2018 Global Master Securities Lending Agreement (Pledge Version)
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Clause 9 in a Nutshell™
Use at your own risk, campers!
Full text of Clause 9
9. Failure to Deliver
9.1 Borrower’s failure to deliver Equivalent Securities: If Borrower fails to deliver Equivalent Securities in accordance with paragraph 8.1 to 8.3 Lender may:
- (a) elect to continue the Loan (which, for the avoidance of doubt, shall continue to be taken into account for the purposes of paragraph 5.3); or
- (b) at any time while such failure continues, by written notice to Borrower declare that that Loan (but only that Loan) shall be terminated immediately in accordance with paragraph 11.2 as if
- (i) an Event of Default had occurred in relation to Borrower,
- (ii) references to the Termination Date were to the date on which notice was given under this sub-paragraph, and
- (iii) the Loan were the only Loan outstanding.
For the avoidance of doubt, any such failure shall not constitute an Event of Default (including under paragraph 10.1(i)) unless the Parties otherwise agree.
9.2 Failure by either Party to deliver or instruct delivery: Where Borrower fails to deliver Equivalent Securities, or Lender fails to instruct Custodian to deliver Posted Collateral, in either case by the time required under this Agreement or within such other period as may be agreed between such Party (the Transferor) and the other Party (the Transferee), and the Transferee:
- (a) incurs interest, overdraft or similar costs and expenses; or
- (b) incurs costs and expenses as a direct result of a Buy-in exercised against it by a third party,
- then the Transferor agrees to pay within one Business Day of a demand from the Transferee and hold harmless the Transferee with respect to all reasonable costs and expenses listed in sub-paragraphs (a) and (b) above properly incurred which arise directly from such failure other than
- (i) such costs and expenses which arise from the negligence or wilful default of the Transferee and
- (ii) any indirect or consequential losses.
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
Counterintuitively, this mini-close out provision in the 2018 Pledge GMSLA is very similar to the one in the 2010 GMSLA. There is the notable absence of the clause about failure to return Collateral — but you can’t really blame ISLA’s crack drafting squad™ for that, seeing as the Borrower never delivers the Collateral to the Lender in the first place (it’s a pledge — see?). But otherwise it works in the same way.
This is because it only really applies to the Borrower, and — assuming the Borrower has not gone tette in alto, but is merely struggling to source Equivalent Securities to return because the market’s a bit dickey — you would not expect the Lender to enforce on the Collateral.
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