Distributions and Corporate Actions - GMSLA Provision

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2010 Global Master Securities Lending Agreement
A Jolly Contrarian owner’s manual

Clause 6 in a Nutshell
Use at your own risk, campers!

6. Distributions and Corporate Actions
6.1 In this paragraph, Income recevied on any Loaned Securities or Non Cash Collateral means the amount received after any withholdings or deductions of Tax.
6.2 Where a Loan extends over an Income Record Date, on the distribution date the Borrower must manufacture the Income the Lender would have received had it held the Loaned Securities on the Income Record Date.
6.3 Manufactured payments in respect of Non-Cash Collateral
Where Borrower provides the Lender with Non Cash Collateral over an Income Record Date Lender must, on the date the Income is paid, manufacture an equivalent amount of Income to Borrower that Lender would have received on that Non Cash Collateral had it held it on the Income Record Date and not been entitled to any Tax relief on that payment under Applicable Law.
Template:Nutshell GMSLA 6.4 Template:Nutshell GMSLA 6.5 6.6 Exercise of voting rights
If any voting rights arise under any Loaned Securities or Collateral, the party holding the asset in question is not required to vote it at the direction of the party that originally delivered it.
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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Clause 6 in full


6. Distributions and Corporate Actions
6.1 In this paragraph 6, references to an amount of Income received by any Party in respect of any Loaned Securities or Non Cash Collateral shall be to an amount received from the issuer after any applicable withholding or deduction for or on account of Tax.
6.2 Manufactured payments in respect of Loaned Securities
Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer, or on such other date as the Parties may from time to time agree, pay or deliver to Lender such sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Loaned Securities assuming such Securities were not loaned to Borrower and were retained by Lender on the Income Record Date.
6.3 Manufactured payments in respect of Non-Cash Collateral
Where Non Cash Collateral is delivered by Borrower to Lender and an Income Record Date in respect of such Non Cash Collateral occurs before Equivalent Collateral is delivered by Lender to Borrower, Lender shall on the date such Income is paid, or on such other date as the Parties may from time to time agree, pay or deliver to Borrower a sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Non Cash Collateral assuming Lender:

(a) retained the Non Cash Collateral on the Income Record Date; and
(b) is not entitled to any credit, benefit or other relief in respect of Tax under any Applicable Law.

6.4 Indemnity for failure to redeliver Equivalent Non-Cash Collateral
Unless paragraph 1.6 of the Schedule indicates that this paragraph does not apply, where:

(a) prior to any Income Record Date in relation to Non Cash Collateral, Borrower has in accordance with paragraph 5.3 called for the Delivery of Equivalent Non Cash Collateral;
(b) Borrower has given notice of such call to Lender so as to be effective, at the latest, five hours before the Close of Business on the last Business Day on which Lender would customarily be required to initiate settlement of the Non Cash Collateral to enable settlement to take place on the Business Day immediately preceding the relevant Income Record Date;
(c) Borrower has provided reasonable details to Lender of the Non Cash Collateral, the relevant Income Record Date and the proposed Alternative Collateral;
(d) Lender, acting reasonably, has determined that such Alternative Collateral is acceptable to it and Borrower shall have delivered or delivers such Alternative Collateral to Lender; and
(e) Lender has failed to make reasonable efforts to transfer Equivalent Non Cash Collateral to Borrower prior to such Income Record Date,

Lender shall indemnify Borrower in respect of any cost, loss or damage (excluding any indirect or consequential loss or damage or any amount otherwise compensated by Lender, including pursuant to paragraphs 6.3 and/or 9.3) suffered by Borrower that it would not have suffered had the relevant Equivalent Non Cash Collateral been transferred to Borrower prior to such Income Record Date.
6.5 Income in the form of Securities
Where Income, in the form of securities, is paid in relation to any Loaned Securities or Collateral, such securities shall be added to such Loaned Securities or Collateral (and shall constitute Loaned Securities or Collateral, as the case may be, and be part of the relevant Loan) and will not be delivered to Lender, in the case of Loaned Securities, or to Borrower, in the case of Collateral, until the end of the relevant Loan, provided that the Lender or Borrower (as the case may be) fulfils its obligations under paragraph 5.4 or 5.5 (as applicable) with respect to the additional Loaned Securities or Collateral, as the case may be.
6.6 Exercise of voting rights
Where any voting rights fall to be exercised in relation to any Loaned Securities or Collateral, neither Borrower, in the case of Equivalent Securities, nor Lender, in the case of Equivalent Collateral, shall have any obligation to arrange for voting rights of that kind to be exercised in accordance with the instructions of the other Party in relation to the Securities borrowed by it or transferred to it by way of Collateral, as the case may be, unless otherwise agreed between the Parties.
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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Related agreements and comparisons

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

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6. Distributions and Corporate Actions

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Summary

This section deals with the rights of parties with regard to "their” Securities and Collateral while it is "out on loan". In a Nutshell:

There is a slight tension between 6.5 and 6.6: while 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.
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General discussion

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See also

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References