What is Rehypothecation?

Rehypothecation is the practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees.'”

Rehypothecation‘ is an alternative name for ‘re-pledging’. In other words, a party who receives a pledge of collateral makes a pledge of the same collateral to a third-party. In the derivatives market, rehypothecation is sometimes also called ‘re-use’.”