A number of bumper listings in the last few years has brought initial public offerings into public focus. Participation in the primary market is increasing, mimicking the trend being witnessed in the broader market. The simplification of the application process has a large part to play in the increasing popularity of IPOs. Earlier the IPO application had to be filled and submitted physically, but now it can be done from the comfort of one’s home. The medium has changed, but some technical terms in the IPO application still confuse people—DP name being one. To understand the DP name, you will first have to know about depositories and depository participants.
Let us focus on the functioning of the stock market. To invest in the stock markets, one needs to have a demat account, a trading account and a bank account. The depository runs the demat account, the broker or depository participant operates the trading account and the bank runs the bank account. The investor transfers money from the bank account to the trading account and buys some shares. The transaction takes place through the exchanges and for the money invested, specific securities are credited to the demat account of the investor.
Securities are in dematerialized or electronic form and cannot be kept in a physical locker. It is kept in the demat account owned by the depositories. The depositories essentially store the securities that change hands on the stock exchanges. There are two depositories in India—National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
NSDL was the first depository in India and was promoted by IDBI, UTI and the National Stock Exchange. CDSL, on the other hand, was promoted by BSE Ltd along with major banks such as State Bank of India and HDFC Bank. The advantages of a depository system are:
- – Dematerialization: Participating in the capital markets was not as simple as it is today as shares had to be moved in the physical form. The depository system enabled the dematerialization of securities and led to a paper-free share market. It is easier and safer to trade in securities in their electronic form.
- – Ease of exchange: In dematerialized form, shares lost all their distinctive features like folio number, etc. Dematerialization made securities of the same class identical, improving their interchangeability. It has lowered the cost of exchange and increased the speed of trade as various identities do not have to be matched before a trade.
- – Free transferability: The transfer of securities between depositories is free of cost and is conducted through a secure electronic system. Additionally, due to the use of the electronic medium, share transfer happens immediately, even though it takes T+2 days for the final settlement.
The depositories are the vault that keeps the securities, but they do not directly engage with the investor or the companies that issue the securities. The depository participants are SEBI-registered entities allowed to act as an interface between the depositories and the investors. A depository participant can be any institution ranging from banks to brokers.
With a clear understanding of the difference between the depository and the depository participant, there will not be any doubt in the DP name while filling the IPO application. The DP name is the depository participant’s name. The name of the broker has to be entered in the box for DP name. Generally, the DP name is preceded by Depository, DP ID and DP account. In the depository section, you have to either choose NSDL or CDSL.
The DP ID is the number assigned to the depository participant by the depository. The DP ID is different from the 16-digit demat account number. Typically, the first eight digits of the demat account number are the DP ID. The demat account numbers provided by NSDL and CDSL can be easily identified. NSDL provides demat account numbers starting with ‘IN’, while CDSL’s demat account numbers start with a numeric digit.
The IPO application process has been simplified to a large extent. But the extensive details required to fill an IPO form often leads to confusion. With an understanding of the roles and functions of depositories and depository participants, filling an IPO application will be simple and hassle-free.