Why are stocks unpledged when clearing member limits are exceeded?
Clearing members have pre-set limits defined by the Clearing Corporation regarding how many shares of a specific company can be pledged to them. When this limit is crossed, the pledged shares are automatically unpledged and returned to the client's Demat Account.
For example, if X ltd, a clearing member, has a maximum limit of 10,00,000 shares of RIL that it can accept as a pledge. Now, let's say Mr. Y, a FYERS client, has 11,00,000 shares of RIL that he wants to pledge to obtain extra margins for equity derivatives trading. Since the clearing member's limit is exceeded in this case, only 10 lakh shares will be accepted, and the remainder will be unpledged. The shares will then be credited back to Mr. Y's account the following day.
It's important to remember that clients will be duly informed about such unpledging activities through email notifications.
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