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THE STORY OF THE DEPOSITORY TRUST & CLEARING CORPORATION
Continuing its simulations, in June 2008, when it came time to select an investment bank to model, DTCC selected Lehman Brothers. Lehman failed three months later. The Lehman Brothers collapse triggered a stock market free fall, with the Dow Jones Industrial dropping 504 points on Monday, September 15, 2008, leading the country into recession. Following Lehman’s bankruptcy, DTCC was able to resolve $530 billion in exposure, what DTCC’s 2008 Annual Report termed “the largest liquidation in US financial history.” It was able to do so with no loss to the industry. Later that year, another crisis emerged when Bernie Madoff would be exposed in what the New York Times called “the largest and possibly most devastating Ponzi scheme in financial history.” DTCC’s equity clearing subsidiary guaranteed all open trades involving Bernard L. Madoff Investment Securities through December 12, 2008—the firm’s last trading day—and subsequently closed out all of this activity with no loss to member firms, according to Susan Cosgrove, who managed the business at the time. This market event reinforced DTCC’s ability to seamlessly manage large-scale systemic shocks. “Our success depended on having the computer capacity and smart people to write programs that could take all data from one gigantic firm and merge it into another gigantic firm, and keep track of every transaction and open position that any individual had or any clearing organization had,” said Joe Trentacoste, DTCC’s assistant vice president and treasurer at the time.
In 2008, DTCC ran a simulation on what it would do if a Wall Street investment bank were to fail. The firm chose Lehman Brothers as its example. That choice would be prescient, as it would be the first investment bank to fail. The collapse of Lehman Brothers was the catalyst for what would become the Great Recession.
Market Transparency
Prior to the financial crisis, DTCC established the Trade Information Warehouse (TIW) in 2006, the financial industry’s first infrastructure for record retention and asset servicing of cleared and bilateral credit
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