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Applicability - GMSLA Provision: Difference between revisions
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Applicability - GMSLA Provision (view source)
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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. 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>. | ||
Nonetheless, if a 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. | |||
The counterparty's exposure | The counterparty's exposure is the net [[mark-to-market]] of that forward settling trade: where it is a {{gmslaprov|Borrower}} its exposure is the [[haircut]] owed by the {{gmslaprov|Lender}} back to it. Where it is a {{gmslaprov|Lender}} the liability is the [[haircut]] you owe back the {{gmslaprov|Borrower}}. More — much, much more on this topic where [[Pledge GMSLA]] is concerned. | ||
This is helpful to the netting analysis, which therefore applies only between one stock loan transaction and another (and not within a single stock loan trade). The absence of a netting flag means you cannot offset positive MTMs where you are a {{gmslaprov|Lender}} versus negative [[MTM]]s where you are a {{gmslaprov|Borrower}}. | This is helpful to the netting analysis, which therefore applies only between one stock loan transaction and another (and not within a single stock loan trade). The absence of a netting flag means you cannot offset positive MTMs where you are a {{gmslaprov|Lender}} versus negative [[MTM]]s where you are a {{gmslaprov|Borrower}}. | ||
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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}}. | ||
{{seealso}} | |||
*[[GMSLA netting]] | |||
*[[Pledge GMSLA]] | |||
{{ref}} | {{ref}} | ||