5840. Cash and securities loan agreements

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    1. A cash and securities loan is the lending of securities for cash collateral or vice versa, other than an overnight cash loan.

    2. To avoid the margin penalties in Form 1 for cash and securities loan transactions, a Dealer Member must be party to a written agreement that contains the minimum terms set out in subsection 5840(3).

    3. This written cash and securities loan agreement must:

      1. set out the rights of each party to retain and realize on the securities delivered to it by the other party under the agreement if the other party defaults. These rights are in addition to other remedies in the agreement or available at law,

      2. set out events of default,

      3. provide for treatment of the securities or collateral value held by the non-defaulting party that is over the amount owed by the defaulting party, and

      4. either:

        1. give the parties the right to set off their mutual debts, or

        2. enable the parties to effect a secured loan and provide that the lender must continuously segregate agreement collateral securities.

    4. If the parties agree to a secured loan as provided in sub-clause 5840(3)(iv)(b), and there is more than one method for the lender to perfect its security interest in the collateral, the lender must choose the method to achieve the highest priority in a default situation.

    5. Whether the parties rely on set off or agree to a secured loan as provided in clause 5840(3)(iv), the written cash and securities loan agreement must provide for the securities borrowed and loaned to be free and clear of any trading restrictions under applicable laws, and signed for transfer.

    5841. - 5849.  Reserved.

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    There is no history log for this rule.