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Why are DP charges levied for Buy Today Sell Tomorrow (BTST) trades?

Up until 2nd June 2021, there was no DP charge applicable to BTST transactions. However, DP charges are now applicable due to a change in the settlement process. Here is a quick note to help you understand what are the changes in the settlement process and why DP charges are now applicable. To learn more about DP charges, see What does Depository Participant (DP) charge mean?

Old settlement process for BTST transactions -

Here is an example, If 100 shares of Reliance Industries are purchased on Monday and sold Tuesday, i.e. BTST transaction, the following process was carried out in the background –

  1. Shares bought on Monday (T day) would be delivered on T+1 day, i.e. Tuesday, in the broker’s pool account by the clearing corporation.
  2. Instead of crediting the shares to the client’s demat and then debiting them again towards the settlement of the sale transaction, the shares would be moved from the broker’s pool account directly to the clearing corporation by means of Early Payin (EPI). To learn more, see zerodha.com/z-connect/featured/changes-in-margin-requirements-from-sep-1-2020
  3. Settlement is considered complete.
  4. In this process, the shares completely bypassed hitting the client's demat account. Hence there was no credit or debit of shares, hence no DP charge.

The above process, although simple, had few operational issues. If the BTST trade was carried around the ex-date/record of a corporate action, then -

  1. The broker would receive the dividends
  2. Bonus/Split shares would be credited to the broker

This was because on the day of the corporate action since the shares were lying in the broker’s pool account, the broker was considered the owner. The broker then had to reconcile each and every transaction and give the necessary credits to the client. This had added to the operational overheads for the broker and had created a lot of confusion among clients. Hence, we have now moved to a new settlement process.

New settlement process –

Around May 2021, the clearing corporation and the depositories have now introduced changes (PDF) in the settlement process. Clearing members can now earmark securities to be given to the clearing corporation from the client’s Demat account by way of EPI of securities instead of moving the stocks from the client’s demat to the broker’s pool and then to the clearing corporation. With the new EPI process, Zerodha has changed the way BTST trades are settled to avoid issues around corporate actions.

Example Scenario

  1. 100 shares of Reliance are bought on Monday, sold on Tuesday, and a BTST transaction is carried out.
  2. Shares bought on Monday (T day) will now be credited to the client’s demat account on T+1 day, i.e. Tuesday after Zerodha receives it from the Clearing Corporation (CC).
  3. On the same day when the shares hit the demat account, i.e. T+1, the shares will be earmarked for delivery for the sale transaction executed on Tuesday
  4. The earmarked shares on Tuesday are debited on Wednesday, and the settlement is complete.

The advantage of this process if a client did a BTST transaction when there is a corporate action –

  1. Dividends will be credited to the client’s bank account, there is no need for the broker to reconcile.
  2. Bonus and splits are credited to the client’s demat account
  3. In case of any TDS on dividends, the dividend issuing company will file against the client’s PAN and would reflect in the client’s tax credit statement (Form 26AS) instead of it being passed on from the Broker's PAN.

However, since the shares now hit the client’s demat and get debited the next day, DP charges of Rs.13.5 + 18% GST is applicable on the BTST trade.