Market Value - GMSLA Provision: Difference between revisions
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{{gmslaanat|Market Value}} | {{gmslaanat|Market Value}} | ||
The starting point is that the {{gmslaprov|Lender}} determines all market values. This stands to reason: the collateral should be fairly liquid and its value is of no particular moment in the context of the trade — if it drops you just get more of it. Whereas the loaned {{gmslaprov|Securities}} very much are the focus of all the attention. The {{gmslaprov|Borrower}} is incentivised to mark them down in value: it is shorting them, after all. But the Lender must have regard to [[mid-market]] published closing prices which somewhat curtails scope for mendacity, at least while the market is orderly and the stock trading. Of course, where you are shorting, you are kind of hoping the market won’t be orderly, and the stock might corkscrew into the side of a hill. In which case, after a meandering menu of fallbacks, dealer polls and so on, it regresses to what the Lender thinks it is. Ultimately the {{gmslaprov|Borrower}}’s remedy in that case is to find the stock elsewhere and give it back. | |||
Don’t forget that when that {{gmslaprov|Market Value}} is to be applied to {{gmslaprov|Collateral}}, you need to include also the {{gmslaprov|Margin}} — the expression in the {{gmsla}} for the {{tag|haircut}} applied to a given piece of collateral for its inherent illiquidity and the variability of price it might represent. | Don’t forget that when that {{gmslaprov|Market Value}} is to be applied to {{gmslaprov|Collateral}}, you need to include also the {{gmslaprov|Margin}} — the expression in the {{gmsla}} for the {{tag|haircut}} applied to a given piece of collateral for its inherent illiquidity and the variability of price it might represent. | ||
How often to valuation disputes lead to a dealer poll among {{gmraprov|Reference Dealer}}s, you might ask? | How often to valuation disputes lead to a [[dealer poll]] among {{gmraprov|Reference Dealer}}s, you might ask? | ||
Not often. | Not often. | ||
Revision as of 14:22, 6 November 2019
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GMSLA Anatomy™
Where the assets in question are not trading freely the Parties may agree their Market Value. Failing that, they can ask an mutually acceptable dealer to quote. If they can’t agree on one of those, they can seek an average of Reference Dealer quotations (with a laborious mechanism for figuring our what to include and how to average it). If all else fails the Market Value giving up altogether and falling back on the reasonable determination of the Party originally making the determination).[1]
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The starting point is that the Lender determines all market values. This stands to reason: the collateral should be fairly liquid and its value is of no particular moment in the context of the trade — if it drops you just get more of it. Whereas the loaned Securities very much are the focus of all the attention. The Borrower is incentivised to mark them down in value: it is shorting them, after all. But the Lender must have regard to mid-market published closing prices which somewhat curtails scope for mendacity, at least while the market is orderly and the stock trading. Of course, where you are shorting, you are kind of hoping the market won’t be orderly, and the stock might corkscrew into the side of a hill. In which case, after a meandering menu of fallbacks, dealer polls and so on, it regresses to what the Lender thinks it is. Ultimately the Borrower’s remedy in that case is to find the stock elsewhere and give it back.
Don’t forget that when that Market Value is to be applied to Collateral, you need to include also the Margin — the expression in the 2010 GMSLA for the haircut applied to a given piece of collateral for its inherent illiquidity and the variability of price it might represent.
How often to valuation disputes lead to a dealer poll among Reference Dealers, you might ask?
Not often.
See also
References
- ↑ Tiresome, I know.