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

DP Responsibilities and Handling of Securities in Dematerialisation

Updated 11 October 2026 · Fact-checked

In dematerialisation, the DP checks the client's identity and account, accepts the demat request form and certificates, enters the request in the depository system to get a demat request number (DRN), mutilates and defaces the certificates, and forwards the request and documents to the issuer or RTA.

Understand DP Responsibilities and Handling of Securities

Dematerialisation converts physical share certificates into electronic holdings. The investor cannot deal with the issuer or the depository directly. The investor goes through a depository participant (DP) where the demat account is held. So the DP is the investor's interface with the depository and with the issuer or RTA.

The DP's first duty is to verify. It must check that the client has an account with it, that the request is on the prescribed demat request form, and that the account holder names match the names on the certificates. It also checks that the securities are of a company admitted to the depository and are in the correct ISIN.

The second duty is recording. Once satisfied, the DP enters the request in the depository system. The system generates a unique demat request number (DRN). The DRN lets the DP, the depository, the issuer and the RTA track that one request. When the DP accepts the request and generates the DRN, it gives the client an acknowledgement (the client's copy of the DRF).

The third duty is to protect the certificates from reuse. After the request is entered, the DP mutilates the certificates by cutting or punching them, and defaces them by marking them with words such as "Surrendered for dematerialisation". This is done so the same certificate cannot go back into circulation while the shares also exist electronically.

The DP then forwards the request form and the defaced certificates, with the DRN details, to the issuer or its RTA. The DP also keeps a record of what it received and sent, and it monitors the status of the request.

The issuer or RTA confirms or rejects the request in the depository system through its electronic connectivity. On confirmation, the depository credits the client's account. The DP does not confirm the request or credit the account itself.

If the request is rejected, the issuer or RTA records the rejection in the system and returns the documents to the DP with the reason. The DP then returns the documents to the client with the rejection reason.

Key formulas to remember

Order of DP actions
Verify client and documents → enter request in the depository system to get the DRN → give the client the acknowledgement → mutilate and deface certificates → forward the DRF and certificates to the issuer/RTA
Sequence is a likely area for questions. Verification comes first. The request is entered and the DRN generated before the certificates are stamped and forwarded. The client's acknowledgement is given when the request is accepted and the DRN is generated, not at the end.
DRN
DRN = unique number generated for each demat request in the depository system
It identifies one request. It is not the same as the client ID or the ISIN.
Mutilation and defacing
Mutilate (cut/punch) + deface (mark "Surrendered for dematerialisation")
Done by the DP after the request is entered, so a certificate cannot be reused.
Who confirms the credit
Issuer/RTA confirms in the depository system → depository credits the account
The DP does not confirm the request or credit the account itself. It submits and forwards the request and monitors its status. If the request is rejected, the RTA returns the documents to the DP, and the DP returns them to the client with the reason.

How to solve DP Responsibilities and Handling of Securities questions

Use this method for any question on DP duties in dematerialisation.

  1. 1Identify who the question is about: the client, the DP, the RTA/issuer or the depository.
  2. 2Place the action in the sequence: verify, enter the request and get the DRN (the client's acknowledgement is given at this point), mutilate and deface, forward to the issuer/RTA.
  3. 3Check which duty is being tested: client verification, recording, handling of certificates or forwarding.
  4. 4Match the action to the right party. Confirming the request belongs to the issuer/RTA, and crediting the account belongs to the depository, not the DP.
  5. 5Read each option for absolute words such as "always" or "never" and for actions in the wrong order.
  6. 6Eliminate options that move a duty to the wrong party, then pick the one that fits the DP's role.

Quickest way: Who does what in four words

When to use it: Use it when options mix up the DP, RTA and depository.

  1. DP: verify, record, mutilate, forward, then monitor status.
  2. DRN: generated at recording, one per request.
  3. RTA/issuer: confirms or rejects the request in the depository system.
  4. Depository: credits the account on confirmation.
  5. If an option has the DP confirming or crediting, drop it.

Common mistakes in DP Responsibilities and Handling of Securities

  • Saying the RTA mutilates the certificates.

    Students assume the party that receives the certificates handles them.

    Fix: The DP mutilates and defaces before forwarding. The RTA receives already defaced certificates.

  • Mixing up the DRN with the client ID or ISIN.

    All three are numbers or codes in a demat context.

    Fix: DRN is per request. Client ID is per account. ISIN is per security.

  • Putting mutilation before verification.

    Students focus on the physical step and forget checks come first.

    Fix: Verify the client and documents first. The DP must be satisfied about the client and the documents before it processes the request.

  • Putting mutilation and defacing before entering the request and getting the DRN.

    Students link the physical handling of certificates with receiving them.

    Fix: The DP enters the request in the system first, which generates the DRN. Only then does it stamp the certificates as surrendered and forward them to the RTA.

  • Believing the DP credits the securities to the account.

    The DP maintains the account, so it seems to control credits.

    Fix: The issuer/RTA confirms the request in the depository system, and the depository then credits the account. The DP does not confirm the request or credit the account itself. It monitors the request status.

  • Thinking mutilation and defacing mean the same thing.

    They are used together in one phrase.

    Fix: Mutilate means cut or punch. Deface means mark with a surrender note.

Worked examples

Example 1

Which of the following is the correct order of a DP's actions on receiving a demat request? (A) Mutilate certificates, verify client, get DRN, forward to RTA (B) Verify client and documents, mutilate and deface certificates, enter request to get DRN, forward to RTA (C) Verify client and documents, enter request to get DRN, mutilate and deface certificates, forward to RTA (D) Forward to RTA, get DRN, verify client, mutilate certificates

Show the solution
  1. Verification must come first, because the DP must be satisfied about the client and the documents before it processes the request.
  2. Next the request is entered in the depository system and the DRN is generated. The client is given the acknowledgement.
  3. Then the certificates are mutilated and defaced (stamped "Surrendered for dematerialisation") so they cannot be reused.
  4. Finally the request form and the defaced certificates are forwarded to the issuer/RTA.
  5. Only option C follows this sequence. A starts with mutilation, B stamps the certificates before the DRN is generated, and D forwards before verifying.

Answer: Option C

Example 2

A client submits a demat request with share certificates. Which statement about the DP's role is correct? (A) The DP confirms the request in the depository system (B) The DP credits the securities after the issuer's confirmation without involving the depository (C) The DP defaces the certificates and forwards them with the request to the issuer/RTA (D) The DP sends the original certificates back to the client after recording the request

Show the solution
  1. Confirming the request is the job of the issuer/RTA in the depository system, not the DP, so A is wrong.
  2. The credit to the account is made by the depository on the issuer/RTA's confirmation, not by the DP, so B is wrong.
  3. The certificates are defaced and forwarded to the issuer/RTA, not returned to the client, so D is wrong. They go back to the client only if the request is rejected.
  4. C describes the DP's actual duties.

Answer: Option C

Exam tips

  • Expect sequence questions. Memorise: verify, record and get DRN, mutilate and deface, forward.
  • Questions often swap the DP and RTA roles. Check who confirms and who credits.
  • Know that the DRN is unique to each request and is generated at the recording stage.
  • Read options for the wrong party, as they are the usual trap in these MCQs.
  • With negative marking of 25% of the marks for the question, skip only when you cannot cut any option.

Practice questions from Functions of Depository Participant - Dematerialisation

DP Responsibilities and Handling of Securities: frequently asked questions

What is a demat request number (DRN)?

It is a unique number generated in the depository system when the DP records a demat request. It is used to track that request between the DP, the depository and the issuer or RTA.

Why does the DP mutilate share certificates?

Mutilation and defacing make the certificate unusable. This stops the same shares from being traded in both physical and electronic form.

Who forwards the documents to the RTA?

The DP forwards the demat request form and the defaced certificates to the issuer or its RTA, along with the DRN details.

Does the DP verify the client during dematerialisation?

Yes. The DP checks that the client holds an account with it and that the request and certificates match the account holder details before it processes the request.