2018 Global Master Securities Lending Agreement (Pledge Version)
A Jolly Contrarian owner’s manual
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Clause 8 in a Nutshell™
Use at your own risk, campers!
Full text of Clause 8
8 Delivery of Equivalent Securities
8.1 Lender’s right to terminate a Loan: :Subject to paragraph 11 and the terms of the relevant Loan, Lender shall be entitled to terminate a Loan and to call for the Delivery of all or any Equivalent Securities at any time by giving notice on any Business Day of not less than the standard settlement time for such Equivalent Securities on the exchange or in the clearing organisation through which the Loaned Securities were originally delivered. Borrower shall deliver such Equivalent Securities not later than the expiry of such notice in accordance with Lender’s instructions.
8.2 Borrower’s right to terminate a Loan: Subject to the terms of the relevant Loan, Borrower shall be entitled at any time to terminate a Loan and to deliver all and any Equivalent Securities due and outstanding to Lender in accordance with Lender’s instructions and Lender shall accept such Delivery.
8.3 Non-Defaulting Party’s right to terminate all Loans: If any of the events specified in sub-paragraphs (a) to (j) inclusive of paragraph 10.1 has occurred and is continuing and provided always that no Event of Default has occurred, and notwithstanding the scheduled termination dates of the relevant Loans, the Non-Defaulting Party shall be entitled on any Business Day to terminate all Loans by giving written notice to Defaulting Party of such election under this paragraph 8.3 and, where the Non-Defaulting Party gives such a notice, (i) each such Loan will terminate on the expiry of the standard settlement time commencing on the date on which the Non-Defaulting Party's notice was given and Borrower will, in respect of each such Loan, not later than such expiration date deliver Equivalent Securities in respect of the relevant Loan to Lender in accordance with Lender's instruction and (ii) any amounts accrued under paragraph 7 shall be accelerated and immediately payable. For the avoidance of doubt, if Borrower fails to deliver Equivalent Securities in accordance with this paragraph, Lender will be entitled to exercise the remedies provided to it in paragraph 9.1.
8.4 Delivery of Equivalent Securities on termination of a Loan: Upon termination of a Loan, whether pursuant to any of paragraph 8.1 to 8.3 or otherwise in accordance with this Agreement and the terms of the relevant Loan, Borrower shall procure the Delivery of Equivalent Securities to Lender or deliver Equivalent Securities, such Delivery to be effected in accordance with this Agreement and the terms of the relevant Loan. For the avoidance of doubt any reference in this Agreement or in any other agreement or communication between the Parties (howsoever expressed) to an obligation to deliver or account for or act in relation to Loaned Securities shall accordingly be construed as a reference to an obligation to deliver or account for or act in relation to Equivalent Securities.
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.
Content and comparisons
8. Delivery of Equivalent Securities
8.1 Lender’s right to terminate a Loan
8.2 Borrower’s right to terminate a Loan
8.3 Delivery of Equivalent Securities on termination of a Loan
8.4 Delivery of Equivalent Collateral on termination of a Loan
Observers will note: in the 2018 Pledge GMSLA there is no equivalent of the 2010 GMSLA’s Paragraph 8.5 dealing with what to do with Letters of Credit, and no equivalent of the 2010 GMSLA’s Paragraph 8.6 requiring the delivery obligations to be reciprocal.
Instead, we assume to bulk out a paragraph which otherwise seems a bit textually anaemic, when drafting paragraph 8 of the 2018 Pledge GMSLA ISLA’s crack drafting squad™ went to town adding a couple of new paragraphs — 8.3 and 8.4 — that boast quite some textual complexity, twice purporting to avoid some doubt which, had these paragraphs not been added, wouldn’t be there — but boast a lot less forensic interest.
Unless you’ve agreed it has some kind of term, Loans are callable at will by either party.
You do see term loans in certain cases: “pre-borrows”, where an aspiring short seller is expecting a stock to go illiquid and wants to have the security ready to sell when everyone is scrabbling around trying to find enough of the stuff to sell short, thereby avoiding buy-ins and so on — and also in agent lending world, where Borrowers will want some medium term commitment (90 days or so) for trades where they upgrade their prime brokerage and margin loan inventory into high-credit quality assets they can give back to their own treasury departments. financial reporting rules may require these trades to have a minimum remaining tenor to get appropriate RWA treatment.
What if the Securities have been cancelled, redeemed, or converted into something else? The elaborately defined adjective Equivalent does a lot of work here.
But what if the issuer has gone bust? Here there may be little or no liquidity in the shares — they may well have been delisted, for example.
Look here to the mini-closeout provisions, which are designed to cope with exactly this kind of settlement failure.