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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

A DP client holds a corporate bond in demat form and wants to pledge it as security for a loan. For securities that are not equity shares, which statement about the pledge process in the depository system is correct?

A demat bond is pledged by the pledgor instructing their DP to create the pledge, and the pledgee confirming it in the depository system. The securities then show as pledged in the pledgor's account without rematerialisation or a change of beneficial owner.

  1. AThe pledge is created through the depository system by the client (pledgor) instructing the DP, and the pledgee confirms it, after which the securities are marked as pledgedCorrect
  2. BThe securities must first be rematerialised, since bonds cannot be pledged in demat form
  3. CThe pledge is valid only when the issuer registers the pledgee as the beneficial owner
  4. DThe pledge is created only by the stock exchange on the pledgee's request

Explanation

Demat securities, including debt instruments, can be pledged through the depository: the pledgor gives a pledge instruction via the DP, the pledgee accepts, and the securities are blocked in the pledgor's account as pledged. Rematerialisation is not needed, the beneficial ownership stays with the pledgor, and exchanges play no role.

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