Investopedia

Rehypothecation

Dictionary Says

Definition of '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.





Investopedia Says

Investopedia explains 'Rehypothecation'

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.



Articles Of Interest

  1. Forex Leverage: A Double-Edged Sword

    Find out how this flexible and customizable tool magnifies both gains and losses.
  2. How Does Your Margin Grow?

    Risk-management tool SPAN margin boosts profitability prospects by helping to determine when to exit a trade.
  3. A hypothecation agreement allows a broker-dealer to

    A. approve the client for "hot" IPOs. B. hold the margined securities in a street name loan - using the securities as collateral for other means (i.e. bank loans and short sales of other customers). ...
  4. What is the difference between leverage and margin?

    In financial terms, leverage is reinvesting debt in an effort to earn greater return than the cost of interest. When a firm uses a considerable proportion of debt to finance its investments, ...
  5. Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  6. Financial Career Options For Professionals

    Find out if spreading your wings to try a new career will make you soar or fall flat.
  7. Investing In IPO ETFs

    Learn the history, rules and risks of investing in IPO exchange-traded funds.
  8. Finding Undiscovered Stocks

    Wall Street tends to focus on large cap stocks, leaving other stocks under-followed and undervalued.
  9. If I want to have some cash in a liquid account for unexpected emergencies, what is best? A savings account or another type?

    It's always a good idea to keep some money set aside in a liquid form, but it's a double-edged sword, because the more liquid your money, the less it's earning. If you never have an emergency, ...
  10. Small Caps Boast Big Advantages

    Find out why little companies have the greatest potential for growth.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.
  2. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.
  3. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.
  4. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.
  5. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
  6. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
Trading Center