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 asks whether the parties wish to enter into Transactions in “Net Paying Securities”. If so, there are a couple of changes that are made to the standard terms of the GMRA:
- Firstly, the restriction on transacting in “Net Paying Securities” which is hard-wired into Paragraph 1(a) of the GMRA is lifted (this is achieved through the deletion of the words “…and Net Paying Securities…” from Paragraph 1(a) of the GMRA); and
- Secondly, a technical change is made to the Buy/Sell Back Annex such that “Income” is calculated on the basis of the amount of distribution which is payable BEFORE a deduction or withholding is made.