Rehypothecation

Rehypothecation

Pledging to banks by securities brokers of the amount in customers' margin account as collateral for broker loans, which are used to cover margin loans to customers for margin purchases and selling short.

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Rehypothecate

To pledge securities as collateral for a loan when the same securities have already been pledged for another loan. Generally speaking, a brokerage rehypothecates when it needs to secure a loan for a client. That is, the client pledges securities for a loan on a margin account and the brokerage uses those same securities to procure a loan from a bank to finance the loan for the client.

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Rehypothecation. Rehypothecation occurs when your broker, to whom you have hypothecated -- or pledged -- securities as collateral for a margin loan, pledges those same securities to a bank or other lender to secure a loan to cover the firm's exposure to potential margin account losses.

When you open a margin account, you typically sign a general account agreement with your broker, in which you authorize your broker to rehypothecate.