Can OSLA ensure effective insolvency close-out?

Author: | Published: 1 Jan 2000

Ebo Coleman, a barrister at Lincoln's Inn, London, argues that time travel seems to be the only way to comply with its close-out and netting provisions

Legally speaking there is not much difference between a repo contract and a stock lending contract. In both cases what is economically a lending of securities is documented as a sale of securities by the lender together with an obligation by the borrower to re-sell equivalent securities back to the lender.

The significant difference between the two types of transaction lies at the economic level: in repo, as they say, cash is king. In other words, the object of the repo transaction is the lending of money, which the borrower collateralizes by a transfer of securities. In stock lending, on the other hand, the object of the transaction is the lending of securities which the borrower collateralizes with cash or other securities.

Given the...