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

A pledgor's loan is in default and the pledgee wants to enforce the pledge. Which statement best describes the invocation of a pledge in the depository system?

On default, the pledgee initiates invocation through its DP. Once confirmed, the pledged shares are debited from the pledgor's account and credited to the pledgee's account or sold to recover dues. Neither the pledgor, the issuer nor the depository starts this enforcement.

  1. AThe pledgee requests invocation through its DP, and on confirmation the shares are transferred to the pledgee's account, or can be sold, after pledge invocationCorrect
  2. BThe pledgor must first sell the shares in the market and pay the lender
  3. CThe depository cancels the shares and refunds the issuer
  4. DThe issuer company invokes the pledge on behalf of the lender

Explanation

On default the pledgee initiates invocation through its DP. After confirmation, the shares are moved out of the pledgor's account to the pledgee's account (or are sold) to recover dues. The pledgor, issuer and depository do not initiate it.

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