What's happening to Lehman pending settlements? Tuesday, September 16, 2008
Image via Wikipedia I've spoken to a few people this morning trying to find out if Lehman were settling trades yesterday and today.
I'm assuming their accounts were frozen, which would have brought settlement chaos but it's not being reported and there's been no announcement by the CSDs. A friend at Dresdner thought that people were leaving delivery versus payment ["DVP"] trades in place and those DVP trade that had been "pre-matched" were settling. But who is doing the work to settle them as most of the staff were told to go home, certainly in London.
Assuming they are not settling trades, the ramifications would be multi-fold
- Settlement blockages: Lehman is a major counterparty in a number of market, and its' inability to deliver stock from its' accounts to buyers would preclude them from any on-deliveries
- Replacement cost: If you have trades with Lehman that aren't going to settle, then your positions need to be re-stated. As such, if you choose to replace those trades you may face a different price [probably much less, in which case better to walk away from the trade anyway and ignore any subsequent calls from the Administrators]
Lehman has been declared in default by Hong Kong Securities Clearing Company, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited.
At the same time, Lehman administers assets on behalf of many clients, which are dispersed in many locations. These will need to be moved back under client control. Likewise, stock loans will need to be returned to the real legal owners.
Sorry to be floating questions and wondering aloud, but my mind is whirring.