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Template:Cross default in securities financing agreements: Difference between revisions
Template:Cross default in securities financing agreements (view source)
Revision as of 09:11, 11 June 2021
, 11 June 2021→Yeah, but why not, just to be on the safe side?
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*There will usually be payments flowing each way daily as loaned {{gmslaprov|Securities}} and {{gmslaprov|Collateral}} values move around, creating collateral transfers; and | *There will usually be payments flowing each way daily as loaned {{gmslaprov|Securities}} and {{gmslaprov|Collateral}} values move around, creating collateral transfers; and | ||
*Even if there aren’t, ''either party can recall the loans on any day''<ref>Unless they are [[term stock loan|term transactions]], but even there, the terms tend to be short — ninety days is a maximum — and see above re usual daily [[collateral]] flows.</ref> | *Even if there aren’t, ''either party can recall the loans on any day''<ref>Unless they are [[term stock loan|term transactions]], but even there, the terms tend to be short — ninety days is a maximum — and see above re usual daily [[collateral]] flows.</ref> | ||
=== Ok, how about set-off. I’ve got you there, haven’t I?=== | |||
{{oubliette capsule}} | |||
In any case, [[set-off]] is a furry and misunderstood thing. consider two scenarios: one where you have independent close-out rights under both agreements that allow you to terminate both, but no written contractual right of set-off, and one where you do not: Your {{gmsla}} has blown up, but your counterparty doggedly [[Harold Lloyd scenario|hangs on under your other master agreements like Harold Lloyd dangling from a clock tower]], refusing to let go, heroically continuing to perform, defying the circling vultures of default. | |||
Where ''both'' master agreements have independently terminated, there is a common-law set-off right. It might not get to the level of comfort to ameliorate your financial reporting team’s capital calculators, but you would need a fully weaponised [[master netting agreement]] and separate [[netting opinion]] for that anyway. But, in practice you have off-setting obligations, in the same currency, due immediately (and therefore at the same day) and under English common law there is a set-off right. This may be interfered with by your counterparty’s insolvency regime — but then so would an explicit set-off clause, unless you had a F.W.M.N.A. as described above — but in many cases would not: English insolvency set-off is ''compulsory''. This is to do no more than recognise that possession is nine-tenths of the law: I may owe you fifteen, but you owe me ten, so I will paying five and we will be square. Since no insolvency regime sophisticated enough to contemplate post-insolvency set-off would deny its efficacy, we must assume the law will be silent, and it will be a resourceful insolvency practitioner indeed who can construct an equitable argument to overcome that. (If you owe me ''twenty'' I will be a sport and call it quits if you pay me five: until that time you can whistle for it). | |||
Where only one master agreement has actually defaulted — the [[Harold Lloyd scenario]] — it is even easier. By your own theory of the game, your counterparty, though broken, battered, bruised and perhaps expiring in a heap behind the dumpsters in the alley next to the kitchen, ''is still with us''. Here we are contemplating an arrangement rather like “[[settlement netting]]”. I owe you, you owe me, and I am simply going to serially discharge you from your indebtedness to me by neglecting to pay you, and declaring that inaction a satisfaction of your corresponding debt to me. If it would be hard for an insolvency practitioner to argue against that kind of practical withholding, imagine how hard it will be for a ''solvent'' counterparty. Especially one on the bones of it arse, that can’t afford a decent lawyer. If if could, it would have just paid you in the first place, right? | |||
No doubt purists will rail that this is a grubby, speckled and imperfect analysis. It is not true in all worlds, for all times, and it snubs its snotty nose at the proprieties of modern financial services legal practice. It is not accompanied by opinions. It is a bit too visceral; a bit too swooned by the earthy appeal of the mundane and every-day; it doesn’t acknowledge the primacy of the legal music of the spheres to which the philosopher kings of our industry like to tap their feet. | |||
Guilty as charged: The [[JC]]’s philopsher king is [[Voltaire’s maxim|Voltaire]], and those who seek the perfect will still be formulating their close-out notices and preparing statements of claim, while we pragmatic folk have settled up caught a cab. | |||