CL-2018-000297, CL-2018-000404, CL-2018-000590, - [2025] EWHC 2364 (Comm)

Fecha: 02-Oct-2025

That was all quite artificial. The dividend in question should have been irrelevant to a simple ex-div stock loan. Further, since stock loan cash collateral is functionally a loan to the stock lender

45.

That was all quite artificial. The dividend in question should have been irrelevant to a simple ex-div stock loan. Further, since stock loan cash collateral is functionally a loan to the stock lender from the stock borrower, for the stock lender immediately to lend a (proportionately) small sum to the stock borrower is, in substance, simply to agree the reduced (net) collateral in the first place. As the stock loan intermediary always traded on fully matched, back-to-back terms, other things being equal, one might expect them to propose that the traded stock loan terms should reflect the economic reality by fixing the cash collateral at the reduced amount. However, a receipt by the buyer as stock lender of the gross collateral amount was required or the Equity Trade would fail to settle for want of funds to complete it. The rather strained concept being used, therefore, was that of the stock loan and the Equity Trade settling first (feeding each other in a share-less settlement loop), following which (but on the same day) a dividend compensation payment and partial reduction in collateral could settle (also feeding each other in a self-fulfilling, net zero loop).

46.

A distinction was drawn, in selecting Sample Trades, between Maple Point trading in 2014 and in 2015. There are differences between the two years as to which parties were involved, for example Indigo was a custodian only for 2014 trading and Lindisfarne only for 2015 trading, whereas NCB was a custodian for both years. However, there were only very minor differences in the transaction structures, and none of any substance relevant to the issues in the litigation:

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In Indigo trades, the stock lender and the forward counterparty were different.

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In NCB trades: the stock lender and forward counterparty was always the same entity, Sherwood, owned by Mr Klar; and additional cash loan transactions were added to the structure, at NCB’s initiative. That additional element involved back-to-back cash loans, entered into as an adjunct to the Equity Trades, by which the short seller would promise to lend to Sherwood, and Sherwood would promise to lend to the USPF, the full Equity Trade purchase price, for settlement on the same date as the Equity Trade. Those loans were cancelled and recalled on the settlement date, as an adjunct to the stock loans entered into on that date, since the synthetic funding created by the stock loans was then used for the internalised settlement of the Equity Trade in NCB’s books, so the cash loans were not required and did not need to settle. A materially equivalent element, in the opposite direction, was also added by NCB for the short seller’s notional funding gap between the trade date and settlement date of the unwind phase.

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In Lindisfarne trades, the stock lender was always the same entity as the forward counterparty, e.g. Potala in Lindisfarne 1.