Legal Issues
Documentation provides a legal framework in which to transact repo and covers broad legal protections. It provides the facility to mitigate risk through mark-to-market of collateral and margin maintenance, netting of credit exposure and perfection of interest in repo collateral in the event of default. Individual trade details should be negotiated on a trade-by-trade basis. The main agreements used, outside the US, are the GMRA for repos and buy/sell backs, OSLA and GMSLA for securities lending, and Pension Livrées AFTB for French repos.
The Global Master Repurchase Agreement (GMRA) is the standard agreement for repo outside of the United States. It is produced by ICMA and TBMA (formerly PSA) and was introduced in November 1992 and updated twice since then - in 1995 and 2000. Its main features are:
- Structuring repo trades as outright sales and purchases
- Full ownership conferred of securities transferred
- Obligation to return 'equivalent' securities
- Provision for initial and variation margin
- Coupon paid to seller at time of payment
- Legal title to collateral in event of counterparty default
Download a copy of the GMRA and its guidance notes from the glossary.
As mentioned earlier, the Overseas Securities Lending Agreement (OSLA) of 1995 and the Global Master Securities Lending Agreement (GMSLA) of 2000 are the standard legal documents, outside of the United States.
The GMSLA in effect consolidates OSLA, GESLA and MEFISLA and a number of domestic agreements. The GMSLA is rapidly superseding the OSLA as the industry standard documentation. The main difference between the two is that the OSLA does not incorporate UK securities while the GMSLA does.
Download a copy of the OSLA from the glossary.
Download a copy of the GMSLA from the glossary.
