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Ceasing of Settlement


Below you will find some useful information on settlement which is covered by the Exchange's default rules.
 
CREST
 
Settlement in CREST has been suspended in all trades that were to due to settle. At the present time member firms can have no certainty that all transactions they undertook with Lehman that are flagged in CREST with the Trade system of origin of "S" (London Stock Exchange) are covered by the Exchange's default rules.
 
DTCC and Euroclear Bank
 
IOB trades that are settled through DTCC and Euroclear Bank have prompted queries from member firms as the Exchange is aware that some IOB transactions are continuing to settle. To allow the Exchange to deal with such trades under its default procedures, member firms should ensure that no further settlement of their on-Exchange transactions with Lehman takes place.

All transactions which have subsequently been settled by DTCC and Euroclear bank after declaration of default remain subject to the Exchange's default rules, member firms should be aware that such settlements will not affect in any way the calculation of net amounts due between the defaulter and it's counterparties. The Exchange will continue to calculate the net sums payable to/by Lehman based on the trades that were unsettled at the time of default.

In addition, all settled contracts prior to the declaration of default do not fall under the Exchange's default rules.
 
Transactions cleared through a Central Counterparty (CCP)
 
It is important to note that where a defaulter's market side transaction was novated to a CCP, this will be subject to the default procedures for that CCP, in accordance with rule D115.5(2).

Trading Positions
 
Member firms have been asking about their trading positions as a result of the default process. Where Lehman Brothers International (Europe) acted in a principal capacity, member firms receiving a cash settlement will receive either a net loss or profit on the trades as dealt, depending on the difference between the trade price and the hammer price. Member firms will need to consider the actual price of the underlying security in managing their open positions.

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