NISM-Series-VI: Depository Operations · Functions of Depository Participant - Account Operations

Transactions: Delivery Instructions and Transfers in Depository Operations

Updated 11 October 2026 · Fact-checked

A delivery instruction is the written or electronic order a demat holder gives their DP to move securities out of the account. On-market transfers settle exchange trades through the clearing corporation (pay-in by seller, pay-out to buyer). Off-market transfers move securities directly between accounts. To solve questions, identify the transfer type, then apply the DP's checks.

Understand Transactions: Delivery Instructions and Transfers

Securities in a demat account only move when the Beneficial Owner (BO) instructs the Depository Participant (DP). The DP does not move anything on its own. This instruction is the basis of every debit from your account.

The usual paper form of the instruction is the Delivery Instruction Slip (DIS). The DP issues it to the BO in a booklet. Each slip is pre-numbered and linked to the BO's account. The BO fills in the target account, ISIN, quantity and date, then signs. In a joint account, the DIS must be signed by the holder(s) required under the registered mode of operation. Electronic instructions through a depository's internet facility are also allowed, with their own authentication.

There are two kinds of transfer. An on-market transfer is linked to a trade on a stock exchange. The seller's securities go to the clearing member's pool account at pay-in. The clearing corporation then sends securities to the buyer's side at pay-out. An off-market transfer is not linked to an exchange trade. Examples are a gift to a family member, a transfer between your own accounts, or a privately agreed sale. Here the securities go straight from one BO account to another.

An inter-depository transfer is a transfer between BO accounts held with different depositories, for example one with NSDL and one with CDSL. The BO instructs it through the DP in the normal way. Do not treat every mention of NSDL and CDSL as an inter-depository transfer. An exchange trade still follows on-market pay-in and pay-out, even if the buyer and seller hold accounts with different depositories.

Before acting, the DP must check the instruction. It checks that the slip is genuine, the signatures match the account records, the balance is enough, and nothing blocks the securities. The exam tests which checks apply and who does what in pay-in and pay-out.

Key formulas to remember

On-market transfer: Seller's account → clearing member pool account (pay-in); clearing corporation → buyer's side (pay-out); Linked to an exchange trade. Settled through the clearing corporation, not directly between the two investors. For pay-in, the seller gives a DIS or electronic instruction (or an authorisation) to move the shares to the clearing member's pool account.
Off-market transfer: Seller's BO account → receiving BO account, directly; Not linked to an exchange trade. Used for gifts, transfers between own accounts and private sales.
Pay-in vs pay-out: Pay-in = securities go in to the clearing system; Pay-out = securities come out to the buyer; Viewed from the seller, pay-in is the delivery. Viewed from the buyer, pay-out is the receipt.
Instruction authority: Only the BO instructs; the DP only executes after checks; The signatures required by the registered mode of operation must be on the DIS.
DIS key features: Pre-numbered, issued in a booklet by the DP, tied to the BO's account, signed by the BO; Alterations must be authenticated by the BO. The DP verifies the signature before executing.
DP checks before execution: Genuine slip + signature match + sufficient free balance + no freeze, pledge or lock-in + valid target account and ISIN; Fail any one check and the DP must not execute the instruction.

How to solve Transactions: Delivery Instructions and Transfers questions

Use the same short routine for any question on delivery instructions or transfers.

1Read the facts and decide whether a stock exchange trade is involved. If yes, it is on-market. If no, it is off-market.
2For on-market, trace the flow: seller's account to pool account (pay-in), then clearing corporation to buyer's side (pay-out).
3For off-market, note that securities go straight from the giving BO to the receiving BO, and the DP executes only on the BO's instruction.
4Check who gave the instruction. It must be the BO or, in a joint account, the holder(s) whose signatures the registered mode of operation requires. The DP itself cannot initiate a debit.
5Run the DP checklist: genuine DIS, signature match, authenticated alterations, free balance, no freeze or lock-in, correct ISIN and target account.
6If the question describes a transfer between BO accounts held with different depositories (NSDL and CDSL), it is an inter-depository transfer, instructed by the BO through the DP. Do not assume this just because both names appear: an exchange trade still follows on-market pay-in and pay-out.
7Eliminate options that say the DP can act without an instruction, skip signature checks, or move locked-in or frozen securities.

Quickest way: Three-question filter

When to use it: Use this when you have under a minute for a multiple-choice question on transfers.

Ask: is there an exchange trade? Yes means pay-in and pay-out through the clearing corporation. No means off-market.
Ask: who instructed? Only the BO (all joint holders if required). Reject any option where the DP acts alone.
Ask: what could stop execution? Signature mismatch, unauthenticated alteration, low balance, freeze, pledge or lock-in. The right answer is usually the DP refusing or seeking correction.

Common mistakes in Transactions: Delivery Instructions and Transfers

Treating pay-in and pay-out as the same thing.
Both words sound like movement of securities and the direction is not fixed in memory.
Fix: Pay-in is delivery by the seller into the clearing system. Pay-out is the securities coming out to the buyer.
Calling a gift transfer to a relative an on-market transfer.
Students link any 'transfer' with the stock exchange.
Fix: No exchange trade means off-market. A gift or transfer between your own accounts is off-market.
Thinking the DP can debit an account on its own judgement.
The DP maintains the account, so students assume it controls it.
Fix: The DP only acts on the BO's instruction. The BO owns the securities.
Accepting a DIS with a cut or overwritten entry.
Students focus on the signature and ignore alterations.
Fix: Any alteration must be authenticated by the BO. Without it the DP must not execute.
Ignoring freezes, pledges and lock-in when checking balance.
Students think a positive balance means the securities can move.
Fix: Only free, unencumbered balance can be transferred. Check for restrictions as well as quantity.
Assuming a joint account needs only one signature in every case.
Students confuse the operation mode with the holders' rights.
Fix: Follow the mode of operation registered at account opening. Execute only if the signatures required by that mode are on the DIS.

Worked examples

Example 1

Ravi sells 500 shares on the stock exchange. Which statement describes the settlement correctly? (a) The DP of Ravi moves shares directly to the buyer's account after the DP checks the DIS. (b) Ravi's shares go to the clearing member's pool account at pay-in, and the buyer receives securities through the clearing corporation at pay-out. (c) The depository moves the shares to the buyer without any instruction from Ravi. (d) The shares move only when the issuer company approves the sale.

Show the solution

The shares were sold on the exchange, so this is an on-market transfer.
On-market settlement goes through the clearing corporation, so option (a), a direct movement, describes an off-market transfer.
Option (c) is wrong because the depository acts only on instructions given through the DP. Ravi must give a DIS or electronic instruction (or an authorisation) to move the shares to the clearing member's pool account for pay-in.
Option (d) is wrong because the issuer's approval is not needed to settle a trade in dematerialised shares.
Option (b) matches the flow: seller to pool account at pay-in, then securities to the buyer at pay-out.

Answer: (b)

Example 2

A DP receives a DIS from a BO to transfer 200 shares to the BO's daughter's account. The quantity in figures has been overwritten and the change is not authenticated. The BO has enough balance and the signature matches. What should the DP do? (a) Execute, because the signature matches. (b) Execute for the lower of the two quantities. (c) Not execute, and ask the BO to authenticate the alteration or give a fresh instruction. (d) Convert the instruction into an on-market transfer.

Show the solution

Transfer to the daughter's account with no exchange trade is an off-market transfer.
The DP checks the DIS before acting. The signature and balance are fine.
The overwriting is an alteration not authenticated by the BO. This fails the DP's check, so the DP should not execute.
Options (a) and (b) execute on a defective slip. The DP cannot guess the intended quantity.
Option (d) is wrong because the transfer type depends on whether an exchange trade exists, not on the DP's choice.
The correct action is to refuse, and ask for authentication or a fresh DIS.

Answer: (c)

Exam tips

Questions often turn on one trap word: on-market, off-market, pay-in or pay-out. Underline it before reading the options.
If an option has the DP acting without the BO's instruction or skipping a check, it is almost always wrong.
Learn the DP's checklist as a list: genuine slip, signature, alteration, balance, restrictions, target account. Questions usually test one item.
Under negative marking, skip a question only when you cannot eliminate at least one option. NISM VI deducts 25% of the marks assigned to a question for a wrong answer.

Practice questions from Functions of Depository Participant - Account Operations

Transactions: Delivery Instructions and Transfers: frequently asked questions

What is a Delivery Instruction Slip (DIS)?

A DIS is a pre-numbered instruction slip issued by the DP to the BO, usually in a booklet. The BO fills in the details and signs it to ask the DP to debit securities from the account. The DP must verify it before executing.

What is the difference between on-market and off-market transfer in a demat account?

An on-market transfer settles a stock exchange trade through the clearing corporation. An off-market transfer is a direct transfer between two BO accounts with no exchange trade, such as a gift or a transfer between your own accounts.

What is the difference between pay-in and pay-out?

Pay-in is the delivery of securities by the seller to the clearing system on the settlement day. Pay-out is the release of securities by the clearing corporation so that they reach the buyer. One is the seller's side, the other is the buyer's side.

What does a DP check before executing a transfer instruction?

The DP checks that the DIS is genuine, the signatures match its records and any alteration is authenticated. It also checks that there is enough free balance, that the securities are not frozen, pledged or locked in, and that the target account details are valid.