The International Swaps and Derivatives Association Sunday said it had organized a "netting trading session" to reduce risk from a potential Lehman Brothers bankruptcy.The session began at 2 p.m. Sunday and was slated to run until 4 p.m., New York time.All trades are contingent upon a bankruptcy filing at or before 11:59 p.m. Sunday, the association said in a statement on its Website. If there is no bankruptcy filing by then, the trades will cease to exist...MORE
From Alea:
Derivatives and Systemic Risk: Netting, Collateral, and Closeout
Derivatives and Systemic Risk: Netting, Collateral, and Closeout
He adds another link:Paper by Robert R. Bliss and George G. Kaufman
Abstract:
In the U.S., as in most countries with well-developed securities markets, derivative securities enjoy special protections under insolvency resolution laws. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy. However, many derivatives contracts are exempt from these stays. Furthermore, derivatives enjoy netting and close-out, or termination, privileges which are not always available to most other creditors....MORE
Also worth reading:
Derivatives and Systemic Risk: What Role Can the Bankruptcy Code Play?