GUIDANCE NOTES TO THE
GLOBAL MASTER SECURITIES LENDING AGREEMENT
Introduction ................................................................................................................................ 2
Section 1: Quick Reference Guide ............................................................................................. 2
Section 2: Summary of Provisions ............................................................................................ 3
Section 3: Comparison with Overseas Securities Lending Agreement (December 1995) . 15
The International Securities Lenders Association (ISLA) on 7 May 2000 published its revised
stocklending agreement, the Global Master Securities Lending Agreement (the "Agreement")
to replace the:
(i) Overseas Securities Lender's Agreement (December 1995) (the "OSLA");
(ii) Master Gilt Edged Stock Lending Agreement (1996); and
(iii) Master Equity and Fixed Interest Stock Lending Agreement (1996).
The Agreement was developed with the following aims:
to produce a document which encompassed stocklending transactions relating to all types of
securities (including gilts) and equities under one agreement;
to internationalise the agreement to reflect the increased use of the OSLA by non-UK
to take account of changes in market practices and to expand its scope to reflect rules and
practices of organisations relevant to stocklending including clearing and settlement
to address issues raised by the increased use of the OSLA in new jurisdictions; and
to produce a more user friendly agreement particularly for users outside the UK.
This agreement has been approved by the London Stock Exchange for the purposes of its
A separate UK tax addendum is available for use where one of the parties is resident in the UK
for tax purposes.
An English law netting opinion, given by Clifford Chance is also available.
The Agreement, the UK tax addendum and the English law netting opinion can be found on
ISLA's website at Isla.co.uk.
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SECTION 1: QUICK REFERENCE GUIDE
Securities (paragraph 4.1)
Collateral (paragraph 5.1)
(1) Interest on Cash Collateral (paragraph 7.2)
(2) Income on Collateral (paragraph 6.1)
During term of Lender
Loan (1) Securities lending fee (paragraph 7.1)
(2) Income on Securities (paragraph 6.1)
Equivalent Collateral (paragraphs 8.4 and 8.5)
Maturity of Loan Lender
Equivalent Securities (paragraph 8.1)
Parties' rights to vary loan
(i) Lender's right to terminate a Loan (paragraph 8.2).
(ii) Borrower's right to terminate a Loan (paragraph 8.3).
(iii) Borrower's right to substitute Collateral for Alternative Collateral (paragraph 5.3).
(iv) Lender's right to require substitution of Letter of Credit provided by Borrower for other
Collateral (paragraph 5.9).
(i) Right to withhold payments/deliveries (paragraph 8.6).
(ii) Failure to deliver Equivalent Securities by Borrower, Lender may:
(a) continue Loan;
(b) terminate Loan;
(c) serve notice of Event of Default (paragraph 9.1).
(iii) Failure to deliver Equivalent Collateral by Lender, Borrower may:
(a) terminate Loan;
(b) serve notice of Event of Default (paragraph 9.2).
(iv) Pursuant to occurrence of Event of Default (paragraph 14), set-off (paragraph 10)
together with Non-Defaulting Party's right to reimbursement of costs and expenses.
(v) In the event of a failure to deliver Equivalent Securities or Equivalent Collateral, right to
(a) costs and expenses incurred resulting from such failure to deliver (paragraph
(b) costs of any buy-in against Transferee (paragraph 9.4).
(vi) Right to interest on outstanding payments (paragraph 15).
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SECTION 2: SUMMARY OF PROVISIONS
The Agreement is a master agreement intended to govern securities' lending transactions
entered into between parties in respect of UK and overseas securities (including UK
gilts) and equities.
The Agreement is a standard form agreement which may be amended by parties by way
of additional terms and conditions contained in either the Schedule or addenda or
annexures to the Agreement.
This paragraph contains various defined terms used throughout the Agreement. Terms
used within a specific paragraph only are defined within that paragraph.
One of the key definitions is that of "Market Value" which is important for determining
the value of collateral to be provided and the marking to market requirements for
collateral during the currency of a loan. "Market Value" is generally determined by the
lender on a bid price basis by reference to a reputable pricing service chosen reasonably
by the Lender in good faith. Any accrued income is added to the valuation to the extent
not included in the price. Normally, the previous day's closing prices will be used but
either party may choose the latest available price where in its opinion an exceptional
price movement has occurred since the closing price on the previous business day.
Suspended securities are valued at zero for margining purposes and at close of business
on the day of suspension (unless otherwise agreed) for other purposes.
Different valuation provisions apply for the purposes of applying set-off after an event of
default (see paragraph 10 below).
2.4 Currency conversions
This paragraph provides for the rate of exchange at which conversions into the Base
Currency are to be made. (The Base Currency, which is used for determining all prices,
sums or values under the Agreement, is required to be specified in the Schedule).
2.5 This paragraph deals with the effects of the introduction of a new currency as the lawful
currency of a country in respect of parties' payment and delivery obligations under the
3. LOANS OF SECURITIES
This paragraph sets out the framework provisions whereby the lender will lend securities
to the borrower in accordance with the terms of the Agreement. (A party may act as
lender in respect of a transaction but as borrower in respect of another). The paragraph
also deals with the status of any confirmation produced by a party (purporting to set out
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the terms of any specific loan of securities) providing that any such confirmation shall
not affect the prior communication between the parties by which the terms of the
relevant loan of securities were agreed.
4.1 Delivery of Securities on commencement of Loan
This paragraph sets out the mechanism for the obligation of the lender to deliver
securities to the borrower in respect of any specific loan. Delivery is deemed to have
been made unless otherwise agreed, on delivery of the necessary instruments of transfer
or effective instructions to the operator of the clearing system in which the securities are
4.2 Requirements to effect delivery
This paragraph provides for the outright transfer of any securities borrowed and any
collateral delivered. Accordingly, the borrower has an obligation to deliver securities
equivalent to those borrowed and the lender has an obligation to deliver collateral
equivalent to that provided to it by the borrower. Any equivalent securities and
equivalent collateral must also be provided by way of outright transfer. The securities,
equivalent securities, collateral and equivalent collateral must be provided free of any
4.3 Deliveries to be simultaneous unless otherwise agreed
Where the Agreement provides for deliveries to be made simultaneously by the parties,
this paragraph expressly permits a party to waive its right to a corresponding payment or
delivery from the other party to be made simultaneously whether due to market practice
or practical difficulties.
4.4 Deliveries of Income
This paragraph provides for the mechanism for the delivery of income payments. The
obligation to make such payments is set out in paragraph 6.1 (see below). With regard to
a distribution in the form of securities made in respect of any loaned securities or
collateral, please refer to paragraph 6.2 (see below).
5.1 Delivery of Collateral on commencement of Loan
This paragraph contains the obligation of the borrower to provide collateral to the lender
simultaneously with the delivery of the loaned securities to it by the lender. Where the
parties agree that a party acting in the capacity of lender is to be pre-collateralised, the
parties may wish to insert the following provision:
"Unless otherwise agreed in respect of any particular Loan, notwithstanding anything to
the contrary in this Agreement (i) any obligation of Lender to deliver Securities in
respect of any Loan to Borrower is conditional upon Lender having received the
Collateral agreed to be provided in respect of such Loan and (ii) any obligation of
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Lender to repay or redeliver (as the case may be) Equivalent Collateral upon the
termination of a Loan or upon the substitution of Alternative Collateral is conditional
upon Lender verifying receipt of Equivalent Securities.".
Delivery of collateral is deemed to have been made, unless otherwise agreed, on delivery
of the necessary instruments of transfer or effective instructions to the operator of the
clearing system in which the collateral is held.
5.2 Deliveries through payment systems generating automatic payments
In the case of a settlement system that does not allow a transfer of securities to be made
without a corresponding delivery or payment transfer (for example, the Central Gilts
Office), this paragraph, in summary, provides that the automatically generated payment
or delivery may be used to discharge an existing obligation. Otherwise, it will be
deemed to be collateral or equivalent collateral, as the case may be, until it is substituted
for alternative collateral or equivalent collateral, if an obligation to deliver collateral or
equivalent collateral existed. If no such obligation existed, or if such obligation existed,
upon the delivery of the alternative collateral or equivalent collateral, the recipient of the
automatically generated payment or delivery is required to make an equivalent payment
or delivery to the other party.
5.3 Substitutions of Collateral
This paragraph sets out the ability of a borrower to substitute collateral (without the
consent of the lender) it has provided to the lender for alternative collateral acceptable to
5.4 Marking to Market of Collateral during the currency of a Loan on aggregated basis
This paragraph sets out the margin maintenance provisions, that is, the market value of
the collateral (provided in respect of all loans) is to equal the market value of all loaned
securities together with an additional amount known as the "Margin" (as specified in the
Schedule in relation to each type of acceptable collateral under the Agreement as a
percentage of the market value of each form of acceptable collateral). The borrower has
the right to call for excess collateral provided to the lender and the lender has the right to
demand further collateral if a collateral deficiency exists.
5.5 Marking to Market of Collateral during the currency of a Loan on a Loan by Loan
Paragraph 5.5 sets out margin maintenance provisions where the parties have elected (in
the Schedule) to margin on a loan by loan basis as opposed to a global basis as provided
for by paragraph 5.4.
5.6 Requirements to redeliver excess Collateral
Where aggregated margining applies (pursuant to paragraph 5.4), unless the parties have
elected otherwise (in the Schedule) this paragraph nets the obligations of:
(i) in respect of transactions where a party ("X") is acting in the capacity of lender
and the other party ("Y") is acting in the capacity of borrower:
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(a) X being required to deliver equivalent collateral to Y; or
(b) Y being required to provide further collateral to X;
as the case may be, and
(ii) in respect of transactions where X is acting in the capacity of borrower and Y is
acting in the capacity of lender:
(a) X being required to provide further collateral to Y; or
(b) Y being required to deliver equivalent collateral to X,
as the case may be.
5.7 Where parties margin on an aggregated basis and a party is required to deliver further
collateral or redeliver equivalent collateral to the other party in respect of all loans
entered into, this paragraph provides for the allocation of such delivery or redelivery to
individual loans, so that at the maturity of each loan, the equivalent collateral to be
delivered by the lender to the borrower is ascertainable.
5.8 Timing of repayments of excess Collateral or deliveries of further Collateral
This paragraph provides that any transfers of collateral or equivalent collateral required
during the course of a loan shall be made (unless otherwise agreed) on the same business
day as the relevant demand for transfer. Delivery takes effect on delivery of the
necessary instruments of transfer or effective instructions to the operator of the clearing
system in which the collateral is held.
5.9 Substitutions and extensions of Letters of Credit
This paragraph sets out the lender's right to require a letter of credit provided to it by the
borrower by way of collateral to be substituted for alternative collateral acceptable to the
lender. Prior to the expiry of a letter of credit, the borrower is obliged to obtain an
extension or replacement.
6. DISTRIBUTIONS AND CORPORATE ACTIONS
6.1 Manufactured Payments
This paragraph provides for the borrower to provide to the lender a sum (or property)
equivalent to any income that the lender would have been entitled to receive if it had not
loaned the relevant securities to the borrower. (The tax treatment of (i) the income if it
had been paid to the lender; (ii) if the borrower is holding the securities at the relevant
time, the income paid to the borrower; and (iii) the payment from the borrower to the
lender of equivalent income are, therefore, relevant). The lender has a corresponding
obligation with regard to any income paid in respect of collateral. In each case, the
obligation is not dependent upon the borrower holding the loaned securities or the lender
holding the relevant collateral at the time the income is paid and thereby actually
receiving such income.
6.2 Income in the form of Securities
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Where a distribution comprising securities is made in respect of any loaned securities or
collateral, this paragraph provides for such securities to be added to the loaned securities
or collateral, as the case may be (instead of an obligation to deliver equivalent securities
at the time of the distribution) provided that the margin maintenance provisions are
6.3 Exercise of voting rights
This paragraph provides that the borrower, in respect of loaned securities and the lender,
in respect of collateral, has no obligation to arrange for any voting rights arising in
respect of any such loaned securities or collateral to be exercised in accordance with the
instructions of the other party.
6.4 Corporate actions
If a corporate action (such as a rights issue or a takeover offer) arises in respect of any
loaned securities or collateral, this paragraph permits the lender, in the case of loaned
securities and the borrower, in the case of collateral, to require that equivalent securities
or collateral, as the case may be, to be redelivered take the form resulting from the
exercise of the right constituting the corporate action being exercised in accordance with
the instructions of the lender or borrower, as the case may be, provided that the relevant
party gives notice in good time to the other party prior to the right constituting the
corporate action becoming exercisable.
7. RATES APPLICABLE TO LOANED SECURITIES AND CASH COLLATERAL
7.1 Rates in respect of Loaned Securities
This paragraph contains the obligation of the borrower to pay a fee to the lender based
upon the value of the securities borrowed. It is envisaged that these fees will be set out
in a separate document agreed between the parties.
7.2 Rates in respect of Cash Collateral
This paragraph provides for the lender to pay the borrower interest on any cash collateral
delivered to it by the borrower as agreed between the parties. The paragraph permits any
such interest payment to be set-off against any securities lending fee due under paragraph
7.3 Payment of rates
This paragraph sets out the periods by which securities lending fees and interest on cash
collateral is to be calculated. It also sets out the time when such sums are payable.
Payments accrue from the date of delivery of securities up to the day prior to redelivery.
Unless otherwise agreed, payments are due one week after the end of the month to which
8. REDELIVERY OF EQUIVALENT SECURITIES
8.1 Delivery of Equivalent Securities on termination of a Loan
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This paragraph contains the obligation of the borrower to deliver securities equivalent to
those borrowed by it to the lender upon the termination of the relevant loan. Such
securities are deemed to have been delivered, unless otherwise agreed, on delivery of the
necessary instruments of transfer or effective instructions to the operator of the clearing
system in which the securities are held.
8.2 Lender's right to terminate a Loan
This paragraph sets out the lender's right to terminate a loan of securities. Subject to any
terms of the relevant loan (for example, where a fixed period has been agreed the lender
may terminate on giving notice equal to the standard settlement time for the securities
concerned and the borrower must redeliver by the end of such period.
8.3 Borrower's right to terminate a Loan
This paragraph sets out the borrower's right to terminate a loan of securities. Subject to
the terms of the relevant loan, the borrower may terminate and redeliver at any time.
8.4 Redelivery of Equivalent Collateral on termination of a Loan
This paragraph contains the obligation of the lender to deliver collateral equivalent to
that provided to it by the borrower simultaneously with the delivery of equivalent
securities to it by the borrower on termination of a loan.
8.5 Redelivery of Letters of Credit
This paragraph sets out how the obligation to deliver equivalent collateral where that
collateral is in the form of a letter of credit is to be effected. Either the letter of credit is
delivered for cancellation or the lender is to consent to a reduction in its value.
8.6 Redelivery obligations to be reciprocal
This paragraph permits a party that is obliged to make a delivery or payment to withhold
such delivery or payment if arrangements have not been made by the other party to
ensure that a corresponding delivery or payment due from the other party will be made.
9. FAILURE TO REDELIVER
9.1 Borrower's failure to redeliver Equivalent Securities
This paragraph sets out the lender's remedies if the borrower fails to deliver equivalent
securities upon the termination of a loan. The lender may elect to:
(i) continue the loan; or
(ii) terminate only the affected loan; or
(iii) serve notice of an Event of Default thereby closing out all outstanding loans.
In the case of (ii) above, the parties' payment and delivery obligations in respect of such
loan are terminated and replaced by an obligation to pay the difference between the
market value of the relevant equivalent securities and relevant equivalent collateral. In
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addition, the borrower is liable for certain costs and expenses of the lender (as provided
for by paragraphs 9.3 and 9.4).
9.2 Lender's failure to redeliver Equivalent Collateral
This paragraph sets out the borrower's remedies if the lender fails to deliver equivalent
collateral upon the termination of a loan. The borrower may:
(i) terminate only the affected loan; or
(ii) serve notice of an Event of Default thereby closing out all outstanding loans.
Termination of the affected loan has the same consequences as a termination of a loan
pursuant to paragraph 9.1, except that the lender is liable for certain costs and expenses
of the borrower (as provided for by paragraphs 9.3 and 9.4).
9.3 Failure by either Party to redeliver
This paragraph provides an additional remedy in the event of a failure to deliver
equivalent securities or equivalent collateral within the specified time. The party that has
failed to deliver (the "Transferor") is liable to the other party (the "Transferee") for any
interest, overdraft or similar costs and expenses incurred by the Transferee arising from
the Transferor's failure to deliver (i) including costs incurred by the Transferee in respect
of any failure by the Transferee to fulfil an onward sale or delivery obligation with a
third party in respect of the securities the Transferor was to have delivered to it; but (ii)
excluding indirect or consequential loss (the costs set out in (i) are considered to be a
9.4 Exercise of buy-in on failure to redeliver
In addition to the remedies set out in paragraphs 9.1 - 9.3, the Transferor is also liable for
any costs of a buy-in exercised against the Transferee. A "buy-in" is where:
(i) the Transferee was due to deliver to a third party the securities that were failed
to be delivered by the Transferor;
(ii) as a result of the failure by the Transferor to deliver the securities, the
Transferee fails to meet the delivery obligation to the third party;
(iii) the third party goes into the market and buys-in the relevant securities.
The Transferee is liable to the Transferor for the costs of such buy-in. The Transferor
would therefore be liable to the Transferee for the excess of the value assigned to the
loaned securities as agreed by the Transferee and the third party and the price paid by the
third party together with any associated expenses of the third party in respect of its
10. SET-OFF ETC
If an Event of Default (see paragraph 14 below) occurs, both parties' payment and
delivery obligations are accelerated. Such obligations are replaced by an obligation of
one party to pay a single cash sum to the other, determined on the following basis:
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(i) the non-defaulting party makes the following calculations as of the business day
following the date of the Event of Default (or if the Event of Default occurred
outside normal working hours, on the second business day following the date of
the Event of Default):
(a) the value of the securities that were to have been delivered to it by the
defaulting party being the hypothetical cost of buying such securities
(together with associated fees and expenses), less any payments of
equivalent income due (in accordance with paragraph 6.1) in respect of
such securities but unpaid;
(b) the value of the securities that it was to have delivered to the defaulting
party being the hypothetical cost of selling such securities (less all
associated costs and expenses), less any payments of equivalent income
due in respect of such securities but unpaid;
(ii) if the amount calculated under (a), together with any cash payments due from
the defaulting party is greater than the amount calculated under (b) together
with any cash payments due to the defaulting party, then the defaulting party
shall pay the difference to the non-defaulting party; and
(iii) if the amount calculated under (a) together with any cash payments due from
the defaulting party is less than the amount calculated under (b) together with
any cash payments due to the defaulting party, then the non-defaulting party
shall pay the difference to the defaulting party.
10.5 However, if between the date of the Event of Default and the fifth business day
thereafter, the non-defaulting party actually purchases securities to have been delivered
by the defaulting party or sells securities to have been delivered to the defaulting party,
then the costs of any such purchase or proceeds of sale (in ease case, taking into account
any associated expenses and payments of equivalent income due but unpaid) shall be
substituted for the amounts calculated as set out in (a) and/or (b) above, as the case may
be (adjustments to be made depending upon the number of securities bought or sold and
the number of securities to have been delivered).
10.7 Other costs, expenses and interest payable in consequence of an Event of Default
The defaulting party is liable to the non-defaulting party for legal and other professional
expenses incurred by the non-defaulting party as a result of the Event of Default,
together with interest thereon, calculated at one month LIBOR, unless otherwise agreed.
11. TRANSFER TAXES
Borrower is liable to pay all transfer taxes (such as stamp duties on transfers of securities
and collateral) and indemnifies the lender against any liability arising from its failure to
pay any such tax.
12. LENDER'S WARRANTIES
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A party acting as lender warrants to the other on a continuing basis as regard its authority
and capacity to perform its obligations under the Agreement, its ability to make an
outright transfer of securities; and that it is acting as principal, or where it is acting as
agent, that it is in compliance with the relevant conditions (set out in paragraph 16.2).
13. BORROWER'S WARRANTIES
A party acting as borrower warrants to the other on a continuing basis that it has all
necessary approvals, is authorised and has capacity to perform its obligations under the
Agreement, its ability to make an outright transfer of collateral and that it is acting as
principal. (A borrower may not act as agent under the Agreement).
14. EVENTS OF DEFAULT
The events that may constitute an Event of Default (after service of a default notice,
except in respect of certain events that may constitute an Act of Insolvency) include:
(i) a lender failing to deliver securities;
(ii) a borrower failing to pay cash collateral or deliver collateral or lender failing to
repay cash collateral or deliver equivalent collateral;
(iii) a party failing to comply with its collateral obligations during the currency of a
loan under paragraph 5;
(iv) a party failing to make payments of equivalent income;
(v) a borrower failing to deliver equivalent securities;
(vi) the occurrence of an Act of Insolvency in respect of a party;
(vii) misrepresentation or breach of warranty;
(viii) admission of non-performance by a party;
(ix) action taken by securities exchange or regulatory authority;
(x) transfer of assets to a trustee;
(xi) breach of any other obligation (with a thirty day grace period).
14.2 Each party is obliged to notify the other of the occurrence of an Event of Default or
potential Event of Default in respect of itself.
14.3 No remedies, except those set out in the Agreement, may be sought by a party pursuant
to the occurrence of an Event of Default.
14.4 Neither party is liable for consequential loss.
15. INTEREST ON OUTSTANDING PAYMENTS
This paragraph provides for interest to be paid on amounts due but unpaid. The rate is
one month LIBOR unless otherwise agreed.
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16. TRANSACTIONS ENTERED INTO AS AGENT
This paragraph sets out the provisions relating to a transaction where a party is acting as
an agent lender on behalf of a third party.
16.1 Power for Lender to enter into Loans as agent
This paragraph permits a party acting in the capacity of lender to act as agent (if such
party so indicates in the Schedule).
16.2 Conditions for agency loan
The Agreement does not allow transactions to be entered into on an undisclosed principal
basis. Accordingly, the fact that securities are being lent by a party as agent on behalf of
a third party (the "Principal") and the identity of the Principal must be disclosed at the
time the loan is entered into.
Further, a party is prohibited from acting as an agent lender unless it has been authorised
by a Principal to perform on behalf of the Principal the Principal's obligations under the
Agreement (see commentary on paragraph 16.4 below).
16.3 Notification by Lender of certain events affecting the principal
An agent lender is required to inform the other party of: (i) an event which would
constitute an Act of Insolvency with respect to any Principal; and (ii) if the agent lender
is, at any time, not duly authorised by the Principal to act on its behalf.
16.4 Status of agency transaction
In effect, there is deemed to be a separate securities' lending agreement (on the same
terms as those entered into between the agent lender and borrower) between each
Principal and borrower. However, in respect of each such separate securities' lending
agreement, an event of default in respect of the agent lender is deemed to be an event of
default with respect to the Principal.
16.5 Warranty of authority by Lender acting as agent
Each time a transaction is entered into by a party acting as agent lender, it is required to
warrant to the other party that it has been duly authorised by the Principal in respect of
which it is purporting to act.
17. TERMINATION OF THIS AGREEMENT
Each party has the right to terminate the Agreement on fifteen business days notice in
writing. Any such termination will not, however, affect the parties' existing obligations
in respect of any outstanding loans of securities.
18. SINGLE AGREEMENT
This paragraph provides that all loans entered into form part of a single contractual
relationship. This is intended to prevent "cherry picking" by a liquidator, that is, a
liquidator of an insolvent party only affirming those loans that it considers to be
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profitable and disaffirming the rest. It is also intended to reinforce the close-out netting
provisions by demonstrating contractual interdependence between the loans.
19.-27. The Agreement also contains provisions relating to the following:
(i) severance of void/unenforceable provisions (paragraph 19);
(ii) neither party to seek specific performance, which is designed to reinforce the
close out and netting provisions (paragraph 20);
(iii) how notices may be delivered and when they take effect (paragraph 21);
(iv) non-assignment of rights or obligations (paragraph 22);
(v) exercise or non-exercise of right not to constitute waiver of any other right
(vi) governing law (English law) and submission to exclusive jurisdiction of English
courts (paragraph 24);
(vii) significance of time stipulations in the Agreement (paragraph 25);
(viii) permissibility of recording of telephone conversations between the parties
(paragraph 26); and
(ix) waiver of sovereign or any other immunity (paragraph 27).
This paragraph contains various provisions, including:
(i) an entire agreement clause, that is, the Agreement (and no other prior
correspondence) sets out the entire understanding of the parties;
(ii) a warranty from the party who has prepared the Agreement (as defined in the
Schedule) that it conforms to the standard form Agreement unless otherwise
(iii) no amendment to be effective unless in writing;
(iv) survival of warranties post termination of the Agreement for so long as
obligations remain outstanding;
(v) execution of Agreement in counterparts; and
(vi) exclusion of third party rights.
1. Parties are required to specify the acceptable forms of collateral to be provided under
the Agreement and the applicable Margin in respect of each such form. If parties wish
margining to occur on a loan by loan basis, then the parties are required to mark the
appropriate box accordingly.
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2. Parties are required to specify the Base Currency.
3. The definition of "Business Day" is in part based upon days on which banks and
securities markets are open for business in certain places. The parties are required to
specify the places by reference to which the definition of Business Day is to be
4. Parties are required to specify the office through which they are acting for the purposes
of the Agreement and also notice details.
5. Parties are required to specify details of their process agent, if appropriate.
6. If a party contemplates acting in the capacity of an agent lender, it is required to mark
the appropriate box accordingly.
7. For the purposes of paragraph 28.2 of the Agreement, the identity of the party preparing
the Agreement is required to be stated by marking the appropriate box.
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SECTION 3: COMPARISON OF OVERSEAS SECURITIES LENDING AGREEMENT
(DECEMBER 1995) ("OSLA") AND GLOBAL MASTER SECURITIES LENDING
AGREEMENT (THE "AGREEMENT")
(A) GENERAL POINTS TO NOTE
1. The Agreement has been drafted to be less UK specific than the OSLA. For example,
the Agreement contains no provisions corresponding to the UK tax provisions and
provisions relating to the CGO (Central Gilts Office) contained in the OSLA.
2. The Agreement has been drafted to be more user-friendly and accordingly, certain
provisions contained in the OSLA have been re-ordered and/or consolidated so that, for
example, provisions relating to the same subject matter are contained in the same clause.
3. Provisions in the Agreement are referred to as "paragraphs" as opposed to the OSLA that
refers to "Clauses" (and references to "paragraphs" and "Clauses" in this section shall be
to provisions of the Agreement and OSLA respectively).
4. The definition of a term is set out within a paragraph (as opposed to being set out in
paragraph 2 (Interpretation) at the beginning of the Agreement) if such defined term is
used only within that paragraph.
(B) SPECIFIC CHANGES TO NOTE
5. Description of parties: Parties to the Agreement may specify in the Schedule a
particular branch or office (a "Designated Office") through which they are acting for the
purposes of the Agreement. The Agreement does not provide for a party to act through
multiple branches or offices.
6. Paragraph 2 Interpretation:
(i) The definition of "Business Day" has been amended such that it is a day, other
than a Saturday or Sunday, on which banks and securities markets are open for
business generally in such places as the parties to the Agreement specify in the
Schedule and, in relation to a delivery obligation, in the places where the
relevant Securities, Equivalent Securities, Collateral or Equivalent Collateral are
to be delivered.
(ii) The forms of "Collateral" acceptable under the Agreement are to be set out by
the Parties in a table in the Schedule (in contrast to the pre-printed list of
instruments that may constitute Collateral under the OSLA).
(iii) A "Letter of Credit" must be issued by a bank and be irrevocable and non-
negotiable, and in a form acceptable to Lender.
(iv) The term "Reference Price" contained in the OSLA has been replaced with the
term "Market Value" in the Agreement. The definitions of such terms differ in
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(a) the definition of "Market Value" refers to the "market quotation for the
bid price" of securities (the definition of "Reference Price" refers to "such
price as is equal to the mid market quotation" of securities);
(b) the Market Value of any Collateral is to be determined on the basis of the
"market quotation for the bid price" (the OSLA sets out different
valuation criteria dependent upon the type of Collateral);
(c) the definition of "Market Value" provides that if, in the reasonable
opinion of a party, there has been an exceptional movement in price since
the time of the market quotation or price bid by a dealer, as the case may
be, then the Market Value shall be the latest available price;
(d) the definition of "Market Value" takes account of accrued but unpaid
Income to the extent that it is not included in the price obtained;
(e) the definition of "Market Value" provides that in the event of suspension
of securities, their Market Value for Collateral purposes shall be nil and
for all other purposes "the price … as of Close of Business on the dealing
day in the relevant market last preceding the date of suspension or a
commercially reasonable price agreed between the Parties.".
7. Paragraph 2.4 Currency conversions: Conversions into the Base Currency shall take
place at "… the latest available spot rate of exchange quoted by a bank selected by
Lender (or if an Event of Default has occurred in relation to Lender, by Borrower)…".
8. Paragraph 2.5 Introduction of new currency: The Agreement provides that the
introduction of and/or substitution of a currency shall not affect a party's obligations
under the agreement.
9. Paragraph 3 Loan of Securities: The term "Borrowing Request" is not used in the
Agreement. However, paragraph 3 provides that the terms of each Loan shall be agreed
prior to the commencement of the relevant Loan. It also provides that any confirmation
produced by a party shall not supersede the prior communication agreeing the terms.
10. Paragraph 5.2 Deliveries through payment systems generating automatic payments:
The Agreement provides that where a transfer of securities is made through a settlement
system which automatically generates a payment or delivery obligation against the
transfer of securities, then the party receiving the payment or delivery pursuant to the
automatically generated obligation shall make a corresponding payment or delivery to
the other party.
11. Paragraph 5.8 Timing of repayments of excess Collateral or deliveries of further
Collateral: Collateral and Equivalent Collateral are to be repaid or redelivered, as the
case may be, on the same Business Day as the relevant demand. (Note that in the case of
securities being held by an agent or within a clearing or settlement system, delivery is
deemed to take place upon the effective instructions to such agent or operator of such
system). The OSLA provides for the delivery period to be specified in the Schedule, and
if none is specified, it is "… the standard settlement time for delivery of the relevant type
of Equivalent Collateral".
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12. Paragraph 5.9 Substitutions and extensions of Letters of Credit: A new provision
has been introduced allowing a Lender to require a Borrower to deliver a Letter of Credit
in place of existing Collateral. Further, a Borrower is required to obtain an extension of
a Letter of Credit or provide a substitute Letter of Credit, no later than 10.30 am UK time
on the second Business Day prior to the date of expiry of an existing Letter of Credit.
13. Paragraph 6.1 Manufactured Payments: The provisions relating to Income on
Loaned Securities and Collateral have been consolidated into one paragraph. The
corresponding provisions in the OSLA have been replaced with an obligation by the
party receiving the Income "… to pay and deliver a sum of money or property equivalent
to the type and amount of such Income" that the Lender, in the case of Securities, and
Borrower, in the case of Collateral, would have been entitled to receive had they retained
the Securities or Collateral, as the case may be.
14. Paragraph 6.2 Income in the Form of Securities: A new provision has been added to
the Agreement dealing with Income in the form of securities. Such securities are added
to the Loaned Securities or Collateral, as the case may be, and are not expressed to be
deliverable until the end of the relevant Loan, provided margining requirements are met.
15. Paragraph 6.3 Exercise of Voting rights: Neither party is required to arrange for any
voting rights to be exercised in accordance with the instructions of the other party. (This
is contrary to the best endeavours obligation to arrange for voting rights to be exercised
in accordance with the other party's instructions contained in the OSLA.)
16. Paragraph 7.2 Rates in respect of Cash Collateral: Lender is required to pay
Borrower interest on Cash Collateral "… applying such rates as shall be agreed between
the Parties from time to time …". The corresponding provision in the OSLA provides
for interest to be paid "… where: (i) interest is earned by the Lender in respect of such
Cash Collateral and that interest is paid … without deduction of tax" or where this does
not apply, "… sums calculated by applying such rates as shall be agreed between the
Parties from time to time …".
17. Paragraph 8.3 Borrower's right to terminate a Loan: The Borrower is given a right
to terminate a Loan prior to its scheduled maturity corresponding to the Lender's right to
terminate in paragraph 8.2 (which corresponds to Clause 7(B) of the OSLA).
18. Paragraph 9.1 Borrower's failure to redeliver Equivalent Securities: This provision
consolidates the remedies to be found in Clauses 6(E) and 7(C) of the OSLA. However,
a Lender has the additional remedy in the Agreement of serving notice of an Event of
Default. Please note that in the event the Lender terminates the relevant Loan, the
Parties' obligations are valued by referenced to their "Market Value" and not "Bid Value"
and "Offer Value".
19. Paragraph 9.2 Lender's Failure to Redeliver Equivalent Collateral: The Agreement
gives the Borrower remedies (corresponding to those given to Lender in paragraph 9.1)
in respect of a failure by Lender to redeliver Equivalent Collateral.
20. Paragraph 9.3 Failure by either Party to redeliver: This paragraph provides that a
Party may claim "… interest, overdraft or similar costs and expenses …" from the other
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Party in respect of failure to meet a redelivery obligation by such other Party. Although
indirect or consequential losses are excluded "It is agreed by the Parties that any costs
reasonably and properly incurred by a Party arising in respect of the failure of a Party to
meet its obligations under a transaction to sell or deliver securities resulting from the
failure of the Transferor to fulfil its redelivery obligations is to be treated as a direct cost
or expense …".
21. Paragraph 9.4 Exercise of buy-in on failure to redeliver: Clause 7(D) of the OSLA
providing that Borrower is liable for the costs and expenses incurred by Lender in
relation to a buy-in exercised against it due to Borrower's failure to redeliver Equivalent
Securities has been (i) expanded to refer to a failure in respect of any redelivery
obligation; and (ii) made mutual in the Agreement such that Lender is also liable for any
such costs and expenses incurred by Borrower due to Lender's failure to meet its
redelivery obligations. However, the provision in the Agreement does not require any
notice of the likelihood of a buy-in to be given.
22. Paragraph 10.1 Definitions for paragraph 10:
(i) The Bid Value and Offer Value of a Letter of Credit are expressed to be zero.
This should be read in conjunction with the final three paragraphs of paragraph
10.2 (Termination of delivery obligations upon Event of Default).
(ii) The definition of "Offer Value" has been further amended to take account of
Income received by a Party but in respect of which equivalent amounts have not
been transferred to the other Party.
23. Paragraph 10.2 Termination of delivery obligations upon Event of Default: New
wording has been introduced to clarify that upon the acceleration of the Parties' delivery
and payment obligations pursuant to an Event of Default, such accelerated obligations
are to be performed only in the manner set out in paragraph 10.2, that is, the Parties'
obligations are to be valued and set-off, resulting in a net sum payable by one Party to
24. Paragraph 10.4: The OSLA states that the Bid Value and Offer Value are to be
calculated "in the most appropriate market… on the first Business Day following the
Performance Date…". The Agreement makes no reference to "the most appropriate
market" and provides that the values are to be determined "…as of the first Business
Day following the Termination Date….". (The term "Termination Date" in the
Agreement corresponds to the term "Performance Date" in the OSLA).
25. Paragraph 10.5: Clause 8(E)(i) of the OSLA provides that following an Event of
Default but prior to the Default Valuation Time, if the Non-Defaulting Party has
purchased securities identical to those to have been delivered to it or sold securities
identical to those it would have delivered, then the costs of purchase or sale proceeds, as
the case may be, are to be the Bid Value and Offer Value, as the case may be. The
Agreement replicates this position except than it extends the time prior to which a sale or
purchase may be made to "close of business on the fifth Business Day following the
Termination Date" and also provides for the addition of untransferred Income to the costs
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of purchase or the sale proceeds, as the case may be, in constituting the Bid Value and
The basis upon which the sale proceeds or costs of purchase are adjusted to reflect any
difference between the amount of securities to have been delivered and the amount of
securities actually purchased or sold has been changed in the Agreement.
26. Clause 8(G): Clause 8(G) of the OSLA provides that if Borrower or Lender fail to
redeliver or repay Equivalent Collateral pursuant to Clauses 6(F) (Borrower's right to
substitute Collateral) and 6(G) (Income on Collateral), then such failures would be an
Event of Default, without service of any notice. The Agreement provides that such
events will constitute an Event of Default but only upon service of notice by the Non-
Defaulting Party on the Defaulting Party.
27. Paragraph 10.7 Other costs, expenses and interest payable in consequence of an
Event of Default: A new provision has been introduced into the Agreement providing
for the Defaulting Party to be liable for the Non-Defaulting Party's "…reasonable legal
and other professional expenses…" incurred as a consequence of an Event of Default,
together with interest at a rate of LIBOR (as defined in the Agreement) or "… where the
parties have previously agreed a rate of interest for the transaction, that rate of interest if
it is greater than LIBOR…".
28. Paragraph 12 Lender's Warranties: The Agreement introduces a new warranty to be
given by Lender to the effect that it is acting as principal or if it has indicated in the
Schedule that it may act as agent, that the conditions referred to in the agency provisions
will be fulfilled in respect of any Loan which it makes as agent.
29. Paragraph 14 Events of Default:
(i) new events have been introduced dealing with a Lender's failure to deliver
Securities and a Borrower's failure to deliver Equivalent Securities;
(ii) a Party is required to notify the other of "… an event which, with the passage of
time and/or upon the serving of a written notice… would be an Event of
(iii) a provision has been introduced to the effect that, subject to the other provisions
of the agreement, neither Party may claim any sum by way of consequential
30. Paragraph 15 Interest on Outstanding Payments: The rate of interest has been
changed from the OSLA position of "1% above the Barclays Bank PLC base rate" to the
rate referred to in paragraph 10.7 (please see above).
31. Paragraph 16.1 Power for Lender to enter into Loans as agent: As mentioned
earlier, a Party is required to indicate in the Schedule as to whether it may act as an agent
in its capacity as Lender.
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32. Clause 16 Governing Practices: The Agreement contains no corresponding provision
to Clause 16 of the OSLA which places a best endeavours obligation on the Borrower to
advise the Lender of any changes in relevant legislation or practices.
33. Clause 17 Observance of Procedures: The Agreement contains no corresponding
provision to Clause 17 of the OSLA. Further, the Agreement makes no direct reference
to the rules of any stock exchange.
34. Paragraph 18 Single Agreement: This provision merely provides that the Parties enter
into each Loan on the basis that all Loans constitute a single contractual relationship.
35. Paragraph 21 Notices: The Agreement contains revised notice provisions.
36. Paragraph 24 Governing Law and Jurisdiction: The arbitration procedure contained
in the OSLA has been replaced with submission of disputes to the exclusive jurisdiction
of the English courts. Parties may specify details of their process agents in the Schedule.
37. Paragraph 27 Waiver of Immunity: Each Party is expressed to waive any immunity to
which it may otherwise be entitled in respect of any action or proceeding relating to the
38. Paragraph 28 Miscellaneous: This is a new provision containing, inter alia, an entire
agreement clause, a provision dealing with amendments to the agreement, a warranty
from the party that has prepared the agreement (as indicated in the Schedule) that the text
of the agreement conforms exactly to the text of the standard form Agreement except as
otherwise notified and a provision excluding third party rights.
39. Schedule: Unless indicated otherwise, it is assumed that the global margining and
netting of margining obligations provisions apply.
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