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| {{gmslaanat|6.7}} | | {{Manual|MSG|2010|6.7|Clause|6.4|medium}} |
| ''Compare Paragraph {{gmsla2000prov|6.4}} of the {{2000gmsla}}, which (ahem ~spoiler alert~) is materially the same''
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| 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.
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| Best illustrated by way of example:
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| :''{{italianwithdrawalright}}''
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| 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}}.
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| ===What is a reasonable time?===
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| 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]], having girded itself with all appropriate [[disclaimer]]s, hazard a guess.
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| 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]].
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| ====The case against====
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| 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:
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| *The {{gmsla}} is a [[title transfer]] document designed for [[short selling]].
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| **The parties’ expectations must be that the {{gmslaprov|Borrower}} will not hold the stock in inventory during the loan.
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| **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
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| *A {{gmsla}} {{gmslaprov|Borrower}} is not meant to be writing a call option.
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| **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.
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| **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.
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| *The {{gmsla}}’s voting rights clause is clear a {{gmslaprov|Lender}} can’t vote on securities.
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| **If it wants to, it must recall the {{gmslaprov|Loan}} in time for the record date.
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| **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).
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| **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.
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| *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.
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| **Why exercise the notice before the exercise time?
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| **It wouldn’t make any difference from the {{gmslaprov|Borrower}}’s perspective.
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| ====The case for====
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| Pal, it’s my stock, ''you'' borrowed it, you take the risk of all economic performance in the mean time. Your safest way of doing that it by holding it. If you can hold it, you can put in your notice and exercise, no problem.
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| What do you mean ''you shorted the security''? Who knew? More to the point, who cares? By doing so you took a view on it: this risk is express something you bet against happening.
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