Depository Participant: What does it mean in IPO?
In the last few years, Initial Public Offerings (IPO) have come into public focus with many bumper listings. In addition, the simplification of the IPO application process has made IPOs extremely popular. Earlier, brands needed to file and submit an IPO application physically. But with increasing participation in the primary market and its growth, companies can now do it from the comfort zone of their homes.
Even after a change in the medium, many people are still confused about the technical terms in the IPO application. One of the elements creating confusion is the DP name. To understand the term, you must first understand the meaning of depositories and depository participants.
What are Depositories?
Before we understand depositories, we must look at the operations of the stock market.
An individual must have a bank account, a Demat account, and a trading account to start investing in the stock market. The bank account is run by the bank; the depository participant or broker runs the trading account, while the Demat account is run by the depository.
An investor starts buying shares by transferring funds from the bank account to the trading account. The purchase is completed through the stock exchanges. Then, depending on the money invested, the exchange credits specific securities to the investor’s Demat account.
These securities are not in physical form, so you cannot keep them in the physical locker. Instead, they are in electronic or dematerialised form. The investor holds them in the Demat account run by the depositories. India has two depositories - National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). These depositories store the securities that are transacted between one owner and the other on the stock exchanges.
What is a Depository Participant?
As defined above, depositories store the securities. But they do not have any direct engagement with the companies issuing the securities or the investor. Depository participants are firms registered with SEBI that can serve as an interface between the investors and the depositories. From banks to brokers, any institution can register as a depository participant.
What is the DP Name in the IPO Application?
After you understand how depository is different from depository participant, you will know what DP name is in the IPO application. The depository participant’s name is the DP name. You need to enter the name of the broker in the field for DP name.
In the application form, before the DP name, you need to enter the Depository, DP ID, and DP account. For the depository section, you need to enter CDSL or NSDL.
A depository participant receives a DP ID number from the depository. It is not the same as the 16-digit Demat account number. The DP ID includes the first eight digits of the Demat account number. It is easy to identify the Demat account numbers that CDSL and NSDL provide. The account numbers provided by CDSL start with a numeric digit, while the Demat account numbers provided by NSDL start with IN.
Why is a Depository Needed?
With the help of a depository, you can eliminate the risk of holding physical securities. In the past, investors had to check if the transfer of their shares was successful. They also needed to ensure that there was no damage, loss, or theft. With the depository system, there are no such risks as securities are transferred electronically.
Who Regulates Depository Participants and Depositories?
The registration, inspection, and regulation of the entities are undertaken by the Securities and Exchange Board of India. A depository participant is accountable to SEBI. After registering with the SEBI, the operations of a DP begin. The DP must also have a recommendation from CDSL or NSDL.
The process to submit an IPO application has become simpler to a large extent. But many details need to be filled in, often confusing individuals. If you understand the roles and functions of depository participants and depositories, you can easily fill out the application for an IPO without any hassles.
Share Market Knowledge Centre
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- Share market
- Trading account
- Online share trading
- Intraday trading
- Futures trading
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Frequently Asked Questions
The full form of DP is Depository Participants. In India, there are two depository participants - NSDL and CDSL.
Any entity that lets an investor buy or sell securities like bonds and stocks in a paper-less manner is known as a depository. It can be thought of as a bank. To use the services of depositories, an investor needs to open an account with the Depository through a depository participant. The process is similar to opening an account with the bank. When you hold shares in this account, it is similar to holding money in the bank.
The entity where an investor’s stocks and bonds are held securely in electronic form is a depository. It maintains ownership records and facilitates the trading of dematerialised securities. When it comes to a depository participant, it is an agent of the depository.
DP ID is the Depository Participant Identification. The number is allotted to the Depository Participant like a financial institution, bank, or broking firm by the NSDL and CDSL. The Demat account number of the holder combines the DP ID and Customer ID.