A question for those working in broker-dealer subsidiaries/firms active in repo markets. Over the last few years, sponsored repo program by the FICC has gained a lot of traction among repo dealers, hedge fund and money market fund clients. As I understand it, as a sponsoring member has to guaranty the performance of their sponsored clients, among other things. My question is say, a sponsored hedge fund declares bankruptcy and defaults on her obligations to the FICC and the sponsoring broker-dealer fulfills all their obligations under the guaranty. What legal rights does broker-dealer have as a guarantor during bankruptcy? In particular,
1) Do they gain a security interest in the collateral pledged to the FICC? If yes, can they liquidate the collateral immediately as they gain control (i.e., exempt from automatic stay)?
2) Do they have a right to recover the debt from the hedge fund which was repaid to the FICC?
3) Can they participate in unsecured creditor committee?
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