copy of the IPA certificate to the insurance company, the buyer — so the buyer has documentary confirmation of the original allotment, even though it was not a party to it.
If the insurance company later sells the same 50 units onward to a bank, it too must forward its copy of the IPA certificate to the bank — the certificate travels with the paper at every step, not just the first.
Why NISM asks about it
Chapter 11, section 11.3, ties the IPA certificate to both the allotment step and every subsequent secondary-market transfer of a CP. Expect a question on who issues the IPA certificate (the IPA, on the allotment date) and who forwards it onward in secondary trades (the seller, to the buyer, every time).
Common exam traps
- The IPA certificate is issued on the allotment date by the IPA, not by the issuer directly.
- The seller forwards the IPA certificate in every secondary-market trade — this obligation does not end after the first resale.
- Funds for CP trades settle outside the depository system, between the parties directly — the IPA certificate is documentary, not a payment instrument.
- Do not confuse the IPA certificate with the allotment file the IPA also shares — the certificate confirms the issue; the file is the data used to actually credit demat accounts.
Check yourself
1.In the dematerialised allotment of Commercial Paper, what does the Issuing & Paying Agent provide on the date of allotment?
- a)The demat account numbers and DP IDs of all investors
- b)The IPA certificate, and a file containing investor details including demat account numbers and quantities of CPs to be credited
- c)The corporate action instruction directly to the depository
- d)A physical certificate to each investor, later surrendered for demat
Show the answer
Answer: (b) The IPA certificate, and a file containing investor details including demat account numbers and quantities of CPs to be credited
IPA on the date of allotment will provide IPA certificate and will also share file containing details of the investors including demat account number and quantity of CPs to be credited in their demat account.
Option A reverses the flow. Investors will have to provide demat account number along-with DP ID to the Issuer. Issuer will provide these details to the Issuing & Paying Agent (IPA). The IPA receives that information; it does not originate it.
Option C misplaces the actor. Based on the details received from IPA, Issuer will provide relevant documents to depositories and will initiate the corporate action through its Registrar and Transfer Agent to credit the CPs directly in the demat account of the investors. The Issuer initiates through its RTA.
Option D describes a world that no longer exists: allotment of Commercial Paper can be made directly in dematerialised form with the Depositories, and since the RBI Monetary and Credit Policy 2001-02, effective June 30, 2001, banks, FIs, PDs and SDs may hold CP only in dematerialised form.
One related duty for the secondary market: for all secondary market transactions, the seller will forward the copy of IPA certificate to the buyer.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Commercial PaperA short-term, unsecured, discounted money market instrument through which eligible companies raise funds for 7 days to one year, issued in Rs 5 lakh multiples.
- Cash corporate actionA corporate action that distributes money - such as dividend or interest - where the depository only tells the issuer who was entitled on the record date, and the issuer or its RTA pays them directly.
- Issuing & Paying AgentThe agent through which a commercial paper issue is allotted: it receives investors' demat details from the issuer, issues the IPA certificate and provides the allotment file used to credit CPs to demat accounts.