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.

5.4 in a Nutshell™ _{(GMSLA edition)}

5.4 Required Collateral Value (aggregated Loans): Unless Single Loan margining under 5.5 applies:

(a) Required Collateral Value: The aggregate Market Value of Collateral delivered to Lender (Posted Collateral) for all outstanding Loans must equal the aggregate Market Value of the Loaned Securities plus the Margin (Required Collateral Value).

(b) Excess Collateral: if the aggregate Market Value of the Posted Collateral (plus unpaid income etc) exceeds the aggregate of the Required Collateral Value the Lender must deliver to Borrower enough Equivalent Collateral to eliminate the excess;

(c) Collateral Deficiency: if the aggregate Market Value of the Posted Collateral (plus unpaid income etc) falls below the aggregate Required Collateral Value the Borrower must provide further Collateral to Lender to eliminate the deficiency.

(d) Shorts and Longs: where a Party acts as both Lender and Borrower, paragraphs 5.4(b) and 5.4(c) apply separately to Loans where it is a Lender and Loans where it is a Borrower.

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