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{{anat|pb| | {{anat|pb| | ||
[[File:Wapner.png|450px|frameless|center]] | [[File:Wapner.png|450px|frameless|center]] | ||
{{subtable|{{rehypothecation capsule}}}}}}{{pbprov|Reuse}} — often labeled {{pbprov|rehypothecation}}<ref>Normal [[hypothecation]], by the way, is a term you don’t often see (and which means simply to [[pledge]] assets by way of [[security]] for a [[debt]]).</ref> (the two are ''legally'' very different but ''economically'' very the same things) — is the right a | {{subtable|{{rehypothecation capsule}}}}}}{{pbprov|Reuse}} — often labeled {{pbprov|rehypothecation}}<ref>Normal [[hypothecation]], by the way, is a term you don’t often see (and which means simply to [[pledge]] assets by way of [[security]] for a [[debt]]).</ref> (the two are ''legally'' very different but ''economically'' very the same things) — is the right a [[prime broker]] has over its client’s {{pbprov|custody assets}} to raise money with them in the market — by ''selling'' them, in a nutshell — to offset its lending costs, against an promise to return [[equivalent]] assets (which it must go and get, by buying them in the market) when the client wants them back. | ||
===Anorak’s corner: The difference between “[[reuse]]” and “[[rehypothecation]]”=== | ===Anorak’s corner: The difference between “[[reuse]]” and “[[rehypothecation]]”=== | ||
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That sounds to me, readers, like [[title transfer|title-transfer]] [[reuse]] — perhaps only at the point it leaves the custodian’s hands and not before, granting a scintilla of additional protection, but really not much. | That sounds to me, readers, like [[title transfer|title-transfer]] [[reuse]] — perhaps only at the point it leaves the custodian’s hands and not before, granting a scintilla of additional protection, but really not much. | ||
=== Reuse generally=== | === Reuse generally=== | ||
It is a fundamental part of a [[prime brokerage]] business. This is how a | 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 {{pbprov|security}} and {{pbprov|margin}}. | ||
It seems a rather drastic right until you put it in context: | It seems a rather drastic right until you put it in context: | ||
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===Where you DO see a right of [[rehypothecation]]=== | ===Where you DO see a right of [[rehypothecation]]=== | ||
====Prime brokerage arrangements==== | ====Prime brokerage arrangements==== | ||
A [[prime broker]] lends its client money to buy assets, and holds those assets in [[custody]], taking security over them as [[surety]] for repayment of its loan — a “[[margin loan]]”. As [[custodian]], the [[prime broker]] has legal title but not [[beneficial interest]] in the asset. 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. | |||
====[[New York law]]-style [[credit support]] arrangements==== | ====[[New York law]]-style [[credit support]] arrangements==== | ||
''For the specific provision in the {{nyvmcsa}}, and tart commentary thereon, see: {{nyvmcsaprov|Use of Posted Collateral (VM)}}'' | ''For the specific provision in the {{nyvmcsa}}, and tart commentary thereon, see: {{nyvmcsaprov|Use of Posted Collateral (VM)}}'' |