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

Mr. Shah pledged 500 shares of a company in his demat account. During the pledge, the company announced a cash dividend. Who is generally entitled to the dividend and other benefits on the pledged shares, unless agreed otherwise?

The pledgor is generally entitled to dividends and other corporate benefits, because pledging does not transfer ownership. The pledgee only holds a security interest over the shares. The depository and DP are intermediaries and have no claim on the benefits.

  1. AThe pledgor, as the pledgor remains the beneficial ownerCorrect
  2. BThe pledgee, as the holder of the collateral
  3. CThe depository
  4. DThe DP holding the account

Explanation

A pledge does not transfer ownership, and the pledgor stays the beneficial owner, so corporate benefits such as dividends accrue to the pledgor. The pledgee has only a security interest, and the depository and DP are mere intermediaries.

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