NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Pledge and Hypothecation
Rohan pledged 500 shares with a bank through his DP. In the depository system, what happens to these shares once the pledge is created and confirmed?
The shares stay in Rohan's demat account but are marked as pledged and blocked, so he cannot sell or transfer them. The pledgee gets a lien on them. Ownership does not move to the lender unless the pledge is invoked on default.
- AThey are transferred to the pledgee's account permanently
- BThey remain in Rohan's account but are marked as pledged and frozen for his transactionsCorrect
- CThey are cancelled and re-issued by the company
- DThey are moved to the clearing corporation's pool account
Explanation
On confirmation of a pledge, the securities stay in the pledgor's account but are blocked or frozen for the pledgor's use, and the pledgee holds a lien on them. Ownership is not transferred, so the first option is wrong.
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