Power of attorney and DDPI transition

Overview

For most of the history of modern Indian securities markets, brokers obtained a power of attorney (POA) from clients as part of the account-opening process. The POA granted the broker broad authority to operate the client’s demat account, enabling the broker to debit shares for settlement of sale transactions without requiring the client to issue a separate instruction for each trade. While operationally convenient, the POA model created significant scope for misuse: brokers with POA access could, in principle, pledge or transfer client securities beyond the narrow purpose of settlement.

SEBI introduced the Demat Debit and Pledge Instruction (DDPI) framework to replace the broad POA with a narrowly scoped authorisation covering only the specific operations that a broker legitimately needs: settlement debits, margin pledging, and share tendering in open offers. The DDPI transition, mandated progressively from 2022 to 2024, represents the most significant change to the broker-client relationship in Indian securities custody since the introduction of electronic demat accounts in the late 1990s.

Zerodha was among the early adopters and public advocates of the DDPI framework, aligning its client onboarding and back-office processes with the new regime and communicating extensively with its client base about the transition.

Historical context: the power of attorney model

Before the DDPI framework, the standard practice in Indian broking was for the broker to obtain a POA signed by the client at account opening. The POA was held by the broker and registered with the depository – CDSL or NSDL – enabling the broker to issue delivery instructions on the client’s behalf.

The POA model arose from operational necessity. In a settlement cycle that required shares to be delivered within a fixed number of days following a trade, brokers needed a mechanism to transfer shares from client accounts to the exchange clearing corporation without waiting for the client to issue a separate instruction on each settlement date. The POA provided that mechanism.

However, the broad language typical in POA documents gave brokers authority that went well beyond settlement. A standard POA might authorise the broker to pledge, hypothecate, or otherwise encumber the client’s securities, to subscribe to rights issues or other corporate actions on the client’s behalf, and in some cases to transfer securities to third parties. These expansive authorisations were the basis of several high-profile misuse cases, in which brokers pledged client securities without authorisation to fund their own proprietary trading or meet their own margin requirements.

Notable cases involving alleged misuse of client securities – including cases examined by SEBI and the depositories in the 2019 to 2021 period – accelerated regulatory focus on limiting the scope of broker authority over client demat accounts.

The DDPI framework

Structure and scope

The DDPI is a standardised, limited-scope authorisation introduced by SEBI through circular SEBI/HO/MIRSD/DoP/P/CIR/2022/76 dated 28 July 2022. The DDPI authorises the broker to perform three specific actions on behalf of the client:

1. Debit the client’s demat account for securities required to be delivered against a sale transaction on the exchange (settlement delivery obligation).
2. Pledge or re-pledge client securities as margin with the clearing corporation, in accordance with SEBI’s margin pledge framework (introduced separately in August 2020).
3. Tender securities in open offers, buybacks, and other exchange-defined corporate actions where the client has instructed the broker to participate.

The DDPI explicitly does not authorise the broker to transfer securities to third parties, to pledge securities for the broker’s own purposes, or to execute corporate actions beyond those listed. The narrow scope is the central protective feature of the framework.

Format and registration

The DDPI is a standardised one-page document prescribed by SEBI and used uniformly across all depositories and brokers. The standardised format prevents brokers from embedding additional authorisations in the document. The DDPI is executed by the client and registered with the relevant depository (CDSL or NSDL), which maintains a record of the authorisation.

The DDPI can be granted for a single transaction or as a standing instruction covering all transactions of the specified types over the life of the account. In practice, brokers use the standing DDPI to avoid the operational complexity of client-by-client instructions for each settlement.

T-DDPI for each transaction

For clients who do not grant a standing DDPI, SEBI’s framework contemplates a transaction-specific DDPI (sometimes called a T-DDPI) issued for each delivery instruction. This approach provides maximum client control but requires the client to issue an instruction for every sale transaction, which adds friction to the trading process. In practice, most active traders grant a standing DDPI to maintain operational efficiency.

Zerodha’s transition and implementation

Zerodha began transitioning its client base from the legacy POA model to the DDPI framework in 2022, following the SEBI circular. The broker published detailed Z-Connect blog posts explaining the difference between the POA and the DDPI, the specific limitations of the DDPI, and the steps clients needed to take to execute the new authorisation.

Existing clients with a legacy POA were invited to transition to the DDPI. For new clients opening accounts from the relevant date, DDPI was the only available authorisation. Zerodha noted publicly that it supported the change as aligned with client protection principles, since the DDPI’s narrow scope limits broker access to only the operations required for settlement.

The transition also involved operational changes to Zerodha’s back-office systems. Settlement processing, which previously relied on the broad POA authorisation, was updated to operate within the DDPI’s defined scope. The pledge mechanism for margin, which had been introduced under SEBI’s August 2020 circular on margin pledging, was integrated with the DDPI authorisation.

Relationship to the margin pledge framework

The DDPI framework is closely related to SEBI’s August 2020 circular on margin pledging (SEBI/HO/MIRSD/DOP/CIR/P/2020/171 dated 9 September 2020), which fundamentally changed how securities are used as margin collateral in Indian markets.

Before the August 2020 circular, brokers commonly transferred client securities to their own pool accounts or to the clearing corporation directly, using the POA. This meant clients lost legal ownership of the securities during the margining period, creating risk that the broker could commingle or misuse the securities.

Under the pledge framework, client securities remain in the client’s demat account and are pledged (using a formal pledge instruction registered with the depository) rather than transferred. The clearing corporation holds a pledge over the securities as collateral, but the client retains ownership. The DDPI specifically authorises the broker to initiate pledge and re-pledge instructions on the client’s behalf, making the DDPI an essential component of the margin pledge workflow.

For Zerodha clients, the practical effect is that securities used as margin for F&O trading remain in the client’s demat account (visible in Console and on the CDSL or NSDL portal), clearly marked as pledged, rather than appearing to disappear into the broker’s pool account.

Client considerations

Existing POA holders

Clients who granted a POA to Zerodha before the DDPI regime have been invited to transition to the DDPI. The POA held by the broker does not automatically convert and must be replaced by an explicit DDPI. Clients who have not yet transitioned should confirm with Zerodha whether a POA or DDPI is currently registered against their account.

Risks of not having a DDPI

Without a standing DDPI, a client who sells shares through Zerodha must issue a delivery instruction slip (DIS) or online demat debit instruction for each settlement. Failure to issue the instruction by the settlement deadline may result in the broker treating the sale as a short delivery, which triggers auction settlement with financial penalties.

Verification

Clients can verify the status of their DDPI authorisation through the CDSL or NSDL portals, both of which maintain records of standing authorisations. This verification is independent of the broker’s systems and provides a definitive record of the scope of authority granted.

Regulatory significance

The POA-to-DDPI transition is one component of SEBI’s broader programme to reduce broker access to client assets, which also includes the separation of client funds from broker funds under the Client Fund Segregation rules, and the mandatory reporting of client securities holdings to depositories on a daily basis. Together, these measures substantially reduce the systemic risk created by brokers who previously had broad access to both client cash and client securities.

SEBI’s circular explicitly cites investor protection as the primary motivation and notes that the standardised DDPI format prevents the practice of brokers obtaining sweeping authorisations through bespoke POA language.

References

• SEBI Circular SEBI/HO/MIRSD/DoP/P/CIR/2022/76, “Introduction of Demat Debit and Pledge Instruction (DDPI) in lieu of Power of Attorney (PoA) given by clients to stock brokers/depository participants,” 28 July 2022.
• SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2020/171, “Pledge/Re-pledge of client’s securities for margin,” 9 September 2020.
• Zerodha Z-Connect Blog, “DDPI replaces POA: what this means for Zerodha clients,” Zerodha.com.
• CDSL Circular, “Implementation of DDPI framework,” 2022.
• NSDL Circular, “DDPI operational guidelines,” 2022.