Sebi clarifies on norms pertaining to instruction slips for share pledging

To curb the misuse of Power of Attorney (PoA) given by clients to stock brokers, Sebi on Thursday widened the scope of the Demat Debit and Pledge Instruction (DDPI) for pledging and repledging of securities for margin purposes.

Mutual fund transactions executed on stock exchange order entry platforms and tendering of shares in open offers through stock exchange platforms will also be covered under the DDPI, the Securities and Exchange Board of India (Sebi) said in a circular.

The DDPI serves the same purpose of PoA and significantly mitigate the misuse of PoA.

The guidelines, which will be effective from November 18, also comes against the backdrop of instances of misuse of PoAs.

"In view of the representations by and consultations with broker associations and depositories, it has been decided to widen the scope of DDPI to include mutual fund transactions being executed on stock exchange order entry platforms and tendering shares in open offers through stock exchange platforms," Sebi said.

In July, Sebi had extended the deadline by two months to September 1 for implementation of the guidelines related to pledging and repledging of stocks for margin purposes. With the implementation of the guidelines, the Demat Debit and Pledge Instruction (DDPI) replaced the PoA document.

With the DDPI, clients can explicitly agree to authorise the stock broker and depository participant to access their beneficial owners' account for the limited purpose of meeting pay-in obligations for the settlement of trades executed by them.

The use of DDPI is limited only to two purposes. One is for the transfer of securities held in the beneficial owner account of the client towards stock exchange-related deliveries or settlement obligations arising out of trades executed by such a client.

The second purpose is for pledging or re-pledging securities in favour of the trading member or clearing member for the purpose of meeting the margin requirements of the client.

A client can use the DDPI or opt to complete the settlement by issuing a physical Delivery Instruction Slip (DIS) or electronic Delivery Instruction Slip (EDIS) themselves.

However, the existing PoAs will continue to remain valid till the time client revokes the same. Thus, the stockbroker and depository participant will not directly or indirectly compel the clients to execute the DDPI or deny services to the client if the client refuses to execute the DDPI. It should be adequately stamped and can be digitally signed by the clients.