Repo and Stock Loan Netting Opinion Coverage
The long-awaited discontinuance of netting opinion coverage for the OSLA and 1995 GMRA has been announced by the industry associations, ISLA and ICMA.
The netting opinions issued by these associations from 2019 onwards (opinions usually being issued in April in each year) will cease to include these earlier agreements. In the case of ISLA this means the 1994 OSLA, the 1995 OSLA as well as the 1996 Master Gilt Edged Stock Lending Agreement.
For institutions who report exposures on a net basis under CRR and other regimes following the Basel capital framework, this effectively means those firms will need to up-grade or repaper their client relationships which are still documented under these vintage agreements. This should ideally be completed by April 2019.
The OSLA is still used quite extensively in the stock lending agency world and some agency agreements themselves assume that the underlying master agreement will be an OSLA; so these may need to be amended as well.
In the case of the GMRA there is a protocol which can be used to upgrade a 1995 (or a 2000) GMRA to GMRA 2011 standard in terms of close-out mechanics (ie the provisions supported by the netting opinions) but a number of market participants have concerns about it and take up has been very low (only 6 banking groups have adhered).
It remains to be seen if that will be revisited or if the industry will develop a similar solution to convert OSLAs into GMSLAs (which is not quite as straight-forward). In addition, negotiated terms under the vintage agreements will be very stale and institutions will generally want to update them to their current standards.
Under our Condor alternative legal solutions platform we are already assisting banks and agent lenders with the up-grade of their securities financing documentation.
If you would like any more information on this development or on our Condor solutions, please get in touch.