Failure to pay Collateral - GMSLA Provision: Difference between revisions
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{{nuts|GMSLA|10.1(a)}} | {{nuts|GMSLA|10.1(a)}} | ||
===Commentary=== | ===Commentary=== | ||
There are great tales of worthy fellows around the market trying to tweak this 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 may not be an accident, for the same reason a failure to redeliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} isn't an {{gmslaprov|Event of Default}}. Indeed, it looks like 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 {{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 rememedy 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). | |||
===GMSLA Equivalence=== | ===GMSLA Equivalence=== | ||
Revision as of 14:30, 18 April 2016
Commentary
10.1(a) in a Nutshell™ (GMSLA edition)
- 10.1(a) Failure to Deliver: The failure, when required under Paragraph 5, of:
- (i) either party to pay or repay Cash Collateral; or
- (ii) the Borrower to deliver any other Collateral to the Lender;
Commentary
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 may not be an accident, for the same reason a failure to redeliver Equivalent Securities isn't an Event of Default. Indeed, it looks like 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 rememedy 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).
GMSLA Equivalence
Techy linguistic aside: Now here’s a funny thing. In the 2000 GMSLA, there were four defined terms relating to the Securities and Collateral that pass between the parties to a stock loan, all of them nouns:
But under the 2010 GMSLA, there are just three; two shorter nouns and an adjective:
This means you can move from the utterly tiring “Securities, Collateral, Equivalent Securities or Equivalent Collateral” which is fire-hosed throughout the 2000 GMSLA to the less offensive “Securities, Collateral or their Equivalents” in the 2010 GMSLA.[1]
See Also
update to anat|gmsla
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Navigation 2018 Pledge GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · Schedule · Agency Annex Stock lending agreement comparison: Includes navigation for the 2000 GMSLA and the 1995 OSLA |
2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code | GMSLA Netting
Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext |
1995 OSLA: OSLA wikitext | OSLA in a nutshell | GMSLA/PGMSLA/OSLA clause comparison table
From Our Friends On The Internet: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers
- ↑ Well,you could have, but the drafters didn’t.