Failure to pay Collateral - GMSLA Provision: Difference between revisions
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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}}. | 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 | 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 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 | 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). | ||
===GMSLA Equivalence=== | ===GMSLA Equivalence=== | ||
Revision as of 14:31, 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 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).
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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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.