Deliveries through securities settlement systems generating automatic payments - GMSLA Provision

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2010 Global Master Securities Lending Agreement
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GMSLA

Clause 5.2 in a Nutshell
Use at your own risk, campers!

5.2 Deliveries through securities settlement systems generating automatic payments
Where any Securities or Collateral securities are transferred through a settlement system that automatically generates return payments and deliveries against transfer any such automatically generated payment will satisfy the transferee’s corresponding obligation under this Agreement. [NB there are a lot of words we have just ignored here: treat with caution].
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Full text of Clause 5.2

5.2 Deliveries through securities settlement systems generating automatic payments
Unless otherwise agreed between the Parties, where any Securities, Equivalent Securities, Collateral or Equivalent Collateral (in the form of securities) are transferred through a book entry transfer or settlement system which automatically generates a payment or delivery, or obligation to pay or deliver, against the transfer of such securities, then:

(a) such automatically generated payment, delivery or obligation shall be treated as a payment or delivery by the transferee to the transferor, and except to the extent that it is applied to discharge an obligation of the transferee to effect payment or delivery, such payment or delivery, or obligation to pay or deliver, shall be deemed to be a transfer of Collateral or delivery of Equivalent Collateral, as the case may be, made by the transferee until such time as the Collateral or Equivalent Collateral is substituted with other Collateral or Equivalent Collateral if an obligation to deliver other Collateral or deliver Equivalent Collateral existed immediately prior to the transfer of Securities, Equivalent Securities, Collateral or Equivalent Collateral; and
(b) the Party receiving such substituted Collateral or Equivalent Collateral, or if no obligation to deliver other Collateral or redeliver Equivalent Collateral existed immediately prior to the transfer of Securities, Equivalent Securities, Collateral or Equivalent Collateral, the Party receiving the deemed transfer of Collateral or Delivery of Equivalent Collateral, as the case may be, shall cause to be made to the other Party for value the same day either, where such transfer is a payment, an irrevocable payment in the amount of such transfer or, where such transfer is a Delivery, an irrevocable Delivery of securities (or other property, as the case may be) equivalent to such property.

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Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Related agreements: Click here for the same clause in the 1995 OSLA
Comparison: Click to compare the 2010 GMSLA and 2018 Pledge GMSLA versions of this clause.

Comparison: Template:Osladiff 5.2

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Content and comparisons

The 2018 Pledge GMSLA equivalent excises pretty much exactly the portion of this language that makes the least sense in the 2010 GMSLA version. Now this might be because the pledge structure means there is less call for substitutions of Equivalent Collateral — seeing as how the Borrower doesn’t give up title to the Collateral it provides in the first place — so these are details one does not need to get into, but we like to think it is because the original drafting is so dire no-one could understand it and in its wisdom the 2018 class of ISLA’s crack drafting squad™ decided to terminate the language with extreme prejudice instead.
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Summary

If you have the first clue what this outrageous drafting is trying to achieve, then you deserve some kind of higher degree in syntactical parsing and we rather think you are a liar.

We have done our best to interpret in the nutshell clause. Our best guess is this didn’t really need to be said at all; this is some kind of mangled summation of the bleeding obvious; a tortured “goes without saying” clause that some poor sod in ISLA’s crack drafting squad™ talked herself, against the stout objections of her brothers and sisters in arms, into trying to articulate, and by the time she realised her quest was futile it was too late and she was committed. Sunk cost fallacy.

So: there are some securities lending settlement systems like Equilend, Pirum, Clearstream and Triana, which handle the busy job of matching and settling the tens of thousands of stock loan transactions that take place every day, saving the poor beleaguered operations staff on each side[1] having to match and post collateral back and forth for new and outstanding loans.

Each party will set itself up with an account and a “long box” containing collateral it makes available to collateralise its loans, and the settlement system effects all the movements using the ineffable algorithmic magic of AI.

This wording really reflects that transfers made by these systems on the parties’ behalf count as discharging their obligations under the Loans — like, why wouldn’t they? — and that is about it.

But boy, did the ’squad get itself in a tangle trying to say this.
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See also

Template:M sa GMSLA 5.2
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References

  1. Who are we kidding? long since made redundant operations staff, more like.