Paul Harding - A Practical Guide to Using Repo Master Agreements: Existing market practice for legal documentation in Europe and the USA

A Practical Guide to Using
Repo Master Agreements

Third Edition

A Practical Guide to Using
Repo Master Agreements
Third Edition

Paul C. Harding and Christian A. Johnson

Harriman House

HARRIMAN HOUSE LTD

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Copyright 2017 Paul C. Harding and Christian A. Johnson

First edition published 2004

Second edition published 2015

The right of Paul C. Harding and Christian A. Johnson to be identified as the authors has been asserted in accordance with the Copyright, Design and Patents Act 1988.

Print ISBN: 978-0-85719-585-2

eBook ISBN: 978-0-85719-586-9

British Library Cataloguing in Publication Data

A CIP catalogue record for this book can be obtained from the British Library.

All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior written consent of the Publisher.

Whilst every effort has been made to ensure that information in this book is accurate, no liability can be accepted for any loss incurred in any way whatsoever by any person relying solely on the information contained herein.

No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Authors, or by the employers of the Authors.

Disclaimer

This book is intended to provide an informational and illustrative overview of its subject mainly to non-lawyers. It should in no way be relied upon, for any reason, including but not limited to the provision of legal or tax advice in respect of any particular situation, contractual relationship or contemplated transaction. Users of this book must consult such legal and other advisers as they deem appropriate in the preparation and negotiation of repo documentation.

Any examples given herein are illustrative only, and neither the authors of this book nor the publisher assumes any responsibility for any use to which standard repo documentation, or any definition or provision set forth in this book, may be put.

Contents

1. Differences between repos and securities loans

2. Tri-party repo market

3. Non-assignability; Termination

   Agency Annex and Addendum

4. (hh) Net Paying Securities

   Paragraph 11(f)

   Equities Annex

5. Use of New York Law and New York Courts

   Paragraph 8

6. Books

Preface

There is a 1984 film called Repo Man . Set in the US, it concerns the repossession of vehicles in a kind of bounty-hunting fashion. It has been described as: an offbeat punk fable with a little of everything: action, comedy, urban decay, police drama, mystery, governmental conspiracy and UFOs.

In 2010, Repo Men was released. Set in the near future when artificial organs can be bought on credit, it revolves around a man who struggles to make the payments on a heart he has purchased. He must therefore go on the run before his heart is repossessed!

These films did not immediately remind us of the European and US repo master agreements we are going to tackle in this book but we hope to make our subject as interesting to you as possible.

Repo is a huge business: we estimate the global volume of the market as at the end of June 2016 (the latest figures we have before going to press) to be equivalent to US$11,213 billion. In most countries, repos are classified as a money-market product because the vast majority of maturities are less than 364 days. In fact, in Europe 61% of them are for less than one month. They combine liquidity with security. In the US overnight repos are an enormous part of the market. Tri-party repo is also much bigger than it is in Europe.

In this book we have concentrated on repo master agreements in English. There are significant repo master agreements in French and German, which are much used in those markets, but regrettably the authors deficiencies in those languages prevent their inclusion here.

So this book offers an up to date picture of existing market practice using the major English language repo master agreements in Europe and the US.

This book does not deal with tax, regulatory or accounting issues, except where they touch on documentation. Readers should therefore refer to more specialist literature for commentaries on those matters.

This book comprises seven chapters and four appendices.

Chapter 1 sets the scene, and describes the market and products in general, as well as explaining the differences among them.

Chapter 2 describes the legal issues surrounding repos both in Europe and in the US.

Chapters 3, 4 and 5 provide, we hope, clear but detailed commentary on the TBMA/ISMA Global Repurchase Master Agreement (2000), the ICMA/SIFMA Global Repurchase Master Agreement (2011) and the US Master Repurchase Agreement (1996) respectively. Our aim with these chapters is to provide clarity and avoid any comments such as Byrons condemnation of Coleridge: Explaining metaphysics to the nation. I wish he would explain his explanation.

In Chapter 6, we focus on the growing importance of tri-party repo by dissecting the standard Custodial Undertaking in Connection with Master Repurchase Agreement used by The Bank of New York Mellon in the US.

Chapter 7 is a summary of various new developments in the repo market over the past few years.

Terms used in the commentaries may have capitalisation or minor spelling differences in different chapters to match the corresponding documentation.

Finally, the four appendices provide practical information in one place for easy reference. These can be downloaded as a PDF from the following location: www.harriman-house.com/bookResources/Repo_Appendices.pdf

The appendices are as follows:

Appendix 1: a facsimile of the TBMA/ISMA Global Master Repurchase Agreement (2000) (reproduced with the kind permission of the International Capital Market Association and the Securities Industry and Financial Markets Association).

Appendix 2: a facsimile of the ICMA/SIFMA Global Master Repurchase Agreement (2011) (reproduced with the kind permission of the International Capital Market Association and the Securities Industry and Financial Markets Association).

Appendix 3: a facsimile of the Master Repurchase Agreement (1996) and its Annexes (reproduced with the kind permission of the Securities Industry and Financial Markets Association).

Appendix 4: a facsimile of the Bank of New York Mellon Custodial Undertaking in Connection with Master Repurchase Agreement with amendment (reproduced with the kind permission of the Bank of New York Mellon).

We believe that this book has something to offer to seasoned practitioners and rookies alike.

We hope that you enjoy it and find it useful.

Paul C. Harding and Christian A. Johnson

February 2017

About the authors

Paul C. Harding is a graduate of the University of London, and worked in several UK and foreign banks in London, in credit, marketing and documentation roles. Since 1990 he has been involved with OTC derivatives documentation. He was a well-known negotiator in the City of London with Barclays Capital Securities Limited and Hill Samuel Bank Limited, where he was Head of Treasury Documentation.

In February 1997, he founded Derivatives Documentation Limited, a derivatives consultancy and project management company, based in the City of London and providing negotiation, recruitment and in-house and online training services in OTC derivatives documentation (www.derivsdocu.com). Its clients include many of the worlds leading banks.