Skip to content

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

A lender holding a confirmed pledge on Anil's shares finds that Anil has defaulted on the loan. Which action correctly describes how the pledgee enforces its rights in the depository system?

The pledgee enforces its rights by giving an invocation instruction through its DP. The pledged securities are then moved to the pledgee's account, where they can be sold or retained in line with the pledge agreement, recovering the defaulted dues.

  1. AIt sells the shares directly from Anil's account without any instruction
  2. BIt gives an invocation instruction through its DP, and the invoked securities are then moved to the pledgee's account for sale or retention under the agreementCorrect
  3. CIt asks the issuer company to cancel the shares
  4. DIt requests the depository to unfreeze the shares in Anil's name

Explanation

On default, the pledgee submits an invocation instruction through its DP. On invocation, the securities are transferred to the pledgee's account, or sold as per the pledge agreement. Selling straight from the pledgor's account or cancelling shares is not part of the process.

Did you get it right without looking?

One question tells you little. A timed set on Special Services - Pledge and Hypothecation shows your real accuracy, how long you take and where you lose marks.

Practise Special Services - Pledge and HypothecationFree diagnostic mock

More Special Services - Pledge and Hypothecation questions