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Rehypothecation: Difference between revisions
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The equivalent concept doesn’t exist under [[common law]]: under [[English law]] [[title transfer collateral arrangement]] the collateral a lady receives is hers to 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 — it not being hers to sell — but must return the self-same thing. | The equivalent concept doesn’t exist under [[common law]]: under [[English law]] [[title transfer collateral arrangement]] the collateral a lady receives is hers to 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 — it not being hers to sell — but must return the self-same thing. | ||
Once pledged [[collateral]] has been rehypothecated, to [[ | Once pledged [[collateral]] has been rehypothecated, to [[Jolly Contrarian|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. | ||
===Prime brokerage arrangements=== | |||
In a {{tag|prime brokerage}} arrangement, the [[prime broker]] has financed the purchase of a client’s asset, and it holds that asset in [[custody]], with {{tag|security}} over it as surety for repayment of the amount it lent the client to buy it in the first place. As [[custodian]], the [[prime broker]] has legal title but not [[beneficial interest]] in the asset. So it is rather as if the client had “pledged” the asset under a [[New York law]] {{t|CSA}} to the [[prime broker]]. therefore the term rehypothecation, to describe the process whereby the [[prime broker]] takes that asset and sells it to defray the cost of financing it, with a [[contingent obligation]] to redeliver something identical back on request, is not an outrageous distortion of the facts of what is happening. | |||
===Where you see a right of rehypothecation=== | ===Where you see a right of rehypothecation=== | ||