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{{2010 GMSLA Section 1 TOC}} | {{2010 GMSLA Section 1 TOC}} | ||
{{Box|{{2010 GMSLA 1.1}} | {{Box|{{2010 GMSLA 1.1}}<br><br> | ||
{{2010 GMSLA 1.2}}}} | |||
===Discussion=== | |||
Note the "theory" of the trade here, notwithstanding the term "loan": | |||
As mentioned, like the [[Repo]] a [[GMSLA]] transaction works as simultaneous agreements: | |||
# by {{gmslaprov|Lender}} to sell securities to {{gmslaprov|Borrower}} against the sale by {{gmslaprov|Borrower}} of {{gmslaprov|Collateral}} (or payment of cash) to {{gmslaprov|Lender}}, and | |||
# by {{gmslaprov|Borrower}} to sell to equivalent securities back to {{gmslaprov|Lender}} against the sale by {{gmslaprov|Lender}} to {{gmslaprov|Borrower}} of {{gmslaprov|Collateral}} (or payment of cash) at a later date. | |||
That is to say that (despite the [[GMSLA]] name) there isn’t a “loan leg” and a “collateral leg” as such: each repo/stock loan is as an outright sale against a future obligation to do the reverse. | |||
Therefore if counterparty goes insolvent during a trade, the first part of the transaction is fully settled and the administrator is left with a single forward settling transaction under which it is entitled to receive, DVP, an asset against payment of cash or delivery of an asset. | |||
The counterparty's exposure/liability is the net MTM of that forward settling trade: where it is a {{gmslaprov|Borrower}} its exposure is the haircut owed by the {{gmslaprov|Lender}} back to it. Where it is a {{gmslaprov|Lender}} the liability is the haircut you owe back the {{gmslaprov|Borrower}}. | |||
This is helpful to the netting analysis, which therefore applies only between one stock loan transaction and another (and not within a single stock loan trade). The absence of a netting flag means you cannot offset positive MTMs where you are a {{gmslaprov|Lender}} versus negative [[MTM]]s where you are a {{gmslaprov|Borrower}}. | |||
Note the effect that intraday margining has on this under Clause {{gmslaprov|5}} of the GMSLA. | |||
===See Also=== | |||
*{{gmslaprov|Collateral}} | |||
*[[GMRA Anatomy]] | |||
{{gmslaanatomy}} | {{gmslaanatomy}} |