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Template:Credit support types capsule: Difference between revisions
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*'''English law {{pgmsla}}''': {{isla}} developed the {{pgmsla}} to deal with punitive capital rules which required financial institutions to risk-weight excess Collateral balances. Solution: financial institution pledges them, rather than title-transferring them. Important: there is no right to rehypothecate, because that would undermine the pledge. Thus a {{pgmsla}} is a genuine secured lending arrangement. | *'''English law {{pgmsla}}''': {{isla}} developed the {{pgmsla}} to deal with punitive capital rules which required financial institutions to risk-weight excess Collateral balances. Solution: financial institution pledges them, rather than title-transferring them. Important: there is no right to rehypothecate, because that would undermine the pledge. Thus a {{pgmsla}} is a genuine secured lending arrangement. | ||
*'''New York law {{msla}}''': Like the {{nycsa}}, the {{msla}} is a [[pledge]]-with-[[rehypothecation]] arrangement: it looks like a security interest, but for practical purposes isn’t. Aside from upsetting your CASS people, it functions practically as if the person holding Collateral at any time is its absolute owner with an obligation to return something equivalent. | *'''New York law {{msla}}''': Like the {{nycsa}}, the {{msla}} is a [[pledge]]-with-[[rehypothecation]] arrangement: it looks like a security interest, but for practical purposes isn’t. Aside from upsetting your CASS people, it functions practically as if the person holding Collateral at any time is its absolute owner with an obligation to return something equivalent. | ||
====[[Repo]]=== | ====[[Repo]]==== | ||
Unlike a [[stock loan]], which a repo resembles in many other respects, the initial exchange is not by way of collateral, but is an outright purchase of the bond in question. Therefore | Unlike a [[stock loan]], which a repo resembles in many other respects, the initial exchange is not by way of collateral, but is an outright purchase of the bond in question. Therefore required margin reflects divergences between the prevailing value of the purchased asset and the prevailing {{gmraprov|Repurchase Price}} (which is the original {{gmraprov|Purchase Price}} with an uplift by way of the [[repo rate]]). | ||