Cross Default - GMSLA Provision: Difference between revisions

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Cross Default - GMSLA Provision (view source)

Revision as of 09:27, 4 June 2019

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(Created page with "{{gmslaanat|Cross Default}}Let’s start this out the right way. THIS ARTICLE IS A SATIRE. There is NO {{gmslaprov|Cross Default}} in a {{gmsla}}. There is no need for one. {...")
 
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{{cross default in securities financing agreements}}
{{cross default in securities financing agreements}}
There’s no need for [[cross default]] in ''any'' [[master trading agreement]], actually — this is the [[JC]]’s considered view, about which you can read at length elsewhere — but the {{gmsla}} and {{repo}} are a particularly bad candidates for cross default because their transactions are by definition short term (in the case of {{repo}}) and on call (in the case of {{gmsla}}), so the “mischief” the [[cross default]] is designed to remedy — large credit exposure under transactions with long tenor and few regular cashflows — does not exist.
[[Cross default]], remember, is a banking concept, designed to protect [[Lender|lenders]] who have unsecured credit exposure to [[Borrower|borrowers]] under fixed rate [[Loan|loans]] where the only material payments will be regular [[interest]] payments, which might be as infrequent as quarterly, semi-annual or even annual. If the lender knows the borrower has defaulted on material indebtedness to another lender, it will not want to wait nine months to see if there is a failure to pay on its own facility. Hence, a cross default right.
[[SFT - SFTR Provision|SFTRs]] are collateralised daily, so:
*Neither party has material exposure<ref>Okay, okay, a {{gmslaprov|borrower}} under an [[agent lending]] transaction may have a significant exposure across all {{gmslaprov|lender}}s due to aggregated collateral haircuts, but that is  by definition diversified risk, and the {{gmslaprov|borrower}} can  generally break term transactions.</ref>;
*There will usually be payment flows happening daily as loaned {{gmslaprov|Securities}} and {{gmslaprov|Collateral}} values move around with the market, creating collateral transfers; and
*Even if there aren’t, either party can recall the loans on any day<ref>Unless they are term transactions, but even there the terms tend to be short — ninety days is a maximum — and see above re usual daily collateral flows.</ref>


{{sa}}
{{sa}}
*{{isdaprov|Cross Default}} under the ISDA.
*[[Cross default]] generally
*{{isdaprov|Cross Default}} under the {{isdama}}.
{{ref}}
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