Rehypothecation: Difference between revisions

''Re''hypothecation achieves the chimaerical effect of allowing a recipient of ''pledged'' collateral - i.e., collateral the recipient doesn't actually own, but simply possesses with a [[security interest]] - to sell that collateral outright in the market to a third party, provided it remains liable to return an indentical ("[[fungible]]") asset at the conclusion of the pledge. Challenging, you would think, because "[[nemo dat quod non habet]]" - you can't give title to something you don't yourself own. But somehow, under US law, one manages it. It is part of the [[Uniform Commercial Code]]. (Note that the equivalent concept doesn't exist under [[common law]] - [[English law]] collateral arrangements are typically done under [[title transfer]] (for example the {{isda}} {{csa}}, in which case a right of rehypothecation isn't required, since it is an inplication of owning legal title that you may deal with an asset absolutely, or by [[pledge]] (for example the {{isda}} {{csd}}, in which case you can only give as good as you get).

To be contrasted, vehemently, with a {{tag|title transfer collateral arrangement}}, under which collateral a lady receives is her keep and do with as she pleases, as long as she returns something [[equivalent]] when the time it right. If someone tells you they wish to rehypothecate collateral they've taken under a title transfer collateral arrangement, find a sleeve you can quickly laugh up.

===Where you see a right of rehypothecation===

*{{tag|Prime brokerage}} documentation may allow it (but only where the collateral is only pledged in the first place).