Equivalent - GMSLA Provision

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

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

Equivalent: securities that are fungible with the securities in question, as long as:

(a) Where the securities are partly paid or have been converted, subdivided, consolidated, made the subject of a takeover, rights of pre-emption, or include rights to receive securities, it includes securities a holder would be entitled after that event (having complied with all formalities) and provided that the party being paid the equivalent amount has given notice and paid the all sums required in time for the holder to exercise its rights.
(b) Where the securities:
(i) have been redeemed, it means the redemption proceeds;
(ii) are subject to a call, it means fungible securities, provided that receiving party thas paid the holder the amounts due in respect of the call;
(iii) are subject to a capitalisation issue, it includes securities allotted by way of bonus on the securities in question;
(iv) are subject to any similar event, it means those securities with (or replaced by) the cash and securities received by the holder in connection with the event.

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Clause Equivalent in full

Equivalent or equivalent to in relation to any Loaned Securities or Collateral (whether Cash Collateral or Non Cash Collateral) provided under this Agreement means Securities or other property, of an identical type, nominal value, description and amount to particular Loaned Securities or Collateral (as the case may be) so provided. If and to the extent that such Loaned Securities or Collateral (as the case may be) consists of Securities that are partly paid or have been converted, subdivided, consolidated, made the subject of a takeover, rights of pre emption, rights to receive securities or a certificate which may at a future date be exchanged for Securities, the expression shall include such Securities or other assets to which Lender or Borrower (as the case may be) is entitled following the occurrence of the relevant event, and, if appropriate, the giving of the relevant notice in accordance with paragraph 6.7 and provided that Lender or Borrower (as the case may be) has paid to the other Party all and any sums due in respect thereof. In the event that such Loaned Securities or Collateral (as the case may be) have been redeemed, are partly paid, are the subject of a capitalisation issue or are subject to an event similar to any of the foregoing events described in this paragraph, the expression shall have the following meanings:

(a) in the case of redemption, a sum of money equivalent to the proceeds of the redemption;
(b) in the case of a call on partly paid Securities, Securities equivalent to the relevant Loaned Securities or Collateral, as the case may be, provided that Lender shall have paid Borrower, in respect of Loaned Securities, and Borrower shall have paid to Lender, in respect of Collateral, an amount of money equal to the sum due in respect of the call;
(c) in the case of a capitalisation issue, Securities equivalent to the relevant Loaned Securities or Collateral, as the case may be, together with the securities allotted by way of bonus thereon;
(d) in the case of any event similar to any of the foregoing events described in this paragraph, Securities equivalent to the Loaned Securities or the relevant Collateral, as the case may be, together with or replaced by a sum of money or Securities or other property equivalent to that received in respect of such Loaned Securities or Collateral, as the case may be, resulting from such event;

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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.

Resources and navigation

2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code
Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext |
1995 OSLA: Full wikitext · Nutshell wikitext | GMSLA Netting
Let me Google that for you: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers
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2018 Pledge GMSLA 1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · Schedule · Agency Annex

Stock Loan owner’s manuals: GMSLA · Pledge GMSLA · OSLA

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Content and comparisons

The difference between these provisions in the 2010 GMSLA and 2018 Pledge GMSLA is the omission “of Collateral” wherever it appeared, and the scratching out of all nine examples of that splended legal redundancy “as the case may be”. Somewhere, a tiny part of the fastidious soul of each member of ISLA’s crack drafting squad™ must have died a little death.

Of course, Collateral is not delivered by title transfer under the 2018 Pledge GMSLA — it’s pledged — so there’s no sense in talking about the return of its “equivalent”. Unless you’re talking about Borrower-initiated substitutions, the Posted Collateral remains ontologically inviolate: the same stuff throughout — absent some kind of security enforcement, it never gets bodily delivered to the Lender at all.
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Summary

Notice” under 6.7 is the notice required to participate in a corporate action.

This is a beast of a provision to parse. What I think it means in summary is set out in the panel to the right.

The key thing is that “equivalent” doesn't mean “similar” or “somewhat like the thing I gave you”. It means EXACTLY THE SAME THING. Same CUSIP; same ISIN. Fully fungible. Nothing else will do. Accept no substitute. The only distinction that “equivalent” permits is that the security does not have to be the precise security, down to the individual certificate number[1], that I gave you, as long as it is identical to and fungible with it.

The reason for that is that a stock loan is a title transfer arrangement: since you are free to do with the stock I gave you as you please, you can (and probably will) sell it to someone else. So I can't very well expect you to give exactly the same item back to me. It’s not a loan, after all. And actually if I were able to ask for the same item back, it would interfere with the legal characterisation of our stock loan as a title transfer arrangement. If you’re the sort of person that likes a true sale opinion.

GMSLA Equivalence

Techy linguistic aside: Now here’s a funny thing. In the 2000 GMSLA, there were four defined terms relating to the Securities and Collateral that pass between the parties to a stock loan, all of them nouns:

But under the 2010 GMSLA, there are just three; two shorter nouns and an adjective:

This means you can move from the utterly tiring “Securities, Collateral, Equivalent Securities or Equivalent Collateral” which is fire-hosed throughout the 2000 GMSLA to the less offensive “Securities, Collateral or their Equivalents” in the 2010 GMSLA.[2]
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General discussion

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See also

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References

  1. i.e., if it where a security-printed physical certificate form which, in these enlightened, electronic, dematerialised times, it simply won’t be.
  2. Well,you could have, but the drafters didn’t.