Template:M summ GMSLA 1

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.

• At inception: Title transfer by Lender to Borrower of securities against the title transfer by Borrower to Lender of Collateral;
• At termination: Title transfer by Borrower to Lender of “Equivalent” against the title transfer by Lender to Borrower of “Equivalent” 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 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 .

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.