Template:M summ Pledge GMSLA 8: Difference between revisions

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===Term===
===Term===
[[8 - GMSLA Provision|Unless]] you’ve agreed it has some kind of term, {{gmslaprov|Loans}} are callable at will by either party.  
[[8 - GMSLA Provision|Unless]] you’ve agreed it has some kind of term, {{pgmslaprov|Loans}} are callable at will by either party.  


You do see [[term loan]]s in certain cases: “pre-borrows”, where an aspiring [[Short sell|short seller]] is expecting a stock to go illiquid and wants to have the security ready to sell when everyone is scrabbling around trying to find enough of the stuff to sell short, thereby avoiding buy-ins and so on — and also in [[agent lending]] world, where {{gmslaprov|Borrower}}s will want some medium term commitment (90 days or so) for trades where they [[upgrade transaction|upgrade]] their [[prime brokerage]] and [[margin loan]] inventory into high-credit quality assets they can give back to their own treasury departments. financial reporting rules may require these trades to have a minimum remaining tenor to get appropriate RWA treatment.
You do see [[term loan]]s in certain cases: “pre-borrows”, where an aspiring [[Short sell|short seller]] is expecting a stock to go illiquid and wants to have the security ready to sell when everyone is scrabbling around trying to find enough of the stuff to sell short, thereby avoiding buy-ins and so on — and also in [[agent lending]] world, where {{pgmslaprov|Borrower}}s will want some medium term commitment (90 days or so) for trades where they [[upgrade transaction|upgrade]] their [[prime brokerage]] and [[margin loan]] inventory into high-credit quality assets they can give back to their own treasury departments. financial reporting rules may require these trades to have a minimum remaining tenor to get appropriate RWA treatment.
===“{{gmslaprov|Equivalent}}”===
===“{{pgmslaprov|Equivalent}}”===
What if the {{gmslaprov|Securities}} have been cancelled, redeemed, or converted into something else? The elaborately defined adjective {{gmslaprov|Equivalent}} does a lot of work here.
What if the {{pgmslaprov|Securities}} have been cancelled, redeemed, or converted into something else? The elaborately defined adjective {{pgmslaprov|Equivalent}} does a lot of work here.


But what if the [[issuer]] has gone bust? Here there may be little or no liquidity in the shares — they may well have been delisted, for example.
But what if the [[issuer]] has gone bust? Here there may be little or no liquidity in the shares — they may well have been delisted, for example.
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Look here to the [[mini-closeout]] provisions, which are designed to cope with exactly this kind of settlement failure.
Look here to the [[mini-closeout]] provisions, which are designed to cope with exactly this kind of settlement failure.


===[[8 - GMSLA Provision|And]] a [[letter of credit]] is===
{{lc capsule}}
In any case, not a common way of collateralising a [[stock loan]] — done away with entirely in the {{pgmsla}} but hey — you never know.
===Reciprocal obligations — the stock lender’s Section {{isdaprov|2(a)(iii)}}?===
===Reciprocal obligations — the stock lender’s Section {{isdaprov|2(a)(iii)}}?===
This provision allows a Counterparty to suspend payments or deliveries pending satisfactory arrangements where it is concerned as to the creditworthiness of its counterparty. It is a half-arsed version of the {{isdama}}’s feted Section {{isdaprov|2(a)(iii)}}.
This provision allows a Counterparty to suspend payments or deliveries pending satisfactory arrangements where it is concerned as to the creditworthiness of its counterparty. It is a half-arsed version of the {{isdama}}’s feted Section {{isdaprov|2(a)(iii)}}.


Otherwise a creditworthy {{gmslaprov|Borrower}} would be obliged to redeliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} to a bankrupt {{gmslaprov|Lender}} even though it did not expect to receive its {{gmslaprov|Equivalent}} {{gmslaprov|Collateral}} back, which would prejudice its ability to effect a {{gmslaprov|mini close-out}} and set off its obligation to deliver {{gmslaprov|Equivalent}} {{gmslaprov|Securities}} against that {{gmslaprov|Collateral}} return.
Otherwise a creditworthy {{pgmslaprov|Borrower}} would be obliged to redeliver {{pgmslaprov|Equivalent}} {{pgmslaprov|Securities}} to a bankrupt {{pgmslaprov|Lender}} even though it did not expect to receive its {{pgmslaprov|Equivalent}} {{pgmslaprov|Collateral}} back, which would prejudice its ability to effect a {{pgmslaprov|mini close-out}} and set off its obligation to deliver {{pgmslaprov|Equivalent}} {{pgmslaprov|Securities}} against that {{pgmslaprov|Collateral}} return.


It's kind of weird, loosey goosey language:
It's kind of weird, loosey goosey language:
:“If I think you're bust and I don't want to pay, I don't have to, unless I couldn't pay or didn't want to pay, in which case I have to pay.”
:“If I think you're bust and I don't want to pay, I don't have to, unless I couldn't pay or didn't want to pay, in which case I have to pay.”


Consult the circular logicians to pick your way out of that one.
Consult the [[Mobius loop|circular logicians]] to pick your way out of that one.

Revision as of 08:52, 8 July 2020

Term

Unless you’ve agreed it has some kind of term, Loans are callable at will by either party.

You do see term loans in certain cases: “pre-borrows”, where an aspiring short seller is expecting a stock to go illiquid and wants to have the security ready to sell when everyone is scrabbling around trying to find enough of the stuff to sell short, thereby avoiding buy-ins and so on — and also in agent lending world, where Borrowers will want some medium term commitment (90 days or so) for trades where they upgrade their prime brokerage and margin loan inventory into high-credit quality assets they can give back to their own treasury departments. financial reporting rules may require these trades to have a minimum remaining tenor to get appropriate RWA treatment.

“Equivalent”

What if the Securities have been cancelled, redeemed, or converted into something else? The elaborately defined adjective Equivalent does a lot of work here.

But what if the issuer has gone bust? Here there may be little or no liquidity in the shares — they may well have been delisted, for example.

Look here to the mini-closeout provisions, which are designed to cope with exactly this kind of settlement failure.

Reciprocal obligations — the stock lender’s Section 2(a)(iii)?

This provision allows a Counterparty to suspend payments or deliveries pending satisfactory arrangements where it is concerned as to the creditworthiness of its counterparty. It is a half-arsed version of the ISDA Master Agreement’s feted Section 2(a)(iii).

Otherwise a creditworthy Borrower would be obliged to redeliver Equivalent Securities to a bankrupt Lender even though it did not expect to receive its Equivalent Collateral back, which would prejudice its ability to effect a mini close-out and set off its obligation to deliver Equivalent Securities against that Collateral return.

It's kind of weird, loosey goosey language:

“If I think you're bust and I don't want to pay, I don't have to, unless I couldn't pay or didn't want to pay, in which case I have to pay.”

Consult the circular logicians to pick your way out of that one.

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