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

A pledgor wishes to create a pledge through the depository. Which sequence correctly describes the pledge creation process?

The pledgor first gives a pledge instruction to their DP, and the pledgee then confirms it through its own DP. Only after this confirmation is the pledge created and the securities marked as pledged in the depository system.

  1. APledgee instructs the DP, the pledgor confirms, and then the securities are debited
  2. BPledgor initiates the pledge instruction with their DP, and the pledgee then confirms it, after which the pledge is createdCorrect
  3. CThe issuer company registers the pledge in its register and informs the depository
  4. DThe stock exchange creates the pledge on receiving the lender's request

Explanation

The pledgor initiates the instruction through their DP, and the pledgee must confirm it through its own DP before the pledge becomes effective. Issuers and exchanges are not involved in creation.

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