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

A pledgee has invoked a pledge on default by the borrower and the invocation has been confirmed. Mr. Rao, the pledgor, is dissatisfied. Which statement is correct about what happens to the pledged securities on invocation?

After a confirmed invocation, the pledged securities are transferred from the pledgor's account to the pledgee's account, enabling the pledgee to recover dues by sale or retention. The depository does not sell or cancel them, and they do not return automatically.

  1. AThey are returned to the pledgor automatically
  2. BThey are cancelled by the depository
  3. CThey are sold by the depository on the exchange
  4. DThey are moved to the pledgee's demat account, or can be sold by the pledgee, to recover the dues, after the pledgee invokes the pledgeCorrect

Explanation

On invocation, the pledged securities are transferred from the pledgor's account to the pledgee's account (or a specified account) so the pledgee can recover dues. The depository neither sells nor cancels securities, and they do not revert automatically.

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