28.1 - GMSLA Provision
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2018 Global Master Securities Lending Agreement (Pledge Version)
Clause 28.1 in a Nutshell™ Use at your own risk, campers!
Full text of Clause 28.1
Related agreements and comparisons
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Content and comparisons
Paragraphs 27.1 of the 2010 GMSLA and 28.1 of the 2018 Pledge GMSLA are alike in vacuity, form and substance. They didn’t even correct the “oral communication or prior writing” gaffe.
Summary
As well as the general objections to this feebly drafted provision (as to which, see below) we have another one: if the counterparties to this pledge-style agreement are already counterparties to an existing 2010 GMSLA — the one where collateral flows by title transfer — then glibly asserting that the old agreement has been superseded does not work — the collateral arrangements are utterly different operationally as well as legally — and is not likely to be the parties’ intention.
The Pledge GMSLA exists to cater for the agent lending universe, where are securities lenders are happy for their collateral to be delivered into a tri party system where it is “dead-ended”, and where are collateral lenders are generally represented by an agent who has entered into a master agency lending agreement.
The agent will have a separate mandate with each of its principals, and those who who gave their mandate before the the pledge gmsla play was created will not have contemplated accept and collateral by pledge and not title transfer. Therefore the process of switching clients over from the title transfer version to the pledge version is a careful one which will be accompanied by explicit documentation (such as an updated “Annex A” of covered principals). It is not beyond the realms of possibility (though hard to think of one) that a principle may wish to have some of its loans collateralized by title transfer and others by pledge.
Therefore we think that if if parties wanted to automatically hoover up existing all title transfer arrangements and replace them outright with a new pledge agreement, they would say so quite a bit more clearly than this.
“all oral communication and prior writings”
What of the unfortunate phrase, “all oral communication and prior writings with respect thereto”. Is this meant to nix previous written communications, but not subsequent ones, but all oral communications, past present and future? Who can say? But as we argue in our impassioned essay below, it doesn’t make much difference. This is a silly clause however you look at it.
Entire agreement bunk
An entire agreement clause that illustrates the vacuity of entire agreement clauses. The written form of the executed master agreement contemplates that it is but a framework — the architectural underpinnings that make possible a later, greater agreement that is yet to come — an exoskeleton to be dressed, decorated and adorned later by subsequently, separately recorded agreements that are not even subordinate to it, but supervene it in every respect by which they differ. The 2010 GMSLA is absolutely not an “entire agreement”. Not even retrospectively.
For parties with no prior history of stock loan trading, a freshly executed 2010 GMSLA, with its schedule, may be the “entire agreement” between them for that brief period of gestation between its execution and the first transaction they print under it: then really would be no other agreements between them, but for that exact reason in that window their 2010 GMSLA would be in a kind of locked-in, vegetative state in which none of its carefully-negotiated terms do anything: no deliveries fall to be made, no income is to be manfasctured, no collateral to be given, returned or even marked to market: until animated the 2010 GMSLA is a cadaver, on the slab, awaiting the storm and its first pulse of invigorating lightning.
That spark of life-force can only come from a Loan that, prospectively, fundamentally undermines the entire agreement clause.
Ahh, but it is meant retrospectively, we hear the legal eagle cry. Leaving aside that that’s not quite how ICMA’s crack drafting squad™ rendered it — call that a drafting slip — even that contention fails on close examination: for virgin stock lenders it really ought to go without saying; for those upgrading existing stock lending master agreements — 1995 OSLAs and so forth — then their new 2010 GMSLA inherits and adopts every open Loan between them. What are these legacy Loans if not separate agreements on the same subject matter as the new 2010 GMSLA?
The JC can see a waise legal eagle holding up an index finger and intoning: “Ah, but, you see, the executed 2010 GMSLA contemplates transactions under it, so those Loans, past and future, are deemed part of the entire agreement. Thus, indeed the 2010 GMSLA, in this wider sense, is the entire agreement.”
To you, sir or madam, I say trouble me not with such piffle. What you are thereby contesting is that “this written agreement, as previously or subsequently appended, amended, transacted or redacted, is the entire agreement”. If that’s what you mean, well — thanks for writing in, counsellor.