In September 2008, we successfully managed Lehman Brothers’ US$9 trillion interest rate swap default, comprising over 66,000 trades, by implementing SwapClear’s unique default management process.
Less than a week after default, market risk had been reduced by 90% by comprehensive hedging and, within three weeks, the default was fully resolved well within the margin held and at no loss to other market participants.
This well-rehearsed process was developed by LCH.Clearnet and the SwapClear member banks, which play an invaluable role in providing trade expertise and access to market liquidity during a default.
The Bank of England noted that the ability of LCH.Clearnet to close out the positions without using up all available margin... “illustrates the ability of a clearing house to protect market participants from bilateral counterparty risk, even in the event of default of a major participant.”*
* The Bank of Englands Financial Stability Report, October 2008