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

A pledgee bank invokes a pledge on 1,000 shares after the borrower defaults. Which statement correctly describes the outcome of a valid invocation in the depository system?

When a pledge is invoked, the invoked quantity is moved from the pledgor's account to the pledgee's account, and the pledgee can sell it to recover its dues. Pledgor consent is not needed again. The pledge may be invoked fully or partly.

  1. AThe shares move to the pledgee's account only, and the pledgor's consent is mandatory again at that time
  2. BShares are transferred to the pledgee's account, or to the extent invoked, with the pledgee able to sell them and recover duesCorrect
  3. CThe shares are cancelled by the depository and the loan is written off
  4. DInvocation only changes the ISIN of the shares

Explanation

On invocation, the pledgee instructs the DP to invoke, the depository confirms, and the invoked quantity is moved to the pledgee's account, from where it can be sold to recover dues. Fresh consent of the pledgor is not needed at this stage. The other options misdescribe the process.

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