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 executing to close risk and have a 5 day window in which to trade and set pricing to allow for liquidity
|Upon notice of default {{pgmslaprov|Non-Defaulting Party}} can start executing immediately but have to provide a value for transfer of the pledged {{gmslaprov|Collateral}}. In most cases  {{pgmslaprov|Non-Defaulting Party}} should be able to complete execution and valuation of the {{pgmslaprov|Collateral}} to be released on day 1, but for less [[liquid]] positions it may take longer — potentially up to the permitted 5 days. Once you have valued you are locked in to that number, so if you achieve a lower price than your valuation you cannot come back on the valuation and hence would be your loss.
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|You then net all cashflows including fees and pay any residual or become a debtor for any shortfall
|Cash flows don’t net and hence fees are not covered under the valuation. This does not sound correct, can fees not be incorporated in the SI, as this is potentially large and could put lenders off?
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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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