"We knew right up to the second before Lehman Brothers ceased being, every equity transaction, every order — who bought, who sold, down to the trader involved," recalls Ian Donowitz, a managing director of Investment Technology Group. On the other hand, neither the technologically sophisticated and market-savvy ITG nor anyone else — including regulators (and maybe Lehman itself) — was fully aware of the firm’s exposure to over-the-counter derivatives, or of other firms’ OTC derivatives exposure to Lehman.
To prevent that kind of blind risk, the Obama administration and some members of Congress are championing a central derivatives clearinghouse to make trading more orderly and transparent. That might help, and Wall Street is already moving in that ....