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

Mr. Rao has pledged 500 shares with a lender and wishes to close the pledge after repaying the loan. Which statement is correct?

Pledge closure is initiated by the pledgor and must be confirmed by the pledgee. Only after the lender's confirmation are the shares unblocked in the pledgor's account. The pledgor cannot unilaterally close it, and the issuer has no role.

  1. AThe pledgor alone can close the pledge without the pledgee
  2. BThe pledgee initiates a closure request and the pledgor's DP completes it automatically with no confirmation
  3. CThe pledge closure is initiated by the pledgor and must be confirmed by the pledgee, after which the shares are unblockedCorrect
  4. DThe pledge can only be closed by the issuer company

Explanation

Closure of a pledge in the depository system is initiated by the pledgor and confirmed by the pledgee, so the lender controls release of its security. On confirmation the shares are unblocked in the pledgor's account. The issuer plays no role in closure, and the pledgor cannot act alone.

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