Marking to Market of Collateral during the currency of a Loan on aggregated basis - GMSLA Provision: Difference between revisions
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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. | 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. | ||
To Summarise: | To Summarise in a {{nutshell}}: | ||
{{box| | |||
Unless "single {{gmslaprov|Loan}} margining" under {{gmslaprov|5.5}} applies: | Unless "single {{gmslaprov|Loan}} margining" under {{gmslaprov|5.5}} applies: | ||
:(a) '''{{gmslaprov|Required Collateral Value}}''': The aggregate {{gmslaprov|Market Value}} of {{gmslaprov|Posted Collateral}} in respect of all outstanding {{gmslaprov|Loans}} must equal the aggregate {{gmslaprov|Market Value}} of the {{gmslaprov|Loaned Securities}} plus applicable {{gmslaprov|Margin}}. | :(a) '''{{gmslaprov|Required Collateral Value}}''': The aggregate {{gmslaprov|Market Value}} of {{gmslaprov|Posted Collateral}} in respect of all outstanding {{gmslaprov|Loans}} must equal the aggregate {{gmslaprov|Market Value}} of the {{gmslaprov|Loaned Securities}} plus applicable {{gmslaprov|Margin}}. | ||
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:{{gmslaprov|Borrower}} must provide such further {{gmslaprov|Collateral}} to {{gmslaprov|Lender}} as will eliminate the deficiency;<br> | :{{gmslaprov|Borrower}} must provide such further {{gmslaprov|Collateral}} to {{gmslaprov|Lender}} as will eliminate the deficiency;<br> | ||
:(d) '''Shorts and Longs''': where a {{gmslaprov|Party}} acts as both {{gmslaprov|Lender}} and {{gmslaprov|Borrower}} under this {{gmslaprov|Agreement}}, the provisions of paragraphs {{gmslaprov|5.4}}(b) and {{gmslaprov|5.4}}(c) shall apply separately (and without duplication) in respect of {{gmslaprov|Loans}} entered into by that {{gmslaprov|Party}} as {{gmslaprov|Lender}} and {{gmslaprov|Loans}} entered into by that {{gmslaprov|Party}} as {{gmslaprov|Borrower}}. | :(d) '''Shorts and Longs''': where a {{gmslaprov|Party}} acts as both {{gmslaprov|Lender}} and {{gmslaprov|Borrower}} under this {{gmslaprov|Agreement}}, the provisions of paragraphs {{gmslaprov|5.4}}(b) and {{gmslaprov|5.4}}(c) shall apply separately (and without duplication) in respect of {{gmslaprov|Loans}} entered into by that {{gmslaprov|Party}} as {{gmslaprov|Lender}} and {{gmslaprov|Loans}} entered into by that {{gmslaprov|Party}} as {{gmslaprov|Borrower}}. | ||
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====See Also==== | ====See Also==== | ||
{{gmslaanatomy}} | {{gmslaanatomy}} | ||
Revision as of 10:59, 18 May 2015
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 in a Nutshell™:
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
- (i) all unpaid amounts due by the Lender; and
- 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
- (i) all unpaid amounts due by the Lender; and
- 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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