What if a prime broker fails on rehypothecated client assets?
A mid-tier prime broker failing with client assets trapped in rehypothecation chains freezes hedge-fund redemptions — a counterparty-plumbing tail where high-beta (SOL/Nasdaq), HY and financials sell hard on collateral uncertainty and VIX spikes. Direct rhyme is Lehman's London PB, where rehypothecated client assets were frozen for years. Rehypothecation links every client through opaque collateral chains; one failure jams many funds. Forward angle: post-2008 segmentation reduced but did not remove this — the lesson is counterparty diversification, and the reflex is a broad degross while custody is sorted.
Every number ships with its receipt — the odds, the range, the precedents, and a public grade at Reality Check. The statistical machinery that produces it is proprietary.
The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the Tail risk horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A mid-tier prime broker's collapse traps client assets rehypothecated through opaque collateral chains, freezing hedge-fund redemptions. The trigger decomposes into signed root‑shocks — Credit spreads ▲ · Financial conditions ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.