Lender’s failure to deliver Equivalent Collateral - GMSLA Provision

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

Clause 9.2 in a Nutshell
Use at your own risk, campers!

9.2 Lender’s failure to deliver Equivalent Collateral: If Lender fails to deliver Equivalent Non Cash Collateral on termination of a Loan (See 8.4), Borrower may:

9.2(a) continue the Loan; or
9.2(b) terminate the Loan under paragraph 11.2 by written notice to Lender, as if:
(i) an Event of Default had occurred to the Lender;
(ii) the Termination Date were the date of such written notice, and
(iii) the Loan were the only Loan outstanding.

However this will not be an Event of Default.
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Clause 9.2 in full

9.2 Lender’s failure to deliver Equivalent Collateral: If Lender fails to deliver Equivalent Collateral comprising Non Cash Collateral in accordance with paragraph 8.4 or 8.5, Borrower may:

(a) elect to continue the Loan (which, for the avoidance of doubt, shall continue to be taken into account for the purposes of paragraph 5.4 or 5.5 as applicable); or
(b) at any time while such failure continues, by written notice to Lender declare that that Loan (but only that Loan) shall be terminated immediately in accordance with paragraph 11.2 as if
(i) an Event of Default had occurred in relation to the Lender,
(ii) references to the Termination Date were to the date on which notice was given under this sub paragraph, and
(iii) the Loan were the only Loan outstanding.

For the avoidance of doubt, any such failure shall not constitute an Event of Default (including under paragraph 10.1(i)) unless the Parties otherwise agree.
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Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Comparison: Template:Gmsladiff 9.2

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

Seeing as the Lender never gets its hands on Collateral in the first place, so is hard pressed to fail to return it — this one doesn’t feature prominently in the 2018 Pledge GMSLA.
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Summary

The GMSLA is deliberately designed so that the return of Equivalent Securities, or the return of Equivalent Collateral, is not an Event of Default.

These failures are designed to be caught by the Mini-Closeout section, which gives the party expecting the redelivery a self-help, pre-default, remedy of buying in, liquidating Securities or Collateral that it holds, valuing the offsetting positions and calling for a cash payment. A failure to make that payment would be an Event of Default (under 10.1(c)).

The deficiency seems to be in not allowing for the 9.2 close out right to attach to failures to return Collateral during the currency of a loan. I am not sure why that is missing, but it seems to me the correct approach should be to amend 9.2 to say:

“If Lender fails to deliver Equivalent Collateral comprising Non Cash Collateral in accordance with paragraph 5.4, 8.4 or 8.5…”
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See also

Template:M sa GMSLA 9.2
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References