Loans of Securities - Pledge GMSLA Provision
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2018 Global Master Securities Lending Agreement (Pledge version)
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Crosscheck: 3 in a Nutshell™
Original text
Resources and Navigation
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Comparisons
Redlines
2010 ⇒ 2018: Redline of the 2010 GMSLA vs. the 2018 Pledge GMSLA: comparison (and in reverse)
Discussion
The 2018 Pledge GMSLA introduces some rather uncontroversial conditions precedent, since there is no a title transfer of collateral and the Lender really is taking on the Borrower’s credit exposure (albeit secured) on the Collateral whereas it would be outright delivered under a normal 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.
Basics
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.
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