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The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets by Peter Norman

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Unlikely Heroes

Crises create unlikely heroes. The bankruptcy of Lehman Brothers on 15 September 2008 was no exception.

When Lehman sought protection from its creditors in the US that day, a small number of specialist financial institutions sprang into action to keep the world's securities and derivatives exchanges at work.

First in Europe, and later around the globe, central counterparty clearing houses (known as CCPs) stepped in to rescue trillions of dollars worth of trades caught up in the Lehman collapse. Without their action, the global financial meltdown threatened by the failure of the 158 year old investment bank would have been an instant reality.

These little known organisations fulfilled their emergency role of successfully completing trades for which they had assumed responsibility. Therefore they ensured that the world's securities and derivatives exchanges could continue to function and handle trading volumes that leapt into the stratosphere as prices for shares, bonds and other exchange-traded instruments gyrated wildly in the crisis.

The collapse of Lehman Brothers changed the world in many ways. The petition for Chapter 11 protection, filed by Lehman Brothers Holdings Inc. with the US Bankruptcy Court for the Southern District of New York, turned a steadily escalating international financial crisis into a global economic cataclysm. The investment bank's failure put paid to any prospect of orderly management of the financial turmoil that started during the summer ...

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