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Template:M intro pb prime broker solvency: Difference between revisions
Template:M intro pb prime broker solvency (view source)
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Amwelladmin (talk | contribs) (Created page with "The Lehman insolvency — cue thunder-crack — was a chastening experience for some hedge funds who discovered to their dismay that the assets they had bought on margin with Lehman — which they thought Lehman held for them safely in a little shoebox under its bed — were not in a shoe-box after all. They turned out to be rather harder to get back than they expected. The assets hadn’t all gone AWOL as such but were somewhat caught in the gears of the g...") |
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Under a [[New York law]] [[rehypothecation]] arrangement, this is not ''necessarily'' true, because under one of those typically alchemical US legal constructs, a customer retains ownership of rehypothecated assets even while its prime broker sells them outright into the market. So, at least in theory, inside the [[prime broker]]’s books and records the customer has a preferred claim to the rehypothecated asset over other creditors of the bank. What this means in practice may be quite different (to what a US customer expects, and quite similar to what an English one would get). | Under a [[New York law]] [[rehypothecation]] arrangement, this is not ''necessarily'' true, because under one of those typically alchemical US legal constructs, a customer retains ownership of rehypothecated assets even while its prime broker sells them outright into the market. So, at least in theory, inside the [[prime broker]]’s books and records the customer has a preferred claim to the rehypothecated asset over other creditors of the bank. What this means in practice may be quite different (to what a US customer expects, and quite similar to what an English one would get). | ||
====Releasing security interests=== | ====Releasing security interests==== | ||
Even if the administrator manages to recover all the reused assets and returns them to the custody account, the hedge fund is not yet out of the woods: there is a security interest to be resolved. [[Charge]]s, [[pledge]]s and [[mortgage]]s are, of course, [[deep magic]] of the financial markets. There is an element of rite — and no small theatre — in their release. This pantomime itself is likely to delay return of your asset, because no-one wants to give up on credit claims when their are debts to be repaid, and the bank’s administrator will want to make sure that every conceivable debt claim for which the assets are security is recovered first — or applied against the assets — before any security is released. | Even if the administrator manages to recover all the reused assets and returns them to the custody account, the hedge fund is not yet out of the woods: there is a security interest to be resolved. [[Charge]]s, [[pledge]]s and [[mortgage]]s are, of course, [[deep magic]] of the financial markets. There is an element of rite — and no small theatre — in their release. This pantomime itself is likely to delay return of your asset, because no-one wants to give up on credit claims when their are debts to be repaid, and the bank’s administrator will want to make sure that every conceivable debt claim for which the assets are security is recovered first — or applied against the assets — before any security is released. | ||