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Rehypothecation: Difference between revisions
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{{anat|pb|}}''Compare with [[title transfer]]'' | |||
Often used in place of the better term “{{pbprov|reuse}}”, {{pbprov|rehypothecation}} is a New York law | Often used in place of the better term “{{pbprov|reuse}}”, {{pbprov|rehypothecation}} is a [[New York law]] term for the right to [[reuse]] pledged assets. It is not strictly accurate when applied to [[title transfer collateral arrangements]] as the collateral taker owns the asset absolutely, and does not therefore need a right to “[[rehypothecate]]” it.'' | ||
{{pbprov|Rehypothecation}}, or “{{pbprov|rehypo}}”, is an important part of {{pbprov|margin lending}} | {{pbprov|Rehypothecation}}, or “{{pbprov|rehypo}}”, is an important part of {{pbprov|margin lending}}.<ref>More important than ordinary [[hypothecation]], a term you don’t often see (and which means simply to [[pledge]] assets by way of [[security]] for a [[debt]]).</ref> It means the [[prime broker]]) may take assets that it holds in [[Custody asset - CASS Provision|custody]] for its clients and sell or lend them in the market, against an obligation to return [[equivalent]] assets on demand. It is like a kind of [[Stock lending|stock borrow]] facility, where the [[prime broker]] can help itself to the client’s assets, subject to pre-agreed contractual limits, usually including a limit to a certain percentage of the client's [[indebtedness]] — which can be as high as 140%, but is rarely higher — to the [[prime broker]]. It seems a rather drastic right, until you put it in context: | ||
*Usually, the client will only own the custody assets in the first place because its [[prime broker]] has lent it the money to buy them. [[Hedge fund]]s like to buy on [[margin]] so they they can (ahem) [[leverage]] their [[Leveraged alpha|alpha]]. | |||
*running a [[prime brokerage]] business, and holding in [[custody]], is an expensive business. If the [[prime broker]] can raise finance against assets that would otherwise be sitting in custody (for example as [[collateral]] under its own [[securities financing]] programme) it can improve its [[balance sheet]] position, repay its internal treasury department the funds they made available at eye-watering rates, therefore markedly cheapening their own cost of lending and avoiding [[custody]] charges. Both of these mean it can price its offering more attractively to the client. | |||
There is a world of difference between [[rehypothecation]] and [[agent lending]], even though {{tag|UCITS V}} threatens (vaguely) to regard them as [[22(7) - UCITS V Provision|different varieties of the same thing]]. | |||
{{rehypothecation capsule}} | {{rehypothecation capsule}} | ||
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{{sa}} | {{sa}} | ||
*{{nyvmcsaprov|Use of Posted Collateral (VM)}} | *{{nyvmcsaprov|Use of Posted Collateral (VM)}} | ||
*[[Rehypothecation]] | |||
*Art {{ucits5prov|22(7)}} {{t|UCITS V}} | |||
{{ref}} | {{ref}} | ||