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Pledge GMSLA Anatomy: Difference between revisions
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{{a| | {{a|pgmsla|{{subtable|'''{{pgmsla}}'''<br>{{2018 GMSLA TOC}}}}}}===What is the [[Pledge GMSLA]]?=== | ||
===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 {{tag|GMSLA}} published in November 2018 and designed exclusively for [[Agent lender|agent lending]] arrangements. Instead of posting {{tag|collateral}} by [[title transfer]], the {{pgmslaprov|Borrower}} [[pledge]]s it. The {{pgmslaprov|Lender}} has a security interest over the collateral, but no right to [[reuse]] or otherwise deal with it. | 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 {{tag|GMSLA}} published in November 2018 and designed exclusively for [[Agent lender|agent lending]] arrangements. Instead of posting {{tag|collateral}} by [[title transfer]], the {{pgmslaprov|Borrower}} [[pledge]]s it. The {{pgmslaprov|Lender}} has a security interest over the collateral, but no right to [[reuse]] or otherwise deal with it. | ||
===What’s it for?=== | ===What’s it for?=== | ||
[[Agent lending]] arrangements where {{pgmslaprov|collateral}} is held in a [[Tri-party collateral arrangement|tri-party collateral system]]. The {{pgmsla}} is designed to reduce the {{pgmslaprov|borrower}}’s [[LRD]] charges, in a nutshell. | |||
When you borrow securities under a [[GMSLA|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? | With me? | ||
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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 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) {{pgmslaprov|Lender}}s who might like to use the Pledge GMSLA=== | ||
A GMSLA would be useful and interesting in the following circumstances: | A pledge GMSLA would be useful and interesting in the following circumstances: | ||
*Where the {{ | *'''FI Borrower''': Where the {{pgmslaprov|Borrower}} is a [[bank]] or [[financial institution]] that would incur a capital/balance sheet charge under [[Basel III|Basel]] rules for the return of excess collateral it has provided by [[title transfer]] | ||
*Where the {{ | *'''''Non''-FI Lender''' Where the {{pgmslaprov|Lender}} is ''not'' a [[financial institution]], but rather is owner of long assets which it is seeking to enhance yield on, where its only concern is [[credit mitigation]] and not funding, and it does not therefore need to [[reuse]] the collateral, being happy for it to be “dead-ended” in a [[Tri-party collateral arrangement|tri-party collateral management system]], as long as it is properly— ahh, ''[[perfect]]ly'' — [[pledge]]d, so that should the {{pgmslaprov|Borrower}} default, the lender has recourse to the collateral. | ||
In other words this is likely to be restricted to [[agent lender]]s and quasi-agent lenders ([[Luxembourg fiduciary|fiduciaries]], [[Espievie|espievies]], [[Repackaging programme|repackaging]] vehicles). | In other words this is likely to be restricted to [[agent lender]]s and quasi-agent lenders ([[Luxembourg fiduciary|fiduciaries]], [[Espievie|espievies]], [[Repackaging programme|repackaging]] vehicles). | ||
==={{gmslaprov|Lender}}s 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<ref>''Almost'' no-one.</ref> 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.<ref>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.</ref> | |||
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=== | ===Major changes=== | ||
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{{sa}} | {{sa}} | ||
*The normal, 2010, [[title transfer]] [[GMSLA Anatomy]] - a lot more information about stock lending generally there. | *The normal, 2010, [[title transfer]] [[GMSLA Anatomy]] - a lot more information about stock lending generally there. | ||
{{ref}} | |||