As we all know, a demat account is essential for anyone venturing into the stock market (directly) for investing or trading. Similar to having multiple bank accounts, retail investors often open and operate multiple demat accounts.
This approach provides them with the advantage of exploring different services offered by various brokers and gaining access to diverse reports and trading calls. The buying and selling activity is facilitated by the exchanges and clearing corporations.
When a retail investor buys and sells a stock, it typically goes through exchanges and the clearing corporation, both of which serve as intermediaries between buyers and sellers, ensuring smooth transaction flow.
Also Read: Can you link multiple trading accounts to your demat account?
Exchanges provide the platform for trading securities, while the clearing corporation acts as the central counterparty, guaranteeing the settlement of trades and managing the associated risks.
In addition to market trades, investors have the option to settle trades without involving the clearing corporation and exchange, known as an ‘off-market trade.’
In today’s digital age, nearly all transactions occur online. However, in the past, transactions were conducted offline, typically through a form known as a delivery instruction slip (DIS). This form was necessary for transferring shares from one demat account to another.
In this article, we will know more about these off-market trades.
Also Read: Demat: How does share transfer work in case account holder passes away?
Off-market trades or transfers
Off-market trades are those transactions not settled through the clearing corporation or clearing house of an exchange. This includes the delivery of securities to or from sub-brokers, as well as transactions conducted under the trade-for-trade segment.
Retail investors may opt for off-market trades when they prefer to settle transactions without the involvement of clearing corporations and exchanges, typically in scenarios where direct transfers or specific agreements are desired.
Multiple demat accounts: If a retail investor holds multiple demat accounts and wishes to consolidate all their holdings under a single demat account, they can explore the off-market transaction route.
Mutual agreement: If two parties agree mutually to buy and sell shares, they can utilise this route for the transaction.
Also Read: Demat: What is the difference between a demat and a trading account? MintGenie explains
Transfer between specified family members: Parents wishing to bless their children by gifting some of their holdings can opt for an off-market transaction.
Off-market trades involve various other scenarios, including transfers between partners and firms, or directors and companies, as well as donations and transfers related to Employee Stock Ownership Plans (ESOPs) or transfers to employees.
How does off-market transfer function?
Off-market transfers operate similarly to standard transactions, with the seller and buyer engaging directly.
Delivery instruction slip: To initiate the process, the selling client must provide a delivery instruction slip (DIS) to their depository participant (DP) to transfer securities from their depository account to the buying client’s depository account.
Receipt instruction: The buying client needs to provide a receipt instruction to their DP to receive securities from the selling client’s depository account, unless they have already set up a standing receipt instruction.
Details of the securities: When transferring securities, it is essential to provide detailed information about the securities being transferred. This includes their unique ISIN (International Securities Identification Number), the issuing company, the total number of shares, and any other relevant details.
Additionally, if the securities are held jointly, the signatures must align with the respective names in the account.
Execution date: For the transfer to proceed, the details in both the delivery and receipt instructions must match. The transfer occurs on the specified “execution date” outlined in the instructions.
Also Read: What are the charges associated with a demat account?
The payment aspect is handled outside the NSDL environment between the selling and buying clients.
Off-market transaction through online route
On the other hand, retail investors managing multiple demat accounts under the same depository, such as CDSL, have the option to transfer shares online between their accounts. This can be done through CDSL Easiest (Electronic Access to Securities Information and Execution of Secured Transactions), an internet-based platform provided by CDSL.
CDSL Easiest enables Clearing Members and Beneficial Owners (clients) to submit various instructions, including off-market, on-market, inter-depository, and early pay-in debit instructions, directly from their demat accounts.
Also Read: Can investors hold multiple demat accounts in India? MintGenie answers
Similarly, investors with multiple demat accounts under NSDL can utilise the SPEED-e facility to submit delivery instructions online. This eliminates the need for the physical submission of instructions to their depository participants (DPs).
FAQs
What is a delivery instruction slip (DIS)?
A DIS functions like a cheque but for your demat account transactions. It serves as authorisation for the sale or transfer of shares from one account to another.
What is an inter-depository transaction?
An inter-depository transaction occurs between two parties with demat accounts held at separate depositories, such as CDSL and NSDL.
Is there any difference between market trade and off-market trade?
Market trades involve transactions facilitated by the stock exchange and clearing corporation, while off-market trades bypass these institutions, settling directly between the involved parties.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique 12-digit alphanumeric code assigned to each security (e.g., INE383C01018). Different types of equities issued by the same entity will have distinct ISINs.
Can delivery instructions be given online?
Yes, both NSDL and CDSL offer online facilities for delivering instructions to your depository participant (DP). These services are available to registered Beneficial Owners (BOs) upon payment of applicable charges.
Are there any brokerage charges involved for off-market transactions?
Yes, brokerage charges may apply for off-market transactions, but they can vary depending on the brokerage firm and the specific terms of your agreement with them.
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Published: 05 Apr 2024, 06:21 PM IST
