Delivery of Equivalent Securities - Pledge GMSLA Provision: Difference between revisions
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Revision as of 08:25, 2 June 2020
2018 Global Master Securities Lending Agreement (Pledge Version)
Clause 8 in a Nutshell™ Use at your own risk, campers!
Full text of Clause 8
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Content and comparisons
8. Delivery of Equivalent Securities
8.1 Lender’s right to terminate a Loan
8.2 Borrower’s right to terminate a Loan
8.3 Delivery of Equivalent Securities on termination of a Loan
8.4 Delivery of Equivalent Collateral on termination of a Loan
Differences
Observers will note: in the 2018 Pledge GMSLA there is no equivalent of the 2010 GMSLA’s Paragraph 8.5 dealing with what to do with Letters of Credit, and no equivalent of the 2010 GMSLA’s Paragraph 8.6 requiring the delivery obligations to be reciprocal.
Instead, we assume to bulk out a paragraph which otherwise seems a bit textually anaemic, when drafting paragraph 8 of the 2018 Pledge GMSLA ISLA’s crack drafting squad™ went to town adding a couple of new paragraphs — 8.3 and 8.4 — that boast quite some textual complexity, twice purporting to avoid some doubt which, had these paragraphs not been added, wouldn’t be there — but boast a lot less forensic interest.
Summary
Term
Unless you’ve agreed it has some kind of term, Loans are callable at will by either party.
You do see term loans in certain cases: “pre-borrows”, where an aspiring short seller is expecting a stock to go illiquid and wants to have the security ready to sell when everyone is scrabbling around trying to find enough of the stuff to sell short, thereby avoiding buy-ins and so on — and also in agent lending world, where Borrowers will want some medium term commitment (90 days or so) for trades where they upgrade their prime brokerage and margin loan inventory into high-credit quality assets they can give back to their own treasury departments. financial reporting rules may require these trades to have a minimum remaining tenor to get appropriate RWA treatment.
“Equivalent”
What if the Securities have been cancelled, redeemed, or converted into something else? The elaborately defined adjective Equivalent does a lot of work here.
But what if the issuer has gone bust? Here there may be little or no liquidity in the shares — they may well have been delisted, for example.
Look here to the mini-closeout provisions, which are designed to cope with exactly this kind of settlement failure.
See also
- “Equivalent”; a term of art when it comes to title transfer arrangements.