Events of Default - GMSLA Provision: Difference between revisions

Events of Default - GMSLA Provision (view source)

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 ===The position under the [[GMSLA]] and [[OSLA]] master agreements===
-====GMSLA====
+A failure to deliver {{gmslaprov|Securities}} in not an {{gmslaprov|Event of Default}}: a failure to deliver securities to initiate}} a loan is no breach of agreement, and a failure to redeliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} at the end of a loan to complete it allows the {{gmslaprov|Lender}} to [[buy in]] {{gmslaprov|Securities}} to cover the fail.
-The [[Global Master Securities Lending Agreement]] provides that a [[failure to deliver]] securities is an {{gmslaprov|Event of Default}}.  If a delivery failure occurs, the day after the delivery was expected the intended recipient can terminate and cover all open positions, meaning that the party expected to deliver the securities must pay the bid-offer spread on all open positions.
-====OSLA====
-By contrast in the [[Overseas Securities Lenders’ Agreement]],  a failure to deliver in not an {{gmslaprov|Event of Default}}: a failure to deliver securities to {{isdaprov|initiate}} a loan is no breach of agreement, and a failure to redeliver securities at the end of a loan to {{isdaprov|complete}} it allows the lender to [[buy in]] securities to cover the fail.
+====Failure to deliver {{gmslaprov|Collateral}}====
-====Failure to deliver Collatera====
+By contrast a failure to deliver Collateral or {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}} '''is''' an {{gmslaprov|Event of Default}}.
-Under both the {{gmslaprov|GMSLA}} and the {{gmslaprov|OSLA}}, a failure to deliver collateral is an {{gmslaprov|Event of Default}}.
 ====Delivery Failures====
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 {{gmslaprov|Events of Default}} are protections for use if a counterparty is in a potentially insolvent position.  A non-defaulting party is able to immediately terminate '''all''' outstanding transactions prior to upon an {{gmslaprov|Event of Default}} and so end its exposure.
-They are {{isdaprov|not}} intended for breaches where the creditworthiness of a counterparty is not in question. Here, the parties can rely on the normal contractual remedies for breach of contract.
+They are '''not''' intended for breaches where the creditworthiness of a counterparty is not in question. Here, the parties can rely on the normal contractual remedies for breach of contract.
 Allowing a party to declare an {{gmslaprov|Event of Default}} allows extraordinary leverage over a minor breach – a failure to comply with a trivial term of the contract would allow a party to threaten to terminate all outstanding transactions.  In the context of frequent delivery failures in a stock lending relationship, the moment a party wants to end the relationship it could pick one of the many delivery failures as grounds to terminate all trades and inflict considerable loss on the other party.