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Pledge GMSLA Anatomy: Difference between revisions
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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. | 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 needs ''both''=== | ===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> | 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=== | ||
*No concept of {{pgmslaprov|Equivalent}} {{pgmslaprov|Collateral}}, seeing as collateral is pledged and dead-ended, so you ''do'' get back what you pledged (and in fact never technically give it away) — there is none of this fuss around [[true sale]] that you have with [[title transfer]] (in that there’s no [[recharacterisation]] to a [[secured loan]]: we’re saying it ''is'' a [[secured loan]]). | *No concept of {{pgmslaprov|Equivalent}} {{pgmslaprov|Collateral}}, seeing as collateral is pledged and dead-ended, so you ''do'' get back what you pledged (and in fact never technically give it away) — there is none of this fuss around [[true sale]] that you have with [[title transfer]] (in that there’s no [[recharacterisation]] to a [[secured loan]]: we’re saying it ''is'' a [[secured loan]]). | ||