Definition of Rehypothecation

Rehypothecation is the act of a broker dealer re-pledging a customer’s securities as collateral at a bank to obtain a loan for the customer.

Applying "Rehypothecation" to Securities Exams:

When a customer buys securities on margin the customer must pledge the securities as collateral for the margin loan. This is known as hypothecation. The broker dealer may rehypothecate or re pledge the customer’s securities as collateral for a loan for the customer.

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