Buy-In - GMSLA Provision

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

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;
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Clause Buy-In in full

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;
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Related agreements and comparisons

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

Resources and navigation

2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code
Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext |
1995 OSLA: Full wikitext · Nutshell wikitext | GMSLA Netting
Let me Google that for you: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers
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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: GMSLA · Pledge GMSLA · OSLA

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Content and comparisons

Template:M comp disc GMSLA Buy-In
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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.

You really want to go and have a look at clauses 9.3 and 11.4 of the 2010 GMSLA to understand the buy in process. All the information is there.

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.
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See also

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References