Template:M gen GMSLA 10: Difference between revisions
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{{gmslaprov|10.1(a)}}: | ==={{gmslaprov|10.1(a)}}: Failure to pay or deliver=== | ||
{{failure to pay under GMSLA}} | |||
[[Events of Default - GMSLA Provision|There]] are great tales of worthy fellows around the market trying to tweak this provision because, by apparent oversight, it doesn't capture a failure to ''return'' {{gmslaprov|Equivalent}} (non cash) {{gmslaprov|Collateral}}. | |||
But this is not an accident, for the same reason a failure to redeliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} isn’t an {{gmslaprov|Event of Default}}. Indeed, it is a plainly deliberate omission. The drafters were careful to capture the payment or repayment of cash, and deliveries and ''further'' deliveries of {{gmslaprov|Collateral}}, but not the return of ''{{gmslaprov|Equivalent}}'' {{gmslaprov|Collateral}}. | But this is not an accident, for the same reason a failure to redeliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} isn’t an {{gmslaprov|Event of Default}}. Indeed, it is a plainly deliberate omission. The drafters were careful to capture the payment or repayment of cash, and deliveries and ''further'' deliveries of {{gmslaprov|Collateral}}, but not the return of ''{{gmslaprov|Equivalent}}'' {{gmslaprov|Collateral}}. | ||
A counterparty may have on-lent, or on-collateralised, with non-cash {{gmslaprov|Collateral}} it has been posted. It may have exactly the same difficulties in getting hold of it to redeliver as a borrower may in getting hold of {{gmslaprov|Equivalent}} {{gmslaprov|Securities}}. So the remedy is to withhold the return of securities, buy in and {{isdaprov|mini close-out}} under {{gmslaprov|9.2}} which gives the aggrieved party equivalent rights, but not the right to close out the whole agreement (until there’s a failure of the mini-close out settlement amount itself). | A counterparty may have on-lent, or on-collateralised, with non-cash {{gmslaprov|Collateral}} it has been posted. It may have exactly the same difficulties in getting hold of it to redeliver as a borrower may in getting hold of {{gmslaprov|Equivalent}} {{gmslaprov|Securities}}. So the remedy is to withhold the return of securities, buy in and {{isdaprov|mini close-out}} under {{gmslaprov|9.2}} which gives the aggrieved party equivalent rights, but not the right to close out the whole agreement (until there’s a failure of the mini-close out settlement amount itself). | ||
{{gmslaprov|10.1(b)}}: | |||
==={{gmslaprov|10.1(b)}}: Unremedied failure to manufacture Income=== | |||
Note the [[tedious]] back and forth of notices here. | |||
*First, the Income has to be due under the {{gmslaprov|Collateral}} or {{gmslaprov|Loaned Securities}}. | *First, the Income has to be due under the {{gmslaprov|Collateral}} or {{gmslaprov|Loaned Securities}}. | ||
*Then the person obliged under Paragraph {{gmslaprov|6}} to [[manufacture]] the {{gmslaprov|Income}} back has to fail to do so, on that due date. | *Then the person obliged under Paragraph {{gmslaprov|6}} to [[manufacture]] the {{gmslaprov|Income}} back has to fail to do so, on that due date. | ||
*Then the aggrieved party has to tell the delinquent one — note: it is not yet technically a “{{gmslaprov|Defaulting Party}}” as there is a [[grace period]] — that it has failed to make that payment, and ask it to make the payment within three {{gmslaprov|Business Day}}s. | *Then the aggrieved party has to tell the delinquent one — note: it is not yet technically a “{{gmslaprov|Defaulting Party}}” as there is a [[grace period]] — that it has failed to make that payment, and ask it to make the payment within three {{gmslaprov|Business Day}}s. | ||
*Then the delinquent party has to fail to remediate the manifactured {{gmslaprov|Income}} payment by close on the third {{gmslaprov|Business Day}} after that notice. Then the aggreived party can notify the delinquent party — whereupon it becomes a “{{gmslaprov|Defaulting Party}}” — that it is, finally, an {{gmslaprov|Event of Default}}.<br> | *Then the delinquent party has to fail to remediate the manifactured {{gmslaprov|Income}} payment by close on the third {{gmslaprov|Business Day}} after that notice. Then the aggreived party can notify the delinquent party — whereupon it becomes a “{{gmslaprov|Defaulting Party}}” — that it is, finally, an {{gmslaprov|Event of Default}}.<br> | ||
{{gmslaprov|10.1(c)}} | ==={{gmslaprov|10.1(c)}} Minicloseout failure=== | ||
{{gmslaprov|10.1(d)}} | See commentary above under {{gmslaprov|10.1(a)}}. | ||
{{gmslaprov|10.1(e)}}: | ==={{gmslaprov|10.1(d)}} {{gmslaprov|Act of Insolvency}}=== | ||
{{gmslaprov|10.1(f)}} | For which you will need the definition of {{gmslaprov|Act of Insolvency}}, which is not quite the same as the definition of {{isdaprov|Bankruptcy}} in the {{isdama}}. I suspect this was just a matter of professional pride for {{islacds}}, and its [[ninja]] forebears when they crafted the [[Act of Insolvency - OSLA Provision|equivalent provision]] in the {{osla}}, on which this provision is based | ||
{{gmslaprov|10.1(g)}} | |||
{{gmslaprov|10.1(h)}} | ==={{gmslaprov|10.1(e)}}: Breach of warranty=== | ||
{{gmslaprov|10.1(i)}} | Why exclude the 14(e) warranty about not having the primary purpose of voting on the Securities? Search me. <br> | ||
==={{gmslaprov|10.1(f)}}=== | |||
==={{gmslaprov|10.1(g)}}=== | |||
==={{gmslaprov|10.1(h)}}=== | |||
==={{gmslaprov|10.1(i)}}=== | |||
Latest revision as of 17:52, 7 January 2022
10.1(a): Failure to pay or deliver
Noting the exception for redelivery of Equivalent Securities or Collateral,[1] the failure to pay or deliver Events of Default under the 2010 GMSLA are:
- Cash Collateral failures: Any failure to pay or repay cash Collateral when required — the theory being that you can’t blame an upstream counterparty for your failure to deliver cash[2];
- Non-cash Collateral delivery failures: Any failure to deliver non-cash Collateral (either at inception of by way of further Collateral). Here the Borrower has discretion[3] on what Collateral it delivers, so again doesn't have the excuse that it has suffered an upstream failure. Where it is a Collateral return, the Lender has less discretion, so is more prone to upstream settlement failures. Note that non-delivery of Securities at the commencement of a Loan is not a failure to pay, also for “potential upstream failure” reasons: it just means the Loan doesn’t happen.
- Mini closeout failures: Any failure to pay following exercise of a mini closeout under Paragraph 9. That is, not a failure to redeliver Equivalent Collateral or Securities themselves, but a failure to settle any mini close-out or buy-in following the mini closeout.
There are great tales of worthy fellows around the market trying to tweak this provision because, by apparent oversight, it doesn't capture a failure to return Equivalent (non cash) Collateral.
But this is not an accident, for the same reason a failure to redeliver Equivalent Securities isn’t an Event of Default. Indeed, it is a plainly deliberate omission. The drafters were careful to capture the payment or repayment of cash, and deliveries and further deliveries of Collateral, but not the return of Equivalent Collateral.
A counterparty may have on-lent, or on-collateralised, with non-cash Collateral it has been posted. It may have exactly the same difficulties in getting hold of it to redeliver as a borrower may in getting hold of Equivalent Securities. So the remedy is to withhold the return of securities, buy in and mini close-out under 9.2 which gives the aggrieved party equivalent rights, but not the right to close out the whole agreement (until there’s a failure of the mini-close out settlement amount itself).
10.1(b): Unremedied failure to manufacture Income
Note the tedious back and forth of notices here.
- First, the Income has to be due under the Collateral or Loaned Securities.
- Then the person obliged under Paragraph 6 to manufacture the Income back has to fail to do so, on that due date.
- Then the aggrieved party has to tell the delinquent one — note: it is not yet technically a “Defaulting Party” as there is a grace period — that it has failed to make that payment, and ask it to make the payment within three Business Days.
- Then the delinquent party has to fail to remediate the manifactured Income payment by close on the third Business Day after that notice. Then the aggreived party can notify the delinquent party — whereupon it becomes a “Defaulting Party” — that it is, finally, an Event of Default.
10.1(c) Minicloseout failure
See commentary above under 10.1(a).
10.1(d) Act of Insolvency
For which you will need the definition of Act of Insolvency, which is not quite the same as the definition of Bankruptcy in the ISDA Master Agreement. I suspect this was just a matter of professional pride for ISLA’s crack drafting squad™, and its ninja forebears when they crafted the equivalent provision in the 1995 OSLA, on which this provision is based
10.1(e): Breach of warranty
Why exclude the 14(e) warranty about not having the primary purpose of voting on the Securities? Search me.
10.1(f)
10.1(g)
10.1(h)
10.1(i)
- ↑ See 9.1(b) and 9.2(b).
- ↑ For a jauntily metaphysical examination of the nature of hard cold folding green stuff — why it is, by nature, profoundly different to any other financial instrument, see our article on cash.
- ↑ From those assets that meet the eligibility criteria in the Schedule; moral of story: don’t allow yourself to be too tightly constrained on eligibility criteria.