Buy-In - GMSLA Provision
2010 Global Master Securities Lending Agreement
Clause Buy-In in full
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A buy in is the self-help process whereby a counterparty can settle a failing delivery itself, and charge it back to the failing counterparty.
Exercising a buy-in
Note that to determine the Default Market Value where a defaulting party is failing on a delivery of securities or collateral under a loan the non-defaulting party must sell (not buy) securities equivalent to those it is expecting back from a Non-Defaulting Party. This, we think, is to ensure that the price is “real”: the temptation otherwise would be for the Non-Defaulting Party to accept any old bid or offer, safe in the knowledge it can pass the cost on to the Defaulting Party.
Tricks to watch out for, especially in illiquid stocks, is that the Non-Defaulting Party is not somehow influencing the price at which that innocent third party might transact (by agreeing to enter an offsetting transaction at the same time). That would be fraudulent, of course.
- 2010 GMSLA Clause 9.3: Failure by either Party to deliver
- 2010 GMSLA Clause 11.4: Determination of Default Market Value