Manufactured payments in respect of Loaned Securities - GMSLA Provision

GMSLA Anatomy™ Go Premium In a Nutshell™ Clause 6.2: 6.2 Where a Loan extends over an Income Record Date, on the distribution date the Borrower must manufacture the Income the Lender would have received had it held the Loaned Securities on the Income Record Date. view template 2010 GMSLA full text of Clause 6.2: 6.2 Manufactured payments in respect of Loaned Securities Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer, or on such other date as the Parties may from time to time agree, pay or deliver to Lender such sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Loaned Securities assuming such Securities were not loaned to Borrower and were retained by Lender on the Income Record Date. view template 2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code | GMSLA Netting Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext | 1995 OSLA: OSLA wikitext | OSLA in a nutshell | GMSLA/PGMSLA/OSLA clause comparison table From Our Friends On The Internet: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers Navigation 2010 GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · Schedule · Agency Annex · Addendum for Pooled Principal Agency Loans 2018 Pledge GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · Schedule · Agency Annex Stock lending agreement comparison: Includes navigation for the 2000 GMSLA and the 1995 OSLA Index: Click ᐅ to expand: GMSLA Pledge GMSLA OSLA Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

In other words the Borrower pays what the Lender would have received net, by reference to the Lender's own situation. This means that the Lender doesn't need to worry about different rates of tax or withholding applying to the Borrower. The Borrower, being the person who wanted to borrow the securities, takes the risk of untoward taxes related to its own position (as opposed to the Lender’s position) — if the tax is one the Lender would have suffered anyway, the Borrower doesn't have to account for this.

Makes sense, really.

Court-ordered compensation

Easy enough for standard dividends, where this is all run-of-the-mill stuff and the Income Record Date is within a month or so of the Income payment date. But what about extraordinary distributions of the kind ordered by courts to compensate minority shareholders after years of litigation over some kind of botched merger or acquisition? This can and does happen.

Is court ordered compensation “income” in the sense meant by the 2010 GMSLA? Based on the definition of Income, yes:

Income means any interest, dividends or other distributions of any kind whatsoever with respect to any Securities or Collateral;

Furthermore, clause 6.2 (Manufactured payments in respect of Loaned Securities) puts you right in the zone here. What about limitation periods? Unlikely to help: if the amount only becomes due ten years after the original incident that gave rise to it — modern commercial litigation does tend to rumble on a bit — but, in the elegant words of the Limitation Act 1980, “an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued”. No cause of action existed until the court award was made, so the clock only just started running.