Financial weapons of mass destruction
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The JC’s latest game - a Christmas Stocking Filler for sure!
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| Docs | indentures, red herrings, 10b-5s, the works! | 10 |
| Amendability | Zilch. Oh, the trustee might agree amendments for you, you say? HAHAHAHAHA | 10 |
| Collateral | Shonky CDOs the manager couldn’t get out of the warehouse. And you just wrote a put on them. | 8 |
| Transferability | Theoretically high. Practically nil. No-one wants your toxic waste, senator. | 6 |
| Leverage | All the leverage you could want, and more. Especially in the junior tranches. | 8 |
| Fright-o-meter | All-out superpower confrontation. Straight-up toxic waste. | 11 |
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| Docs | Propectus, agreements, supplements, swaps, global notes, side letters galore. Most exciting part: limited recourse. Yes: that exciting. | 2 |
| Amendability | Bugger all, because of the trust structure. What? You think the Trustee’s going to take a view? | 7 |
| Collateral | Fully funded. Note is fully collateralised. | 4 |
| Transferability | In theory unlimited: cleared, dematerialised bearer notes. In practice? Forget about it. No-one wants your home-made espievie notes. | 7 |
| Leverage | Not really. | 3 |
| Fright-o-meter | CAYMAN ISLANDS DUDE! In reality, depends what you put in it, but mostly tame. | 5 |
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| Docs | Vague, arcane, outdated and no netting airbags. | 4 |
| Amendability | Bilateral, so yes, in theory — but more likely to tip out and sign up a fresh GMSLA. | 2 |
| Collateral | Yes. Could be stocks, bonds — anything. | 1 |
| Transferability | bilateral. Homey don’t ride that bus. | 0 |
| Leverage | Fully cash collateralised, but a bonus point for the contra-flow collateral haircut. The lender net borrows from the borrower. Nice. | 1 |
| Fright-o-meter | Generally sleepy “pluming of the financial, system” material, but shortsville, generally anachronistic and no netting, so GameStop freakout territory. | 5 |
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| Docs | ISDA Master Agreement, 2002 ISDA Equity Derivatives Definitions and a master confirmation and, if you are lucky, a 75-page lockup. Call the legal eagles! | 8 |
| Amendability | Bilateral, so doable, but delta-one, so not much to amend. | 3 |
| Collateral | Reg VM and IM margined daily. If you are on dynamic margining and paying attention, not much to see here. If you aren’t, Armageddon. | 7 |
| Transferability | Daily liquidity, so no real need. | 3 |
| Leverage | Synthetic margin lending so yes. But your PB will — should —be all over you, so no. | 5 |
| Fright-o-meter | Until 27 March 2021, about 3. But since then, beset with evil spirits, succubi and incubi, and The Family Office Who Must Not Be Named. | 10 |
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| Docs | Global Master Repurchase Agreement and Master Repurchase Agreement. Vague where it needs to be and not heavily negotiated. | 3 |
| Amendability | Bilateral, so yes, in theory — but would you, unless MiFID changed and you had to? No. | 2 |
| Collateral | Yes. Generally cash. | 0 |
| Transferability | 0 | |
| Leverage | Fully cash collateralised, so nope. | 0 |
| Fright-o-meter | Sorry: not going to get hearts racing. You can’t even short with them. | 1 |