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{{gmslaanat|1}} | {{gmslaanat|1}} | ||
Note the "theory" of the trade here, notwithstanding the term " | Note the "theory" of the trade here, notwithstanding the term "{{gmslaprov|Loan}}": Like a [[Repo]] a [[GMSLA]] {{gmslaprov|Loan}} works as simultaneous agreements to exchange {{gmslaprov|Securities}} and {{gmslaprov|Collateral}} by '''outright [[title transfer]]'''. | ||
*'''At inception''': [[Title transfer]] by {{gmslaprov|Lender}} to {{gmslaprov|Borrower}} of securities against the [[title transfer]] by {{gmslaprov|Borrower}} to {{gmslaprov|Lender}} of {{gmslaprov|Collateral}}; | |||
*'''At termination''': [[Title transfer]] by {{gmslaprov|Borrower}} to {{gmslaprov|Lender}} of “{{gmslaprov|Equivalent}}” against the [[title transfer]] by {{gmslaprov|Lender}} to {{gmslaprov|Borrower}} of “{{gmslaprov|Equivalent}}” {{gmslaprov|Collateral}} at a later date. | |||
That is to say that (despite the [[GMSLA]] name) there isn’t a “loan leg” and a “collateral leg” as such: each repo/stock loan is as an outright sale against a future obligation to do the reverse. This is not how the market practitioners generally see it and [[Mediocre lawyer|lawyers of a more officious disposition]] — yes, such creatures do exist —will have to forcibly restrain themselves from correcting their clients at the end of every sentence <ref>And where they cannot, their clients will have to forcibly restrain themselves from lamping their lawyers.</ref>. | |||
That is to say that (despite the [[GMSLA]] name) there isn’t a “loan leg” and a “collateral leg” as such: each repo/stock loan is as an outright sale against a future obligation to do the reverse. | |||
Therefore if counterparty goes insolvent during a trade, the first part of the transaction is fully settled and the administrator is left with a single forward settling transaction under which it is entitled to receive, DVP, an asset against payment of cash or delivery of an asset. | Therefore if counterparty goes insolvent during a trade, the first part of the transaction is fully settled and the administrator is left with a single forward settling transaction under which it is entitled to receive, DVP, an asset against payment of cash or delivery of an asset. | ||
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Note the effect that intraday margining has on this under Clause {{gmslaprov|5}} of the {{gmsla}}. | Note the effect that intraday margining has on this under Clause {{gmslaprov|5}} of the {{gmsla}}. | ||
{{ref}} |