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

Ravi pledges 500 shares of a listed company with a bank through his DP. After the pledge is created and confirmed, what is the status of these shares in his demat account?

The pledged shares stay in Ravi's account but are blocked or earmarked as pledged, so he cannot freely transfer them. Ownership is not permanently moved to the bank, and the shares are not cancelled. The block ends only when the pledge is closed or invoked.

  1. AThey are transferred to the bank's account permanently
  2. BThey are blocked in his account as pledged and cannot be freely transferredCorrect
  3. CThey are cancelled and rematerialised
  4. DThey remain freely transferable until the loan is disbursed

Explanation

On creation of the pledge, the securities are marked or blocked as pledged in the pledgor's account, so he cannot transfer them. Ownership is not transferred to the pledgee, and no rematerialisation takes place. The lock ends when the pledge is closed or invoked.

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