13.13What is a pledge of shares?
1What is it?
Pledging means offering your shares as security (collateral) for a loan or for trading margin, while you remain the owner.
2Why does it exist?
It unlocks value from holdings without selling. The pledged shares can be sold by the lender if you default.
3Stock market example
Pledging is done electronically with OTP authorisation through the depository. Promoter pledging of their own company’s shares is disclosed publicly and watched as a risk indicator.
4Quick revision
- Shares as collateral.
- You still own them.
- Lender can sell on default.
5Knowledge check
Q1. Do you lose ownership when you pledge?Show answer
No, unless you default and the lender invokes the pledge.
Q2. How is a pledge authorised?Show answer
Electronically with OTP via the depository.
Q3. Why watch promoter pledging?Show answer
Forced selling risk if prices fall.