Marking to Market of Collateral during the currency of a Loan on a Loan by Loan basis - GMSLA Provision

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

Section 5.5 in a Nutshell
Use at your own risk, campers!

5.5 Where 5.5 applies, the Posted Collateral on any Loan must bear the same proportion to the Market Value of the Loaned Securities as it bore at the beginning of the Loan. Therefore:
(a) the Market Value of the Posted Collateral (including income etc.) must always equal the Required Collateral Value;
(b) whenever the Market Value of the Posted Collateral for any Loan exceeds the Required Collateral Value under the Loan Lender must repay to Borrower enough Equivalent Collateral to eliminate the excess; and
(c) whenever the Market Value of the Posted Collateral falls below the Required Collateral Value Borrower shall (on demand) provide further Collateral to Lender to eliminate the deficiency.

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Section 5.5 in full

5.5 Marking to Market of Collateral during the currency of a Loan on a Loan by Loan basis
If paragraph Schedule 1.3 of the Schedule indicates this paragraph 5.5 shall apply in lieu of paragraph 5.4, the Posted Collateral in respect of any Loan shall bear from day to day and at any time the same proportion to the Market Value of Securities equivalent to the Loaned Securities as the Posted Collateral bore at the commencement of such Loan. Accordingly:

(a) the Market Value of the Posted Collateral to be delivered or deposited while the Loan continues shall be equal to the Required Collateral Value;
(b) if at any time on any Business Day the Market Value of the Posted Collateral in respect of any Loan together with:
(i) all amounts due and payable by the Lender in respect of that Loan but which are unpaid; and
(ii) if agreed between the parties and if the Income Record Date has occurred in respect of any Non-Cash Collateral, the amount or Market Value of Income payable in respect of such Non-Cash Collateral
exceeds
the Required Collateral Value in respect of such Loan together with:
(i) all amounts due and payable by the Borrower in respect of that Loan; and
(ii) if agreed between the parties and if the Income Record Date has occurred in respect of Securities equivalent to any Loaned Securities, the amount or Market Value of Income payable in respect of such Equivalent Securities, Lender shall (on demand) repay and/or deliver, as the case may be, to Borrower such Equivalent Collateral as will eliminate the excess; and
(c) if at any time on any Business Day the Market Value of the Posted Collateral together with:
(i) all amounts due any payable by the Lender in respect of that Loan; and
(ii) if agreed between the parties and if the Income Record Date has occurred in respect of any Non-Cash Collateral, the amount or Market Value of Income payable in respect of such Non-Cash Collateral
falls below
the Required Collateral Value together with:
(i) all amounts due and payable by the Borrower in respect of that Loan; and
(ii) if agreed between the parties and if the Income Record Date has occurred in respect of Securities equivalent to any Loaned Securities, the amount or Market Value of Income payable in respect of such Equivalent Securities, Borrower shall (on demand) provide such further Collateral to Lender as will eliminate the deficiency.

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Related agreements and comparisons

Related agreements: Click here for the same clause in the 2018 Pledge GMSLA
Comparison: Template:Gmsladiff 5.5

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

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Content and comparisons

Template:M comp disc GMSLA 5.5
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Summary

It will be a rum GMSLA indeed in which this provision applies. It will generally fall upon deaf ears, by dint of paragraph 5.4 (aggregate margining), which will apply instead unless you specifically override it, and it is hard to conceive of situations in which you would do that.
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See also

  • 5.4, Collateralisation on aggregate, which will generally (for which read “inevitably”) be the preferred alternative for most financial institutions.

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References