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

Ms. Iyer holds 500 shares pledged to a lender and the company declares a cash dividend. Who is generally entitled to the dividend on the pledged shares?

The pledgor is entitled to the dividend, because pledge does not change beneficial ownership. The shares stay in the pledgor's account on the record date, so corporate benefits like dividends are paid to the pledgor and not to the pledgee, DP or depository.

  1. AThe pledgee, since shares are in its control
  2. BThe pledgor, since the pledgor remains the beneficial ownerCorrect
  3. CThe DP holding the account
  4. DThe depository

Explanation

Pledge only creates a security interest and does not transfer ownership. The pledgor remains the beneficial owner on the record date and receives corporate benefits such as dividends.

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