Reuse - PB Provision

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Reuse — often labeled rehypothecation — is the right a prime broker has over its client’s custody assets to take those assets and sell them in the market to offset its lending costs, against an obligation to return equivalent assets (which it must buy in the market) when the client wants them back.

It is a fundamental part of a prime brokerage business. This is how a prime broker funds its costs of lending to its Hedge Fund clients, which allows them to gain leverage, buy the assets and conflate alpha with vega: it is not a credit risk mitigation technique (for that see security and margin.