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Whether those claims can or will be paid, and the financial repercussions that could follow if they are not, will signify the biggest test yet for the vast, unregulated market in credit-default swaps.
The danger is that the claims on the Lehman default are so large — they are estimated at $400 billion to $600 billion — that settling them could leave some companies with large, perhaps even crippling, losses and heighten the turmoil in the financial markets.
Today, the same commercial banking heavyweights thought to be the most safe, JPMorgan, Citigroup Inc. and Bank of America, hold 92 percent of all the disclosed credit derivative contracts, according to the Office of the Comptroller of the Currency.
But that number is merely an estimate because the overwhelming majority of these contracts are unregulated - private, mostly undisclosed and difficult to measure.
With regard to failed trades, as per MBSD Important Notice MBS183.08, member firms were asked to submit a MBSD Liquidation Template for those failed items that were liquidated in order to establish the associated profit and losses.
Please furnish this information by close of business Thursday, October 23rd. Upon final review of these documents, FICC will announce the processing date of the appropriate COI entries.