Issuing & Paying Agent
Also written IPA · Issuing & Paying Agent (IPA)
The 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.
In plain language
Commercial paper (CP) is a short-term debt instrument issued by companies and institutions. Unlike shares, a CP issue is administered by an Issuing and Paying Agent (IPA) that sits between the issuer, the investors and the depositories.
At issue, the IPA confirms the issue with an IPA certificate and gives the list of who gets how many CPs into which demat accounts. The depository then credits them.
The "paying" part used to involve the investor sending CPs back to the IPA's redemption account at maturity. That step has gone: since RBI's 2017 CP Directions, CPs are extinguished directly from investors' demat accounts through a corporate action.
How it works
From Chapter 11 (section 11.3, Commercial Paper):
Denomination. In the depository system the face value of a CP is Rs 5,00,000; investors subscribe to a minimum of Rs 5,00,000 or multiples. CPs are credited in units - an investment of Rs 5 crore in a CP issue results in 100 units.
Holding. The investor may hold CPs in a separate account or in the same account as other holdings.
Allotment - the IPA's role.
- Investors give their demat account number and DP ID to the issuer.
- The issuer provides these details to the IPA.
- On the allotment date, the IPA provides the IPA certificate and shares a file with investor details - demat account numbers and quantities to be credited.
- Based on that, the issuer gives documents to the depositories and initiates a corporate action through its RTA to credit the CPs directly into investors' demat accounts.
Secondary market. Buyer and seller agree price and quantity; the seller's DP debits and the buyer receives immediately if he has standing instructions; funds settle between the parties. For all secondary market transactions, the seller forwards a copy of the IPA certificate to the buyer.
Redemption. Under RBI's Commercial Paper Directions, 2017 (August 10, 2017) and FIMMDA's operational guidelines of October 5, 2017, investors no longer transfer CPs to the IPA's redemption account; CPs are extinguished directly from BO accounts through corporate action.
Demat only. Under RBI's Monetary and Credit Policy 2001-02, from June 30, 2001, banks, FIs, primary dealers and satellite dealers may make fresh investments in and hold CP only in demat form; scrip holdings were to be converted by October 2001.
A worked example
Illustrative issuer and investor; the unit and process rules are the workbook's.
A finance company issues commercial paper. A mutual fund invests Rs 25 crore.
- Face value per CP in the depository = Rs 5,00,000
- Units credited = Rs 25,00,00,000 / Rs 5,00,000 = 500 units
| Step | Who | What |
|---|---|---|
| 1 | Mutual fund | Gives its DP ID and demat account number to the issuer |
| 2 | Issuer | Passes the details to the IPA |
| 3 | IPA, on allotment date | Issues the IPA certificate; sends a file: mutual fund's account, 500 units |
| 4 | Issuer via RTA | Corporate action with the depository; 500 units credited to the fund's demat account |
A month later the fund sells 100 units (face value Rs 5 crore) to a bank. The fund's DP debits 100 units; the bank, with standing instructions, receives them immediately; payment is settled directly between them. The fund forwards a copy of the IPA certificate to the bank.
At maturity, neither the fund (400 units) nor the bank (100 units) transfers anything to the IPA. The CPs are extinguished from their demat accounts by corporate action, and redemption proceeds are paid.
An investor wanting to put in Rs 3,00,000 could not: the minimum is Rs 5,00,000.
Why NISM asks about it
Chapter 11 (Special Services - Debt Instruments and Government Securities, 10% weightage) covers the IPA in its Commercial Paper section (11.3), alongside certificates of deposit and government securities. Questions test the Rs 5 lakh face value and unit conversion, who issues the IPA certificate, that the seller forwards it in secondary trades, and the 2017 change to redemption by corporate action.
Common exam traps
- CP face value in the depository is Rs 5,00,000; a certificate of deposit's minimum is Rs 1 lakh - do not mix them.
- Rs 5 crore = 100 units of CP.
- The IPA issues the IPA certificate on the allotment date and supplies the investor file; the issuer, through its RTA, initiates the crediting corporate action.
- In secondary trades the seller forwards the IPA certificate copy to the buyer.
- Since 2017, CPs are not sent to the IPA's redemption account - they are extinguished by corporate action.
- Funds for CP trades settle outside the depository.
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.
2.How are inter-depository transfers of government securities processed?
- a)In a single batch every working day including all Saturdays
- b)In three batches on weekdays and one batch on 1st, 3rd and 5th Saturdays
- c)In three batches on every day of the week
- d)Continuously through the day, with no batch processing
Show the answer
Answer: (b) In three batches on weekdays and one batch on 1st, 3rd and 5th Saturdays
The Inter-depository transfer of Government Securities are processed in three batches on weekdays and one batch on 1st/3rd/5th Saturdays.
Option A gets the Saturday coverage wrong twice — it is not every Saturday, only the 1st, 3rd and 5th. Option C forgets that Saturdays get a single Final Batch, not three.
The deadlines follow a pattern that makes them easy to hold: the depository's processing deadline is always 15 minutes after the Participant's deadline.
Days Batch Participant deadline Depository deadline Weekdays I 12:00 Noon 12:15 P.M. Weekdays II 03.00 P.M. 03.15 P.M. Weekdays III / Final 05.00 P.M. 05.15 P.M. 1st/3rd/5th Saturdays Final 01.30 P.M. 01.45 P.M. Do not confuse these with the general inter-depository transfer deadline for other securities, which is a single cut-off rather than a batch schedule.
3.A Depository Participant has to be registered with:
- a)The depository
- b)The stock exchanges
- c)SEBI
- d)The Ministry of Corporate Affairs
Show the answer
Answer: (c) SEBI
SEBI. A Depository Participant is described as an agent of the depository and is a registered entity with SEBI under section 12(1A) of the SEBI Act 1992. And a DP can offer depository related services only after obtaining a certificate of registration from SEBI.
Option A is the natural wrong answer and worth understanding rather than just rejecting. The DP does have a formal relationship with the depository — the relationship between the DPs and the depository is governed by an agreement made between the two, under the Depositories Act 1996, the SEBI (D&P) Regulations 2018 and the Bye-laws. But an agreement is not a registration.
So: agreement with the depository, registration with SEBI. Keep the two words apart and this question, which appears in the workbook's own review set, is free.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Certificate of DepositA negotiable, unsecured money market instrument issued by a bank against funds deposited with it, sold at a discount and repaid at face value within one year.
- 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.
- ISINThe 12-character code (ISO 6166) that identifies one specific security in the depository system — country prefix, nine-character basic number and a check digit, as in INE475C01012.
- Standing instructionA one-time authority, usually given at account opening, for the DP to credit securities into the account without a fresh instruction each time — the alternative is a Receipt Instruction for every single receipt.
- 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.
- Debt securityA written agreement to repay a loan, usually with interest, within a set time. Bonds, debentures, CP, CDs, G-Secs and T-Bills are all debt securities, and any type can be admitted to the depository.
- IPA certificateThe 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.