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Rehypothecation: Difference between revisions
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''Re''hypothecation achieves the chimaerical effect of allowing a recipient of ''[[pledge|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, on condition that 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 {{tag|US law}}, one manages it. It is part of the [[Uniform Commercial Code]]. | ''Re''hypothecation achieves the chimaerical effect of allowing a recipient of ''[[pledge|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, on condition that 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 {{tag|US law}}, one manages it. It is part of the [[Uniform Commercial Code]]. | ||
The equivalent concept doesn’t exist under [[common law]]: under [[English law]] [[ | The equivalent concept doesn’t exist under [[common law]]: under [[English law]] [[title transfer collateral arrangement]] the 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.<ref>If someone tells you they wish to [[rehypothecate]] collateral they’ve taken under a [[title transfer collateral arrangement]], quickly find a sleeve you can laugh up.</ref>If she receives a [[security interest]] over collateral she cannot sell it, but must return the self-same thing. | ||
Once pledged [[collateral]] has been rehypothecated, to [[Amwell J|this correspondent’s]] best guess it is exactly as it would be had the [[pledgor]] transferred by outright [[title transfer]] in the first place: The pledgor has full [[credit risk]] to the [[pledgee]] for the return of the collateral asset. | Once pledged [[collateral]] has been rehypothecated, to [[Amwell J|this correspondent’s]] best guess it is exactly as it would be had the [[pledgor]] transferred by outright [[title transfer]] in the first place: The pledgor has full [[credit risk]] to the [[pledgee]] for the return of the collateral asset. | ||