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Derivatives And Rehypothecation Failure: It's 3:00 P.M., Do You Know Where Your Collateral Is?, Christian Johnson
Derivatives And Rehypothecation Failure: It's 3:00 P.M., Do You Know Where Your Collateral Is?, Christian Johnson
Christian A. Johnson
A borrower would probably be alarmed to learn that its lender had an unrestricted right to use and sell the collateral that the borrower had pledged to secure its borrowings. Borrowers typically believe that a lender should safeguard and protect collateral pledged to it, not use the collateral for its own gain. Yet in the derivatives market, it has become increasingly common for secured parties to insist upon such unrestricted use of pledged collateral.