Pledge GMSLA

The pledge GMSLA is a version of the GMSLA developed in late 2017 early 2018 where instead of transferring collateral by title transfer, you pledge it. Unlike the US standard stock lending agreement, the MSLA, you don’t rehypothecate the collateral transferred to you, because that would defeat the purpose of pledging it in the first place

What’s it for?

When you borrow securities under a stock lending agreement, you tend to over-collateralise—perhaps you give 105 in value of collateral for 100 of securities borrowed. This leaves you in the unusual position of being, net, a creditor to your lender: your lender has an obligation to title transfer the collateral back to you. If it is bust it cannot, and even after you apply close out netting, you're in the hole to the tune of 5.

With me?

Now, if your lender is of dubious repute, from a credit perspective, you might have to hold capital against that credit exposure. Okay, it's only 5, but when you're a bank you do this in big size and it can add up. If, somehow, you can isolate the lender's credit exposure it is worth doing.

In most cases, you can't: most lenders will want to use your collateral in their own operations (to defray the lending costs of lending the securities to you, right?). Uf they do this then the collateral is gone, and you have no choice but to be a creditor.

Agent lenders are one class of lender who isn't so bothered about reusing the collateral, because it didn’t lend to you in the first place, but lent its client’s securities to you, and these clients aren't so bothered about reuse.