Template:M gen GMSLA 11.7

“Gains or losses on termination of the Loan”? No, sir.

A curious fidgety sort of amendment we have seen is to expand this provision from mere costs incurred on an event of default — and let’s face it, the GMSLA is designed as a self-help agreement so there really shouldn’t be any professional expenses involved in closing one out — to “all the Non-Defaulting Party’s reasonable costs and gains arising from the termination of the loan” as well as those likely-not-to-exist professional costs of closing out.

This is not necessary and you should stoutly resist. The deal with stock loans is you borrow, you pay fees, and you return, and mark your collateral to the value of the shares. The Lender is not on risk to your short: there are no “gains” or “losses” — these are a function of the short sale the Borrower effects in the market with the shares once it has borrowed them from you. If you want your Shares back, or one of the parties defaults, and a Loan is unexpectedly terminated early, Borrower is free to close out its short, or keep it open, at its leisure, irrespective of what happens with that original stock loan: if it is recalled, the Borrower can source shares to repay it by borrowing them somewhere else.

The costs payable on unexpected exit of a Loan— which including buying in replacement stock to satisfy obligations — is covered by 9.3, and records the fact that no consequential losses (etc.) are available.