Broker Hypothecation Agreement

It is interesting to note that the creditor does not carry on his balance sheet the non-receptive guarantees available from the seizure. A merchant may indicate that he does not want the BD to mortgage the distributor`s collateral again. The BD must then decide whether or not to grant a Margin account to the dealer. Remember that lenders can sometimes use an investor`s collateral as collateral for one of their own obligations, which are also called foreclosures. This can sometimes lead to market risk depending on how often the assets have been mortgaged again. Normally, the mortgage in real estate appears in a transaction as a mortgage on commercial or residential real estate. That is, a borrower mortgages an asset as collateral to insure a home loan. Typically, a lender uses a loan agreement when the owner of the collateral is not the debtor of the secured obligation. Suppose Tom mortgages his house as collateral for his fiancée Mary`s loan for his house. Brokers/dealers regularly use brokerage agreements when creating Margin accounts. In the case of real estate, an owner uses a pension contract to avoid subletting.

Lenders also use the mortgage in real estate when another property insures a mortgage or construction loan. If an investor asks a broker to buy securities on Margin, a mortgage can occur in two respects. First, the purchased assets can be mortgaged, so that if the investor is not able to maintain credit repayments, the broker can sell some of the securities; [1] The broker can also sell the securities if they lose value and if the investor does not respond to a margin call. The second meaning is that the initial deposit deposited by the investor for the Margin account can be made itself in the form of securities and not in the form of a cash deposit, and again, the securities belong to the investor, but can be sold by the creditor in the event of default. In both cases, unlike consumer or business financing, the borrower is usually not in possession of the securities, as they are in accounts controlled by the broker, but the borrower still retains legal ownership. The situation changes when the borrower is behind on credit. This is due to the fact that the borrower grants a right of pledge to the lender as part of the loan agreement. When a borrower is late, the lender can exercise the right of pledge by putting the property up for forced sale. A new loan is made when the creditor (a bank or broker dealer) reuses the debtor`s collateral (a client such as a hedge fund) in order to secure its own transactions and loans from the broker.

This mechanism also allows leverage in the securities market. [2] Aggressive brokers can move money and have effectively done so through foreign subsidiaries, subsidiaries or other parties, in a way that has enabled them to effectively lift restrictions on seizure. This means that it`s not just the assets you`ve borrowed from that could be confiscated. A large discount broker had borrowed a lot of money to invest in secured bonds, and leverage bonds on bad mortgages. It survived, but not before customers overflowed en masse and the company needed to hire a specialist to stabilize operations through the crisis. A common example occurs when a debtor enters into a mortgage contract in which the debtor`s house becomes collateral until the mortgage is repaid. Repo or rest transactions allow one party to sell securities to a second party and buy them back later. The first party pays less than the proceeds of the sale to buy back the security.

The redemption discount is the seller`s source of profit from the repo contract. Thus, repo contracts are in fact loans for which the securities sold act as remortged guarantees. Continued seizure by banks and financial institutions is now a less widespread practice due to the negative effects it had during the 2007-2008 financial crisis. To protect its depositors and shareholders, the bank needs guarantees. So the broker takes the shares you mortgaged from Procter and Gamble and De Coca-Cola and mortgages them again or mortgages them as collateral for the loan to the Bank of New York Mellon. . . .

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