CCPs confront the difficult maths of default management

When a member of a clearing house goes down, surviving banks send some of their coolest heads to help run the default management process. It worked well when Lehman Brothers collapsed, but there are more CCPs today, and they all have the same set of members. Cécile Sourbes reports

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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