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

Ramesh has pledged shares from his demat account to a bank. Until the pledge is closed or invoked, what is the position regarding the pledged shares in his account?

The pledged shares stay in Ramesh's demat account but are blocked or frozen, so he cannot sell or transfer them. They move to the pledgee only if the pledge is invoked, and the pledgor keeps beneficial ownership until then.

  1. AThey are transferred to the bank's account and Ramesh loses all rights
  2. BThey are blocked (frozen) in Ramesh's account and cannot be sold or transferred by himCorrect
  3. CThey remain freely tradable by Ramesh as before
  4. DThey are converted back into physical form to hold as security

Explanation

On pledge creation, the securities remain in the pledgor's account but are marked as pledged and frozen, so he cannot sell or transfer them. Ownership is not shifted to the pledgee until invocation, so the first option is wrong.

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