Template:GMSLA failures to return equivalent collateral: Difference between revisions
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The GMSLA is deliberately designed so that the return of {{gmslaprov|Equivalent}} {{gmslaprov|Securities}}, or the return of {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}}, is ''not'' an {{gmslaprov|Event of Default}}. | The GMSLA is deliberately designed so that the return of {{gmslaprov|Equivalent}} {{gmslaprov|Securities}}, or the return of {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}}, is ''not'' an {{gmslaprov|Event of Default}}. | ||
These failures are designed to be caught by the {{gmslaprov|Mini-Closeout}} section, which gives the | These failures are designed to be caught by the {{gmslaprov|Mini-Closeout}} section, which gives the party expecting the redelivery a self-help, pre-default, remedy of [[Buy-In - GMSLA Provision|buying in]], liquidating {{gmslaprov|Securities}} or {{gmslaprov|Collateral}} that it holds, valuing the offsetting positions and calling for a cash payment. A failure to make that payment would be an {{gmslaprov|Event of Default}} (under {{gmslaprov|10.1(c)}}). | ||
The deficiency seems to be in not allowing for the {{gmslaprov|9.2}} close out right to attach to failures to return | The deficiency seems to be in not allowing for the {{gmslaprov|9.2}} close out right to attach to failures to return Collateral during the currency of a loan. I am not sure why that is missing, but it seems to me the correct approach should be to amend {{gmslaprov|9.2}} to say: | ||
“If Lender fails to deliver Equivalent Collateral comprising Non Cash Collateral in accordance with paragraph 5.4, 8.4 or 8.5…” | “If Lender fails to deliver {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}} comprising Non Cash Collateral in accordance with paragraph 5.4, 8.4 or 8.5…” | ||
Latest revision as of 10:14, 28 June 2019
The GMSLA is deliberately designed so that the return of Equivalent Securities, or the return of Equivalent Collateral, is not an Event of Default.
These failures are designed to be caught by the Mini-Closeout section, which gives the party expecting the redelivery a self-help, pre-default, remedy of buying in, liquidating Securities or Collateral that it holds, valuing the offsetting positions and calling for a cash payment. A failure to make that payment would be an Event of Default (under 10.1(c)).
The deficiency seems to be in not allowing for the 9.2 close out right to attach to failures to return Collateral during the currency of a loan. I am not sure why that is missing, but it seems to me the correct approach should be to amend 9.2 to say:
“If Lender fails to deliver Equivalent Collateral comprising Non Cash Collateral in accordance with paragraph 5.4, 8.4 or 8.5…”