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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Pledge and Hypothecation

A beneficial owner has pledged shares under the depository pledge facility. Which statement correctly describes the position of the securities while the pledge is in force and before it is invoked?

The securities remain in the pledgor's demat account but the pledged quantity is blocked, so he cannot sell or transfer it. They move to the pledgee's account only if the pledge is invoked on default.

  1. AThe pledgor's holding stays in his account, but the pledged quantity is marked as blocked/locked and cannot be transferred by himCorrect
  2. BThe shares are transferred to the pledgee's account at once
  3. CThe shares are returned to the issuer company for safekeeping
  4. DThe shares are converted into physical certificates held by the DP

Explanation

On creation of pledge, the depository freezes the pledged quantity in the pledgor's account, so it stays in his name but is unavailable for transfer. Transfer to the pledgee takes place only on invocation. Hence the immediate-transfer option is wrong.

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