Loans of Securities - GMSLA Provision

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

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2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code | GMSLA Netting

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1995 OSLA: OSLA wikitext | OSLA in a nutshell | GMSLA/PGMSLA/OSLA clause comparison table
From Our Friends On The Internet: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers
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Stock Loan owner’s manuals: 2010 GMSLA · 2000 GMSLA · Pledge GMSLA · OSLA

Index: Click to expand:

Clause 3 in a Nutshell

Use at your own risk, campers!
3. Loans of Securities
Lender will lend and Borrower will borrow Securities under this Agreement. The parties will agree the terms of Loans in advance and will confirm them afterwards, though the confirmations will not override the originally agreed terms without further agreement.

Full text of Clause 3

3. Loans of Securities

Lender will lend Securities to Borrower, and Borrower will borrow Securities from Lender in accordance with the terms and conditions of this Agreement. The terms of each Loan shall be agreed prior to the commencement of the relevant Loan either orally or in writing (including any agreed form of electronic communication) and confirmed in such form and on such basis as shall be agreed between the Parties. Unless otherwise agreed, any confirmation produced by a Party shall not supersede or prevail over the prior oral, written or electronic communication (as the case may be).

Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Related agreements: Click here for the same clause in the 1995 OSLA
Comparison: Click to compare the 2010 GMSLA and 2018 Pledge GMSLA versions of this clause.

Comparison: Template:Osladiff 3

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Content and comparisons

The 2018 Pledge GMSLA introduces some rather uncontroversial conditions precedent, since there is no a title transfer of collatertal and the Lender really is taking on the Borrower’s credit exposure (albeit secured) on the Collateral that it would be delivered in a 2010 GMSLA).

That the Borrower is not suffering an actual or potential Event of Default, and that it has actually delivered Collateral to the tri-party agent.



On trades and confirmations

If a trader agrees one thing, and the confirmation the parties subsequently sign says another, which gives? A 15 second dealing-floor exchange on a crackly taped line, or the carefully-wrought ten page, counterpart-executed legal epistle that follows it?

TL;DR: The original oral trade prevails.

The confirmation is evidence of the transaction, but it does not override the original transaction terms, if they are different.

That is, the binding trade may be a phone call or a bloomberg chat. (This sits kind of uneasily with that Entire Agreement clause, but still.)

If there is a dispute about the terms of your confirmation, you are going to have to pull the tapes.

There are some very good reasons for this. Firstly, the original trade was done by the trader with the trading mandate. The confirmation will be punted out by some dude in ops who might not be able to read the trader’s handwriting. Ops can and will get things wrong. That is correctable on the record. The trader doesn’t “get things wrong”. If she does, you’re into mistake territory. The law on contractual mistakes is beloved by students of the law and misunderstood by everyone else. But, generally, if the trader erroneously executes a trade, and the trader’s counterparty understands it correctly, the trader, and the firm she works for, will be bound by the error. That’s not a contractual mistake. It’s just a bad trade.

By contrast, a settlements and reconciliations dude who sends out a confirm which carelessly misinterprets the trade log is not making a contractual mistake: he is incorrectly recording the contract. That wasn’t the trade (good or bad) that the trader did.

Similarly, the reconciliations dude who sends out a confirm which corrects an error made by the trader has no mandate to make that change. The error is the trader’s. The trader should live with it, and throw herself at the mercy of the jurisprudence of contractual mistakes if need be: it is not for said reconciliations dude to pull her out of a hole.


See also

Template:M sa GMSLA 3