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

Commentary

This provision covers the determination of the amount of Collateral required - the Required Collateral Value - where Loan exposures are determined on an aggregated basis.

GMSLA allows you to specify that Collateral managed on an aggregate basis, under this Clause, or on a loan-by-loan basis under Clause 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.

To Summarise:

Unless "single Loan margining" under 5.5 applies:

(a) Required Collateral Value: The aggregate Market Value of Posted Collateral in respect of all outstanding Loans must equal the aggregate Market Value of the Loaned Securities plus applicable Margin.

(b) Excess Collateral: if the aggregate Market Value of the Posted Collateral plus:

(i) all unpaid amounts due by the Lender; and

(ii) the Market Value of Income due on any Non-Cash Collateral

exceeds the aggregate of the Required Collateral Value plus:

(i) all unpaid amounts due by the Borrower; and

(ii) the Market Value of Income due on the Equivalent Securities,

Lender must repay to Borrower such Equivalent Collateral as will eliminate the excess;

(c) Collateral Deficiency: if the aggregate Market Value of the Posted Collateral plus:

(i) all unpaid amounts due by the Lender; and

(ii) the Market Value of Income due on any Non-Cash Collateral

falls below the aggregate Required Collateral Value plus:

(i) all unpaid amounts due by the Borrower; and

(ii) the Market Value of Income due on any Equivalent Securities,

Borrower must provide such further Collateral to Lender as will eliminate the deficiency;

(d) Shorts and Longs: where a Party acts as both Lender and Borrower under this Agreement, the provisions of paragraphs 5.4(b) and 5.4(c) shall apply separately (and without duplication) in respect of Loans entered into by that Party as Lender and Loans entered into by that Party as Borrower.

See Also

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