What is rehypothecation? How brokers reuse client collateral
By SendPay Business · · 2 min read
Rehypothecation is when a broker or lender takes assets you pledged as collateral and uses them again for its own purposes, such as backing its own borrowing. It is common in traditional finance and is usually allowed by the account terms you sign.
How it works
- You borrow from a broker and pledge shares, bonds or other assets as collateral.
- Your agreement lets the broker reuse that collateral.
- The broker pledges the same assets to another lender to raise its own funding.
Why firms do it
Reusing collateral lets brokers fund themselves more cheaply, which can mean lower borrowing costs for clients. It also keeps more assets working in the financial system.
The risks
If the broker fails, assets it has passed on may be tied up in the insolvency, and getting them back can take years. When Lehman Brothers collapsed in 2008, some clients of its UK business found their rehypothecated assets caught up in the process. Some crypto lenders that failed in 2022 had also lent out customer deposits, which left customers waiting as creditors.
What to check
- Read whether your account terms allow your assets to be reused, and by how much.
- Ask whether client assets are kept separate from the firm's own money.
- For crypto, check who holds the assets and whether they are lent out.
Where SendPay fits
SendPay platforms let customers buy, sell and hold crypto, held with regulated partners, alongside GBP, EUR and USD accounts, powered by licensed partners. SendPay doesn't offer trading tools, DeFi or lending.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.