Loaned Securities - 2000 GMSLA Provision: Difference between revisions
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Also, this is an easy end-run for a nefarious Borrower: once an Income record date passes, as long as it can deliver the shares back to the Lender before the actual payment date, on a literal reading of this clause it can avoid ever having to manufacture a dividend. | Also, this is an easy end-run for a nefarious Borrower: once an Income record date passes, as long as it can deliver the shares back to the Lender before the actual payment date, on a literal reading of this clause it can avoid ever having to manufacture a dividend. | ||
The 2010 {{gmsla}} deals with this by using the same expression, {{gmslaprov|Loaned Securities}}<ref>Defined exactly the same way as Loaned Securities in the {{2000gmsla}}</ | The 2010 {{gmsla}} deals with this by using the same expression, {{gmslaprov|Loaned Securities}}<ref>Defined exactly the same way as Loaned Securities in the {{2000gmsla}}</ref> in a subtly different way in Paragraph {{gmslaprov|6.1}}: | ||
:''Where the term of a {{gmslaprov|Loan}} extends over an {{gmslaprov|Income Record Date}} in respect of any {{gmslaprov|Loaned Securities}}, {{gmslaprov|Borrower}} shall, on the date such {{gmslaprov|Income}} is paid by the [[issuer]] [...] pay or deliver to {{gmslaprov|Lender}}...'' | :''Where the term of a {{gmslaprov|Loan}} extends over an {{gmslaprov|Income Record Date}} in respect of any {{gmslaprov|Loaned Securities}}, {{gmslaprov|Borrower}} shall, on the date such {{gmslaprov|Income}} is paid by the [[issuer]] [...] pay or deliver to {{gmslaprov|Lender}}...'' | ||
{{ref}} | {{ref}} | ||
Revision as of 11:27, 21 June 2019
Does the adjective “outstanding” mean anything? It is true, I suppose, that once the Loan has terminated, the Securities aren’t Loaned Securities any more, but there are some oddities here.
For example: Paragraph 6.1 says, of manufactured income:
- Where Income is paid in relation to any Loaned Securities [...] on or by reference to an Income Payment Date ...
Say I hold Securities on their Income Payment Date (NB: this is 2000 GMSLA speak for the Income Record Date[1]), being the date by reference to which the Income was payable, but I redeliver them before the date on which relevant Income is actually paid, then must I manufacture the dividend?
A common sense economic analysis would say yes: the Lender was not the holder of record on the record date, by reason of the Borrower having borrowed the shares. So the Borrower should manufacture the payment. But when the Income is paid, the Securities are not “Securities which are” — present tense — “the subject of an outstanding Loan.”
Also, this is an easy end-run for a nefarious Borrower: once an Income record date passes, as long as it can deliver the shares back to the Lender before the actual payment date, on a literal reading of this clause it can avoid ever having to manufacture a dividend.
The 2010 2010 GMSLA deals with this by using the same expression, Loaned Securities[2] in a subtly different way in Paragraph 6.1:
- Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer [...] pay or deliver to Lender...
References
- ↑ That this is sloppily expressed is another whole conversation — in any case it was (partially) fixed in the 2010 2010 GMSLA.
- ↑ Defined exactly the same way as Loaned Securities in the 2000 GMSLA