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GMSLA Anatomy™
In a Nutshell™ Clause 14:
14. Borrower’s Warranties
Each Borrower hereby warrants and undertakes on a continuing basis for time immemorial, that:
- 14(a) it licenced, approved and authorised to perform its obligations under this Agreement;
- 14(b) it is not otherwise restricted from borrowing Securities and performing its obligations under this Agreement;
- 14(c) it is can give full unencumbered legal and beneficial ownership of Collateral to Lender;
- 14(d) it is acting as principal; and
- 14(e) it is not borrowing for the primary purpose of voting on Loaned Securities.
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2010 GMSLA full text of Clause 14:
14. Borrower’s Warranties
Each Party hereby warrants and undertakes to the other on a continuing basis to the intent that such warranties shall survive the completion of any transaction contemplated herein that, where acting as a Borrower:
- 14(a) it has all necessary licences and approvals, and is duly authorised and empowered, to perform its duties and obligations under this Agreement and will do nothing prejudicial to the continuation of such authorisation, licences or approvals;
- 14(b) it is not restricted under the terms of its constitution or in any other manner from borrowing Securities in accordance with this Agreement or from otherwise performing its obligations hereunder;
- 14(c) it is absolutely entitled to pass full legal and beneficial ownership of all Collateral provided by it hereunder to Lender free from all liens, charges and encumbrances;
- 14(d) it is acting as principal in respect of this Agreement; and
- 14(e) it is not entering into a Loan for the primary purpose of obtaining or exercising voting rights in respect of the Loaned Securities.
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An interesting fact — “interesting” being a relative concept, in this case we are comparing with the fact that “and, as the case may be, or” appears 33 times in the text of the Alternative Investment Fund Management Directive — is that a breach of the last of these Borrower’s Warranties, 14(e), namely that the Borrower’s primary purpose is not to exercise voting rights under Loaned Securities, is not an Event of Default, whereas the breach of the other Borrower’s Warranties will be.
Our best guess is that because this is a silly warranty in the first place, and it is nigh-on impossible to prove that it was false, unless the Borrower is stupid enough to admit it.