DTCC closes out over $500 billion of Lehman exposure

The Depository Trust & Clearing Corporation (DTCC), which provides post-trade clearing and settlement services in the US capital markets, has completed the largest close out in its history, clearing over $500 billion of market participants’ exposure to Lehman Brothers.

Lehman, which filed for Chapter 11 bankruptcy on September 15, was described by DTCC as a “leading participant” in its depository, clearing corporations and over the counter (OTC) derivatives business.

DTCC subsidiaries are central counterparties, which guarantee that the majority of Lehman’s trades outstanding at the time of bankruptcy will be settled on their original terms. They have succeeded in closing out a range of securities.

At the time of its bankruptcy, Lehman had a gross position of $329 billion in mortgage-backed securities, handled by the Fixed Income Clearing Corporation. Almost 90% of the future trades have been resolved. A gross position of $190 billion on US government securities was also closed out.

The National Securities Clearing Corporation has managed to close out the majority of its $5.85 billion exposure to Lehman in equities, and municipal and corporate debt securities.

EuroCCP dealt with closing out $21 million in exposure to Lehman Brothers International (Europe).

There were two main actions taken regarding OTC derivatives. First, on September 15, DTCC halted the automated central settlement of credit default swap (CDS) payment obligations, which were held in DTCC’s Trade Information Warehouse for counterparties of Lehman Brothers International (Europe) and Lehman Brothers Special Financing. DTCC also helped counterparties remove from the Warehouse over 300,000 CDS contract positions held in Lehman.

Second, on October 21, DTCC completed the automated credit event processing of Lehman Brothers Holdings (LBH), involving $72 billion of CDSs. DTCC calculated from this that net sellers of protection on LBH owed net buyers $5.2 billion.

See also: DTCC and LCH.Clearnet plan €739 million merger
Central clearing house becomes a reality
Government stakes in banks raise counterparty conundrum