Borrower’s failure to deliver Equivalent Securities - GMSLA Provision: Difference between revisions
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If the {{gmslaprov|Lender}} decides to terminate, you are into the realm of the fabled and famous {{gmslaprov|mini close-out}}, wherein the {{gmslaprov|Lender}} exercises rights to terminate and value the {{gmslaprov|Loan}} by itself ''as if it were'' an {{gmslaprov|Event of Default}}, whilst not ''actually'' being an {{gmslaprov|Event of Default}}. | If the {{gmslaprov|Lender}} decides to terminate, you are into the realm of the fabled and famous {{gmslaprov|mini close-out}}, wherein the {{gmslaprov|Lender}} exercises rights to terminate and value the {{gmslaprov|Loan}} by itself ''as if it were'' an {{gmslaprov|Event of Default}}, whilst not ''actually'' being an {{gmslaprov|Event of Default}}. | ||
This reflects the reality that settlement failures in the equities markets are common and, seeing as the whole point of a [[stock loan]] is to provide the {{Gmslaprov|borrower}} with a security it can [[sell short]], the {{gmslaprov|Borrower}} is likely to be relying on someone else settling the security into it before it can return the security to the {{gmslaprov|Lender}} — as such the borrower’s failure is not necessarily evidence that your {{gmslaprov|Borrower}} is about to auger into the side of a hill. | |||
The {{gmslaprov|Lender}} has a self-help mechanism it can use to close out its market risk: a {{gmslaprov|buy-in}}. |
Revision as of 15:11, 17 July 2018
GMSLA Anatomy™
Notwithstanding the above, such a failure will not be an Event of Default.
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If the Lender decides to terminate, you are into the realm of the fabled and famous mini close-out, wherein the Lender exercises rights to terminate and value the Loan by itself as if it were an Event of Default, whilst not actually being an Event of Default.
This reflects the reality that settlement failures in the equities markets are common and, seeing as the whole point of a stock loan is to provide the borrower with a security it can sell short, the Borrower is likely to be relying on someone else settling the security into it before it can return the security to the Lender — as such the borrower’s failure is not necessarily evidence that your Borrower is about to auger into the side of a hill.
The Lender has a self-help mechanism it can use to close out its market risk: a buy-in.