NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Pledge and Hypothecation
A client pledged shares and, while the pledge is subsisting, the company announces a cash dividend. Who is entitled to the dividend, as per the usual depository treatment?
The pledger gets the dividend, because pledge does not transfer ownership. The pledger remains the beneficial owner of the shares, so corporate benefits accrue to him while the securities stay pledged.
- AThe pledgee, since it holds the shares
- BThe depository
- CThe pledger, because he remains the beneficial owner and holder of the sharesCorrect
- DThe DP of the pledgee
Explanation
Pledge only creates a security interest. The pledger remains the beneficial owner, so corporate benefits like dividends go to the pledger unless the pledge terms say otherwise.
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