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''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]]. | ''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 someone else title to something you don’t yourself own. But somehow, under {{tag| | 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|New York 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 [[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. | 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. |