Pledge GMSLA Anatomy: Difference between revisions

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.  

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.

*No concept of {{pgmslaprov|Equivalent}} {{pgmslaprov|Collateral}}, seeing as collateral is pledged and dead-ended, so you ''do'' get back what you pledged (and in fact never technically give it away) — there is none of this fuss around [[true sale]] that you have with [[title transfer]] (in that there's no [[recharacterisation]] to a [[secured loan]]: we’re saying it ''is'' a [[secured loan]]).