Template:M summ GMSLA 11: Difference between revisions

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[[11 - Pledge GMSLA Provision|ISLA]] published a curious piece of thought leadership in September 2018 which painted a worst-case scenario timeline for closing out a {{pgmsla}} which made it look quite a bit worse than the corresponding critical path under a normal  — hardly calculated to set at ease the jittery nerves of a very modern [[agent lender]]er. The perceived difference was this:
{{gmsla deliverable and receivable securities capsule|gmslaprov}}
 
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!style="width: 50%"|{{gmsla}}
!style="width: 50%"|{{pgmsla}}
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|Upon notice of default, {{gmslaprov|Non-Defaulting Party}} can start immediately liquidate and has 5 days to trade and set pricing to allow for liquidity. You have to return any excess.
|Upon notice of default {{pgmslaprov|Non-Defaulting Party}} can theoretically start liquidating but has value the pledged {{gmslaprov|Collateral}} to be transferred. This may take a bit longer in an illiquid market. But seems to the[[JC]] there’s no reason you can’t execute trades in the collateral without physically holding it, seeing as it settles later. Any excess goes back to the pledgor
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Latest revision as of 10:44, 31 March 2022

Note that “Deliverable Securities” and “Receivable Securities” are judged from the perspective of the Defaulting Party being the one having to deliver or receive. This is quite confusing, especially when it comes to the whole question of determining a Default Market Value, which naturally is expressed from the perspective of the non-Defaulting Party, and indeed completely bamboozled the JC for a number of years. In any case, if — as you would expect — the Defaulting Party is failing to deliver Securities or Collateral, the Non-Defaulting Party has to go and get some securities and exercises a buy-in.

Tricks to watch out for, especially in illiquid stocks, is that the Non-Defaulting Party is not somehow influencing the price at which that innocent third party might transact (by agreeing to enter an offsetting transaction at the same time). That would be fraudulent, of course.

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