Rehypothecation

Rehypothecation

The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees.

In a typical example of rehypothecation, securities that have been posted with a prime brokerage as collateral by a hedge fund are used by the brokerage to back its own transactions and trades. While rehypothecation was a common practice until 2007, hedge funds became much more wary about it in the wake of the Lehman Brothers collapse and subsequent credit crunch in 2008-09.

In the United States, rehypothecation of collateral by broker-dealers is limited to 140% of the loan amount to a client, under Rule 15c3-3 of the SEC.


Investment dictionary. . 2012.

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Look at other dictionaries:

  • rehypothecation — USA The right of a secured party to lend, pledge, sell, assign, invest, use, commingle or otherwise dispose of collateral, usually securities, posted by a counterparty under a trading agreement. See also equivalent collateral …   Law dictionary

  • Rehypothecation — Rehypothecate Re hy*poth e*cate (r? h?*p?th ?*k?t), v. t. (Law) To hypothecate again. {Re hy*poth e*ca tion}, n. [1913 Webster] …   The Collaborative International Dictionary of English

  • rehypothecation — noun The pledge of hypothecated client owned securities in a margin account to secure a bank loan; usually used for mortgages …   Wiktionary

  • rehypothecation — pledging to banks by securities brokers of the amount in customers margin account as collateral for broker loans , which are used to cover margin loans to customers for margin purchases and selling short. Bloomberg Financial Dictionary …   Financial and business terms

  • rehypothecation — re·hypothecation …   English syllables

  • rehypothecation — /riyhaypoflakeyshan/ To pledge to another or to transfer to another a note, goods, or other collateral which have been already pledged; e.g. a broker may pledge securities pledged to him by a customer (under e.g. a margin account) to finance his… …   Black's law dictionary

  • rehypothecation — |rē+ noun Etymology: re + hypothecation : the action of a broker who pledges with a bank or other lender securities already left on deposit with him by a customer as a pledge for their purchase on margin …   Useful english dictionary

  • Equity of redemption — The equity of redemption refers to the right of a mortgagor in law to redeem his property once the liability secured by the mortgage has been discharged.Historically, mortgages were made by the mortgagor executing a conveyance of legal title to… …   Wikipedia

  • Hypothecation — See also hypothec. The original use of the word hypothecation was for a pledge of property as collateral for a debt without transfer of possession to the party making the loan. The arrangement is common with modern mortgages the borrower retains… …   Wikipedia

  • ISDA Credit Support Annex — USA ISDA Credit Support Annex (CSA) The 1994 Credit Support Annex (CSA) published by the International Swaps and Derivatives Association, Inc. (ISDA). This document governs collateral arrangements betwe …   Law dictionary

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