It is a mandatory process introduced by SEBI. When you buy shares under MTF, you have to pledge those shares to continue holding the position. It needs to be done by 9:00 PM on the same day of purchasing stock. In case you fail to do so, your shares will be squared-off on T+7 days.
Promoters of a company can pledge shares to raise funds for various purposes. Companies can raise funds by applying for loans, issuing debt or fresh equity. By pledging shares, companies borrow loans to meet their operational requirements.
Can I sell pledged stocks? Shares on Margin Pledge in case sold would attract penalty. Thus it is advised to first un-pledge the shares kept on margin pledge before initiating a sell transaction and it would take 1 day for getting the shares un-pledge.
Definition: Pledging of shares is one of the options that the promoters of companies use to secure loans to meet working capital requirement, personal needs and fund other ventures or acquisitions. A promoter shareholding in a company is used as collateral to avail a loan.
What happens if you don’t pledge margin?
You can pledge your securities whenever you want to increase your additional limit/margin. What happens if you do not pledge on time? If you don’t pledge on the same day before 9 pm or have a margin shortfall, it will trigger automatic squaring off your position on T+7 day.
Now SEBI has mandated that brokers have to keep the stocks in demat account only. It is only when a broker faces shortfall from your side to meet minimum margin requirements shall a broker sell your pledged holdings and the proceeds of the same would come to your trading account only.
As a thumb rule, pledging of shares above 50% can risky for the promoters. Always ignore companies with high pledging of shares to avoid unnecessary troubles. This is because pledging of shares is a sign of poor cash flow, low-creditability high-debt company, and inability to meet the short-term requirements.
How long does it take to complete my unpledge request? Unpledge request generally takes T+1 day (working days) to complete.
Note: 1) You will be able to unpledge your pledged holdings only to the extent of the unused collateral. The unpledge request will be rejected if the collateral is used for the positions taken. In such cases, you will either have to bring in cash or square off your position to be able to unpledge your pledged holdings.
How do I check if a stock is pledged?
You will be able to track your pledged holdings in the ‘Statement of transaction’ provided by CDSL. In the statement of transaction, you will find the pledged shares as a ‘Debit’.
Can SGB be pledged?
Yes, you can pledge SGB’s to get collateral margin at Zerodha, provided they are on the approved list of securities that can be pledged. The collateral margins will be received after a % deduction called a haircut.