A practice in which a broker pledges the same collateral, initially posted by a client, to a bank to collateralize a broker’s loan. The amount of a client’s assets that can be rehypothecated has no universal limit across countries. In countries, like the UK, there is no such a limit, but it is left for the counterparties to negotiate a limit as per contractual requirements. In countries like the US, a cap (currently 140%) is imposed on a client’s debit balance that can be used as collateral.
February 21, 2023