- Financial Stability Board, “Consultative Document, Strengthening Oversight and Regulation of Shadow Banking, A Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos” (November 2012), www.financialstabili-tyboard.org/publications/r_121118b.pdf
- M Singh and J Aitken, “The (Sizeable) Role of Rehypothecation in the Shadow Banking System” (2010), IMF Working Paper WP10/72, www.imf.org/external/pubs/ft/wp/2010/wp10172.pdf
- Rights of rehypothecation permit prime brokers (who hold hedge fund client assets in custody subject to a security interest in their favour for their credit exposures to the hedge fund) to transfer assets from time to time out of the client account into their house account, so that the prime broker owns the rehypothecated asset outright and is free to use it for any purpose. When a right of rehypothecation is exercised, the client ceases to enjoy equitable property rights in the asset under the custody trust, and instead acquires a contractual right of equivalent redelivery against the prime broker.
- Where collateral is delivered to a collateral taker in one trans action under title transfer collateral arrangements, or alternatively under a security interest together with an enforceable right of rehypothecation, the collateral taker under the first transaction is free to deliver the same collateral assets as collateral giver to a third party under another transaction. A reuse or “churn” factor of 4 was estimated immediately before the 2007 crisis.
- Pooling is a feature of customary custody arrangements, whereby the like assets of multiple clients are held indistin-guishably together in one account. While client securities are segregated from the custodian's house securities, they are not segregated between particular clients.
- See Insolvency Rules 1986, rules 4.90 (mandatory set-off in liquidation) and 2.85 (equivalent upon distribution in administration).
Law and Financial Markets Review
Volume 7, 2013 - Issue 1