Payment netting is a method through which counterparties to a Repurchase Transaction executed under a Global Master Repurchase Agreement can mitigate counterparty credit risk. The concept of payment netting is found within Paragraph 6(h) of the 2011 GMRA.  It states that any amounts payable in the same currency and on the same date under ANY […]

The concept of an “Original Transaction” is relevant to transactions which the parties wishes to reprice or adjust instead of margining in the traditional way.  As the name suggests, the “Original Transaction” is the transaction which the parties enter into BEFORE it is repriced (that being the “Repriced Transaction”) or adjusted (that being a “Replacement […]

The “Defaulting Party” in relation to a GMRA is the party in relation to which an Event of Default has arisen.  The ‘other party’ (in other words, the party in relation to which NO Event of Default has arisen) is the “non-Defaulting Party”. The significance of being the non-Defaulting Party is set out below: “Default […]

The concept of “Net Value” is used as a fallback for a non-Defaulting Party which needs to calculate “Default Market Value” for the purposes of a close-out under the GMRA. “Net Value” is calculated by the non-Defaulting Party and means, basically, the fair market value of the securities in question – adjusted to take account […]

A “Net Paying Security” is NOT a security in relation to which the coupon is paid net of withholding tax.  Rather, it is a security where there may be a requirement to make a withholding from any “Income” payment under Paragraph 5 of the Global Master Repurchase Agreement. Annex 1, Paragraph 1(b) of the GMRA […]

Market risk is the risk of loss arising simply from changes in the price of an asset.  Consider the simple example of a person who invests his/her entire life savings in the shares of a company today, only for that company to go bust (and for its shares to be rendered valueless) tomorrow.  The investor […]

In essence, “Margin Securities” are just securities which are reasonably satisfactory to a party making a call for a “Margin Transfer” under a Global Master Repurchase Agreement.  In simple terms, they are securities which one party to a Repurchase Agreement transfers to its counterparty in order to extinguish either “Transaction Exposure” or “Net Exposure”.

Under the Global Master Repurchase Agreement, the “Margin Percentage” is simply defined as “with respect to any Margin Securities or Equivalent Margin Securities, the percentage, if any, agreed by the parties acting in a commercially reasonable manner”. Under the GMRA, the “Margin Percentage” is applied to the “Market Value” of Margin Securities or Equivalent Margin […]

A “lien” is a legal claim or legal right against assets.  Liens are typically asserted against assets that are pledged as collateral in relation to a loan or other debt.  The holder of the lien has the right to retain the assets in question for so long as the debt remains outstanding. The concepts of […]