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Is there a way to create a password-protected PDF directly from XPP (using divpdf and NOT Ghostview)?
Update: The ability to password-protect a PDF produced with Direct to PDF (divpdf) was added with the XPP 9.3.0 release (as well as the ability to set some document "permissions").
I don't believe that is currently possible.
To answer your question about creating a password-protected PDF via the PS (or PS to PDF) workflow: It was not done via command-line options to the psfmtdrv program, but I think it could be done via specifying options to the gs (Ghostscript) program used to distill the PS to PDF.
The "hooks" in XPP to specify the Ghostscript options were via the gsdistill (system level) and/or _gsdistill_parms (JOB level) files (or directly if running gs manually to distill PS into PDF).
The Ghostscript "Security Options" are discussed in Appendix B of the PDF Support in XPP manual (xypdf.pdf).
Jonathan DagrestaSDL XPP Engineering