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

Ramesh has pledged shares to a bank through his DP. Until the pledge is closed, who continues to be entitled to the corporate benefits such as dividends and bonus shares on those pledged shares, unless agreed otherwise?

The pledgor continues to receive dividends and bonus shares because a pledge does not transfer ownership. The securities are only marked as encumbered in favour of the lender, so the borrower remains the beneficial owner until the pledge is invoked.

  1. AThe pledgee, since the shares are in its custody
  2. BThe depository, as it holds the securities
  3. CThe pledgor, who remains the beneficial ownerCorrect
  4. DThe Depository Participant of the pledgee

Explanation

A pledge only creates a lien or encumbrance; ownership stays with the pledgor. Hence the pledgor remains the beneficial owner and receives dividends and other benefits. The pledgee does not become the owner unless the pledge is invoked and shares are sold or transferred.

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