Corporate actions - GMSLA Provision: Difference between revisions

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 ''Compare Paragraph {{gmsla2000prov|6.4}} of the {{2000gmsla}}, which (ahem ~spoiler alert~) is materially the same''
-There is a  tension between {{gmslaprov|6.6}} and {{gmslaprov|6.7}}: while under {{gmslaprov|6.6}} a {{gmslaprov|Borrower}} is not obliged to ''vote'' in a certain way, if it does so and acquires a certain benefit ''and the {{gmslaprov|Lender}} requests'', it has to pass over that benefit. Best illustrated by way of example:
+There is a  tension between {{gmslaprov|6.6}} and {{gmslaprov|6.7}}: while under {{gmslaprov|6.6}} a {{gmslaprov|Borrower}} is not obliged to ''vote'' in a certain way, for a corporate action — even one involving a lender option — the {{gmslaprov|Lender}} may requests the Equivalent securities be returned with the rights taken up.
+Best illustrated by way of example:
 :''{{italianwithdrawalright}}''
 In this case the {{gmslaprov|Lender}} who has lent out over the [[record date]] could not (without prior agreement) oblige the {{gmslaprov|Borrower}} to vote against the {{tag|merger}}, but if the {{gmslaprov|Borrower}} has done so, the {{gmslaprov|Lender}} can, by request under {{gmslaprov|6.7}}, require the {{gmslaprov|Borrower}} to deliver the proceeds of the withdrawal in lieu of {{gmslaprov|Equivalent}} {{gmslaprov|Securities}}.
+===What is a reasonable time?===
+There’s no amplification on what counts as a “reasonable time”. You will find scant authority in the law reports about it. Even the FT’s ''Mastering Securities Lending Documentation'' is mute on the subject. So let the [[Jolly Contrarian]] hazard a guess.
+The tension here is that the [[exercise date]] – the latest possible time for exercise – will be ''after'' the [[record date]] — the date on which you had to actually own the {{gmslaprov|Securities}}. And your ability to exercise at all is dependent on having held the {{gmslaprov|Securities}} on the [[record date]].
+If the {{gmslaprov|Lender}} gives notice ''after'' the record date but ''before'' the exercise date, is that a reasonable time? I think you could construct a fairly good argument that it is not, at least if the {{gmslaprov|Borrower}} happens to be short the stock:
+*The {{gmsla}} is a [[title transfer]] document designed for [[short selling]].
+**The parties’ expectations must be that the {{gmslaprov|Borrower}} will not hold the stock in inventory during the loan.
+**A “reasonable time” would therefore need to be enough time to get the stock back in to vote it to meet the Lender’s instructions
+*A {{gmsla}} {{gmslaprov|Borrower}} is not meant to be writing a call option.
+**Once the record date has passed the {{gmslaprov|Borrower}} cannot exercise the option itself, so would be making a payment it will not itself receive.
+**The [[manufactured dividend]] process is designed to pass on ''actual'' economics of the security, not the ''best of'' economics. Therefore the {{gmslaprov|Borrower}} must be able to effectively exercise the rights. That includes having time to get the securities in inventory if they’re not already there.
+*The {{gmsla}}’s voting rights clause is clear a {{gmslaprov|Lender}} can’t vote on securities.
+**If it wants to, it must recall the {{gmslaprov|Loan}} in time for the record date.
+**Even if the {{gmslaprov|Borrower}} fails to return, under the {{gmslaprov|Buy In}} terms (Para {{gmslaprov|9.3}}), it wouldn’t be liable for [[consequential loss]] (which we surmise would include the lost opportunity to exercise the option).
+**By extension, if a {{gmslaprov|Lender}} wants (effectively) to exercise a vote, it must signal its intention in enough time for the Lender to recall securities, and that is what the “reasonable time” is designed to capture.
+*If the {{gmslaprov|Borrower}} was obliged manufacture the payment whether or not it held it in long inventory, then there’s no real reason to have a deadline on the underlier at all.
+**Why exercise the notice before the exercise time?
+**It wouldn’t make any difference from the {{gmslaprov|Borrower}}’s perspective.