2018 Global Master Securities Lending Agreement (Pledge Version)
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Clause 1 in a Nutshell™
Use at your own risk, campers!
Full text of Clause 1
1.1 From time to time Lender, acting through one or more Designated Offices, will enter into transactions in which it will transfer to Borrower, acting through one or more Designated Offices, Securities and financial instruments (Securities) with a simultaneous agreement by Borrower to transfer to Lender Securities Equivalent to such Securities on a fixed date or on demand and on the basis that the obligations of Borrower will be secured pursuant to the Security Agreement and the Control Agreement (each as herein defined).
1.2 Each such transaction shall be referred to in this Agreement as a Loan and shall be governed by the terms of this Agreement, including the supplemental terms and conditions contained in the Schedule and any Addenda or Annexes attached hereto which are applicable as provided for herein. In the event of any inconsistency between the provisions of an Addendum or Annex and this Agreement, the provisions of such Addendum or Annex shall prevail unless the Parties otherwise agree. In the event of any inconsistency between the provisions of the Security Agreement and this Agreement, the provisions of the Security Agreement shall prevail unless the Parties otherwise agree.
1.3 Either Party may perform its obligations under this Agreement either directly or through a Nominee.
1.4 If the Schedule specifies that Lender will act as agent of one or more persons identified therein as Principals, the supplemental terms and conditions contained in the annex attached hereto designated “Agency Annex” (Agency Annex) shall be included in, and apply to, this Agreement.
Related agreements and comparisons
Related agreements: Click here for the same clause in the 2010 GMSLA
Comparison: Click to compare the 2010 GMSLA and 2018 Pledge GMSLA versions of this clause.
Content and comparisons
Sure, it is preliminary, preamble stuff, but this goes to the core of what is so structurally different — economically, they’re meant to be as near as dammit the same — about the 2018 Pledge GMSLA when compared with the 2010 GMSLA. The 2010 GMSLA is a two-way title transfer agreement, where credit risk mitigation functions by offset, leaving the person who has transferred the greater value of assets (usually, ironically, the Borrower) with residual credit exposure, for the difference, to the one who has transferred the lesser value — usually the Lender, as it will insist on being over-collateralised by way of initial margin.
The 2018 Pledge GMSLA, by contrast, is a conventional secured “Loan” where the Lender has credit exposure to the Borrower for the total value of the Loaned Securities, but this is collateralised by a pledge over Collateral to which the Borrower retains legal title.
The reference (in the pledge version only) to a Nominee, may be to recognise that the 2018 Pledge GMSLA is typically suitable only for agency lending arrangements, in which the principal Lenders to the Loans will be wealth-management clients and funds whose assets are managed by an agent lender, who in turn has put the whole business in the hands of a triparty agent, who will manage the collateral flows, pledges and all that good oil.
Though why they didn’t say “tri-party agent”, it is hard to say, since “nominee” has, in other custody contexts, a rather different meaning. And there is nothing to stop folks using a tri-party arrangement with a normal 2010 GMSLA either, for that matter, and it has routinely been done for as long as anyone can remember.
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