# Can a Fund Completely Prohibit a Prime Broker from Rehypothecating Its Assets? ▴ Question

**Published:** 2025-07-30
**Categories:** Question

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## Concept

The question of whether a fund can completely prohibit a prime broker from rehypothecating its assets strikes at the core of the institutional relationship between capital and liquidity provision. The answer is a definitive yes, but this assertion opens a more significant inquiry into the systemic trade-offs and architectural choices a fund must make. Viewing the [prime brokerage agreement](https://prime.greeks.live/area/prime-brokerage-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) as the system’s foundational code reveals that the right to rehypothecate is a critical variable, not a fixed constant. Its value dictates the cost of financing, the allocation of [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and the operational structure of asset custody.

[Rehypothecation](https://prime.greeks.live/area/rehypothecation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is the mechanism by which a prime broker reuses assets, posted as collateral by a fund, for its own financing and operational purposes. The broker may pledge these securities to secure its own funding, lend them to other clients, or use them in repo transactions. This process is a fundamental economic engine within the [prime brokerage](https://prime.greeks.live/area/prime-brokerage/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) model. It allows the broker to generate liquidity and lower its borrowing costs, with these benefits often being passed on to clients through more favorable financing rates and access to leverage.

The client, in return for these economic advantages, grants the broker the right to use its assets, thereby accepting a degree of counterparty risk. The central tension is clear ▴ a fund’s desire for absolute asset security versus the broker’s operational need for balance sheet velocity.

> A fund’s ability to prohibit rehypothecation is a function of legal jurisdiction and contractual negotiation, carrying direct consequences for financing costs and counterparty risk exposure.

Understanding this dynamic requires moving beyond a simple definition. The process begins when a fund posts securities as collateral for margin loans or short positions. The prime [brokerage agreement](https://prime.greeks.live/question/what-are-the-key-differences-between-a-prime-brokerage-agreement-and-an-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (PBA) governs the broker’s right to use these assets. When the broker exercises this right, the fund’s legal relationship with its assets changes.

The fund’s direct ownership of a specific security is replaced by a contractual claim against the [prime broker](https://prime.greeks.live/area/prime-broker/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) for the return of equivalent securities. In the event of the broker’s insolvency, the fund becomes a creditor, its claim unsecured, and the recovery of its assets is subject to the bankruptcy proceedings of the broker. This potential transformation of ownership into an unsecured claim is the primary risk that drives a fund to seek limits on, or a complete prohibition of, rehypothecation.

The architecture of this system is heavily influenced by the regulatory environment. Different jurisdictions have engineered entirely different default settings for this practice, creating a fragmented global landscape. The United States, through [SEC Rule 15c3-3](https://prime.greeks.live/area/sec-rule-15c3-3/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), has installed a protective hard-cap, while European regulations, particularly outside of the UCITS framework, leave the limits to be defined almost entirely by private contract. Therefore, a fund’s power to [prohibit rehypothecation](https://prime.greeks.live/question/how-can-a-fund-measure-the-counterparty-risk-associated-with-a-prime-brokers-rehypothecation-activities/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is not a universal constant but a variable determined by the intersection of regulatory mandates and the fund’s own negotiating leverage.

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## Strategy

A fund’s strategy for controlling asset rehypothecation is a multi-layered process involving jurisdictional analysis, rigorous contractual negotiation, and a clear-eyed assessment of the resulting economic trade-offs. The decision to prohibit or limit this practice is a strategic choice that directly impacts the fund’s risk profile and its cost of doing business. The optimal strategy depends on the fund’s structure, its risk tolerance, and the regulatory regime under which its prime broker operates.

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## Jurisdictional Architecture the US and European Models

The regulatory environment provides the foundational architecture for any rehypothecation strategy. The two primary models, the United States and the European Union (with the UK having a similar post-Brexit framework), offer starkly different approaches.

In the United States, the Securities and Exchange Commission’s (SEC) Rule 15c3-3, the “[Customer Protection Rule](https://prime.greeks.live/area/customer-protection-rule/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite),” establishes a clear and prescriptive framework. This rule mandates that prime brokers can only rehypothecate a client’s margin securities up to a value of 140% of the client’s debit balance. This creates a ceiling on the broker’s reuse of assets. Crucially, [fully paid securities](https://prime.greeks.live/area/fully-paid-securities/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) ▴ those not financed by a margin loan ▴ must be segregated and cannot be rehypothecated at all.

This regulatory backstop provides a significant layer of protection for funds, limiting their exposure in the event of a broker’s failure. For a fund operating with a US-based prime broker, the negotiation is not about establishing a cap from zero, but about whether it can contractually lower the regulatory maximum of 140%.

The European framework presents a different set of strategic considerations. For most fund types, such as those governed by the Alternative Investment Fund Managers Directive ([AIFMD](https://prime.greeks.live/area/aifmd/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)), there is no statutory cap on rehypothecation. The right to rehypothecate and its limits are determined almost exclusively through the negotiation of the Prime Brokerage Agreement (PBA). This grants funds significant power to define their own terms but also places the full burden of [risk management](https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) on the fund and its legal counsel.

A fund can negotiate for a 140% cap, a 100% cap, or a complete prohibition. However, each reduction in the broker’s right to reuse assets will likely be met with a corresponding increase in financing costs.

> Navigating rehypothecation requires a dual focus on the hard limits set by regulators and the soft limits achievable through contractual negotiation.

A notable exception in Europe is the UCITS (Undertakings for Collective Investment in Transferable Securities) framework. [UCITS V Directive](https://prime.greeks.live/area/ucits-v-directive/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) effectively prohibits the rehypothecation of fund assets by the depositary or its delegates for their own account. Reuse is only permitted under very strict conditions where it is for the benefit of the UCITS fund itself, such as in a fully collateralized securities lending program. This provides UCITS funds with a level of asset protection that is among the highest in the world.

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## Contractual Engineering the Prime Brokerage Agreement

The PBA is the primary tool for executing a fund’s rehypothecation strategy. It is within this document that a fund can codify its risk tolerance into binding legal terms. The negotiation of this agreement is a critical exercise in risk management.

- **The Rehypothecation Clause** ▴ This is the central provision. A fund can propose language that explicitly prohibits the prime broker from rehypothecating any assets held in the account. Alternatively, it can specify a hard cap, for instance, at 140% of the debit balance to mirror the US rule, or even lower.

- **[Asset Segregation](https://prime.greeks.live/area/asset-segregation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ The agreement should clearly define the terms of asset segregation. A fund can demand that its fully paid securities be held in a segregated account, legally distinct from the broker’s own assets, and that these assets are never subject to rehypothecation.

- **Affiliate Risk** ▴ Prime brokers often include their international affiliates as parties to the PBA. A fund must scrutinize these clauses carefully. A US-based fund might find its assets transferred to a UK affiliate, where the 140% cap under [Rule 15c3-3](https://prime.greeks.live/area/rule-15c3-3/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) no longer applies. The PBA should limit the rights of non-US affiliates to rehypothecate assets or prohibit such transfers entirely.

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## What Are the Economic Consequences of Prohibiting Rehypothecation?

A fund’s decision to prohibit rehypothecation is not without cost. Prime brokers generate revenue and manage their own liquidity by reusing client assets. Denying them this tool makes the client relationship less profitable. The likely consequences include:

- **Higher Financing Costs** ▴ The most direct impact will be on the interest rates charged for margin loans. A fund that prohibits rehypothecation can expect to pay a higher spread over the benchmark rate.

- **Increased Fees** ▴ The broker may seek to compensate for the lost revenue through higher custody fees, ticket charges, or other administrative fees.

- **Reduced Access to Leverage** ▴ A prime broker may be less willing to extend significant leverage to a fund that restricts its ability to finance that leverage through rehypothecation.

The following table illustrates the strategic trade-offs:

| Rehypothecation Limit | Counterparty Risk Exposure | Cost of Financing | Operational Complexity |
| --- | --- | --- | --- |
| Uncapped (Typical in EU pre-negotiation) | High | Low | Low for Fund |
| 140% of Debit (US Standard) | Moderate | Moderate | Moderate (Broker manages compliance) |
| 100% of Debit | Low | High | High (Requires strict monitoring) |
| Zero (Complete Prohibition) | Minimal | Very High | Very High (May require tri-party structures) |

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## Execution

Executing a strategy to prohibit or strictly limit rehypothecation requires a fund to move from theoretical understanding to operational implementation. This involves a disciplined process of legal negotiation, robust due diligence, and ongoing monitoring. The goal is to translate the fund’s risk parameters into an enforceable operational and legal framework.

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## The Operational Playbook for Controlling Rehypothecation

A fund seeking to control its rehypothecation risk must adopt a systematic approach. This playbook outlines the critical steps from negotiation to ongoing oversight.

- **Engage Specialized Legal Counsel** ▴ The first step is to retain legal counsel with deep expertise in prime brokerage agreements and cross-jurisdictional financial regulations. Standard PBAs are drafted to be highly favorable to the broker. Experienced counsel is essential to identify and renegotiate critical clauses.

- **Conduct Rigorous Prime Broker Due Diligence** ▴ Before entering into any agreement, the fund must assess the financial strength and operational integrity of the prime broker. This includes a review of its balance sheet, its credit ratings, and its history of regulatory compliance. A broker with a weaker credit profile presents a higher counterparty risk, making rehypothecation limits even more critical.

- **Negotiate The Prime Brokerage Agreement** ▴ This is the central execution phase. The fund’s legal team, working with the fund’s principals, must negotiate specific amendments to the standard PBA. The focus should be on the clauses detailed in the table below.

- **Implement A Monitoring Framework** ▴ Once the agreement is in place, the fund must establish procedures to monitor its assets and the broker’s compliance with the agreed-upon terms. This includes daily reconciliation of positions and cash balances, and regular review of account statements to ensure that assets are properly segregated.

- **Consider [Tri-Party Custody](https://prime.greeks.live/area/tri-party-custody/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Arrangements** ▴ For funds with the highest sensitivity to counterparty risk and a complete prohibition on rehypothecation, a tri-party custody arrangement can provide an additional layer of security. In this structure, an independent third-party custodian holds the assets, and the prime broker is granted access only to the extent necessary for clearing and settlement, without the ability to rehypothecate.

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## How Can a Fund Verify Its Assets Are Protected?

Verification is an ongoing process. A fund should demand transparency from its prime broker, contractually obligating the broker to provide detailed reporting on asset location and status. This includes reports that distinguish between fully paid and margin securities, and that confirm segregated assets are not being pledged or otherwise encumbered. Regular audits, either by the fund’s own compliance team or by an independent third party, can provide further assurance.

The following table details the key PBA clauses that must be scrutinized during the negotiation process:

| Clause | Standard Broker-Friendly Language | Fund-Protective Negotiation Goal |
| --- | --- | --- |
| Right of Use / Rehypothecation | Grants broad rights to use, pledge, and rehypothecate all assets in the account. | Explicitly prohibit rehypothecation or cap it at a specific percentage of the debit balance (e.g. 140% or 0%). |
| Affiliate Provisions | Allows the broker to transfer assets to any affiliate globally without consent. | Restrict transfers to affiliates in jurisdictions with weaker asset protection rules. Require client consent for any such transfer. |
| Segregation of Assets | Vague language on segregation of fully paid and excess margin securities. | Specify that all fully paid securities must be held in a segregated account and are not available for rehypothecation under any circumstances. |
| Governing Law | May be set to a jurisdiction with lax rehypothecation rules (e.g. UK). | Align the governing law with the jurisdiction that provides the most robust client protections, or ensure the contract explicitly imports those protections. |
| Event of Default | Broad cross-default provisions that can be triggered by events at unrelated affiliates. | Narrow the definition of default and replace cross-default with cross-acceleration provisions. |

Ultimately, the execution of a rehypothecation prohibition is a testament to a fund’s operational discipline. It requires a proactive stance on risk management, a willingness to incur higher costs in exchange for greater security, and a deep understanding of the legal and regulatory systems that govern the prime brokerage relationship. A fund that successfully executes this strategy has built a more resilient operational architecture, one that prioritizes the preservation of capital above all else.

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## References

- Duffie, Darrell. “The Failure Mechanics of Large Dealer Banks.” _Journal of Economic Perspectives_, vol. 24, no. 1, 2010, pp. 51-72.

- Financial Industry Regulatory Authority. “SEA Rule 15c3-3 and Related Interpretations.” _FINRA.org_, 2025.

- International Capital Market Association. “What is ‘rehypothecation’ of collateral?” _ICMA Centre_, 2012.

- Raetze, Astrid. “Negotiating Prime Broking Agreements.” _62 Consulting_, 23 Sept. 2024.

- Securities and Exchange Commission. “Enhancements to the Broker-Dealer Customer Protection Rule.” _SEC.gov_, 20 Dec. 2024.

- Sidley Austin LLP. “SEC Amends Rule 15c3-3 to Require Daily Reserve Computations for Certain Broker-Dealers.” _Sidley Austin LLP_, 13 Jan. 2025.

- Elvinger Hoss Prussen. “New AIFMD requirements applicable to delegation.” _Elvinger Hoss Prussen_, 2023.

- The Jolly Contrarian. “No reuse of assets by depositary – UCITS V Provision.” _The Jolly Contrarian_, 14 Aug. 2024.

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## Reflection

The capacity to control rehypothecation is a powerful tool in a fund’s risk management arsenal. The knowledge that you can, through careful negotiation and structural design, build a framework that ring-fences your assets from a broker’s balance sheet is empowering. This moves the conversation from one of passive acceptance of risk to one of active architectural design. How does this capability alter your perception of counterparty risk?

Does viewing the Prime Brokerage Agreement as a modifiable set of protocols, rather than a fixed contract, open new avenues for optimizing your fund’s operational security and capital efficiency? The true edge lies not just in understanding the rules of the system, but in knowing how to rewrite them to your advantage.

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## Glossary

<a href="https://prime.greeks.live/area/prime-brokerage-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Prime Brokerage Agreement

Meaning ▴ A Prime Brokerage Agreement is a formal contractual arrangement between an institutional client, typically a hedge fund or asset manager, and a prime broker. </a><a href="https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Counterparty Risk

Meaning ▴ Counterparty risk denotes the potential for financial loss stemming from a counterparty's failure to fulfill its contractual obligations in a transaction. </a><a href="https://prime.greeks.live/area/prime-brokerage/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Prime Brokerage

Meaning ▴ Prime Brokerage represents a consolidated service offering provided by large financial institutions to institutional clients, primarily hedge funds and asset managers. </a><a href="https://prime.greeks.live/area/rehypothecation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Rehypothecation

Meaning ▴ Rehypothecation defines a financial practice where a broker-dealer or prime broker utilizes client collateral, posted for margin or securities lending, as collateral for its own borrowings or to cover its proprietary positions. </a><a href="https://prime.greeks.live/question/what-are-the-key-differences-between-a-prime-brokerage-agreement-and-an-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Brokerage Agreement

A Prime Brokerage Agreement is a centralized service contract; an ISDA Master Agreement is a standardized bilateral derivatives protocol. </a><a href="https://prime.greeks.live/area/prime-broker/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Prime Broker

Meaning ▴ A Prime Broker functions as a core financial intermediary, providing an integrated suite of services to institutional clients, primarily hedge funds, encompassing global execution, financing, clearing, settlement, and operational support across diverse asset classes, including nascent digital asset derivatives. </a><a href="https://prime.greeks.live/question/how-can-a-fund-measure-the-counterparty-risk-associated-with-a-prime-brokers-rehypothecation-activities/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Prohibit Rehypothecation

A fund measures rehypothecation risk via a system of contractual limits and continuous quantitative monitoring of collateral velocity. </a><a href="https://prime.greeks.live/area/sec-rule-15c3-3/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Sec Rule 15c3-3

Meaning ▴ SEC Rule 15c3-3, formally designated as the Customer Protection Rule, mandates that registered broker-dealers safeguard customer securities and cash by segregating these assets from the firm's proprietary capital. </a><a href="https://prime.greeks.live/area/customer-protection-rule/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Customer Protection Rule

Meaning ▴ The Customer Protection Rule, codified as SEC Rule 15c3-3, mandates that broker-dealers safeguard customer funds and securities, prohibiting their use for proprietary firm operations. </a><a href="https://prime.greeks.live/area/fully-paid-securities/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Fully Paid Securities

Meaning ▴ Fully paid securities denote financial instruments, such as equities or bonds, for which an investor has provided complete payment, leaving no outstanding margin loan or lien against the asset. </a><a href="https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Risk Management

Meaning ▴ Risk Management is the systematic process of identifying, assessing, and mitigating potential financial exposures and operational vulnerabilities within an institutional trading framework. </a><a href="https://prime.greeks.live/area/aifmd/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two sharp, intersecting blades, one white, one blue, represent precise RFQ protocols and high-fidelity execution within complex market microstructure. Behind them, translucent wavy forms signify dynamic liquidity pools, multi-leg spreads, and volatility surfaces](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-optimized-liquidity-aggregation-principal-prime-os-intelligence-layer.jpg)

## Aifmd

Meaning ▴ AIFMD constitutes the foundational regulatory framework within the European Union designed to govern managers of alternative investment funds (AIFs). </a><a href="https://prime.greeks.live/area/ucits-v-directive/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, articulated multi-leg spread structure crosses a simpler underlying asset bar on a teal Prime RFQ platform. This visualizes institutional digital asset derivatives execution, leveraging high-fidelity RFQ protocols for optimal capital efficiency and precise price discovery](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-prime-os-execution.jpg)

## Ucits V Directive

Meaning ▴ The UCITS V Directive, formally Directive 2014/91/EU, establishes a harmonized regulatory framework across the European Union for Undertakings for Collective Investment in Transferable Securities, specifically reinforcing investor protection by strengthening requirements for depositary functions, imposing strict remuneration policies, and harmonizing administrative sanctions for non-compliance. </a><a href="https://prime.greeks.live/area/asset-segregation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Robust institutional Prime RFQ core connects to a precise RFQ protocol engine. Multi-leg spread execution blades propel a digital asset derivative target, optimizing price discovery](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-proto-insti-digital-asset-derivs-hi-fi-exec-capital-effi-risk-mgmt.jpg)

## Asset Segregation

Meaning ▴ Asset Segregation denotes the systemic separation of client assets from a firm's proprietary assets, and also the distinct separation of assets belonging to different clients, within a financial institution's custody or operational framework. </a><a href="https://prime.greeks.live/area/rule-15c3-3/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A centralized RFQ engine drives multi-venue execution for digital asset derivatives. Radial segments delineate diverse liquidity pools and market microstructure, optimizing price discovery and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-rfq-execution-for-institutional-digital-asset-derivatives.jpg)

## Rule 15c3-3

Meaning ▴ Rule 15c3-3, formally known as the Customer Protection Rule, establishes a stringent regulatory framework requiring broker-dealers to safeguard customer securities and cash. </a><a href="https://prime.greeks.live/area/tri-party-custody/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two abstract, polished components, diagonally split, reveal internal translucent blue-green fluid structures. This visually represents the Principal's Operational Framework for Institutional Grade Digital Asset Derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-prime-os-liquidity-framework.jpg)

## Tri-Party Custody

Meaning ▴ Tri-Party Custody defines a custodial arrangement involving three distinct parties ▴ the asset owner, typically an institutional Principal; the executing counterparty, such as a prime broker or derivatives dealer; and an independent, regulated third-party custodian. </a>

**Tags:** [AIFMD](https://options.greeks.live/area/aifmd/), [Prime Broker](https://options.greeks.live/area/prime-broker/), [UCITS V Directive](https://options.greeks.live/area/ucits-v-directive/), [Margin Loan](https://options.greeks.live/area/margin-loan/), [Collateral Management](https://options.greeks.live/area/collateral-management/), [Risk Management](https://options.greeks.live/area/risk-management/)	

## Discover More

- 
### [How Can a Fund Quantitatively Compare the Collateral Optimization Capabilities of Two Different Prime Brokers?](https://options.greeks.live/question/how-can-a-fund-quantitatively-compare-the-collateral-optimization-capabilities-of-two-different-prime-brokers/)
![Sleek teal and beige forms converge, embodying institutional digital asset derivatives platforms. A central RFQ protocol hub with metallic blades signifies high-fidelity execution and price discovery. The composition illustrates market microstructure efficiency, atomic settlement capabilities, and robust counterparty risk management for block trade liquidity via a Principal OS.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-microstructure.jpg)

A fund compares prime brokers by modeling their collateral systems as extensions of its own to quantify total financing cost.

- 
### [How Does a Prime Broker Mitigate Risk in Anonymous RFQ Trading?](https://options.greeks.live/question/how-does-a-prime-broker-mitigate-risk-in-anonymous-rfq-trading/)
![A transparent sphere, bisected by dark rods, symbolizes an RFQ protocol's core. This represents multi-leg spread execution within a high-fidelity market microstructure for institutional grade digital asset derivatives, ensuring optimal price discovery and capital efficiency via Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-protocols-high-fidelity-execution.jpg)

A prime broker mitigates risk by acting as a centralized credit and operational intermediary, absorbing and netting counterparty exposures.

- 
### [In the Event of a Broker-Dealer’s Failure How Does a Good Control Location Facilitate the Return of Securities to Customers?](https://options.greeks.live/question/in-the-event-of-a-broker-dealers-failure-how-does-a-good-control-location-facilitate-the-return-of-securities-to-customers/)
![A luminous conical element projects from a multi-faceted transparent teal crystal, signifying RFQ protocol precision and price discovery. This embodies institutional grade digital asset derivatives high-fidelity execution, leveraging Prime RFQ for liquidity aggregation and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-rfq-protocol-orchestration-for-institutional-digital-asset-derivatives-high-fidelity-execution.jpg)

A good control location provides an unbreachable, legally segregated repository for customer assets, ensuring their swift return upon broker-dealer failure.

- 
### [What Are the Primary Differences in Risk Management between Equity and Cryptocurrency Market Makers?](https://options.greeks.live/question/what-are-the-primary-differences-in-risk-management-between-equity-and-cryptocurrency-market-makers/)
![A central Prime RFQ core powers institutional digital asset derivatives. Translucent conduits signify high-fidelity execution and smart order routing for RFQ block trades. Peripheral modules symbolize aggregated liquidity pools, enabling precise price discovery, mitigating counterparty risk, and optimizing portfolio margin.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-liquidity-aggregation-engine.jpg)

The primary risk difference is managing known unknowns in a centralized, credit-based system versus unknown unknowns in a fragmented, pre-funded one.

- 
### [How Do Centralized Clearing Solutions Affect Liquidity Provision for Crypto Options?](https://options.greeks.live/question/how-do-centralized-clearing-solutions-affect-liquidity-provision-for-crypto-options/)
![An abstract composition featuring two overlapping digital asset liquidity pools, intersected by angular structures representing multi-leg RFQ protocols. This visualizes dynamic price discovery, high-fidelity execution, and aggregated liquidity within institutional-grade crypto derivatives OS, optimizing capital efficiency and mitigating counterparty risk.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-optimizing-aggregated-liquidity-and-multi-leg-execution-via-advanced-market-microstructure.jpg)

Centralized clearing enhances crypto options liquidity by optimizing capital, standardizing risk, and fostering robust institutional participation.

- 
### [How Does Prohibiting Rehypothecation Impact the Financing Costs for a Hedge Fund?](https://options.greeks.live/question/how-does-prohibiting-rehypothecation-impact-the-financing-costs-for-a-hedge-fund/)
![A glowing blue module with a metallic core and extending probe is set into a pristine white surface. This symbolizes an active institutional RFQ protocol, enabling precise price discovery and high-fidelity execution for digital asset derivatives. It represents the Prime RFQ intelligence layer, managing latent liquidity for block trades.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-driving-institutional-digital-asset-derivatives-high-fidelity-execution-precise-price-discovery-for-block-trades-and-capital-efficiency.jpg)

Prohibiting rehypothecation transforms collateral into a static asset, increasing a hedge fund's financing costs by shifting the prime broker's funding model.

- 
### [What Are the Best Practices for Managing Counterparty Risk in Crypto Options Trading?](https://options.greeks.live/question/what-are-the-best-practices-for-managing-counterparty-risk-in-crypto-options-trading/)
![A vertically stacked assembly of diverse metallic and polymer components, resembling a modular lens system, visually represents the layered architecture of institutional digital asset derivatives. Each distinct ring signifies a critical market microstructure element, from RFQ protocol layers to aggregated liquidity pools, ensuring high-fidelity execution and capital efficiency within a Prime RFQ framework.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-execution-stack.jpg)

Effective counterparty risk management in crypto options is a system of control, not a reaction to default.

- 
### [What Are the Specific Possession or Control Requirements for Fully Paid Customer Securities?](https://options.greeks.live/question/what-are-the-specific-possession-or-control-requirements-for-fully-paid-customer-securities/)
![An abstract, multi-component digital infrastructure with a central lens and circuit patterns, embodying an Institutional Digital Asset Derivatives platform. This Prime RFQ enables High-Fidelity Execution via RFQ Protocol, optimizing Market Microstructure for Algorithmic Trading, Price Discovery, and Multi-Leg Spread.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-trading-platform-powering-high-fidelity-execution-via-advanced-rfq-protocol-prime-os-intelligence-layer.jpg)

Rule 15c3-3 mandates broker-dealers to maintain possession or control of customer securities, architecting a fundamental layer of asset protection.

- 
### [What Are the Primary Differences in Rehypothecation Rules between the US and Europe?](https://options.greeks.live/question/what-are-the-primary-differences-in-rehypothecation-rules-between-the-us-and-europe/)
![Abstract geometric forms portray a dark circular digital asset derivative or liquidity pool on a light plane. Sharp lines and a teal surface with a triangular shadow symbolize market microstructure, RFQ protocol execution, and algorithmic trading precision for institutional grade block trades and high-fidelity execution.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-block-execution-microstructure.jpg)

The US caps rehypothecation at 140% of client debt, while Europe allows contract-based reuse with strict consent and transparency rules.

---

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---

**Original URL:** https://options.greeks.live/question/can-a-fund-completely-prohibit-a-prime-broker-from-rehypothecating-its-assets/
