DTCC CLOSE-OUT OF LEHMAN EXPOSURES IS LARGEST EVER

Posted October 30, 2008

NEW YORK – The Depository Trust & Clearing Corporation (DTCC) has closed out more than $500 billion in market participants’ exposure from the bankruptcy of Lehman Brothers Inc. that occurred the week of September 22, making it the largest close-out in the DTCC’s history.

“The liquidation of Lehman was complex, involved multiple asset classes, and required a methodical approach to mitigate potential losses from outstanding trading obligations,” says Donald F. Donahue, Chairman and Chief Executive Officer of DTCC. “Without question, our ability to manage risk and see exposure from a central vantage point was instrumental in helping us ensure that market risk – and systemic risk – was avoided.”

On Oct. 21, DTCC also completed, without incident, the automated credit event processing of Lehman Brothers Holdings Inc. (LBHI) involving $72 billion of credit default swaps.

Lehman was a leading participant in DTCC’s depository, clearing, and OTC derivatives business. It ranked as a top-three user of DTCC’s Mortgage Backed Securities Division (MBSD); in the top five largest users of the Government Securities Division (GSD) and Deriv/SERV and in the top 10 participants of National Securities Clearing Corporation (NSCC) and The Depository Trust Company (DTC). Lehman Brothers International (Europe) was a participant of DTCC’s European Central Counterparty Ltd. (EuroCCP) subsidiary.

NSCC, which is responsible for clearing and settlement of virtually all broker-to-broker trades in the US in equities and corporate and municipal debt securities, faced total exposure of about $5.85 billion from Lehman Brothers at the time its accounts were closed. EuroCCP suspended Lehman from new trade input on September 15, but continued to settle as many of the open positions as possible with Lehman's agent banks. Lehman had open trades in 12 markets and six currencies, totaling almost €21 million ($29.9 million). About €5 million in trades were settled by Lehman’s agents on September 15.

“During the crisis, DTCC also seamlessly processed four consecutive days of record high equity trading volume, which reached 209 million transactions in a single day on October 10, thus providing certainty and stability for the financial system at a time of extreme market volatility,” says Donahue.