Buy-In - GMSLA Provision

From The Jolly Contrarian
Jump to navigation Jump to search

2010 Global Master Securities Lending Agreement
A Jolly Contrarian owner’s manual

Resources and navigation

2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code | GMSLA Netting
Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext |
1995 OSLA: OSLA wikitext | OSLA in a nutshell | GMSLA/PGMSLA/OSLA clause comparison table
From Our Friends On The Internet: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers
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 to expand:
GMSLA

Clause Buy-In in a Nutshell
Use at your own risk, campers!

Buy-In means an agreement where a transferee who buys in equivalent securities to cover a settlement failure can recover its costs of doing so from a failing transferor;
view template

Full text of Clause Buy-In

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;
view template

Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Related agreements: Click here for the same clause in the 1995 OSLA
Comparison: Template:Gmsladiff Buy-In
Comparison: Template:Osladiff Buy-In

Get in touch
Comments? Questions? Suggestions? Requests? Insults? We’d love to hear from you.
Sign up for our newsletter

Content and comparisons

Relevant especially for Clause 9.3Failure by either Party to deliver. Compare also with settlement failures under clause 10(h) of the Global Master Repurchase Agreement.
Template

Summary

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 . All the information is there. But, in a nutshell:

9.3 Failure by either Party to deliver

Where a Party (the Transferor) fails to deliver Equivalent Securities or Collateral when due and the other Party (the Transferee) incurs interest, overdraft expenses or Buy in costs the Transferor must, within one Business Day of a demand, pay the Transferee and hold it harmless against those costs that arise directly from that failure other than (i) costs arising from the Transferee’s negligence or wilful default and (ii) any consequential losses).

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.
Template

See also

Template

References