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

Mr. Iyer wants to take a loan against his shares held in demat form with a DP. Under the depository system, which action creates the pledge on those securities?

A pledge is created when the pledgor instructs his DP to create the pledge and the pledgee confirms it in the depository system. The securities are then blocked in the pledgor's account without any transfer of ownership or rematerialisation.

  1. ATransferring the shares by an off-market sale to the lender
  2. BPledgor initiating a pledge instruction and the pledgee confirming it in the depository systemCorrect
  3. CSurrendering the demat account to the lender
  4. DRematerialising the shares and handing the certificates to the lender

Explanation

A pledge in the depository system is created by the pledgor (BO) initiating a pledge instruction through the DP and the pledgee confirming it. Ownership does not transfer, and no rematerialisation is required. The shares are marked as pledged and blocked in the pledgor's account.

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