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Term stock loan: Difference between revisions
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{{g}}{{a|gmsla}}An unusual type of [[stock loan]] where the {{gmslaprov|Lender}} agrees to a [[fixed term]] during which it cannot call back the {{gmslaprov|loan}} without the {{gmslaprov|Borrower}}’s agreement. | {{g}}{{a|gmsla}}An unusual type of [[stock loan]] where the {{gmslaprov|Lender}} agrees to a [[fixed term]] during which it cannot call back the {{gmslaprov|loan}} without the {{gmslaprov|Borrower}}’s agreement. | ||
This is an unusual arrangement, since generally [[stock loan]]s are meant to cover [[short sale]]s where the Borrower, by definition, doesn't know how long it wants the stock, or when it will want to terminate the loan — [[Short-seller|short-selly]] [[hedge fund]] dude is waiting for the market to tank so {{ | This is an unusual arrangement, since generally [[stock loan]]s are meant to cover [[short sale]]s where the Borrower, by definition, doesn't know how long it wants the stock, or when it will want to terminate the loan — [[Short-seller|short-selly]] [[hedge fund]] dude is waiting for the market to tank so {{sex|he}} can buy the borrowed stock back in, settle his loan make a huge profit, right? — and seeing as that is an open-ended arrangement <ref>[[The market can stay irrational longer than you can stay solvent]] as Bill Ackman would ruefully tell you.</ref> a run-of-the-mill [[stock loan]] is [[callable]] at any time.<ref>the Borrower might need its stock back on any day — if it does, short-selly [[hedge fund]] dude can borrow in more from someone else and return that to the original lender, slosing out the first loan. End of the day, he remains short one [[stock loan]].</ref>. | ||
The one [[use case]] for a [[term stock loan]] is for your [[prime broker]]. Here is a fellow who has financed a lot of crappy securities that are now cludging up her balance sheet. She wants to covert them into high quality assets that his Treasury department will accept in reduction of overall financing costs. This she will do by “[[upgrade trade|upgrading]]” them with an [[agent lender]]. she borrows, say, US treasuries, collateralises those with equities, and gives the treasuries to her treasury department who will give her funding credits against her margin loans. It will help with our [[PB]]’s [[LRD]] calculations if she can say those US treasury {{gmraprov|Loan}}s have a certain minimum term: three months is common. | The one [[use case]] for a [[term stock loan]] is for your [[prime broker]]. Here is a fellow who has financed a lot of crappy securities that are now cludging up her balance sheet. She wants to covert them into high quality assets that his Treasury department will accept in reduction of overall financing costs. This she will do by “[[upgrade trade|upgrading]]” them with an [[agent lender]]. she borrows, say, US treasuries, collateralises those with equities, and gives the treasuries to her treasury department who will give her funding credits against her margin loans. It will help with our [[PB]]’s [[LRD]] calculations if she can say those US treasury {{gmraprov|Loan}}s have a certain minimum term: three months is common. | ||