Act of Insolvency - Pledge GMSLA Provision

2018 Global Master Securities Lending Agreement (Pledge version) A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →2010 GMSLA equivalent →Pledge GMSLA equivalent Act of Insolvency in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. Original text Act of Insolvency means in relation to either Party: (a) its making a general assignment for the benefit of, or entering into a reorganisation, arrangement, or composition with creditors; or (b) its stating in writing that it is unable to pay its debts as they become due; or (c) its seeking, consenting to or acquiescing in the appointment of any trustee, administrator, receiver or liquidator or analogous officer of it or any material part of its property; or (d) the presentation or filing of a petition in respect of it (other than by the other Party to this Agreement in respect of any obligation under this Agreement) in any court or before any agency alleging or for the bankruptcy, winding up or insolvency of such Party (or any analogous proceeding) or seeking any reorganisation, arrangement, composition, re adjustment, administration, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such petition not having been stayed or dismissed within 30 days of its filing (except in the case of a petition for winding-up or any analogous proceeding in respect of which no such 30 day period shall apply); or (e) the appointment of a receiver, administrator, liquidator or trustee or analogous officer of such Party over all or any material part of such Party’s property; or (f) the convening of any meeting of its creditors for the purpose of considering a voluntary arrangement as referred to in Section 3 of the Insolvency Act 1986 (or any analogous proceeding); The Varieties of Stock Lending Experience Subject 2010 GMSLA 2018 Pledge GMSLA 1995 OSLA Applicability/Preamble 1 1 Preamble Interpretation 2 2 1 Definitions 2.1 2.1 1 Loans of Securities 3 3 2 Delivery 4 4 3 Collateral 5 5 6 Distributions and Corporate Actions 6 6 4 (“Rights and Title”) Rates for Loans and Collateral 7 7 4 Delivery of Equivalent Securities 8 8 7 Failure to Deliver 9 9 N/A Events of Default 10 10 12 Consequences of Events of Default 11 11 8 (“Set-off”) Taxation 12 12 9 Lender's Warranties 13 13 10 Borrower's Warranties 14 14 11 Interest on Outstanding Payments 15 15 13 Termination of Agreement 16 16 15 Single Agreement 17 17 N/A Severance 18 18 18 Specific Performance 19 19 19 Notices 20 20 20 Assignment 21 21 21 Non-Waiver 22 21 22 Governing Law and Jurisdiction 23 23 26 Time 24 24 24 Recording 25 25 25 Waiver of Immunity 26 26 N/A Expenses N/A 27 N/A Miscellaneous 27 28 N/A Resources and Navigation 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 Loan owner’s manuals: 2010 GMSLA · 2000 GMSLA · Pledge GMSLA · OSLA Index: Click ᐅ to expand: GMSLA Pledge GMSLA

Comparisons

The Act of Insolvency provisions are identical in the 2018 Pledge GMSLA and the 2010 GMSLA.

Also, compare them to the leave-nothing-to-the-imagination “Bankruptcy” definition in the ISDA Master Agreement.

The 2010 GMSLA’s grace period is a languid 30 days, like the one in the 1992 ISDA, rather than the more stringent 15 introduced in the 2002 ISDA.

Basics

Termination upon insolvency

Credit officers will hotly deny this, but when it comes to closing out a master trading agreement there are two main triggers: failure to pay and bankruptcy/insolvency. They also tend to be the most lightly negotiated — it’s hard to argue that your counterparty shouldn’t be allowed to pull its trigger if you are insolvent.

Still, there are some nuances to what counts as insolvency. It may differ for different entity types: banks and insurers, in particular, having special local administrative regimes or recovery and resolution frameworks which ameliorate the hard lines between solvency and oblivion. So expect a little jiggery-pokery around the edges in defining what counts as an “insolvency event”. But it is not contentious stuff; just detail.

Where these suspension rights stop you quickly closing out and netting your exposures they might mean your netting analysis fails altogether. This gives you real-world, present time problems, since you must hold capital against the gross exposure under the contract.

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See also

• Clause 10.1(d) - The Act of Insolvency Event of Default with its equivocation about Automatic Early Termination
• Bankruptcy under the ISDA Master Agreement — the king of the jungle when it comes to insolvency definitions.