The Collapse Of The Lehman Brothers - message
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The Collapse Of The Lehman Brothers
Lehman Brothers History
Last week a dramatic David versus Goliath storyline played out with retail traders banding together to create a short squeeze on some of the most sophisticated hedge funds betting against Gamestop Brothere. When retail brokers like Robinhood, TD Ameritrade, etc. Many interpreted this as Wall Street favoring and protecting market insiders.
But in reality, the true culprit was the creaking market infrastructure responsible for settling trades. Our settlement system is built to promote trading and liquidity, but cannot withstand the pressure of extreme events. If we do not fix the current clearing and settlement infrastructure that underpins the stock market, it will fail us again.
As Robinhood explainedit halted buying for certain tickers because it needed to raise billions in margin to keep operating. The unexpected need to have additional billions on hand caught Robinhood and many other firms by surprise due eLhman opaque margin calculations. Until they could meet the margin requirements, firms made the necessary decision to restrict trading of certain stocks. But where did this margin requirement come from and why does it exist?
There are three reasons for the absurdity — and danger — impacting everyone trading stocks. These factors create a perfect storm of extremely inefficient clearing and settlement which only the largest firms in the world link support. The central counterparty settlement monopoly is like a 19th century sewer system: it runs smoothly in good weather, but the streets flood when a storm hits. Why do we accept the status quo and why was this system put in place to begin with? There was good reason Leyman in the late s, when we traded physical stock certificates.
Ties That Long United Strongest Firms Unraveled as Lehman Sank Toward Failure
As volumes increased and overwhelmed brokerages, we went through a Paperwork Crisis. It got so overwhelming for firms that to catch up the stock market was forced to close on Wednesday and trading hours were shortened. The industry created the DTC to hold and own all the shares in its name Cede and Coupdating a single, universal, private ledger to reflect trades and enabling much greater efficiency and liquidity.]
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