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GMSLA Anatomy™
In a Nutshell™ Clause 6.7:
6.7 Corporate actions
Where a holder is entitled to exercise any “corporate rights” under any Loaned Securities or any Collateral (“assets”) before the receiver can return equivalent ones to the provider, then the provider can, within a reasonable time before the relevant deadline, notify the receiver that it wishes to receive the assets as if the corporate rights been exercised.
“Corporate rights” include any:
- conversion, sub-division, consolidation or pre-emption rights;
- rights arising under a takeover offer;
- rights to receive securities now or in the future; or
- other rights, including ones that require the holder to make an election.
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2010 GMSLA full text of Clause 6.7:
6.7 Corporate actions
Where, in respect of any Loaned Securities or any Collateral, any rights relating to conversion, sub division, consolidation, pre emption, rights arising under a takeover offer, rights to receive securities or a certificate which may at a future date be exchanged for securities or other rights, including those requiring election by the holder for the time being of such Securities or Collateral, become exercisable prior to the delivery of Equivalent Securities or Equivalent Collateral, then Lender or Borrower, as the case may be, may, within a reasonable time before the latest time for the exercise of the right or option give written notice to the other Party that on delivery of Equivalent Securities or Equivalent Collateral, as the case may be, it wishes to receive Equivalent Securities or Equivalent Collateral in such form as will arise if the right is exercised or, in the case of a right which may be exercised in more than one manner, is exercised as is specified in such written notice.
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Compare Paragraph 6.4 of the 2000 GMSLA, which (ahem ~spoiler alert~) is materially the same
There is a tension between 6.6 and 6.7: while under 6.6 a Borrower is not obliged to vote in a certain way, if it does so and acquires a certain benefit and the Lender requests, it has to pass over that benefit. Best illustrated by way of example:
- Under Italian Law a shareholder on the Record Date who does not vote in favour of a proposed merger acquires a “withdrawal right” if the merger is approved. The withdrawal right allows a shareholder who abstained or voted against the merger to be cashed out of the equity at a pre-defined price equal to the average closing price published by Borsa Italiana for the six months prior to the notification date for the merger. It is therefore possible that the withdrawal right as a call option over the stock. It is only exercisable if the shareholder does not vote.
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In this case the Lender who has lent out over the record date could not (without prior agreement) oblige the Borrower to vote against the merger, but if the Borrower has done so, the Lender can, by request under 6.7, require the Borrower to deliver the proceeds of the withdrawal in lieu of Equivalent Securities.