Nearly a month after Lehman Brothers collapsed, many of the company’s transactions remained unsettled, according to PricewaterhouseCoopers.
Some of the transactions that involved large numbers of counterparties have proven difficult.
PwC proposes a bilateral agreement for net settlement on the outstanding OTC contracts:
“In order to deal with the contractual rights and liabilities associated with OTC contracts, the general approach which the Administrators propose would be for LBIE and each counterparty to agree bilaterally that their respective liabilities under their OTC contracts would be cancelled and replaced by a determination of a net position between LBIE and the counterparty. The net position would be calculated in a manner analogous to the approach applied under the LSE default rules – namely that each contract would be valued by comparing the trade price and its close-out price as at an agreed valuation date. Note that, as the purpose of adopting this approach is to provide legal certainty, and a single net position in respect of all relevant liabilities, it will be a condition of the approach that all relevant OTC contracts be included in the arrangements, and not only some. For OTC contracts that were to be settled through a clearing or settlement system any cancellation will normally need to be subject to the relevant matched settlement instructions first being duly deleted in accordance with the rules of that system. For contracts which were to be settled through CREST, this will be achieved consequent on the directions published by EUI earlier today, as referred to above.”