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

Ramesh pledged shares in his demat account to a bank. The pledge instruction has been initiated by him and confirmed by the pledgee. What is the state of the pledged shares in his account?

The shares stay in Ramesh's account but are blocked or marked as pledged, so he cannot freely transfer them. Ownership remains with him, while the pledgee holds a lien. They are not moved to the pledgee's account, reissued or converted to physical form.

  1. AThey are debited from his account and credited to the pledgee's account
  2. BThey are blocked in his account and remain in his ownership but cannot be freely transferredCorrect
  3. CThey are cancelled and reissued in the pledgee's name
  4. DThey are converted into physical form

Explanation

In the depository pledge system, securities are marked as pledged (frozen) in the pledgor's account and are not moved to the pledgee's account. The pledgor continues to be the owner, while the pledgee gets a lien that prevents free transfer.

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