From The Jolly Contrarian
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| “[[Reuse]]” is the right (typically held by a [[prime broker]]) to take assets that it holds in [[Custody asset - CASS Provision|custody]] for its clients and resell them, against an obligation to return [[equivalent]] assets on demand. It is like a kind of [[Stock lending|stock borrow]] facility, where the [[prime broker]] can help itself to the client’s assets, subject to pre-agreed contractual limits, usually including a limit to a certain percentage of the client's [[indebtedness]] — which can be as high as 140%, but is rarely higher — to the [[prime broker]].
| | #redirect[[rehypothecation]] |
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| In the US this is known as a right of “[[rehypothecation]]” — though that is something subtly different, and markedly stupider {{imho}}.
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| Reuse seems a rather drastic right, until you put it in context:
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| *Usually, the client will only own the custody assets in the first place because the [[prime broker]] has lent it the money to buy them. Hedge fund clients like to buy on [[margin]] so they they can (ahem) [[leverage]] their [[Leveraged alpha|alpha]].
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| *running a [[prime brokerage]] business, and holding in [[custody]] in particular, is an expensive business. If the [[prime broker]] can reuse assets it would otherwise have sitting in custody (either as [[collateral]] under its own [[securities financing]] programme) it can improve its [[balance sheet]] position and avoid [[custody]] charges. Both of these mean it can price its offering more attractively to the client.
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| ===See also===
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| *[[Rehypothecation]] -
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Latest revision as of 10:36, 13 July 2020