Background Facts – Following a series of liquidity problems, a global clearing broker suffered a catastrophic meltdown, following improper transfers from customer accounts to a broker-dealer account to cover trading losses.

Emergency Response Issues – Reed Smith was retained by multiple parties in relation to their global portfolio exposures. Clients and counterparties of the clearing house required urgent advice on the applicable emergency regimes and the legal issues involved in transferring open positions to alternative clearing houses.

Our Role – Reed Smith was instructed to provide urgent advice to clients to enable them to reduce credit exposures and prevent largescale losses. Following rapid advice on these issues, the Reed Smith team continued to represent the affected parties in making claims in the applicable insolvency proceedings and in disputes with the special administrator. Reed Smith’s team also advised on disputes with exchanges over the valuation of closed-out positions.

Outcome – Clients were able to transfer trades to new clearing brokers on an urgent basis, protecting their positions and reducing the impact of the crisis on the clients’ business. Following continuing advice from Reed Smith, most have now agreed on their claim in the relevant
insolvency proceedings.