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

A lender has accepted a pledge and the borrower defaults. The pledgee wants to enforce its rights over the shares. Which statement is correct?

On default the pledgee can invoke the confirmed pledge, and the pledged securities are debited from the pledgor's account and moved to the pledgee's account to be sold or adjusted against the dues. No issuer approval is required and the securities are not extinguished.

  1. AThe pledgee can invoke the pledge, after which the securities are transferred from the pledgor's account to the pledgee's account, or sold, as per instructionsCorrect
  2. BThe pledgee can invoke the pledge only after the issuer approves
  3. CInvocation automatically deletes the securities from the depository
  4. DInvocation is possible only if the pledge was never confirmed

Explanation

Pledge invocation is done by the pledgee on default, and the invoked securities are moved out of the pledgor's blocked balance, typically to the pledgee's account, for sale or adjustment. Issuer approval is not needed, securities are not deleted, and the pledge must be confirmed first.

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