Applicability - GMSLA Provision
1.1 From time to time the Parties acting through one or more Designated Offices may enter into transactions in which one party (Lender) will transfer to the other (Borrower) securities and financial instruments (Securities) against the transfer of Collateral (as defined in paragraph 2) with a simultaneous agreement by Borrower to transfer to Lender Securities equivalent to such Securities on a fixed date or on demand against the transfer to Borrower by Lender of assets equivalent to such Collateral.
1.2 Each such transaction shall be referred to in this Agreement as a Loan and shall be governed by the terms of this Agreement, including the supplemental terms and conditions contained in the Schedule and any Addenda or Annexes attached hereto, unless otherwise agreed in writing. In the event of any inconsistency between the provisions of an Addendum or Annex and this Agreement, the provisions of such Addendum or Annex shall prevail unless the Parties otherwise agree.
Discussion
Note the "theory" of the trade here, notwithstanding the term "loan":
As mentioned, like the Repo a GMSLA transaction works as simultaneous agreements:
- by Lender to sell securities to Borrower against the sale by Borrower of Collateral (or payment of cash) to Lender, and
- by Borrower to sell to equivalent securities back to Lender against the sale by Lender to Borrower of Collateral (or payment of cash) 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.
Therefore if 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/liability is the net MTM 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.
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 GMSLA.
See Also
update to anat|gmsla
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