I found this interesting insight on rehypothecation and Etrade's policies. I can't vouch for this information 100% but it does sound logical. I will check again with Etrade this coming week. As many have said in the past.. don't buy on margin!

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If you have a "margin account" you are a "weak hand" in more ways than one. I will post an e-mail exchange I had with ETrade. I have had a couple accounts with them since 1995. I have had margin in the past during the dot.com/fiber optic era mainly, but not since 2003. If you apply common sense "margin" is a loan like a home loan. If you have a mortgage you do not have a "deed" so the bank owns your home. If you have margin you do not own your stocks(no certificate)until your equity balance is zero or you close your margin account. In other words whatever shares you buy on margin are fair game to be "loaned" out to other entities who wish to "short" your position(trade against you) ...

ETrade's reply to my question on shares held in a margin account ...
"In regards to E*TRADE loaning any of your stocks out to other customers, we do reserve the right to loan your shares out if you apply for a margin account. As long as your account is fully paid for (at 100% equity, with no margin debt), we will not loan out any stocks. If you are below 100% equity in your account, loaning your shares out will be part of having a margin account. The only ways to ensure that E*TRADE will not loan your stocks out would be to stay at 100% equity or to remove margin from the account."

Then I asked what happens to those "margin shares" once there is no "margin debt" or the margin account is closed, here is the ETrade reply ...
Thank you for your message regarding your concerns about rehypothecation of securities in your margin account. I do apologize for any frustration or confusion that you have experienced in connection with this matter.

I am more than happy to provide some clarification regarding this matter. I have been able to confirm that if you decide to remove margin from your E*TRADE Financial account the "rehypothecated" securities will be returned to your account and held in the cash side of this account. If there is no margin debt in your account, the securities that were "rehypothecated" or loaned out will be returned as well."

That word "rehypothecated" has a disturbing nebulous ring to it! Any HB&B employees here that can shed light on the term "rehypothecated"?

Posted by: kaimu at April 2, 2007 10:00 AM [link]