Events of Default - GMSLA Provision: Difference between revisions
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===The position under the [[GMSLA]] and [[OSLA]] master agreements=== | ===The position under the [[GMSLA]] and [[OSLA]] master agreements=== | ||
A failure to deliver {{gmslaprov|Securities}} in not an {{gmslaprov|Event of Default}}: a failure to deliver securities to initiate}} a loan is no breach of agreement, and a failure to redeliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} at the end of a loan to complete it allows the {{gmslaprov|Lender}} to [[buy in]] {{gmslaprov|Securities}} to cover the fail. | |||
====Failure to deliver {{gmslaprov|Collateral}}==== | |||
By contrast a failure to deliver Collateral or {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}} '''is''' an {{gmslaprov|Event of Default}}. | |||
====Delivery Failures==== | ====Delivery Failures==== | ||
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{{gmslaprov|Events of Default}} are protections for use if a counterparty is in a potentially insolvent position. A non-defaulting party is able to immediately terminate '''all''' outstanding transactions prior to upon an {{gmslaprov|Event of Default}} and so end its exposure. | {{gmslaprov|Events of Default}} are protections for use if a counterparty is in a potentially insolvent position. A non-defaulting party is able to immediately terminate '''all''' outstanding transactions prior to upon an {{gmslaprov|Event of Default}} and so end its exposure. | ||
They are | They are '''not''' intended for breaches where the creditworthiness of a counterparty is not in question. Here, the parties can rely on the normal contractual remedies for breach of contract. | ||
Allowing a party to declare an {{gmslaprov|Event of Default}} allows extraordinary leverage over a minor breach – a failure to comply with a trivial term of the contract would allow a party to threaten to terminate all outstanding transactions. In the context of frequent delivery failures in a stock lending relationship, the moment a party wants to end the relationship it could pick one of the many delivery failures as grounds to terminate all trades and inflict considerable loss on the other party. | Allowing a party to declare an {{gmslaprov|Event of Default}} allows extraordinary leverage over a minor breach – a failure to comply with a trivial term of the contract would allow a party to threaten to terminate all outstanding transactions. In the context of frequent delivery failures in a stock lending relationship, the moment a party wants to end the relationship it could pick one of the many delivery failures as grounds to terminate all trades and inflict considerable loss on the other party. |