Understanding the various nuances and potential impacts of rehypothecation is vital to any capital market participant currently active or considering entry into any agreement where rehypothecation of assets is a requirement or an option.
Rehypothecation can impact pricing of transactions, but risk must also be considered in terms of the underlying goals of the market participant.
At its most basic form, rehypothecation is the re-use of collateral as illustrated in figure 1 below.
