CCPs confront the difficult maths of default management

The next time a big dealer defaults, it will hit a host of swap clearing houses simultaneously

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Lehman: default management process worked well in 2008, but more CCPs exist today

When Lehman Brothers filed for bankruptcy on September 15, 2008, the default management process run by LCH.Clearnet – then the only clearing house for interest rate swaps – went smoothly. The central counterparty (CCP) first convened a meeting of its default management committee, made up of clearing house staff and senior swaps traders; then, it netted down the Lehman positions, hedged them, and ultimately auctioned them off to the market over a period of three weeks. But with at least 15 swaps

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