GLOBAL - The Depositary Trust and Clearing Corporation at one stage processed a total of 209 million open trades related to the collapse of Lehman Brothers in a single day, and has now closed out contracts worth over $500bn in the wake of the Lehman collapse.
DTCC is one of the biggest processor of mutual fund and insurance transactions in the US along with clearance, settlement and information for equities, corporate and municipal bonds, so any exposure and trading hold-ups going through DTCC at the time Lehman went bankrupt would have been huge.
The firm has today confirmed it has completed all trading of contracts, funds and deposits which needed to be completed to wrap up the bankruptcy of Lehman, following its collapse in September and in relation to market participants' exposure, including an automated credit facility related to Lehman Brothers Holdingss involving $72bn of credit default swaps on 21 October.
Following the Lehman collapse, pension funds, supporting asset managers and custodians were forced to review all trades with Lehman and those pending between companies to ensure their trading and counterparty positions were protected and completed.
Lehman had been a major user of DTCC's deposit, clearing and over-the-counter derivatives business - the level of US government securities' trading still outstanding when the company went under amounted to $190bn - while Lehman Brothers' European operation had been using its counterparty subsidiary, so DTCC had to support its fixed income clearing corporation subsidiary and close out its deals on the par value terms it originally offered.
The firm's EuroCCP, a UK-based subsidiary which provides pan-European clearing and settlement for multilateral trading, had actually suspended Lehman from new trade input on 15 September although it attempted to settle trades worth €21m still passing through the system and a further €5m settled by Lehman's agents at the time.
At the height of its activity on 10 October, DTCC closed 209 million trades in the middle of a frenetic four days of trading, according to the firm.
The liquidation of Lehman was complex, involved multiple asset classes, and required a methodical approach to mitigate potential losses from outstanding trading obligations," said Donald Donahue, chairman and CEO of DTCC.
"Without question, our ability to manage risk and see exposure from the central vantage point was instrumental in helping us ensure that market risk - and systemic risk - was avoided," he added.