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NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement

A client's demat account has 1,000 shares that are pledged with a bank, with the pledge status confirmed. The client also placed an on-market sale for these same 1,000 shares and issued a delivery instruction. What will the DP system most likely do?

The instruction will be rejected or fail, because shares under a confirmed pledge are blocked and not part of the free balance. The pledge must be closed or released by the pledgee before delivery. Depositories do not auto-close pledges or arbitrarily split the instruction.

  1. AReject or fail the instruction because pledged securities are blocked and not freely available for deliveryCorrect
  2. BExecute the delivery and automatically close the pledge
  3. CDeliver the shares and convert the pledge into a lien on sale proceeds
  4. DSplit the instruction and deliver 500 shares

Explanation

Securities under a confirmed pledge are marked and held as pledged balance, so they are not available as free balance for transfer. A delivery instruction against them fails unless the pledge is first closed or the pledgee releases them. The system does not auto-close pledges or split instructions.

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