In a Nutshell™ Clause 4.4:
4.4 Deliveries of Income
Where a party receives Income on any Loaned Securities or Collateral, it must provide to the other Party any customary endorsements or assignments needed to effect payment or delivery of Equivalent Income in accordance with paragraph 6, whether or not it received such endorsements or assignments under the Loaned Securities or Collateral.
2010 GMSLA full text of Clause 4.4:
4.4 Deliveries of Income
In respect of Income being paid in relation to any Loaned Securities or Collateral, Borrower (in the case of Income being paid in respect of Loaned Securities) and Lender (in the case of Income being paid in respect of Collateral) shall provide to the other Party, as the case may be, any endorsements or assignments as shall be customary and appropriate to effect, in accordance with paragraph 6, the payment or delivery of money or property in respect of such Income to Lender, irrespective of whether Borrower received such endorsements or assignments in respect of any Loaned Securities, or to Borrower, irrespective of whether Lender received such endorsements or assignments in respect of any Collateral.
Freshfields’ guidance notes to the 2010 2010 GMSLA helpfully provide that “Paragraph 4.4 provides for the mechanism for the delivery of income payments.” Well, gee, fellas — thanks for writing in.
Just what these customary and appropriate endorsements or assignments might be, and why the manufacturer has to grant them, even where the actual securities issuer didn’t, we can only speculate. Perhaps — speculation here — it is because the Borrower is most likely to have immediately sold the Loaned Securities into the market — the major purpose of a 2010 GMSLA being short selling, after all — and so won’t get any Income under the shares, much less any “customary endorsements” relating to it, whatever in this day and age that might mean.
The same goes — with less certainty, perhaps — for the Lender of Collateral that is has received by title transfer. So it would be interesting to contrast this with the equivalent provision in the 2018 Pledge GMSLA, wouldn’t it.
Let’s therefore go and do that. Back in a minute.
Back! Sure enough, paragraph 4.3 of the 2018 Pledge GMSLA doesn’t mention Collateral, since it is never title transferred to the Lender in the first place.
- ↑ The Lender isn’t acquiring the Collateral with the express purpose of selling it, although it does acquire it by title transfer and absolutely is entitled to sell it.