Define the Term “Rehypothecation” and Its Relevance to Prime Brokerage

Rehypothecation is the practice where a prime broker reuses a client's posted collateral (with the client's permission) for its own financing activities, such as lending it to other clients or using it as collateral for its own borrowing. It is a major source of prime broker profitability but increases the client's exposure in the event of the broker's insolvency.