Power of Attorney (POA)
A Power of Attorney, or POA, used to be a standard document that demat account holders signed in favour of their broker. It gave the broker limited rights to debit shares from the demat for settlement. SEBI has been phasing POA out in favour of the more secure Demat Debit and Pledge Instruction (DDPI), but the concept still appears in older accounts and is worth understanding.
Key takeaways:
- POA was the legal document letting brokers move shares out of your demat for settlement.
- Misuse of POA led to several broker scandals, prompting SEBI reform.
- From 2022, SEBI introduced DDPI as a narrower, safer alternative.
- Existing POA accounts can convert to DDPI; new accounts default to DDPI.
- For online trading without POA/DDPI, every sale requires an OTP-based authorisation.
Why POA existed in the first place
When a customer sold shares from demat, those shares had to physically (electronically) move from the customer’s demat to the broker’s pool account for settlement. Without a standing authority, the customer would have to authorise each transfer manually — impractical for daily trading. POA gave the broker a blanket authorisation to make these transfers.
Where POA went wrong
The catch: POAs were drafted very broadly. Some unscrupulous brokers misused them to move client securities to other accounts, pledge them for the broker’s own borrowings, or settle non-client obligations. After the Karvy and a few other high-profile incidents in 2019–2020, SEBI cracked down with detailed rules — and finally with DDPI.
What DDPI changed
The Demat Debit and Pledge Instruction is a narrower document that authorises only two specific activities: transferring securities for pay-in to the exchange, and pledging them with the broker for margin. The broker cannot move securities for any other purpose without an additional authorisation. This dramatically reduces the scope for misuse.
Operational impact for retail traders
| Action | With POA / DDPI | Without POA / DDPI |
|---|---|---|
| Sell shares from demat | Settle smoothly | OTP authorisation required from CDSL/NSDL on each sell |
| Pledge shares for margin | Possible | Each pledge needs OTP confirmation |
| Off-market transfers | Customer-initiated, not allowed under DDPI | Customer-initiated only |
How to convert from POA to DDPI
- Sign the broker’s DDPI request form (often a digital e-sign).
- Submit it via the broker portal or email.
- The broker terminates the old POA and registers DDPI with the depository.
- Existing pledges and outstanding obligations carry forward.
When you might choose to operate without any standing authorisation
If you trade rarely and value the additional safety of CDSL/NSDL OTP on every sale, you can operate without DDPI. Each sell instruction will pop up an OTP from the depository that you must approve. It is slower but offers the highest level of control.
Frequently asked questions
Is POA still allowed?
New accounts cannot be opened with POA; SEBI mandates DDPI. Old POAs continue but most brokers actively migrate clients to DDPI.
Does Lemonn require POA?
No. Lemonn onboards new clients with DDPI and supports OTP-based authorisation as an alternative.
Will DDPI affect my F&O trading?
It is needed if you pledge shares as F&O collateral. Otherwise, cash margin trading is unaffected.
How safe is DDPI compared to POA?
Much safer. DDPI permits only exchange pay-in and broker pledge — it cannot be used to move shares to third parties.
