Special Services – Pledge & Hypothecation
12 questions. Each answer is explained.
Question 1 of 10Practice · Series VI — Depository Operations
0 right · 0 wrong · 10 to go
A–D or 1–4 to answer · Enter or → for the next question · ← to go back
Learn these topics
More units in NISM Series VI
- Introduction to the Indian Capital Market8
- Introduction to Depository12
- Depository and its Business Partners10
- Functions of Depository Participant – Account Opening18
- Functions of Depository Participant – Account Operations14
- Functions of Depository Participant – Transmission and Nomination14
- Functions of Depository Participant – Dematerialisation18
- Functions of Depository Participant – Trading and Settlement16
- Special Services – Public Offering / Corporate Actions12
- Special Services – Debt Instruments & Government Securities6
- Foreign Portfolio Investors (FPI)4
- Investor Services6
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series VI Depository Operations
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 12 questions on Special Services – Pledge & Hypothecation, with answers
Q1Rohini offers her demat shares as security for a loan from a lender. In the pledge arrangement, which pairing is correct?
Option A. Rohini is the pledgee. The lender is the pledgor
Why it is wrong: This reverses the provider and recipient of the security interest.
Option B. The issuer is the lender merely because its shares are pledged
Why it is wrong: The company whose security is used need not be a party to the loan.
Option C. Rohini is the pledgor. The lender is the pledgee — Correct answer
Option D. The DP is always the pledgor. Rohini is the registrar
Why it is wrong: The intermediary is not automatically the owner providing collateral.
Answer: C. The pledgor provides securities as collateral, while the pledgee receives the security interest. The DP and depository record and process the arrangement under their rules. They do not become the borrower or lender simply by providing that service. Getting the roles right is essential when checking who can initiate creation, release or invocation. Remember: Pledgor provides the collateral. Pledgee receives the security interest.
Hint, shown before you answer in practice mode: Common mistake: Confusing the intermediary that records a pledge with the party benefiting from it.
VI-111easyconceptual
Q2A borrower’s DP has entered an ordinary CDSL pledge request and generated its reference. What additional stage is needed to complete the pledge through the standard process?
Option A. An ordinary credit to the lender substitutes for the pledge confirmation
Why it is wrong: An outright transfer and an accepted pledge are different transactions.
Option B. The borrower’s request alone is final even if the pledgee rejects it
Why it is wrong: The pledgee’s confirmation is a separate required stage in the stated ordinary process.
Option C. The DP’s acknowledgement of the paper form alone completes lender acceptance
Why it is wrong: Receipt of paper is not equivalent to the lender’s acceptance.
Option D. Confirmation or acceptance by the pledgee through the prescribed route — Correct answer
Answer: D. Creation is not simply the borrower’s uncompleted proposal. The ordinary CDSL process includes the pledgee’s acceptance or confirmation through the relevant DP/system route. The recorded status must therefore be checked before treating a proposed encumbrance as a completed accepted pledge. Remember: A request reference is not necessarily evidence of final accepted status.
Hint, shown before you answer in practice mode: Common mistake: Treating pledge setup as complete before the pledgee has accepted.
VI-112mediumconceptual
Q3For an ordinary pledge recorded within CDSL, the borrower and lender maintain CDSL BO accounts with different DPs. Does the different-DP arrangement alone prevent the pledge?
Option A. Yes. Both must also use the same bank for the loan
Why it is wrong: The prescribed account condition does not require an identical cash bank.
Option B. Yes. Borrower and lender must use the same DP
Why it is wrong: The ordinary CDSL process permits different DPs within the same depository.
Option C. No. The lender need not be identified in the pledge request
Why it is wrong: A permitted different-DP arrangement still requires a properly identified pledgee.
Option D. No. They can use different DPs while both accounts are in CDSL — Correct answer
Answer: D. The CDSL FAQ requires the relevant BO accounts within its system but does not require the same DP for both parties. A common depository and correct account identification support the process. This question is limited to the specified ordinary CDSL pledge and does not invent a cross-depository pledge mechanism. Remember: Same depository need not mean same participant.
Hint, shown before you answer in practice mode: Common mistake: Adding a same-branch requirement that the process does not contain.
VI-113mediumapplication
Q4After an ordinary pledge is validly created but before invocation, how is the pledged quantity ordinarily reflected?
Option A. It disappears from both accounts until loan repayment
Why it is wrong: The system must continue to record the holding and its encumbrance.
Option B. It must be physically delivered to the bank’s vault
Why it is wrong: The facility operates in electronic form without a compulsory return to paper.
Option C. It becomes a freely transferable balance of the pledgee immediately
Why it is wrong: That describes a later ownership movement rather than ordinary creation alone.
Option D. It remains in the pledgor’s account with the pledge restriction recorded — Correct answer
Answer: D. A pledge records a security interest and restricts the affected electronic quantity. Ordinary creation is distinct from invocation: it does not itself mean that the lender has received an unrestricted ownership credit. The account and pledge records preserve the distinction between beneficial holding and encumbrance. Remember: Pledge creation and pledge invocation produce different operational states.
Hint, shown before you answer in practice mode: Common mistake: Treating a collateral block as though it were already an outright transfer.
VI-114mediumconceptual
Q5A CDSL pledge is accepted. The borrower asks the DP to disburse the loan because the collateral is now recorded. Which response is correct?
Option A. The company whose shares are pledged must lend the money to the borrower
Why it is wrong: The issuer is not automatically responsible for financing a shareholder’s borrowing.
Option B. The loan is approved and paid under the borrower–lender agreement, not by the DP — Correct answer
Option C. The depository must credit the borrower with cash equal to the full market value
Why it is wrong: Collateral valuation and lending margins can differ from full market value.
Option D. Every accepted pledge obliges the DP to lend its own money against the shares
Why it is wrong: Recording a security interest does not make the DP the lender.
Answer: B. The depository mechanism records the pledge. The loan amount, interest, eligibility of collateral and disbursement depend on the lender’s agreement and credit process. A successful pledge entry is not a loan sanction by the DP or a promise that the full market value will be advanced. Remember: The securities leg and cash-loan agreement are related but separate processes.
Hint, shown before you answer in practice mode: Common mistake: Assuming a completed pledge itself guarantees loan approval.
VI-115mediumapplication
Q6An accepted pledge covers 800 shares. The required parties complete a valid partial release of 300 shares, with no other change. How many shares remain pledged?
Option A. 300 shares
Why it is wrong: 300 is the released quantity, not the remaining encumbrance.
Option B. 500 shares — Correct answer
Option C. 1,100 shares
Why it is wrong: 1,100 adds a release as though it were an additional pledge.
Option D. 800 shares
Why it is wrong: 800 ignores the completed partial release.
Answer: B. The release reduces the encumbered quantity: 800 − 300 = 500 remain pledged. Partial release need not close the entire pledge. The released quantity must still be checked for any independent restriction before treating it as freely transferable. Remember: A partial release changes the encumbered quantity without necessarily ending the entire arrangement.
Hint, shown before you answer in practice mode: Common mistake: Removing the whole pledge when only part of the collateral was released.
VI-116mediumnumerical
Q7Under the ordinary CDSL pledge process, the lender agrees to release its security interest. Which facility is relevant when the pledgee initiates release through its own DP?
Option A. Unilateral unpledge by the pledgee under the prescribed procedure — Correct answer
Option B. Unilateral cancellation by the pledgor without the required lender confirmation
Why it is wrong: The borrower cannot assume the lender’s unilateral-release authority.
Option C. Invocation initiated by the pledgee
Why it is wrong: Invocation enforces the security rather than voluntarily releasing it.
Option D. An off-market transfer from the pledgor that ignores the pledge status
Why it is wrong: An ordinary transfer cannot be used to bypass the existing encumbrance.
Answer: A. The ordinary process permits the pledgee to release the pledge through its DP under the relevant unpledge facility. This is a relinquishment of the lender’s recorded interest, not invocation or acquisition of the securities. It should not be confused with a borrower attempting to cancel collateral without the secured party’s required consent. Remember: Identify who is giving up an existing security interest.
Hint, shown before you answer in practice mode: Common mistake: Confusing pledgee-initiated release with pledgee-initiated invocation.
VI-117hardapplication
Q8A valid ordinary CDSL pledge is invoked by the pledgee in accordance with the agreement and applicable procedure. Which depository movement results for the invoked quantity?
Option A. Release into the pledgor’s free balance without transfer
Why it is wrong: That is the direction of release rather than enforcement.
Option B. An increase in the issuer’s paid-up capital
Why it is wrong: Pledge enforcement moves existing securities. It does not issue new capital.
Option C. A transfer from the pledgee back to the pledgor
Why it is wrong: The proposed direction reverses the invoked delivery.
Option D. Transfer from the pledgor’s account to the pledgee’s account — Correct answer
Answer: D. Ordinary invocation enforces the recorded pledge by moving the affected quantity to the pledgee’s account under the applicable process. It differs from unpledge, which removes the security interest without that enforcement transfer. Special broker-margin arrangements have their own rules and should not be substituted for the ordinary pledge scenario stated here. Remember: Unpledge removes the encumbrance. Invocation enforces it through the prescribed transfer.
Hint, shown before you answer in practice mode: Common mistake: Using the release workflow when the instruction is actually to invoke.
VI-118hardapplication
Q9Locked-in demat shares are accepted under an ordinary pledge. The lender wants to invoke them before the lock-in expires. Which principle applies?
Option A. Once a pledge is accepted, it automatically cancels any lock-in on the shares
Why it is wrong: Acceptance of collateral does not erase the lock-in.
Option B. The DP may backdate the lock-in expiry date so the loan agreement can be met
Why it is wrong: Changing the expiry record without authority would defeat the restriction.
Option C. The lock-in still applies. A pledge does not by itself allow early invocation — Correct answer
Option D. The lender can simply order an unrestricted off-market sale of the shares instead
Why it is wrong: An alternative transaction label does not lawfully bypass the same constraint.
Answer: C. The cited ordinary CDSL process permits pledge of locked-in securities but recognises the lock-in constraint on invocation. A contractual collateral arrangement is not a licence to evade a restriction on the securities. Both eligibility for creation and conditions for later enforcement must be checked. Remember: The ability to create a pledge does not imply an unrestricted ability to enforce it immediately.
Hint, shown before you answer in practice mode: Common mistake: Assuming every technically accepted collateral item can be sold at once.
VI-119hardapplication
Q10A lender values accepted collateral at ₹2,40,000 and applies a stated 25% haircut. Ignoring all other limits, what collateral value remains after the haircut?
Option A. ₹2,40,000
Why it is wrong: ₹2,40,000 ignores the adjustment.
Option B. ₹3,00,000
Why it is wrong: ₹3,00,000 adds the haircut rather than deducting it.
Option C. ₹1,80,000 — Correct answer
Option D. ₹60,000
Why it is wrong: ₹60,000 is the deducted haircut, not the remaining collateral value.
Answer: C. The haircut is ₹2,40,000 × 25% = ₹60,000. Eligible value after this stated adjustment is ₹2,40,000 − ₹60,000 = ₹1,80,000. This is a hypothetical lender policy, not a universal depository lending ratio. Loan approval and other limits can still reduce the amount actually advanced. Remember: After-haircut value equals market value multiplied by one minus the haircut rate.
Hint, shown before you answer in practice mode: Common mistake: Calling the haircut amount the permitted lending value.
VI-120hardnumerical
Q11A broker asks a client to transfer shares outright to its own account merely to provide trading margin. Which alternative reflects SEBI’s securities-as-margin framework?
Option A. Give the broker the shares permanently, because providing margin counts as a sale
Why it is wrong: Providing collateral is not an outright permanent sale of the investment.
Option B. Move the shares into another, unrelated client’s account to be held as margin
Why it is wrong: An unrelated client is not the proper recipient of the margin collateral.
Option C. Use the prescribed margin pledge/re-pledge mechanism, not an outright transfer — Correct answer
Option D. Replace the demat record with an informal email promise from the broker to the client
Why it is wrong: An informal promise does not replace the required depository collateral record.
Answer: C. SEBI’s framework requires securities accepted as margin to use the prescribed pledge mechanism in the depository system. The purpose is to record and control the collateral chain rather than convert client holdings into an unrestricted broker-owned asset. The mechanism does not remove market, valuation or shortfall risk. Remember: Use the designated collateral mechanism for margin, not an unexplained ownership transfer.
Hint, shown before you answer in practice mode: Common mistake: Treating delivery to a broker account as the only way to provide securities margin.
VI-121mediumapplication
Q12What is the central distinction of a Non-Disposal Undertaking recorded through the prescribed depository mechanism?
Option A. It is an immediate, outright transfer of all the identified holdings to the NDU beneficiary
Why it is wrong: A non-disposal restriction is not itself the same as a completed ownership transfer.
Option B. It blocks disposal of identified holdings but is not an ordinary pledge that can be invoked — Correct answer
Option C. It automatically gives the NDU beneficiary the same ordinary pledge-invocation workflow
Why it is wrong: NDU and ordinary pledge are different recorded arrangements, with different procedures.
Option D. It is only a consent to view the account, with no restriction on disposal at all
Why it is wrong: The defining undertaking concerns restriction on disposal, not only information access.
Answer: B. An NDU is an undertaking not to dispose of identified securities, implemented through the relevant system controls. It should not automatically be equated with a pledge that provides the ordinary pledgee invocation mechanism. Its exact release and enforcement arrangements follow the applicable NDU procedure and agreement. Remember: Distinguish different encumbrance types rather than calling every block a pledge.
Hint, shown before you answer in practice mode: Common mistake: Assuming all blocked balances give the beneficiary identical enforcement rights.
VI-122mediumconceptual
Special Services – Pledge & Hypothecation: common questions
How many practice questions are there on Special Services – Pledge & Hypothecation?
12 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 13 practice topics for NISM Series VI, which has 150 questions in total.
Are these real NISM Series VI questions on Special Services – Pledge & Hypothecation?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series VI?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Special Services – Public Offering / Corporate Actions
12 questions on Special Services – Public Offering / Corporate Actions. Its quiz opens on that unit.
Open Special Services – Public Offering / Corporate Actions