Determination of Default Market Value - GMSLA Provision: Difference between revisions
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{{nuts|gmsla|11.4}} | {{nuts|gmsla|11.4}} | ||
Note that to determine a {{ | Note that to determine a {{gmslaprov|Default Market Value}} the counterparty must '''sell''' (''not'' buy) securities equivalent to those it is expecting back from a {{gmslaprov|Non-Defaulting Party}}. This, we think, is to ensure that the price is "real": the temptation otherwise would be for the {{gmslaprov|Non-Defaulting Party}} to accept any old bid or offer, safe in the knowledge it can pass the cost on to the {{gmslaprov|Defaulting Party}}. | ||
Tricks to watch out for, especially in illiquid stocks, is that the | Tricks to watch out for, especially in illiquid stocks, is that the {{gmslaprov|Non-Defaulting Party}} is not somehow influencing the price at which that innocent third party might transact (by agreeing to enter an offsetting transaction at the same time). That would be fraudulent, of course. | ||
Revision as of 15:57, 11 June 2015
Commentary
11.4 in a Nutshell™ (gmsla edition)
11.4 Transactions and quotes: If, between the Termination Date and the Default Valuation Time:
- (a) Actual sale or purchase: the Non-Defaulting Party has sold securities equivalent to those it owes the Defaulting Party or bought in securities equivalent to those the Defaulting Party owes it, the Non-Defaulting Party may treat the Default Market Value as the net proceeds that sale or purchase. Where it sells or Buys In a different amount of Equivalent Securities, Non-Defaulting Party may in good faith pro rate those values to determine the Default Market Value.
- (b) Market quotes: the Non-Defaulting Party has received offer quotations for securities it is owed by the Defaulting Party; or bid quotations for securities it owes the Defaulting Party from at least two regular participants in the Appropriate Market in what it determines to be a commercially reasonable size, it may treat as the Default Market Value the arithmetic mean of the quoted prices as reasonably adjusted to account for for accrued but unpaid interest and Transaction Costs.
Note that to determine a Default Market Value the counterparty must sell (not buy) securities equivalent to those it is expecting back from a Non-Defaulting Party. This, we think, is to ensure that the price is "real": the temptation otherwise would be for the Non-Defaulting Party to accept any old bid or offer, safe in the knowledge it can pass the cost on to the Defaulting Party.
Tricks to watch out for, especially in illiquid stocks, is that the Non-Defaulting Party is not somehow influencing the price at which that innocent third party might transact (by agreeing to enter an offsetting transaction at the same time). That would be fraudulent, of course.
See Also
update to anat|gmsla
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