Applicability - GMSLA Provision: Difference between revisions

From The Jolly Contrarian
Jump to navigation Jump to search
← Older editNewer edit →
VisualWikitext
No edit summary
Replaced content with "{{gmslaanat|1}} {{gmsla applicability|gmsla}} {{gmsla designated office|gmsla}} {{sa}} *GMSLA netting *Pledge GMSLA {{ref}}"
Tag: Replaced
Line 1: Line 1:
{{gmslaanat|1}}{{gmsla designated office}}  
{{gmslaanat|1}}
Note the “theory” of the trade here, notwithstanding the term “{{gmslaprov|Loan}}”: Like a [[Repo]] a [[GMSLA]] {{gmslaprov|Loan}} works as simultaneous agreements to exchange {{gmslaprov|Securities}} and {{gmslaprov|Collateral}} by '''outright [[title transfer]]'''.
{{gmsla applicability|gmsla}}
{{gmsla designated office|gmsla}}  


*'''At inception''': [[Title transfer]] by {{gmslaprov|Lender}} to {{gmslaprov|Borrower}} of securities against the [[title transfer]] by {{gmslaprov|Borrower}} to {{gmslaprov|Lender}} of {{gmslaprov|Collateral}};
*'''At termination''': [[Title transfer]] by {{gmslaprov|Borrower}} to {{gmslaprov|Lender}} of “{{gmslaprov|Equivalent}}” against the [[title transfer]] by {{gmslaprov|Lender}} to {{gmslaprov|Borrower}} of “{{gmslaprov|Equivalent}}” {{gmslaprov|Collateral}} at a later date.
That is to say that (despite the [[GMSLA]] name) there isn’t a “loan leg” and a “collateral leg” as such: each repo/stock loan is as an outright sale against a future obligation to do the reverse. This is not how the market practitioners generally see it and [[Mediocre lawyer|lawyers of a more officious disposition]] — yes, such creatures do exist —will have to forcibly restrain themselves from correcting their clients at the end of every sentence <ref>And where they cannot, their clients will have to forcibly restrain themselves from lamping their lawyers.</ref>.
                                                                                                                   
Nonetheless, if a counterparty goes insolvent during a trade, the first part of the transaction is fully settled and the administrator is left with a single forward settling transaction under which it is entitled to receive, DVP, an asset against payment of cash or delivery of an asset.
The counterparty’s exposure is the net [[mark-to-market]] of that forward settling trade: where it is a {{gmslaprov|Borrower}} its exposure is the [[haircut]] owed by the {{gmslaprov|Lender}} back to it. Where it is a {{gmslaprov|Lender}} the liability is the [[haircut]] you owe back the {{gmslaprov|Borrower}}. More — much, much more on this topic where [[Pledge GMSLA]] is concerned.
This is helpful to the [[netting]] analysis, which therefore applies only between one stock loan transaction and another (and not within a single stock loan trade). The absence of a netting flag means you cannot offset positive MTMs where you are a {{gmslaprov|Lender}} versus negative [[MTM]]s where you are a {{gmslaprov|Borrower}}.
Note the effect that intraday margining has on this under Clause {{gmslaprov|5}} of the {{gmsla}}.


{{sa}}
{{sa}}

Revision as of 19:14, 22 January 2020

GMSLA Anatomy™


In a Nutshell™ Clause 1:

1. Applicability
1.1 The Parties may enter into Loans through their Designated Offices where one (Lender) transfers securities and financial instruments (Securities) to the other (Borrower) against the transfer by the other of Collateral, with a simultaneous agreement by the Borrower to transfer Equivalent Securities back to Lender at a future date against the return of Equivalent Collateral.
1.2 Each Loan will be governed by this Agreement (and the Schedule, Addenda and Annexes). If there is any inconsistency between an Addendum or Annex and this Agreement, the former will prevail unless otherwise agreed.
view template

2010 GMSLA full text of Clause 1:


1. Applicability
1.1 From time to time the Parties acting through one or more Designated Offices may enter into transactions in which one party (Lender) will transfer to the other (Borrower) securities and financial instruments (Securities) against the transfer of Collateral (as defined in paragraph 2) with a simultaneous agreement by Borrower to transfer to Lender Securities equivalent to such Securities on a fixed date or on demand against the transfer to Borrower by Lender of assets equivalent to such Collateral.
1.2 Each such transaction shall be referred to in this Agreement as a Loan and shall be governed by the terms of this Agreement, including the supplemental terms and conditions contained in the Schedule and any Addenda or Annexes attached hereto, unless otherwise agreed in writing. In the event of any inconsistency between the provisions of an Addendum or Annex and this Agreement, the provisions of such Addendum or Annex shall prevail unless the Parties otherwise agree.
view template

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

Navigation
2010 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 · Schedule · Agency Annex · Addendum for Pooled Principal Agency Loans

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

Index: Click ᐅ to expand:
GMSLA
Pledge GMSLA
OSLA
Tell me more
Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.


Applicability

Note the “theory” of the stock loan transaction here, notwithstanding the term “Loan”: Like a Repo a GMSLA Loan works as simultaneous agreements to exchange Securities and Collateral by outright title transfer.

That is to say that (despite the GMSLA name) there isn’t a “loan leg” and a “collateral leg” as such: each repo/stock loan is as an outright sale against a future obligation to do the reverse. This is not how the market practitioners generally see it and lawyers of a more officious disposition — yes, such creatures do exist —will have to forcibly restrain themselves from correcting their clients at the end of every sentence [1].

Nonetheless, if a counterparty goes insolvent during a trade, the first part of the transaction is fully settled and the administrator is left with a single forward settling transaction under which it is entitled to receive, DVP, an asset against payment of cash or delivery of an asset.

The counterparty’s exposure is the net mark-to-market of that forward settling trade: where it is a Borrower its exposure is the haircut owed by the Lender back to it. Where it is a Lender the liability is the haircut you owe back the Borrower. More — much, much more on this topic where Pledge GMSLA is concerned.

This is helpful to the netting analysis, which therefore applies only between one stock loan transaction and another (and not within a single stock loan trade). The absence of a netting flag means you cannot offset positive MTMs where you are a Lender versus negative MTMs where you are a Borrower.

Note the effect that intraday margining has on this under Clause 5 of the 2010 GMSLA.

Designated Office

Just what significance a Designated Office has to a stock borrower or lender is never made clear in the 2010 GMSLA. It gets a mention in the first line of Clause 1.1 — encouraging, you would think — but then gets no further mention until it is defined, unenlighteningly, as you can see in the panel.

What are we to make of this? “The parties, acting through their Designated Offices, may enter into transactions ...” — that is a common or garden agreement to agree, folks — so is this meant to restrict the parties’ ability to act out of other offices?

Note in the more fulsomely-articulated[2] ISDA Master Agreement the “Multibranch Parties” concept involves the party giving representations as to recourse, and expressly prohibits parties changing their specified Offices during the life of a transaction without the other’s prior written consent.

Details fans will immediately note that, from the point of view of legal and corporate philosophy — a subject dear to every attorney’s heart — the differing offices or branches of a legal entity have no distinct legal personality, any more than does a one’s arm have different personality one’s her leg. So, being a “multibranch” party, or acting out of a designated office, makes no legal difference. If you’re bound, you’re bound.

the main risk of booking out of the wrong entity is a taxation risk.


See also

References

  1. ↑ And where they cannot, their clients will have to forcibly restrain themselves from lamping their lawyers.
  2. ↑ Some would say, “tiresomely”-articulated.
Retrieved from "https://jollycontrarian.com/index.php?title=Applicability_-_GMSLA_Provision&oldid=38820"