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Rehypothecation: Difference between revisions
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{{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]]). | {{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=== | |||
===Where you see a right of rehypothecation=== | |||
====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. | |||
====[[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)}}'' | ||
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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. | ||
=== | ====US market-standard {{msla}}==== | ||
The collateral leg of a {{msla}} is a pledge which generally has a right of rehypothecation, allowing the collateral holder to reuse the collateral in the market. Like the {{nyvmcsa}} this ebntirely defeats the point of creating a pledge structure, but who are we, with our decidedly movable force of namby-pamby ''logic'', to quibble with the quite irresistible force of the US market practice? | |||
===Where you ''don’t'' see it=== | |||
===={{pgmsla}}==== | |||
Under a [[pledge GMSLA]] used for [[agent lending]]. Because, like, why ''would'' you? The whole point is to immobilise collateral and keep it out of the lender’s [[bankruptcy estate]] | |||
====[[UCITS]] funds==== | |||
{{ucits and reuse}} | |||
====[[Title transfer collateral arrangement]]s generally==== | |||
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. | 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. | ||
=== | ===Voting rehypothecated securities=== | ||
{{voting rehypothecated securities}} | |||
{{sa}} | {{sa}} | ||
*{{nyvmcsaprov|Use of Posted Collateral (VM)}} | *{{nyvmcsaprov|Use of Posted Collateral (VM)}} | ||
{{ref}} | {{ref}} | ||