Marking to Market of Collateral during the currency of a Loan on aggregated basis - GMSLA Provision: Difference between revisions

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Marking to Market of Collateral during the currency of a Loan on aggregated basis - GMSLA Provision (view source)

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{{gmslasnap|5.4}}
{{manual|MSG|2010|5.4|Section|5.3|medium}}
 
{{nuts|GMSLA|5.4}}
 
====Commentary====
This provision covers the determination of the amount of {{gmslaprov|Collateral}} required - the {{gmslaprov|Required Collateral Value}} - where {{gmslaprov|Loan}} exposures are determined on an aggregated basis.
 
Interestingly, a failure to deliver {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}} during the life of the transaction under this provision (as opposed to on termination of a Loan) is not captured by the {{gmslaprov|mini close-out}} mechanism under {{gmslaprov|9.1}} and {{gmslaprov|9.2}}. One might mount an argument to say that it should be.
 
The {{gmsla}} allows you to specify that {{gmslaprov|Collateral}} managed on an aggregate basis, under this Clause, or on a loan-by-loan basis under Clause {{gmslaprov|5.5}}. Generally speaking it is easier (and in a [[close out]] situation against a non-[[netting]] countertparty, more [[capital]] effective) to collateralise on an aggregate basis under this Clause so this will be the strong preference for most counterparties except in fairly unusual or bespoke situations.
===ISLA Guidance===
Here's what Freshfields’ {{tag|ISLA}} guidance has to say (though I can save you a read: it doesn’t really shed any further light):
 
{{quote|
''Paragraph 5.4 sets out the margin maintenance provisions, that is, the market value of the collateral (provided in respect of all loans) is to equal the market value of all
loaned securities together with an additional amount known as the "Margin" (as specified in the Schedule in relation to each type of acceptable collateral under the
Agreement as a percentage of the market value of each form of acceptable collateral). When making this calculation account is also taken of (i) amounts due and payable by either party under the Agreement 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 and loaned securities, the amount or market value of income payable in respect of such non-cash collateral or securities. The borrower has the right to call for excess collateral provided to the lender and the lender has the right to demand further collateral if a collateral deficiency exists.''
}}
 
====See Also====
{{gmslaanatomy}}
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