1. What happened to Lehman Brothers and what is PricewaterhouseCooper’s involvement?

After an attempt to find a private buyer failed, Lehman Brothers Holding Incorporated (the parent company of the UK Lehman Brothers firms) filed for bankruptcy in the US courts on 15 September. Accordingly at 7.56am on 15 September, four of the UK and European entities of the group were placed into administration.  Four partners of the UK firm of PricewaterhouseCoopers were appointed as administrators for the four Lehman Brothers entities (Lehman Brothers Limited, Lehman Brothers Holdings plc, Lehman Brothers International (Europe) and LB UK RE Holdings Ltd). Since then additional entities have been placed in administration (see below). 

2. Which Lehman Brothers companies are in administration?

Partners from PricewaterhouseCoopers UK were initially appointed as Administrators to the following Lehman Brothers' companies:

• Lehman Brothers Limited – the service company for the UK, employing all staff
• Lehman Brothers Holdings plc – an intermediate holding company owning shares in the investment banking and asset management subsidiaries
• Lehman Brothers International (Europe) – the principal UK trading company with overseas branches or representative offices in many other jurisdictions
• LB UK RE Holdings Limited – an intermediate holding company with numerous real estate investment Special Purpose Vehicles (SPVs)

There are many subsidiary companies within the Lehman Brothers group which are either asset owning or dormant companies, the future of which will be decided in the coming months. As well as the above companies, a number of other entities have also now been placed into administration. The full list can be found here.

3. What is the role of the Administrators?

Administration is a procedure available in the UK to a company that is insolvent, or is likely to become so. The procedure involves placing the company under the control of one or more insolvency practitioners and the protection of the UK courts.

The Administrators of the Lehman Brothers entities in administration are PricewaterhouseCoopers UK partners who are specifically licensed to accept insolvency appointments.  They use the resources of PricewaterhouseCoopers to assist in taking control of the companies’ affairs and pursuing the objectives of the administration.  Once appointed the PricewaterhouseCoopers UK partners acting as Administrators became officers of the court and have a fiduciary responsibility to protect and realise the assets for the benefits of all creditors.  Accordingly, the key objectives of the Administrators are to maximise the values of assets and realise this for the benefit of all creditors.  No individual creditor or group of creditors can be preferred in any way.  All creditors have to be treated equally.

4. What are the guiding principles of administration?

The Administrators have to act under the following guiding principles:

• The primary duty of the Administrators is to realise assets for cash for the benefit of all creditors. They need to obtain the best price for the assets, in the light of the prevailing market for such assets and any special circumstances requiring them to realise assets quickly
• Each legal entity must be treated separately. The Administrators will only convey whatever right, title and interest Lehman Brothers companies in administration have over the asset.
• Creditors of the same type or class (e.g. unsecured) must be dealt with on a pari passu or equal basis since the estate is insolvent. The Administrators are officers of the court and have to deal with creditors on an even-handed basis.
• Assets and liabilities which are not owned by the Lehman Brothers companies in administration do not form part of the insolvent estates. The Administrators, therefore, need to determine the status of all assets and liabilities. Where assets are held in trust, the Administrators may deal with them (e.g. return them to the owner), but the Administrators need to ensure that creditors in the same class are not disadvantaged; Administrators may insist that the costs of dealing with this are borne by the owner and not by the rest of the estate.
• Where actions or queries are of no, or minimal, value to creditors, the Administrators reserve the right not to spend any time in dealing with them
• Where the Administrators settle with a counterparty, they may insist on no set- off in relation to pre-administration acts or omissions
• The Administrators act without personal liability.

5. What is particularly difficult about the Lehman Brothers situation?

Lehman Brothers was a very significant and complex global organisation, operating in multiple territories and across most areas of financial services.  Its collapse also coincided with a period of unprecedented turmoil in financial markets. The US operations of Lehman Brothers, and the UK and European Lehman Brothers’ entities in administration, are now being dealt with through separate legal procedures and it is as if they are no longer part of the same group.  This has significant practical consequences for the Administrators in meeting their objectives. As with most global financial services organisations, on a day to day basis Lehman Brothers was previously managed and run mainly along global product lines.  Following Lehman Brothers’ bankruptcy in the US, and the UK and European Lehman Brothers' entities being placed into insolvency proceedings, a legal entity focus is now paramount and all information relating to the group’s activities now has to be captured and assessed on a legal entity basis instead.  Funding, and other interdependencies, existed between the US and various UK and European Lehman Brothers’ entities and these links are now broken. These factors add further complexity to the administration. The sale of the North American investment banking and capital markets business of Lehman Brothers to Barclays also complicates the situation faced by the Administrators.

6. What is unusual about this administration?

Administrators generally have the opportunity to work with a company’s directors prior to the decision being made to put the company into administration, often for a period of many weeks.  This was not the case with Lehman Brothers, where a very rapid decision had to be taken to place the relevant entities into administration. Combined with the inherent complexity of the Lehman Brothers’ organisation, the Administrators were faced with a significant initial task to stabilise (as far as possible) the entities’ operations, to arrange funding and take such other steps as were necessary to enable the entities to continue an appropriate level of activity.

7. What other PricewaterhouseCoopers resources are involved?

A very large team of PricewaterhouseCoopers partners and staff have been deployed to assist the Administrators, sourced from a wide range of specialist areas with the firm. This includes partners and staff from the Administrators’ own team of specialists as well as partners and staff with detailed banking and capital markets knowledge. These have been involved from the outset in order to help and advise on various specific aspects of the administration, from the operational aspects of capturing and settling trades, to assessing valuation and other asset and liability specific questions, and realising cash for the Lehman Brothers UK estate.

8. What are the most significant issues faced by the Administrators in relation to the market?

There are two main issues:  The first is the settlement of trades and the associated issues around failed and open trades including short positions.  The second relates to Client Assets and Client Money, in particular in dealing with specific monies or assets that can be categorised as client monies or assets. The Administrators have prioritised both these areas and have been working closely with relevant regulators, including the FSA, their legal advisors, the court and relevant counterparties and exchanges.  Both areas are inherently complex and will take time to resolve. The Administrators are aware of the interest in these areas from  counterparties and other relevant stakeholders. 

9. What is the position in respect of failed trades?

There are over 140,000 failed LBIE trades globally. Each of the markets on which there are failed trades have their own approaches and rules to deal with failed trades. The timetable for resolving this issue will vary by jurisdiction. Of the 140,000 failed trades approximately 82,500 are in Europe, approximately 12,500 in Americas and approximately 45,000 in Asia. More progress is being made in respect of European fails as LBIE Operations have responsibility for processing these trades prior to LBIE’s administration and thus the Administrators had the benefit of data and resources in London.

LBIE failed trades in the US and Asian markets respectively were carried out via locally based affiliates. Resources for these entities are employed outside LBIE and thus outside the Administrators’ direct control. The Administrators are working with these entities to obtain assistance in resolving these issues. Some of these entities are also in their own local insolvency proceedings which has added to the complexity of the process.

More detailed information about failed trades is included on the PwC website.

10. What is being done in relation to the settlement of trades and failed trades on exchanges?

As with any similar organization, LBIE was involved in high volume trading activities. The settlement of trades, both on exchanges and in the OTC markets, was a key element of its business. 

Against this background, subsequent to the administration, the following took place:

1. The majority of exchanges froze all LBIE’s accounts.
2. Several exchanges, clearing houses and counterparties issued Default Notices, resulting in trades being unwound under the legal requirements of their default provisions. This was made significantly more complex as some of the Default Notices were legally served on Lehman Brothers’ entities outside the UK.
3. The non receipt of data that would normally be received and automatically processed in Lehman Brothers' books and records resulted in a significant number of trades showing as currently failed or unsettled.

As a result of these factors, significant concerns arose as to which trades were unsettled or failed.  What decisions can be taken by the Administrators are then governed by their need to show that any action taken has a benefit to the creditors, the LBIE estate and that there is no downside impact on the Administrators’ and LBIE’s position.

The Administrators are working closely with the exchanges, clearing houses and other relevant market participants involved to resolve this situation.  Each exchange, clearing house and central securities depositary has its own procedure in the event of default of a participant and, therefore, different processes are being followed in this regard. In addition, LBIE continues to face limitations on data to confirm positions and client balances as the access to information required to confirm and reconcile positions has been restricted.

11. What is the process for settlement of the unsettled trades that were executed on exchanges?

Most exchanges have exercised their default rules and informed counterparties of what action to take. The Joint Administrators are aware that the London Stock Exchange (the “LSE”) has exercised a “hammer price” default process which will result in a determination by the LSE of the net cash settlement position between LBIE and each counterparty. That process is ongoing. Several other exchanges default rules require a buy-in process. We recommend that counterparties continue to monitor the websites of the relevant Exchanges for further details.

12. What is the relationship between the Administrators and the regulatory bodies?

The Administrators and the Financial Services Authority (FSA)

The Administrators are keeping the FSA informed of their activities on a regular basis, with a dedicated team of regulatory professionals working alongside Lehman Brothers Legal & Compliance teams to secure the orderly wind down of FSA authorised and regulated companies.

Lehman Brothers Senior Executives and many staff have FSA Approved Persons status, in addition to any legal and fiduciary duties they may have as Directors.  

The Administrators, European and other International Regulators

Lehman Brothers has a considerable number of branches and offices throughout Europe and the Rest of the World. The Administrators are working with these offices and, as part of this work, are liaising with enquiries and investigations instigated by international regulators.

13. How do interested parties register an interest in acquiring assets from Lehman Brothers?

Parties interested in acquiring any or all of the assets of the Lehman Brothers entities in administration can contact the Administrators by clicking here.

14. How do creditors register a claim and/or ask the Administrators a question?

If you wish to register a claim please click here for information on how to do this.

If you have a query please click here for information on how to do this.

15. What issues are created by the interdependency between Lehman Brothers in the US and the UK companies in Administration?

Lehman Brothers was operated as one global business and there were interdependencies between the US and UK operations and also across other jurisdictions. This included front office (e.g. trading, confirmations and settlement) and middle and back office support functions (e.g. finance, operations, HR). The ongoing challenge is for the operating framework with the US and UK to work effectively.

16. Lehman Brothers International (Europe) (LBIE)acted as a clearing broker for clients on London Clearing House (LCH) and Eurex. Have all of LBIE's client positions now been transferred to other clearing brokers?

The vast majority of client positions have now been transferred to other clearing brokers. We understand that process was completed on Monday 22 September.

During the week beginning Monday 15 September both LCH and Eurex issued notices declaring LBIE to be in default under their rules. The default powers under those rules include the ability to direct the transfer of LBIE client positions with respect to futures and option transactions to other brokers.

17. It took several days to complete the transfers - why was that?

London Clearing House (LCH) and Eurex exercised their legal powers to instruct and direct the transfer of client positions and were provided access to relevant client data to do this.  LCH and Eurex assumed responsibility for this transfer. However, for operational reasons it took some time for the transfer process to be completed.

18. What has happened to the client monies and margins in relation to those client positions transferred and when can clients expect to have those monies returned?

The vast majority of LBIE client’s futures and options positions held at LCH and Eurex have been transferred.  However, client monies and margins in respect of those client positions were not transferred at the same time.  This is due to Administrators duties to ensure that all such client monies and assets are appropriately identified and have been segregated appropriately in accordance with FSA client money rules. As noted on PricewaterhouseCoopers website the process required to be undertaken to ensure all such client monies are identified and reconciled will take some time.

More detailed information about Client Money and Assets is included on the PwC website.

19. How long is the Administration likely to last?

It is not possible at this stage to predict how long the administration will last as the Administrators have only been in place for a short period of time. Although significant progress has already been made (e.g. completion of transaction with Nomura and in realising some other assets), the administration is a very significant and complex exercise and it is likely to be many months before the position becomes clearer.

20. What will happen to any client related balances which clients believe should have been transferred to them prior to Administration but wasn't because of alleged operational error by Lehman Brothers?

If the transfer was not made prior to the Administration, for whatever reason, the client will have the same recourse as any other client with assets held. The fact that a transfer should have happened does not impact the client’s position.

21. How will short positions be liquidated?  Will these amounts be cash settled or will clients be required to return borrowed securities?

Under the terms of the stock loan and borrowing agreements, counterparties may take action on short positions in accordance with the underlying agreements.  The PricewaterhouseCoopers team is in the process of taking advice and obtaining data from clients on the actions that counterparties have taken.

22. Can the Administrators comment on the size or the relative quality of assets within Lehman Brothers? 

The Administrators cannot yet make any comment on what assets may or may not be realisable and at what values. The Administrators will continually focus on maximising the realisable values of all other assets.

23. What steps have the Administrators taken with regard to client assets?

The Administrators issued a press release on 10 October which describes the steps taken by them with respect to client assets, the objective of which is the identification and return of those client assets. The priority has always been to develop a logical, efficient and fair process for dealing with client asset claims that have been and continue to be properly registered with the Administrators.

This has  been, and remains, a major priority for the Administrators and specifically this includes a High Court approved process and methodology supported by a dedicated and appropriately skilled PwC and Linklaters team, made up of expertise in both administration as well as banking and capital markets technical skills.

For more Questions and Answers on Client Money refer to PwC website.

24. What process will the Administrators adopt to return Trust Property?

 Full details of the process the Administrators will adopt in accordance with the Court Order dated 7 October 2008 are set out at Client money and assets update .

In summary, the Trust Property Team are now undertaking  inter alia the following steps, in parallel:

1. development of an  IT system onto which will be uploaded all of the data available from the internal systems of LBIE relating to client deposits and securities that may be Trust Property;
2. implementation of a process to reverse or amend the LBIE records for failed or broken trades as a consequence of the Administration, to enable the Trust Property to be more fully identified;
3. identification of the impact of termination notices that have been served post-administration, validating these events and other activities of third parties and either reviewing the clients’ valuation of the impact of the termination or undertaking a valuation of the impact of termination on the rights of LBIE under various contracts; and
4. development of a protocol in relation to the implementation of corporate actions that may need to be undertaken in relation to Trust Property.

The Trust Property Team are in contact with third party custodians, agents, counterparties, exchanges and clearing houses (“Depots”) where Trust Property may be located to obtain confirmation of the securities that are being held, to agree a procedure whereby the Administrators can have online access in relation to data regarding the securities and  to obtain formal written confirmation of the position by security and by Depot. 

The Administrators are also seeking to establish that they have complete or adequate control over the securities for the ultimate benefit of the counterparties with Trust Claims or LBIE and that any liens asserted by the Depots are assessed and valued. Once the data is available, the Trust Property Team will reconcile the books of LBIE to those of the Depots, by security and by Depot, with a view to identifying and resolving discrepancies. Where appropriate, this process will take account of the interests of LBIE in its “house accounts”. 

The books of LBIE will be further reconciled to the client position responses obtained through the circularisation of clients. 

 Further to the data collection process, Linklaters are reviewing the various contracts utilised by LBIE in its dealings with all counterparties and the various categories of legal issues that will need to be determined before a proposal for the distribution of the Trust Property can be prepared. 

25. I believe I have client assets, but I have not received an information request letter from the Administrators.  How can I inform the Administrators of my positions? (Updated 23 March 2009)

If you believe you have assets or money held by LBIE and have not received a letter or email from the Joint Administrators, please submit your positions and balances by email only on a standardised MS Excel form (see below for link). In doing so, please ensure that you complete all sections fully, including account name and account number.  Use a separate form for each account you hold with LBIE.  Failure to complete the form or provide full information may result in a need to resubmit again and further delay our review of your positions and balances.  In addition to the standardised form for positions and balances, please also provide electronic copies of any written contracts you have with LBIE as well as any other relevant documentation.

The standardised MS Excel forms (one for Institutional Clients and one for Private Investment Management clients) can be found using the following link:

Client money and assets update 15/10/08

In any correspondence please state the full name of the legal entity concerned and provide a contact name, postal address and e-mail address, if available.

26. Where are client assets typically located and what issues have arisen?

Client assets are generally located at sub custodians, settlement agents, exchanges and clearing houses.      

• LBIE itself was not a custodian but rather had some 97 relationships with global sub custodians and settlements agents and was active on most of the global exchanges and clearing houses either directly as LBIE or indirectly through brokers. The Administrators have an ongoing dialogue with these institutions and have written to them all to obtain relevant information that can be used to help locate the assets.
• Custodians and settlement agents continue to liquidate LBIE excess collateral required to meet their obligations. Final liquidation statements are being obtained from them.
• Typically the custodians have three LBIE accounts, being house (for the benefit of LBIE), prime brokerage nominees (where LBIE may have a charge over the assets) and safe custody (split into two accounts where one has right of set off against the assets and the other one does not). The Administrators have asked for details of all accounts that exist.

27. What will happen to the securities that were not transferred because the underlying trade did not settle?

LBIE will not be settling any unsettled trades. As such, LBIE will not be delivering or accepting delivery of securities under any trade that did not settle prior to LBIE’s administration.

28. What action should LBIE counterparties take in relation to their failed trades with LBIE?

The Joint Administrators encourage counterparties to reach agreement with LBIE as to the net cash value of their failed or unsettled trade, as the obligations under the underlying contracts are legally binding on both parties to the trade.

As previously advised, counterparties are reminded of the following principles:  

• Where a failed trade is subject to the default rules of an Exchange or Central Counterparty (CCP), counterparties should comply with the instructions provided by the relevant Exchange or CCP
• Where unsettled trades are subject to default rules contained within applicable bilateral master agreements (e.g. ISDAs), counterparties should review and comply with those rules. Where the default rules require a termination notice to be issued to LBIE, that notice must be communicated in accordance with your documented agreement with LBIE, in the form specified by that agreement.
• In the case of equities and fixed income trades that were subject to LBIE Terms of Business which do not contain default arrangements (herein referred to as pure OTC contracts- no default rules), counterparties are encouraged to enter into a Settlement Agreement with LBIE for the cancellation of such trades. The Administrators believe it would be beneficial for a process to be established with counterparties which would facilitate the removal of the potential uncertainties as to the legal obligations, and possible rights and liabilities, associated with those contracts, and how any related settlement instructions in a settlement system should be dealt with.

The Cancellation Proposal is, of course, subject to the applicable laws applying to each unsettled trade and the right of a party to that trade to treat the contract as terminated. The Administrators would remind LBIE’s clients and counterparties that it is their responsibility to investigate when a particular trade may be terminated under the law applying to that trade.  The Administrators will deal with a client’s or counterparty’s assertion that a trade has been so terminated on a case-by-case basis.

29. What is the process for the cancellation of OTC trades?

Currently, the Joint Administrators propose the following process:

1. LBIE counterparty requests cancellation. The request for cancellation should include full details of unsettled trades between LBIE and the Counterparty setting out as much detail as possible from the Counterparty’s records to enable reconciliation to trade data held by LBIE, including copies of any contractual agreements and other relevant documentation, as well as confirmation that the Counterparty was acting as principal for each unsettled trade. In addition, the request should include information on any other open positions the Counterparty has with LBIE or confirmation that there is no other indebtedness to/from LBIE.
2. Upon receipt of the information noted above, the Counterparty will receive (1) the draft Cancellation Proposal and (2) an e-mail detailing the basis for the operational non-refundable fee (calculated at 10 basis points of the gross value of the unsettled OTC trades), together with LBIE's bank account details.
3. The operational fee will be payable by the Counterparty at this stage. As previously reported, the purpose of the operational fee is to cover the costs of making available the necessary resources to agree the Cancellation Proposal now.
4. Once agreement of the population of trades subject to the Cancellation Proposal is obtained. The net settlement amount will be calculated and agreed to by LBIE and its Counterparty. The bilateral cancellation will be documented in a settlement agreement referred to as a Cancellation Proposal. The Cancellation Proposal will, in relevant part, terminate the respective obligations of both LBIE and its Counterparty under each unsettled trade and set forth an agreed net trade settlement amount between the parties.
5. Where the calculated net position is an amount due to LBIE, this would be payable by the Counterparty, subject to any pre-existing rights of the Counterparty. Where the calculated net position is an amount due from LBIE, it will represent a claim on the LBIE estate and the Counterparty will rank as an unsecured creditor. The Administrators wish to make clear that under no circumstances will a net position payable by LBIE rank as an expense of LBIE’s administration.

30. On what basis will valuation of the failed and unsettled trades be made?

Our view is that an appropriate valuation date for failed pure OTC trades is close of business on the date on which the trade would have settled but for LBIE's administration and this is the valuation date that will be used for the purposes of the Settlement Agreement (unless agreed otherwise with a counterparty). 

31. How is it that a cash settlement amount can be calculated for a failed delivery-vs.-payment (DVP) transaction?

The settlement amount is calculated as if both parties were on an equal footing. For example:

1. if LBIE was selling securities to Counterparty A, the settlement amount is stated to be the sum of the Trade Value minus the Termination Value, where the Trade Value is the original contract price and the Termination Value is the Closing Price of the securities on the contractual settlement date multiplied by the number of securities which were to be sold. If the value of each security was 100 at the time the contract was made and the Closing Price was 105, then LBIE would owe the counterparty 5 on each security LBIE originally contracted to sell.  If the Closing Price was 95, then the counterparty would owe LBIE on each security LBIE was originally contracted to sell. 
2. if LBIE was buying securities from Client A, the settlement amount is stated to be the sum of the Termination Value minus the Trade Value.

32. Is there a deadline to agree settlement of failed trades?

No. There is no deadline for submission of the bilateral cancellation request. The administrators will prioritise each counterparty in accordance with the order in which they agree cancellation terms.

33. Will LBIE pay amounts due to counterparties if the net settlement amount is in favour of a counterparty?

No. Counterparties are reminded that at this stage the Joint Administrators are not agreeing the amounts payable to counterparties. Rather, they are merely agreeing with the Counterparty the amount payable/receivable by LBIE in respect of unsettled trades. Amounts deemed payable by LBIE form part of the claim counterparties may wish to bring against the LBIE estate. Such claims will represent a general claim against the LBIE estate and the Counterparty will rank as an unsecured claims and therefore do not rank prior in right to any other unsecured creditors. This unsecured claim will need to be presented to the Administrators in connection with the general administrative proceedings for creditors of the LBIE estate.

34. What prioritisation criteria are being adopted by the Administrators?

In their press release dated 10 October the Administrators set out a set of principles to be applied to prioritising claims. This largely revolves around the quality and timing of data provided by counterparties together with simplicity of the case at hand and any associated legal issues. It also involves an analysis of other claims being made over the particular asset class and whether a situation could arise where there is a risk of shortfall of the asset in question to be distributed back to clients. In all cases the Administrators need to examine LBIE’s wider relationship with relevant counterparties and ensure there are no offsetting claims against the estate.

In situations where the Administrators make an early return of a client asset,they need to mitigate the risk of competing future claims being made against the asset in question. This involves requiring both an acceptable form of indemnity from the counterparty and a guarantee from a sufficiently well rated institution, such as a AA rated bank to protect against any situation which arises whereby an asset has wrongly been given back to a particular client.

35. What practical legal issues arise in relation to client assets?

As well as realising the estate for the benefit of creditors the Administrators are managing for the benefit of clients, the trusts of assets and monies that are owned by clients.

Client monies are subject to a strict set of rules and are held on a pooled basis for all clients with a client money entitlement. This money needs to be identified by the Administrators, collected in from the banks where it is held and then distributed.

In respect of client assets, the Administrators must ascertain what are client assets and what are house assets, by reconciling to third party data and reviewing all relevant contracts. Each counterparty has a suite of contracts and master agreements which can include, amongst others, Prime Brokerage Agreements, Futures Agreements, Stock Lending Agreements, ISDA Master Agreements and Cross Margining and Netting Agreements. These can be in several forms. They may be, and often are, individually modified by agreement or side letter or even e mail. Some of them are subject to New York law and some of them are subject to English law. Their effect and interrelationship has never been tested in a situation like Lehman Brothers and complex issues of legal analysis are likely. Significant practical issues therefore arise in identifying and reviewing contracts and understanding all relevant terms. In particular, the extent of any security or hypothecation needs to be verified and checked to ensure that it is compliant with the Agreement and LBIE’s rights.

Some of the practical issues and areas of legal analysis likely to arise are:

• At what point does reuse extinguish a client asset claim? What is the situation where assets have been reused in excess of agreed limits?
• To what extent should losses be borne by clients where they share in a pool of securities? For example similar assets can be listed on different markets in different forms? How are shortfalls allocated? What if there has been a series of movements on the account? What if the house also has claims on the pool?
• To what extent can tracing claims be made?
• What is the impact of close out on settling net liabilities between house and client?
• How do foreign laws impact on trust and contractual claims?

36. Will the Administrators be calling for additional collateral or margin where the net equity has decreased on open trades in relation to prime brokerage clients?

The Administrators must protect the estate from loss and will have particular regard to the risk of loss from uncovered net credit exposures, further, they must be mindful of LBIE’s contractual rights with regard to the ability to request collateral from a counterparty. When evaluating whether LBIE has the right to call for additional collateral as exposures change over time, the Administrators will examine whether the counterparty has other positions with LBIE that mitigate an apparent debit position. This matter remains under consideration whilst the Administrators consider how best to protect the interests of the LBIE estate.

37. If I have not got all of the information required by the Administrators can I obtain or use information from LBIE? (Updated 23 March 2009)

As LBIE’s books and records were not fully updated from the point of Administration, you cannot rely on any information obtained after 07:56 on 15 September 2008 from Lehman Brothers Live or any other Lehman Brothers' source. Therefore, you should not rely on statements produced after this time.  Please provide the Trust Property Team with information which is as complete as possible from your own records.  This will assist the Trust Property Team to develop as full an understanding as possible of your position with LBIE and to compare your information to that held by the Company. (See question 25 for information on submitting your positions and balances.)

38. If I send in all of the information requested by the Administrators, will I get my assets/monies back immediately?

Due to the complexity and the various stages in the process, it will not be possible to return client assets/monies immediately.

The Administrators and Lehman Brothers' staff are actively working through a process to reconcile positions on a client by client basis. In parallel, the aggregate position for all clients needs to be determined and reconciled to the assets held in custody and in the bank accounts.

The Administrators have sought guidance from the Court on how this complex process should be undertaken.  Details can be found at the following PwC website link Client money and assets update .

Additionally, the Administrators need to reconcile actions taken by counterparties (e.g. actions

following default notices) and reflect these before an up to date picture can be produced. This process will necessarily take time to complete.

39. I have submitted information to the Trust Property Team by email or post.  What work is currently being done with this information?

The Trust Property Team is currently working through the responses received to date via post and email.  Initially, this entails identifying and responding to queries, and reviewing documents received to check for completeness of the information supplied to the Trust Property Team. 

40. Can you provide me with an estimate of the timeframe for reviewing my account(s) and returning my assets/monies?

 The Trust Property Team is working towards reviewing all accounts and returning assets in an orderly and efficiently manner. 

The priority of the Administrators at the moment is to determine the positions of LBIE both in aggregate and also at an individual client level. A joint Lehman Brothers and PwC team is working on reconciling LBIE’s books to external custodians and to information received from clients.

The review process is extremely complex and we are presently unable to provide an estimate of the timeframe for returning client assets and monies.

We are mindful of the uncertainty experienced by counterparties and their need to resolve matters as quickly as possible. If it is possible to advance the process in stages, resolving a particular issue that affects a number of accounts in the same way, at the same time, without having to wait for all other issues to be resolved, we will look to do that.

41. How will the Prioritisation and Hardship Committees function?

The Administrators will consider the following factors, when assessing a claim for prioritisation:

1. the quality and timing of data being available to the Administrators;
2. the speed of response of counterparties in dealing with the Administrators’ questions, coupled with the quality and accuracy of the data supplied, the complexity of the data and the legal issues relevant to the determination of a particular claim;
3. the number of claims that may be made to a particular class or category of Trust Property and; the risk of a shortfall in that particular class of category of Trust Property;
4. the cost efficiency and expediency of the relevant process; and
5. market stability and confidence.

The Administrators have established a hardship sub-committee and may prioritise claims presented to it, in line with High Court Order obtained on 7 October 2008. 

42. If my assets have been rehypothecated, will they be returned?

 Client positions will be reviewed on a case-by-case basis to determine the extent, if any, of rehypothecation of their assets. Title to securities transfers when assets are rehypothecated in accordance with Prime Brokerage agreements and therefore these assets become part of the estate.  If assets have been rehypothecated, these will not be available for return to you.  The extent to which your assets could be rehypothecated is set out in your agreements with LBIE.           

43. I have both long and short positions. Can the Administrator provide an update as to whether I can at least close my short positions?

Very few clients have terminated their prime broker agreements. As a result most clients of LBIE and LBIE itself continue to be exposed to market risk. Where a client makes a proposition to LBIE, intended to mitigate the market risk of both parties, the Administrators will enter into bi-lateral conversations with such counterparties. It must be recognised that if a counterparty seeks to crystalise a position, the Administrators must be able to demonstrate that such crystalisation is in the interests of the estate and that the Administrators are not in fact preferring one creditor over another.

44. Have the administrators determined the settlement date for claims due to and from LBIE?

Under the rules of certain exchanges there is a predefined process for determining the respective liabilities of each party to a failed transaction and the Administrators are working with the various exchanges to confirm the basis of such failed trades. In other circumstances, the contractual position may dictate the terms under which contracts are terminated and the Administrators are working through the numerous variants of individual contractual positions to determine the appropriate settlement date. In respect of contracts that remain open, these will contain terms in relation to settlement. It is therefore likely that the settlement date of positions will be determined on a case by case basis.

45. Is it a reasonable assumption to make that counterparties from whom LBIE has borrowed securities will have bought these securities back in?

We believe this it is. A number of counterparties have confirmed they have closed out the borrowing by buying securities back in.

46. Is it the intention of the Administrators, where clients have held assets in safe custody accounts and where the Administrators are able to satisfy themselves that there is no other claim to these assets, to release these assets?

Yes, it is subject to there being no other debit position with the same client, which needs to be taken into account. Some assets, which are held at depots in segregated custody accounts and to which there is no legal right of set off, are currently under consideration for return to clients subject to appropriate indemnities being in place.

47. Are the Administrators in a position to be able to provide audit confirmation letters to external auditors of counterparties of Lehman Brothers'UK entities in administration and/or to the counterparties themselves?

The Administrators are aware of the importance of the audit confirmation process as a form of audit evidence. However, due to the complexity of the administration and the practical difficulties involved in accurately identifying counterparty information, for example due to the volume of failed trades and valuation related issues, the Administrators are not able to provide any third party audit confirmations without there being a risk that the information would be materially misstated. The Administrators also are unable to respond to any audit confirmation requests for entities not in administration.