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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.


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.


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.

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References in periodicals archive ?
With respect to levels of rehypothecation, we draw upon the example of Lehman Brothers to illustrate the magnitude of contraction in a case that ultimately ended in bankruptcy and liquidation.
Conceptually, in the event that all secured borrowers of the bank were to demand segregation of their collateral or fully restrict rehypothecation rights, the amount of rehypothecated collateral represents the total amount of financing that a dealer bank would need to raise from its own collateral or from the unsecured debt market to maintain its existing secured lending activities.
The importance of rehypothecation and the matching of sources and uses of collateral are emphasized by the level of rehypothecation relative to secured liabilities and total collateral pledged, and in normal times represents how efficient the dealer banks are in economizing on collateral.
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Because no measure presently exists of the whole of the repo market, we do not know its full size or the extent of rehypothecation.
The (Sizable) Role of Rehypothecation in the Shadow Banking System.
Rehypothecation creates a multiplier process for collateral, similar to the more familiar money multiplier.
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26) The rehypothecation that occurred in Lehman's case,
The software's comprehensive tracking of collateral enables organizations to realize additional trading revenue through rehypothecation -- the use of surplus assets.
The software's comprehensive tracking of collateral enables organisations to realise additional trading revenue through rehypothecation -- the use of surplus assets.