Template:Nutshell GMSLA 5

5. Collateral
5.1 Delivery of Collateral on commencement of Loan
Borrower must deliver Collateral to Lender simultaneously with Delivery of the Securities to which the Loan relates, by Close of Business on the Settlement Date.
5.2 Deliveries through securities settlement systems generating automatic payments
Where any Securities or Collateral securities are transferred through a settlement system that automatically generates return payments and deliveries against transfer any such automatically generated payment will satisfy the transferee’s corresponding obligation under this Agreement. [NB there are a lot of words we have just ignored here: treat with caution].
5.3 Substitutions of Collateral
Borrower may substitute any Collateral it has posted with Alternative Collateral that is acceptable to Lender long as it delivers the Alternative Collateral first, and otherwise meets the Required Collateral Value requirement at all times.
5.4 Required Collateral Value (aggregated Loans): Unless Single Loan margining under 5.5 applies:

(a) Required Collateral Value: The aggregate Market Value of Collateral delivered to Lender (Posted Collateral) for all outstanding Loans must equal the aggregate Market Value of the Loaned Securities plus the Margin (Required Collateral Value).

(b) Excess Collateral: if the aggregate Market Value of the Posted Collateral (plus unpaid income etc) exceeds the aggregate of the Required Collateral Value the Lender must deliver to Borrower enough Equivalent Collateral to eliminate the excess;

(c) Collateral Deficiency: if the aggregate Market Value of the Posted Collateral (plus unpaid income etc) falls below the aggregate Required Collateral Value the Borrower must provide further Collateral to Lender to eliminate the deficiency.

(d) Shorts and Longs: where a Party acts as both Lender and Borrower, paragraphs 5.4(b) and 5.4(c) apply separately to Loans where it is a Lender and Loans where it is a Borrower.

5.5 Required Collateral Value (Single Loans): Where 5.5 applies, the Posted Collateral on any Loan must bear the same proportion to the Market Value of the Loaned Securities as it bore at the beginning of the Loan. Therefore:

(a) Required Collateral Value: the Market Value of the Posted Collateral (including income etc.) must always equal the Required Collateral Value;

(b) Returns: whenever the Market Value of the Posted Collateral for any Loan exceeds the Required Collateral Value Lender must return enough Equivalent Collateral to Borrower to eliminate the excess; and

(c) Further deliveries: whenever the Market Value of the Posted Collateral falls below the Required Collateral Value Borrower must provide further Collateral to Lender on demand to eliminate the deficiency.

5.6: Where Collateral values are aggregated under paragraph 5.4 and, on any day, both Parties would otherwise have to deliver Collateral to each other, the respective Market Values will be set-off and, in full settlement of both parties’ obligations, the Party having the larger delivery obligation must deliver Collateral having a Market Value equal to the difference. 5.7 Where Equivalent Collateral is delivered and the Parties have not agreed otherwise it will be attributed to the earliest outstanding Loan up to the point at which the Market Value of Collateral for that Loan equals its Required Collateral Value, and then to the next earliest outstanding Loan and so on.
5.8. Timing of returns and further deliveries of Collateral: Where any Equivalent Collateral must be returned or further Collateral provided and demand is received by the Notification Time specified in paragraph Schedule 1.5 then it must be made by Close of Business on the Business Day of the demand. If received after the Notification Time, it must be made by Close of Business on the following Business Day.
5.9 Substitutions and extensions of Letters of Credit

(a) Substitution right: Lender may by notice to Borrower require Borrower to substitute other eligible Collateral for any Letter of Credit it has provided by way of Collateral on the third Business Day after that notice.

(b) Extension/replacement: Borrower must extend or replace any Letter of Credit it has provided by way of Collateral by 10.30 a.m. UK time on the second Business Day before such Letter of Credit expires.