Template:M summ GMSLA 5.4
A key provision for GMSLA Netting, you have to read this aggregate netting provision together with paragraph 5.6, summarised in our uniquely jokey and unreliable way as follows:
5.6 in a Nutshell™ (GMSLA edition)
5.6: Where Collateral values are aggregated under paragraph 5.4 and, on any day, both Parties would otherwise have to deliver Collateral to each other, the respective Market Values will be set-off and, in full settlement of both parties’ obligations, the Party having the larger delivery obligation must deliver Collateral having a Market Value equal to the difference.
This provision covers the determination of the amount of Collateral required — the Required Collateral Value — where Loan exposures are determined on an aggregated basis.
Interestingly, a failure to deliver Equivalent Collateral during the life of a Loan (as opposed to upon termination of a Loan) is not captured by the mini close-out mechanism under 9.1 and 9.2. One might mount an argument to say that it should be, but the theory is since you have, within reason, a choice of what Collateral you provide, you can hardly point to a specific settlement failure on a certain security as the reason you didn’t deliver *any* Collateral. “So deliver something else,” your Lender might reasonably remark.
The 2010 GMSLA allows you to specify that Collateral managed on an aggregate basis, under this Clause, or on a Loan-by-Loan basis under Clause 5.5. Generally speaking it is easier (and in a close out situation against a non-netting countertparty, more capital effective) to collateralise on an aggregate basis under this Clause so this will be the strong preference for most counterparties except in fairly unusual or bespoke situations.