Borrower’s Warranties - GMSLA Provision

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2010 Global Master Securities Lending Agreement
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Clause 14 in a Nutshell

Use at your own risk, campers!
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.

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.

Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Related agreements: Click here for the same clause in the 1995 OSLA
Comparison: Click to compare the 2010 GMSLA and 2018 Pledge GMSLA versions of this clause.

Comparison: Template:Osladiff 14

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Content and comparisons

The Borrower’s warranties are a little more effusive under the 2018 Pledge GMSLA, as befits the more complex arrangement where a Borrower grants security over its Collateral to the Lender, but does not hand its Collateral over outright.



No Representations in the 2010 GMSLA

Enthusiastic minds might have noticed that, unlike the Global Master Repurchase Agreement and the ISDA Master Agreement, there are no “Representations” as such in the 2010 GMSLA.

But there are Warranties, and these — except in one arcane and theoretically[1] important way — amount to the same thing.

Precis: A representation is a pre-contractual statement which induces your entry into a contract but is not part of the contract. One’s remedy for misrepresentation is thus not damages, but the avoidance of the contract altogether. You are put in the place you would have been in had you never entered the contract at all.

A warranty is a contractual term, the remedy for breach of which is damages under the contract.

The potential value of these two remedies may be different, which is why one sees “representations and warranties”: this gives an innocent party maximum optionality to stick the naughty party with whatever is the worse measure of loss. As to why the 2010 GMSLA did away with this option — who can say? Perhaps the nature of stock lending contracts are such that there is no real difference in remedy.

Remedies for breach of Borrower’s Warranties

An interesting fact — “interesting” being a relative concept, and in this case we are comparing interest levels with the fact that “and, as the case may be, or” appears 33 times in 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. A representation or warranty as to what one intends to do — what possible use is that?


See also



  1. But not practically, unless you are some kind of super spod. See ouur disquisition on the differences in the representations and warranties section.