GMRA: A-Z Confirmation

In simple terms, a “Confirmation” is a document which records the economic terms of a specific Repurchase Transaction entered into under a Global Master Repurchase Agreement.

Confirmations must be in writing and should provide certain basic information regarding the underlying Repurchase Transaction, including:

1. A description of the “Purchased Securities” (in other words, the collateral which has been provided by the Seller in relation to the ‘loan’ that has been made to him by the Buyer).  The description of the “Purchased Securities” should include the CUSIP or ISIN numbers.  “CUSIP” stands for “Committee on Uniform Security Identification Procedures” – it is a nine-digit, alphanumeric number that is used to identify securities.  Basically, a CUSIP number is a serial number for a bond so that it can be uniquely identified.  “ISIN” stands for the “International Securities Identification Number”.  This is just another code that uniquely identifies a specific securities issue.
2. Confirmation of who is the “Buyer” and who is the “Seller” (in other words, who is the ‘lender’ and who is the ‘borrower’.
3. Confirmation as to the “Purchase Date” (in other words, on what day the ‘loan’ will be made).
4. Confirmation as to the “Purchase Price” (in other words, how much is being ‘loaned’).
5. Confirmation as to the “Repurchase Date” (in other words, the date on which the ‘loan’ is to be repaid) – unless the Transaction is to be terminable on demand, in which case the Confirmation should state that this is the case).
6. Confirmation as to the “Pricing Rate” applicable to the Repurchase Transaction (in other words, the ‘interest rate’ to be charged on the ‘loan’).
7. Confirmation of bank account details for the purposes of making payments.
8. Confirmation as to whether or not the Buy/Sell Back Annex applies and whether the underlying transaction is a Repurchase Transaction or a Buy/Sell back;
9. Confirmation as to whether the Agency Annex applies and, if so, (a) whether the transaction is an Agency Transaction; and (b) if so, who is the agent and who is the principal (even if the principal is only identified by way of some kind of code).
10. Confirmation as to any additional terms or conditions of the Transaction.

The above list is non-exhaustive and not exclusive.  A form of confirmation is provided in Annex II to the GMRA, but it does not have to be used by the parties if they prefer to use some other form.

The Global Master Repurchase Agreement and the confirmation, when taken together, constitute prima facie evidence of the terms of a Repurchase Transaction, unless objection is made to the Confirmation “promptly” after receipt.  In practice, most market participants keep recordings of the telephone conversations between traders executing transactions.  This is one source of information that would be capable of being used to dispute the terms of a Repurchase Transaction as documented in any confirmation.

In the event of conflict, the confirmation will prevail over the terms of the GMRA (but only in relation to the transaction under consideration).  This makes sense as the GMRA is a framework document whereas the confirmation is transaction-specific.

Annex I, Part 1(h) of the 2011 GMRA allows the parties to specify whether the Seller, the Buyer or both parties are to deliver the confirmation in relation to any Transaction.  Where one of the parties is a dealer, it is usual for that party to produce the confirmation.  Where both parties are dealers, reaching agreement over this provision is not always as easy as you might think.  The reason for this is that most confirmations will say that the party in receipt of the confirmation will be taken to have agreed to its terms unless it objects within X business days – adjusting the allocation of risk associated with this provision to sit squarely on the shoulders of the recipient of the confirmation.

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