Wall Street derivatives dealers held an unprecedented emergency trading session on Sunday afternoon in a frantic effort to prepare for the possible bankruptcy of Lehman Brothers and limit the knock-on losses of its collapse on other financial institutions. After meetings with the NY Federal Reserve early Sunday, the Fed called dealers at lunchtime and urged them to hold the special session. The plan was to allow dealers to take on new positions offsetting the risks from derivatives trades they have with Lehman, in order to reduce the rush to unwind billions of dollars of contracts on Monday should Lehman file for bankruptcy. But people involved said there was only limited trading, in part due to the difficulty of getting traders into Manhattan with less than an hour’s notice on a Sunday. The special session was first scheduled to last two hours and then extended to four hours so that banks could hedge in case Lehman filed for bankruptcy later in the day. he trades covered credit derivatives, as well as other parts of the OTC derivatives market. The contracts were due to expire at midnight if Lehman did not file for bankruptcy.
