Rates Applicable to Loaned Securities - Pledge GMSLA Provision

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2018 Global Master Securities Lending Agreement (Pledge Version)
A Jolly Contrarian owner’s manual™

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Clause 7 in a Nutshell
Use at your own risk, campers!

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Full text of Clause 7

7 Rates Applicable to Loaned Securities
In respect of each Loan, Borrower shall pay to Lender sums calculated by applying such rate as shall be agreed between the Parties from time to time to the daily Market Value of the Loaned Securities. In respect of each Loan, such payments shall accrue daily in respect of the period commencing on and inclusive of the Settlement Date and terminating on and exclusive of the Business Day upon which Equivalent Securities are delivered. Unless otherwise agreed, the sums so accruing in respect of each calendar month shall be paid in arrears by Borrower not later than the Business Day which is the tenth Business Day after the last Business Day of the calendar month to which such payments relate or such other date as the Parties shall from time to time agree.
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Related agreements and comparisons

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

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Content and comparisons

The rate payable on Loaned Securities and, for the 2010 GMSLA only, provision for interest on Cash Collateral. You wouldn’t have cash collateral in a 2018 Pledge GMSLA, the very point of the transaction being to upgrade all those crappy equity securities sitting on your balancesheet that you rehypothecated as collateral for your margin loans and bought as Hedge Positions for your delta-one synthetic equity swaps.

Aside from chopping out that middle paragraph 7.2 relating to Cash Collateral, and some conforming amendments, the 2018 Pledge GMSLA has much the same vibe as the 2010 GMSLA.


So what’s going on here? Not a lot, though it is fair to say it is fairly fundamental to the economics. You have to pay a rate on the market value of the Loaned Securities on top of any manufactured income (as to that see para 6.2), which is the Lender’s price for getting out of bed, and where you have collateralised with cash, the Lender pays you interest. (Where you have posted non-cash Collateral the Lender manufactures income back to you).

Flannel cracker

There is a sublime drafting gem thrown in, almost as an afterthought, in the run-off grooves of paragraph 7. It runs, after a fashion, like so:

Unless otherwise agreed, ... such amounts will be paid on a specified date ... or such other dates as the parties from time to time agree

This is one of my favourite flannelesque bookends. It has an arabesque, Möbius, twisting circularity to it that you just can’t teach. No ordinary dullard could do this: this is the master craftspersonship of a true ninja. For we connoisseurs of chocolate-coated celery, this is a Easter egg — a Fabergé egg — for purists.

General discussion

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See also

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