DTCC Investigation
105. The Trustee continues to review the factual details and legal basis for
DTCC’s activities during the week of September 22, 2008, when DTCC purported to
invoke rules governing ceasing to act and/or wind-down with respect to LBI’s pending
and failed transactions, and his professionals are conducting a review of the liquidation of
collateral by DTCC during the ensuing period.11 Issues have also arisen regarding fees
and expenses charged by DTCC in connection with these activities.
106. LBI had direct relationships with three of the DTCC subsidiaries –
Depository Trust Company (DTC), National Securities Clearing Corporation (NSCC),
and Fixed Income Clearing Corporation (FICC) – covering custodial, collection and
clearance and settlement services with respect to a broad range of securities. The
Trustee’s professionals have requested and obtained large volumes of information with
respect to each of these subsidiaries, including the property they held on the Filing Date
or received thereafter and the disposition of such property, whether to Barclays and other
brokers receiving account transfers, to the Trustee as return of deposits or turnover of
post-petition distributions, to a DTCC subsidiary as a cost or fee associated with the
wind-down, or through liquidation to satisfy or close out open commitments of LBI.
107. As with JPMC, the Trustee seeks a full accounting of DTCC’s activities in
regard to the liquidation of LBI collateral. Understanding and reconciling this large body
of data is an ongoing process between the Trustee’s professionals and DTCC personnel,
with regular exchange of information. With respect to Government and Mortgage-
Backed securities, final reconciliation also requires information from JPMC, as
11. DTCC, through the Depository Trust Company, National Securities Clearing Corporation, and Fixed
Income Clearing Corporation (the “Clearing Agency Subsidiaries”), provides clearance and settlement
services for broker-to-broker transactions in equities, corporate and municipal bonds, government and
mortgage-backed securities, money market instruments and over-the-counter derivatives. LBI relied
extensively on DTCC’s services to complete, in the ordinary course of its business, the clearance and
settlement of transactions effected by LBI prior to the Filing Date, and processed through accounts at
the Clearing Agency Subsidiaries. DTCC indicated in its 2008 Annual Report that, as of the Filing
Date, more than $500 billion in property, largely held for the benefit of customers and other LBI
counterparties, was reflected in the LBI accounts held through the Clearing Agency Subsidiaries.
As noted above, during the week of September 22, 2008, DTCC purported to invoke rules governing
ceasing to act and/or wind-down of LBI’s pending and failed transactions. This was a complex
process potentially involving tens of thousands of transactions, and was further complicated by the
transfer of some but not all of LBI’s accounts to Barclays pursuant to the Purchase Agreement.
Settlements would occur through receipt of funds or delivery of securities at JPMC rather
than FICC, the DTCC subsidiary providing services with respect to these types of
securities.
Coach T
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