Sunday, September 14, 2008

7:20 p.m. EDT; Bill Gross: "Risk of a Tsunami of Derivatives, Swaps Unwind[ing]" and: ISDA Statement on Lehman Bankruptcy Trades.

From Reuters:

...Bill Gross, head of bond fund Pimco, told Reuters that if Lehman filed for bankruptcy, it could set off a wave of position unwinding around the globe.

"It appears that Lehman will file for bankruptcy and the risk of an immediate tsunami is related to the unwind of derivative and swap-related positions worldwide in the dealer, hedge-fund and buyside universe," Gross said.

Wall Street even arranged a rare emergency trading session on Sunday to allow dealers in the $455 trillion derivatives market to reduce their exposure to Lehman, though turnover was said to have been light.

Analysts said uncertainty was so high that the major central banks might have to step in to soothe market nerves, noting the Federal Reserve was due to hold its policy meeting on Tuesday....MORE

From Bloomberg:

ISDA Statement on Lehman Brothers Bankruptcy Trades: Full Text

Following is a statement today from the International Swaps and Derivatives Association:

``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.''

To contact the reporter on this story: Scott Lanman in Washington at