Failure by either Party to deliver or instruct delivery - Pledge GMSLA Provision

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2018 Global Master Securities Lending Agreement (Pledge Version)
A Jolly Contrarian owner’s manual™

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Clause 9.2 in a Nutshell

Use at your own risk, campers!
9.3 Failure by either Party to deliver or instruct delivery
Where Borrower fails to deliver Equivalent Securities or Lender fails to instruct Custodian to deliver Posted Collateral when due (such party the Transferor) and the other Party (the Transferee) incurs interest, overdraft expenses or Buy in costs the Transferor must, within one Business Day of a demand, pay the Transferee and hold it harmless against those costs that arise directly from that failure other than (i) costs arising from the Transferee’s negligence or wilful default and (ii) any consequential losses).

Full text of Clause 9.2

9.2 Failure by either Party to deliver or instruct delivery: Where Borrower fails to deliver Equivalent Securities, or Lender fails to instruct Custodian to deliver Posted Collateral, in either case by the time required under this Agreement or within such other period as may be agreed between such Party (the Transferor) and the other Party (the Transferee), and the Transferee:
(a) incurs interest, overdraft or similar costs and expenses; or
(b) incurs costs and expenses as a direct result of a Buy-in exercised against it by a third party,
then the Transferor agrees to pay within one Business Day of a demand from the Transferee and hold harmless the Transferee with respect to all reasonable costs and expenses listed in sub-paragraphs (a) and (b) above properly incurred which arise directly from such failure other than
(i) such costs and expenses which arise from the negligence or wilful default of the Transferee and
(ii) any indirect or consequential losses.

Related agreements and comparisons

Related agreements: Click here for the same clause in the 2010 GMSLA
Comparison: Click to compare the 2010 GMSLA and 2018 Pledge GMSLA versions of this clause.

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Content and comparisons

Clause 9.3 of the 2010 GMSLA is identical to Clause 9.2 of the 2018 Pledge GMSLA but for the fussy references in the pledge document to “instructions to the Custodian to deliver Posted Collateral” (because the Posted Collateral under a pledge is never transferred to the Lender in the first place, but rather is held by the Borrower’s Custodian subject to a pledge in favour of the Lender, so the Lender isn’t technically in a position to deliver it back).

Fun comparison: the 2002 ISDA Equity Derivatives Definitions completely botch the equivalent settlement failure terms for equity swaps. What business you have physically settling synthetic equity swaps is a whole other question of course — so it doesn’t really matter — but for a spot of gratuitous bafflement, look no further than Consequences of Failure to Deliver under Section 12.9(b)(ii) of the 2002 ISDA Equity Derivatives Definitions.



Note the clear exclusion of indirect and consequential losses, as well as losses to which the Transferee is contributorily negligent. [1]

Default interest

Are references here to interest to, like default interest under Clause 11.7? And if so are we in a world of LIBOR remediation?

Well, this old fellow’s opinion is no. Clause 11.7 of the 2018 Pledge GMSLA is specific to costs following actual close out on an Event of Default (a Buy-in isn’t an Event of Default), and only on professional expenses. The vibe here is you reimburse me my actual costs. So, the actual interest cost I incurred in funding the securities I bought in, rather than some abstract derivative notion of my costs represented by a benchmark.

Replacement costs and ISDA hedging language

Does it make sense to replace this clause with some convoluted shtick about the costs of Replacement Transactions or otherwise hedging the innocent party’s exposure? To determine follow this flow chart:

Not called the vampire squid for nothing, you know.

See also

Template:M sa Pledge GMSLA 9.2



  1. If you are thinking I just made up the adjective “contributorily”, and were about to conclude I’m maybe a bit reckless you might be interested to know it is actually a word.