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NISM Certifications · NISM-Series-VI: Depository Operations · Investor Services (NISM VI)

Ms. Farida Khan, a BO, has pledged 500 shares of a company under a pledge in the depository system, and the company announces a cash dividend. Under the depository framework, who generally receives the dividend on the pledged shares, assuming the pledgor is the registered shareholder on the record date?

The pledgor receives the dividend, because in a depository pledge the shares remain in the pledgor's account and the pledgor stays the beneficial owner until the pledgee invokes the pledge. The pledgee holds only a lien, and neither the depository nor a DP is entitled to the benefit.

  1. AThe pledgee, since shares are in its lien
  2. BThe depository
  3. CThe pledgor, because the pledgor remains the beneficial owner while shares are pledgedCorrect
  4. DThe DP of the pledgee

Explanation

In a depository pledge the securities stay in the pledgor's account marked as pledged; the beneficial ownership and corporate benefits remain with the pledgor unless the pledge is invoked. The pledgee gets rights only on invocation, and depositories or DPs do not receive dividends.

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