The Depository Trust & Clearing Corporation (DTCC), a post-trade clearance and settlement infrastructure for the U.S. capital markets, successfully closed out over $500 billion in market participants’ exposure from the Lehman Brothers, Inc. (Lehman) bankruptcy, which occurred the week of Sept. 22. This was the largest close-out in DTCC’s history. DTCC reports it does not expect there to be any impact to its retained earnings or to market participants’ clearing fund deposits as a result of closing out these pending trade obligations. “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 F. Donahue, DTCC chairman and CEO, in a press release. “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. 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 Oct. 10, thus providing certainty and stability for the financial system at a time of extreme market volatility, ” he added.
Lehman was a leading participant in DTCC’s depository, clearing corporations 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. DTCC subsidiaries, NSCC, the Fixed Income Clearing Corporation’s (FICC) GSD and EuroCCP, are central counterparties (CCPs) guaranteeing that most trades outstanding at the time of a bankruptcy of a member firm such as Lehman will be settled on the original terms. By acting as CCPs, the clearing corporations step in between the seller and buyer of each trade to assume the counterparty risk and the responsibility to deliver the securities to the buyer and payment to the seller.