Pledged Shares Meaning

Pledging of shares is quite common and many promoters do it, however in recent times many companies stock price have gone down due to selling of pledged shares by the financial institution holding such stocks, so what does it mean. Well pledging of shares refers to giving shares to financial institution and in return the owners get cash which may be used by them for business purpose or for personal use. After the promoter gives back the money along with interest which it has taken from the financial institution then after receiving the payment from the promoters the financial institution will return the shares back to promoters.

However trouble arises when the owners are unable to give back money on time and the financial institution which has the shares is forced to sell in the market and since the selling is done in bulk it results in stock price crashing down which results in uncertainty as well as rumors about the bankruptcy of the company which in turn results in more selling and hence a sort of vicious circle develops for a stock where everyone is selling and nobody is willing to buy due to uncertainty about the company and its future.

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