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

A pledgee bank wants to invoke a pledge after the borrower defaulted. Which statement correctly describes the invocation?

The pledgee initiates invocation through its DP, and once the instruction is processed the pledged securities are moved from the pledgor's account to the pledgee's account, where they can be dealt with under the loan agreement. The pledgor's cooperation, depository sale or issuer action is not required.

  1. AThe pledgee instructs its DP to invoke, and on confirmation the securities move from the pledgor's account to the pledgee's account, or can be sold by the pledgeeCorrect
  2. BThe pledgor must first close the pledge before the pledgee can act
  3. CThe depository itself sells the securities and repays the lender
  4. DThe issuer company cancels the securities and pays the pledgee

Explanation

Invocation is initiated by the pledgee through its DP. Once confirmed, the pledged securities are transferred to the pledgee's account, enabling sale or retention per the agreement. The pledgor's closure is not needed, and the depository or issuer does not sell.

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