What is Rehypothecation or a Repo?

ByPrimary Researcher

Executive Summary

  • Repos are a way of obtaining credit on the basis of a security as collateral.

Introduction

Repo-ing is explained in the following quotation.

“Rehypothecation means that the repo lender can reuse the securities it gets as collateral from a repo borrower.

For example, if a hedge fund borrowed money from Lehman Brothers and put up securities as collateral, Lehman’s traders could then turn around and use those securities as collateral for their own repo loan from Bear Stearns, which could then repo out the same securities to Merrill Lynch, and so on. ” – Repowatch