The International Securities Lending Association (ISLA) has published the Global Master Securities Lending Agreement 2009 (GMSLA 2009). It supersedes the GMSLA 2000 as the industry-standard master agreement for international securities lending transactions.
The GMSLA 2009 improves and thoroughly updates the GMSLA 2000 with a number of significant changes and enhancements, including:
a: New post-default procedures that give more flexibility to the non-defaulting party, based largely on the Global Master Repurchase Agreement (GMRA) 2000 and incorporating points learned from the Lehman default
b: Amended events of default
c: Failure to deliver equivalent securities or collateral is no longer an event of default. Rather the other party may choose to terminate that loan of those particular securities (a so-called mini close-out). The party that fails to deliver the securities is then liable for any costs incurred by the other party in relation to interest, overdrafts or other expenses or if a buy-in is exercised against it by a third party
d: Greater clarity about tax issues. Manufactured dividend payments on lent securities paid by the borrower to the lender should be agreed between the parties or otherwise equivalent to the gross amount paid by the issuer, assuming no withholding or deduction for tax. As regards securities given as collateral by the borrower, market practice is to substitute other eligible collateral over an income payment date. Failing that, the Agreement provides that any manufactured dividends on non-cash collateral paid by the lender to the borrower should be equivalent to the amount that would have been received by the lender after any applicable withholding or deduction for tax
e: Amended provisions regarding loans of shares that have been suspended from trading or cannot legally be transferred following, for example, nationalization or expropriation of the company
f: A new warranty from the borrower to the lender that it is not entering into a loan for the primary purpose of obtaining or exercising voting rights over borrowed shares
g: An updated Agency Annex, which facilitates use of the Agent Lender Disclosure (ALD) model by which agent lenders provide information to borrowers about their underlying principal exposures for credit and regulatory capital purposes; and includes an addendum for pooled principal agency loans
h: An up-to-date UK tax addendum
i: Paragraph re-ordering and improved document navigation
Publication follows an extensive process of industry consultation and discussion over more than three years. ISLA has commissioned Freshfields to produce guidance notes for the Agreement, which will be available on its website in the next few weeks. The netting sub-committee of the Securities Lending and Repo Committee is seeking supplementary opinions from counsel in the various jurisdictions it covers on the effectiveness of the netting provisions in the new Agreement. Those opinions should be available to subscribing firms in September.
ISLA encourages all securities lending market participants to adopt the new Agreement. Both the GMSLA 2009 and the Protocol are available to download free of charge at www.isla.co.uk
L.D.