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

A client has pledged shares in demat form and the loan is repaid in full. What is the correct step for releasing the securities from pledge?

The pledgee, who holds the lien, initiates the pledge closure request after the loan is repaid. Once the closure is confirmed in the system, the securities return to the pledgor's free balance. The pledgor alone cannot release the pledge, nor does it lapse automatically.

  1. AThe pledgor alone instructs the DP to close the pledge and the securities return immediately
  2. BThe pledgee initiates a request for pledge closure, and the securities are then released to the pledgor's free balance after confirmationCorrect
  3. CThe depository closes the pledge automatically after 30 days
  4. DThe issuer company cancels the pledge and informs the RTA

Explanation

Closure of a pledge is initiated by the pledgee, who holds the lien, once the loan is repaid. The pledgor then confirms, as per the process, and the securities go back to the free balance. The pledgor cannot unilaterally close it, and neither the depository nor the issuer does so automatically.

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