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

A borrower has pledged shares to a lender. The borrower defaults and the lender wants to sell. Which statement is correct about invocation under the depository system?

The pledgee may invoke the pledge through its DP, for all or part of the pledged quantity, and the securities are then transferred for realisation. The pledger's fresh instruction is not required, because invocation exists for the default case.

  1. AThe pledgee can invoke the pledge, after which the securities are moved to the pledgee's account or sold, with the pledgee able to invoke for the whole or part of the pledged quantityCorrect
  2. BInvocation requires the pledger's fresh signature on a new DIS
  3. CInvocation is only possible after the issuer delists the shares
  4. DInvocation automatically cancels the loan and the shares revert to the pledger

Explanation

On default, the pledgee can invoke the pledge, in full or in part, through its DP. The securities are then transferred to the pledgee or its nominee for realisation. The pledger's fresh instruction is not needed, which is why invocation exists.

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