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The International Capital Market Association (ICMA) has announced the publication of new and updated legal opinions on the Global Master Repurchase Agreement (GMRA), the standard agreement used for international repo transactions. These legal opinions now cover 55 jurisdictions indicating both the extensive use of the GMRA and the increasing utilisation of repo as a funding tool.
The legal opinions have been obtained from locally appointed law firms and support the use of the GMRA by addressing the enforceability of the netting provisions and also the validity of the agreement as a whole. In addition, the opinions address the issue of recharacterisation risk (in respect of both the transfer of securities and the transfer of margin). While the opinions for all 55 jurisdictions cover companies, banks and securities dealers, the opinions for 23 jurisdictions also cover insurance companies, hedge funds and mutual funds as parties to the GMRA.
Commenting on the publication of the opinions Godfried de Vidts, Chairman of ICMA’s European Repo Council said: “The European Repo Council welcomes the publication of the updated legal opinions supporting the use of the GMRA, the standard documentation which has reduced the risk of cross border repo transactions and so allowed the market to grow rapidly over the past few years. The range of jurisdictions now covered is a clear indication of the widespread adoption of repo in many new markets”.
Both the UK Financial Services Authority (FSA) and the German Financial Supervisory Authority (BaFin) recognise the effect of netting provisions for regulatory capital and large exposure requirements provided that a legal opinion has been obtained which confirms the enforceability of such netting provisions and meets certain other requirements. The 2007 opinions assist repo market participants using the GMRA in fulfilling these regulatory requirements.
The 55 jurisdictions covered include many of the 27 countries of the European Union, with Slovenia and Slovakia being added for the first time, and also some of the rapidly growing financial markets of Asia e.g. China, Thailand, Philippines, South Korea and of the Middle East e.g. Abu Dhabi, Bahrain and Saudi Arabia. ICMA is looking to provide opinions for further jurisdictions as requested by market participants, including Croatia, Dubai, India and Israel.
All the 2007 legal opinions are available to ICMA members from the ICMA website at www.icmagroup.org, together with black lined versions of the 2006 opinions indicating any changes.
