NISM-Series-VI: Depository Operations · Introduction to Depository

Depository Participants and Their Role in India

Updated 11 October 2026 · Fact-checked

A depository participant (DP) is an agent of the depository that provides depository services to investors. You cannot open a demat account directly with NSDL or CDSL. You open it through a DP, which can be a bank, a broker, a financial institution or another SEBI-registered entity approved by the depository.

Understand Depository Participants and Their Role

A depository holds securities in electronic form. But it does not deal with the public. It works through intermediaries called depository participants (DPs). Think of the depository as a wholesale warehouse and the DP as the retail outlet where you actually go.

The Depositories Act, 1996 describes a participant as a person registered as such with SEBI under the SEBI Act. A DP acts as the agent of the depository. It opens demat accounts for investors, accepts demat requests, processes delivery instructions and gives account statements. The investor's contract is with the DP. The DP's link with the depository is through an agreement.

The key exam distinction is this. The depository (NSDL or CDSL) is the institution that maintains records of securities held in electronic form. The DP is the intermediary that serves the investor. The investor is the beneficial owner. The depository's records show the investor's holdings under the DP's account structure.

DPs are typically banks, stockbrokers, financial institutions and similar entities. To act as a DP, an entity must be registered with SEBI and must have an agreement with the depository. SEBI and the depositories prescribe eligibility conditions, including minimum net worth and infrastructure requirements. Learn these as per your NISM workbook, because the exact figures can be revised.

Common DP services include account opening, dematerialisation and rematerialisation, settlement of trades, pledge and hypothecation, transmission, freezing, nomination facility and issue of periodic statements. A DP must also verify KYC, keep records and handle investor complaints.

Key formulas to remember

Who is who: Investor (beneficial owner) → DP (agent of depository) → Depository (NSDL / CDSL); The investor deals with the DP only. The DP deals with the depository.
Route to a demat account: Demat account = opened through a DP, never directly with the depository; A frequent trap option says you can open it directly with NSDL or CDSL.
Registration conditions for a DP: SEBI registration + agreement with depository + eligibility conditions met; Do not memorise any figure not in your workbook. Remember that all three are needed.
Nature of relationship: DP = agent of the depository; contract with investor = account agreement; The DP is not the owner of the investor's securities.

How to solve Depository Participants and Their Role questions

Most DP questions test who does what, who can be a DP and what a DP can or cannot do. Use this method.

1Identify the entities named in the question: investor, DP, depository, issuer, RTA, broker.
2Decide whether the question is about a depository function or a DP function. Account opening and customer service sit with the DP.
3Check the legal position: a DP is an agent of the depository and must be SEBI registered.
4If the question is about eligibility, recall the categories (banks, brokers, financial institutions and similar entities) and the need for SEBI registration and a depository agreement.
5If it is a services question, match the service to the DP list: account opening, demat or remat requests, transfers, pledge, statements.
6Eliminate options with absolute words such as 'only', 'never' or 'directly with the depository' unless they match the rule.
7Choose the option that keeps the DP as intermediary and the investor as beneficial owner.

Quickest way: Three-second DP test

When to use it: Use when you see a statement about who opens accounts or who provides a service to investors.

Ask: does the investor face this entity? If yes, it is the DP.
Ask: is it a rule-making or record-keeping institution? If yes, it is the depository.
Check for SEBI registration and the depository agreement in eligibility questions.
Reject options that let investors open accounts directly with the depository.

Common mistakes in Depository Participants and Their Role

Saying an investor opens a demat account directly with NSDL or CDSL.
Students link the account name with the depository name.
Fix: Remember that the account is opened only through a DP. The depository has no direct dealing with the public.
Treating the DP as the owner of the securities.
The DP holds the account, so students assume it owns the holdings.
Fix: The investor is the beneficial owner. The DP is only an agent that provides services.
Calling the DP an agent of the investor or the issuer.
The investor pays the DP charges, which seems to make the DP the investor's agent.
Fix: A DP is the agent of the depository.
Forgetting that SEBI registration is mandatory.
Students focus only on the depository agreement.
Fix: Link both: SEBI registration and an agreement with the depository.
Mixing up depository functions with DP functions.
Both are described as holding securities in electronic form.
Fix: The depository maintains the system and records. The DP serves the investor and processes requests.

Worked examples

Example 1

Which of the following best describes a depository participant? (a) An issuer of securities (b) An agent of the depository that offers depository services to investors (c) A stock exchange clearing house (d) An owner of investors' securities

Show the solution

The question asks for the nature of a DP.
A DP deals with investors on behalf of the depository, so it is an intermediary.
Option (a) is wrong: issuers create securities, not DPs.
Option (c) is wrong: a clearing house settles trades and is not a DP.
Option (d) is wrong: the investor is the beneficial owner.

Answer: (b) An agent of the depository that offers depository services to investors.

Example 2

Ravi wants to hold shares in demat form. Which is the correct way to proceed? (a) Apply to the issuer for a demat account (b) Open an account directly with CDSL (c) Open an account with a DP registered with a depository (d) Ask the stock exchange to open it

Show the solution

Identify the requirement: a demat account.
Demat accounts are opened through a DP only.
Option (a) is wrong: issuers do not open demat accounts.
Option (b) is wrong: depositories do not deal directly with investors.
Option (d) is wrong: exchanges do not open demat accounts.
Option (c) matches the rule.

Answer: (c) Open an account with a DP registered with a depository.

Exam tips

Expect a direct question on the relationship: DP is an agent of the depository.
Watch for trap options that allow direct account opening with NSDL or CDSL.
Learn the DP service list well. Questions often ask which one is not a DP service.
For eligibility numbers, use your latest NISM workbook. Do not guess figures.
Negative marking applies in this exam, so skip a question only if you cannot narrow to two options.

Practice questions from Introduction to Depository

Depository Participants and Their Role in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Depository Participants and Their Role: frequently asked questions

What is a depository participant?

A depository participant is an intermediary registered with SEBI that acts as an agent of a depository. It offers depository services such as demat account opening, transfers and statements to investors.

What is the difference between a depository and a depository participant?

The depository (NSDL or CDSL) maintains the electronic record of securities and runs the system. The DP is the agent through which investors reach the depository. Investors open accounts with DPs, not with the depository.

Who can become a depository participant in India?

Entities such as banks, stockbrokers, financial institutions and other eligible bodies can become DPs. They must be registered with SEBI, meet eligibility conditions and sign an agreement with the depository.

Does the DP own my securities?

No. You are the beneficial owner. The DP provides the account and services as the depository's agent.