Pledge GMSLA Anatomy

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Pledge GMSLA Anatomy™

2018 Pledge GMSLA
1. Applicability
2. Interpretation
3. Loans of Securities
4. Delivery
5. Collateral
6. Distributions and Corporate Actions
7. Rates Applicable to Loaned Securities
8. Delivery of Equivalent Securities
9. Failure to Deliver
10. Events of Default
11. Consequences of an Event of Default
12. Taxes
13. Lender’s Warranties
14. Borrower’s Warranties
15. Interest on Outstanding Payments
16. Termination of this Agreement
17. Single Agreement
18. Severance
19. Specific Performance
20. Notices
21. Assignment
22. Non-Waiver
23. Governing Law and Jurisdiction
24. Time
25. Recording
26. Waiver of Immunity
27. Expenses
28. Miscellaneous
Agency Annex

2010 GMSLA: Full wikitext · Nutshell wikitext | GMLSA legal code | GMSLA Netting

Pledge GMSLA: Hard copy (ISLA) · Full wikitext · Nutshell wikitext |
1995 OSLA: OSLA wikitext | OSLA in a nutshell | GMSLA/PGMSLA/OSLA clause comparison table
From Our Friends On The Internet: Guide to equity finance | ISLA’s guide to securities lending for regulators and policy makers

2010 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 · Schedule · Agency Annex · Addendum for Pooled Principal Agency Loans

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

Stock lending agreement comparison: Includes navigation for the 2000 GMSLA and the 1995 OSLA

Index: Click to expand:

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What is the Pledge GMSLA?

The elegantly titled Global Master Securities Lending Agreement (Security Interest over Collateral 2018 version) — known to the friends it has rapidly made in the industry as the “Pledge GMSLA” is a version of the GMSLA published in November 2018 and designed exclusively for agent lending arrangements. Instead of posting collateral by title transfer, the Borrower pledges it. The Lender has a security interest over the collateral, but no right to reuse or otherwise deal with it.

What’s it for?

Agent lending arrangements where collateral is held in a tri-party collateral system. The 2018 Pledge GMSLA is designed to reduce the borrower’s LRD charges, in a nutshell.

When you borrow securities under a stock lending agreement, you tend to over-collateralise—perhaps you give 105 in value of collateral for 100 of securities you have borrowed. This leaves you in the unusual position of being, net, a creditor to your lender: your lender has an obligation to title transfer the collateral back to you. If it is bust it cannot, and even after you apply close out netting, you’re in the hole to the tune of 5.

With me?

Now, if your lender is of dubious repute, from a credit perspective, you might have to hold capital against that credit exposure. Okay, it’s only 5, but when you’re a bank you do this in big size and it can add up. If, somehow, you can isolate the lender’s credit exposure it is worth doing.

In most cases, you can’t: most lenders will want to use your collateral in their own operations (to defray the lending costs of lending the securities to you, right?). If they do this then the collateral is gone, and you have no choice but to be a creditor.

Agent lenders are one class of lender who isn’t so bothered about reusing the collateral, because it didn’t lend to you in the first place, but lent its client’s securities to you, and these clients aren’t so bothered about reuse.

(Agent) Lenders who might like to use the Pledge GMSLA

A pledge GMSLA would be useful and interesting in the following circumstances:

In other words this is likely to be restricted to agent lenders and quasi-agent lenders (fiduciaries, espievies, repackaging vehicles).

Lenders who are not likely to use the Pledge GMSLA

Any normal market participants when trading with each other, where the name of the game is funding optimisation and collateral efficiency. Any securities lender who needs to use, reuse, rehypothecate posted collateral in their operations So brokers, dealers, banks, credit institutions — anyone who cares about balance sheet and capital efficiency — will not want to take collateral by pledge.

No-one[1] needs both

It is a well-known rule of thumb that any institution with more than one type of the same master agreement will have all kinds of of operational and booking issues, because, systems not being artificially intelligent, there is no way of knowing which of the master agreements to book a given trade to. The good news is that there should be no “use case” for the same Lender to have both a title transfer and a pledge GMSLA. Lenders either care about optimising their collateral and funding — most normal market participants do — and they’ll be under a normal GMSLA, or they don’t — you are like some ultra high net worth asset management client, or a sovereign wealth fund or something, and you have funding literally coming out of your ears, which is why you are in the agent lending programme in the first place. You will be fine with a pledge GMSLA.[2]

There are, apparently, some banks who lend and take collateral through triparty, as if they were principals of an agent lender. I am not sure why they do that, but they do.

Major changes

See also


  1. Almost no-one.
  2. Well: unless you are a UCITS fund, because the pledge doesn’t sufficiently isolate your credit risk to the lender the way title transfer does.