The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets

3

The Biggest Bankruptcy

3.1 AN INAUSPICIOUS START

For Daniel Gisler, it was an inauspicious start to the biggest day of his career. A clearing professional with 14 years experience as a senior manager for leading CCPs in Europe, the Managing Director of Risk and Operations for the LCH.Clearnet Group was being denied access to the headquarters of Lehman Brothers International Europe (LBIE) in London's Canary Wharf.

Gisler was despatched early on Monday, 15 September 2008, from LCH.Clearnet's offices in the City to the imposing 150-metre-tall glass and steel tower block which had been the humming centre of Lehman Brothers’ European investment banking operations until that morning. Gisler and his team were the financial fire brigade who had rushed the five and a half kilometres to 25 Bank Street in London's mini-Manhattan after LCH.Clearnet's UK CCP declared LBIE in default. His brief was to work with Lehman staff to manage and neutralise open trades worth trillions of dollars and so help prevent the investment bank's collapse turning into a catastrophe that could overwhelm global financial markets. But instead of being welcomed into the building, Gisler and his colleagues found their way inside barred after court-appointed administrators had taken command of LBIE just hours before.

It was a messy twist in a drama that had turned overnight into a full blown crisis. As news spread that Lehman Brothers Holdings Inc. was filing for Chapter 11 protection under US bankruptcy law, LBIE's ...