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Rehypothecation: Difference between revisions
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''Compare with [[title transfer]] and {{pbprov|reuse}}. Often used in place of the better term {{pbprov|reuse}}, {{pbprov|rehypothecation}} is a | ''Compare with [[title transfer]] and {{pbprov|reuse}}. Often used in place of the better term {{pbprov|reuse}}, {{pbprov|rehypothecation}} is a New York law means of achieving reuse of pledged assets. It is not strictly accurate when applied to [[title transfer collateral arrangements]] as the collateral taker in that case owns the asset absolutely, and does not therefore need a right to “[[rehypothecate]]” it. '' | ||
{{anat|security}}{{pbprov|Rehypothecation}}, or “{{pbprov|rehypo}}”, is an important part of {{pbprov|margin lending}}: more important than ordinary [[hypothecation]], a term you don’t often see (and which as far as [[I]] know simply means to [[pledge]] assets by way of [[security]] for a [[debt]]). | {{anat|security}}{{pbprov|Rehypothecation}}, or “{{pbprov|rehypo}}”, is an important part of {{pbprov|margin lending}}: more important than ordinary [[hypothecation]], a term you don’t often see (and which as far as [[I]] know simply means to [[pledge]] assets by way of [[security]] for a [[debt]]). | ||
===New York law-style [[credit support]] arrangements=== | ===[[New York law]]-style [[credit support]] arrangements=== | ||
''Re''hypothecation achieves the chimaerical effect of allowing | ''Re''hypothecation achieves the chimaerical effect of allowing the recipient of ''[[pledge|pledged]]'' [[collateral]] — i.e., [[collateral]] the holder doesn’t ''own'', but simply possesses with a [[security interest]] — to sell that [[collateral]] outright to a third party, on condition that it remains liable the original pledgor to return an identical (“[[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]]. | Challenging, you would think, because “''[[nemo dat quod non habet]]''” — you can’t give someone else 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]]. 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 an [[equivalent]] collateral asset. | ||
The | The [[English law]] equivalent in a [[prime brokerage]] arrangement is to interpose an intermediate step, in which the [[pledgee]] may take title outright title to the [[pledged asset]] itself, whence ''habet'', and accordingly ''aliquis dat'' it outright to a third person. | ||
===Not relevant under [[title transfer collateral arrangement]]s=== | |||
Under a [[title transfer collateral arrangement]] (as opposed to a [[pledge]]) the [[collateral]] a {{sex|lady}} receives is hers to 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 then, unless she has a separate [[right of use]] over the asset, she cannot sell it — it not being hers to sell — but must return the self-same thing. | |||
===Prime brokerage arrangements=== | ===Prime brokerage arrangements=== | ||