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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions

A company with 10 lakh shares announces a buyback through tender offer using the stock exchange mechanism. Mr. Kapoor tendered shares held in his demat account through his broker. Which statement correctly describes how the tendered shares are handled in the depository system?

Tendered shares are held in a blocked or clearing corporation special account until settlement. Accepted shares go to the company and are extinguished, while any unaccepted portion is returned to the holder's demat account, so the shares cannot be freely transferred during the offer.

  1. AShares are blocked in the seller's account or transferred to the clearing corporation's special account until settlement, and accepted shares are extinguished while unaccepted shares are returnedCorrect
  2. BShares are immediately debited and extinguished at the time of tendering, with no return of unaccepted shares
  3. CShares remain freely transferable by the holder during the tender period
  4. DShares are pledged to the company until buyback proceeds are paid

Explanation

For exchange-route tender offers, tendered shares are placed in a blocked or special clearing account for settlement. After acceptance is determined, accepted shares are delivered to the company and extinguished, while the rejected portion is returned to the holder. Immediate extinguishment ignores partial acceptance, and free transfer would defeat the tender.

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