Rehypothecation
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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.