Buy-In - GMSLA Provision

GMSLA Anatomy™

A Jolly Contrarian owner’s manual™

Overview — Summary — Premium — See also — Wikitext

Crosscheck:
→2010 GMSLA equivalent
→Pledge GMSLA equivalent

Buy-In in a Nutshell™

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Original text

Buy-In means any arrangement under which, in the event of a seller or transferor failing to deliver securities to the buyer or transferee, the buyer or transferee of such securities is entitled under the terms of such arrangement to buy or otherwise acquire securities equivalent to such securities and to recover the cost of so doing from the seller or transferor;

The Varieties of Stock Lending Experience
Subject	2010 GMSLA	2018 Pledge GMSLA	1995 OSLA
Applicability/Preamble	1	1	Preamble
Interpretation	2	2	1
Definitions	2.1	2.1	1
Loans of Securities	3	3	2
Delivery	4	4	3
Collateral	5	5	6
Distributions and Corporate Actions	6	6	4 (“Rights and Title”)
Rates for Loans and Collateral	7	7	4
Delivery of Equivalent Securities	8	8	7
Failure to Deliver	9	9	N/A
Events of Default	10	10	12
Consequences of Events of Default	11	11	8 (“Set-off”)
Taxation	12	12	9
Lender's Warranties	13	13	10
Borrower's Warranties	14	14	11
Interest on Outstanding Payments	15	15	13
Termination of Agreement	16	16	15
Single Agreement	17	17	N/A
Severance	18	18	18
Specific Performance	19	19	19
Notices	20	20	20
Assignment	21	21	21
Non-Waiver	22	21	22
Governing Law and Jurisdiction	23	23	26
Time	24	24	24
Recording	25	25	25
Waiver of Immunity	26	26	N/A
Expenses	N/A	27	N/A
Miscellaneous	27	28	N/A

Resources and Navigation

Navigation 2010 GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · Schedule · Agency Annex · Addendum for Pooled Principal Agency Loans 2018 Pledge GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · Schedule · Agency Annex Stock Loan owner’s manuals: 2010 GMSLA · 2000 GMSLA · Pledge GMSLA · OSLA Index: Click ᐅ to expand: GMSLA Pledge GMSLA

Comparisons

Redlines

2010 ⇒ 2018: Redline of the 2010 GMSLA vs. the 2018 Pledge GMSLA: comparison (and in reverse)

Discussion

But for some capitalisation, the pledge version is identical to the title-transfer version. Relevant especially for Clause 9.3 — Failure by either Party to deliver. Compare also with settlement failures under clause 10(h) of the 2010 GMRA.

Basics

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.

To understand the buy in process you really want to go and have a look at clauses 9.3 and — to work out what this means when calculating your mini close-out, 11.4 of the 2010 GMSLA.

Note that “Deliverable Securities” and “Receivable Securities” are judged from the perspective of the Defaulting Party being the one having to deliver or receive. This is quite confusing, especially when it comes to the whole question of determining a Default Market Value, which naturally is expressed from the perspective of the non-Defaulting Party, and indeed completely bamboozled the JC for a number of years. In any case, if — as you would expect — the Defaulting Party is failing to deliver Securities or Collateral, the Non-Defaulting Party has to go and get some securities and exercises a buy-in.

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.

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JC’s “nutshell” summary of the clause
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References