Ban on rehypothecation could increase derivatives costs

Investors have become more aware about the security of collateral since the collapse of Lehman Brothers. A number of hedge funds are now insisting margin posted on derivatives trades is not rehypothecated – a trend that could drive up costs. By Christopher Whittall

The final version of the Dodd-Frank Wall Street Reform and Consumer Protection Act is 848 pages long, but you might not think so from reading media coverage of its passage into law. Much of the attention has focused on the clearing obligation for certain over-the-counter derivatives, the inclusion of the Volcker rule, and a requirement to split particular derivatives operations into separate affiliates. But the act, which passed into law in July, contains much, much more – and plenty of it will