Definition
Pledged Shares (Promoter)
Pledged shares are promoter-held shares offered as collateral for loans, which lenders can sell if the promoter defaults or the share price falls.
When promoters pledge a large portion of their stake to borrow, a falling share price can trigger margin calls and forced selling by lenders, which can crash the stock further. High pledge levels are therefore a significant risk flag.
SEBI requires disclosure of promoter pledges in the shareholding pattern. Indian markets have seen several episodes where heavy promoter pledging led to sharp price collapses when lenders invoked the pledge, making pledge data a key governance and risk indicator for investors.
Related terms
- Promoter PledgingPromoter pledging is when promoters use their shares as collateral to raise loans, a practice that can signal financial stress.
- Promoter HoldingPromoter holding is the percentage of a company's shares owned by its founders/controlling group, disclosed every quarter.
- Shareholding PatternThe shareholding pattern is a quarterly disclosure showing how a company's shares are distributed among promoters, institutions, and the public.
- Corporate GovernanceCorporate governance is the system of rules, practices and controls by which a company is directed, overseen and held accountable to its stakeholders.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.