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Pledge GMSLA Anatomy: Difference between revisions
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{{pgmslaprov|Schedule}}<br> | {{pgmslaprov|Schedule}}<br> | ||
{{pgmslaprov|Agency Annex}}<br> | {{pgmslaprov|Agency Annex}}<br> | ||
===What is it?=== | |||
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?=== | |||
Reducing 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 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. | |||
===Likely uses for the Pledge GMSLA=== | |||
A GMSLA would be useful and interesting in the following circumstances: | |||
*Where the {{gmslaprov|Borrower}} is a 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 {{gmslaprov|Lender}} does not wish to reuse the collateral, being happy for it to be "dead-ended" in a collateral management system. | |||
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). | |||
===Close-out=== | |||
Close out works quite differently. | |||