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

Mr. Sanjay pledged 1,000 shares of a company to a bank. The company later announces a bonus issue and a cash dividend while the shares remain pledged. Which treatment is generally correct in the depository framework?

Because ownership remains with the pledgor, dividend and bonus shares go to the pledgor's account, not the pledgee's. The pledgee's security covers only the shares actually pledged unless the pledgor creates a fresh pledge on the new shares.

  1. ACorporate benefits accrue to the pledgor as the beneficial owner unless the pledge is invoked, and bonus shares are credited to the pledgor's accountCorrect
  2. BAll benefits are credited to the pledgee's account automatically
  3. CCorporate benefits are held by the depository until the pledge is closed
  4. DThe bonus shares are cancelled while a pledge exists

Explanation

Pledge does not change ownership; the pledgor remains beneficial owner and receives corporate benefits on pledged shares. The bonus shares are credited to his account as free (unpledged) unless otherwise agreed. The pledgee gets rights over them only through a fresh pledge.

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