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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

A broker's client has a pledge of shares in the client's demat account with a margin pledge created in favour of the clearing member. Under SEBI's margin pledge framework, which statement is correct?

Under the margin pledge framework, the client creates the pledge through the depository system by authorising it, and the shares stay in the client's own demat account with ownership unchanged. The broker cannot freely re-pledge them, and the depository records the pledge.

  1. AThe shares move to the broker's own demat account when pledged
  2. BThe pledge is created through the depository system with the client's authorisation and the client retains ownershipCorrect
  3. CThe broker may re-pledge the client's shares to a bank at its discretion
  4. DThe pledge need not be reported to the depository

Explanation

Under the margin pledge framework, the client creates the pledge in favour of the clearing member through the depository system by authorising it with an OTP or similar means. Shares stay in the client's demat account and ownership does not transfer. Brokers cannot re-pledge them for their own purposes, and the depository records the pledge.

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