Template:Gmsla 1 summ

Applicability

Note the “theory” of the stock loan transaction here, notwithstanding the term “{{{{{1}}}|Loan}}”: Like a Repo a GMSLA {{{{{1}}}|Loan}} works as simultaneous agreements to exchange {{{{{1}}}|Securities}} and {{{{{1}}}|Collateral}} by outright title transfer.

At inception

Title transfer by {{{{{1}}}|Lender}} to {{{{{1}}}|Borrower}} of securities against the title transfer by {{{{{1}}}|Borrower}} to {{{{{1}}}|Lender}} of {{{{{1}}}|Collateral}}.

At termination

Title transfer by {{{{{1}}}|Borrower}} to {{{{{1}}}|Lender}} of “{{{{{1}}}|Equivalent}}” against the title transfer by {{{{{1}}}|Lender}} to {{{{{1}}}|Borrower}} of “{{{{{1}}}|Equivalent}}” {{{{{1}}}|Collateral}} at a later date.

That is to say that (despite the “securities lending” name) there isn’t a “loan leg” and a “collateral leg” as such: each transaction is an outright sale by title transfer against a future obligation to acquire, also by title transfer.

However, this is not how market practitioners generally see it and 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. For their part, when their lawyers cannot, market practitioners will have to forcibly restrain themselves from lamping their lawyers.

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.

Note, of course, that the collateral leg may be different: under a standard 2010 GMSLA it too is a title transfer collateral arrangement; under the 2018 Pledge GMSLA it is a security interest collateral arrangement

One’s exposure to a stock loan is the net mark-to-market of that forward settling trade: where it is a {{{{{1}}}|Borrower}} its exposure is the haircut owed by the {{{{{1}}}|Lender}} back to it. Where it is a {{{{{1}}}|Lender}} the liability is the haircut you owe back the {{{{{1}}}|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 {{{{{1}}}|Lender}} versus negative MTMs where you are a {{{{{1}}}|Borrower}}.

Note the effect that intraday margining has on this under Clause {{{{{1}}}|5}} of the 2010 GMSLA.