Lehman bankruptcy imminent

September 14, 2008

Statement from the International Swaps and Derivatives Association, via Bloomberg:

“ISDA confirms a netting trading session will take place between 2 pm and 4 pm New York time for OTC derivatives. Product classes involved are credit, equity, rates, FX and commodity derivatives. The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy filing. Trades are contingent on a bankruptcy filing at or before 11:59 pm New York time, Sunday, September 14, 2008. If there is no filing, the trades cease to exist. These trades are subject to a protocol which is being distributed by ISDA (International Swaps and Derivatives Association). Traders should execute the protocol and return to ISDA.”

What this means is that they believe that Lehman will file for bankruptcy soon, and they’re trying to net out all the counterparty risk related to its positions, in commodities, forex, and every other kind of derivatives transactions. It should prevent any major disaster on Monday.

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