Template:M comp disc Pledge GMSLA 1

Sure, it is preliminary, preamble stuff, but this goes to the core of what is so structurally different — economically, they’re meant to be as near as dammit the same — about the 2018 Pledge GMSLA when compared with the 2010 GMSLA. The 2010 GMSLA is a two-way title transfer agreement, where credit risk mitigation functions by offset, leaving the person who has transferred the greater value of assets (usually, ironically, the Borrower) with residual credit exposure, for the difference, to the one who has transferred the lesser value — usually the Lender, as it will insist on being over-collateralised by way of initial margin.

The 2018 Pledge GMSLA, by contrast, is a conventional secured “Loan” where the Lender has credit exposure to the Borrower for the total value of the Loaned Securities, but this is collateralised by a pledge over Collateral to which the Borrower retains legal title.

The reference (in the pledge version only) to a Nominee, may be to recognise that the 2018 Pledge GMSLA is typically suitable only for agency lending arrangements, in which the principal Lenders to the Loans will be wealth-management clients and funds whose assets are managed by an agent lender, who in turn has put the whole business in the hands of a triparty agent, who will manage the collateral flows, pledges and all that good oil.

Though why they didn’t say “tri-party agent”, it is hard to say, since “nominee” has, in other custody contexts, a rather different meaning. And there is nothing to stop folks using a tri-party arrangement with a normal 2010 GMSLA either, for that matter, and it has routinely been done for as long as anyone can remember.