The Lehman Brothers Bankruptcy E: The Effects on Lehman's U.S. Broker-Dealer

Lehman's U.S. broker-dealer, Lehman Brothers Inc. (LBI), was excluded from the parent company's bankruptcy filing on September 15, 2008, because it was thought that the solvent subsidiary might be able to wind down its affairs in a normal fashion. However, the force of the parent's demise proved too strong, and within days, LBI and dozens of Lehman subsidiaries around the world were also in liquidation. As a regulated broker-dealer, LBI was required to comply with the Securities and Exchange Commission financial-responsibility rules for broker-dealers, including maintaining customer assets separately. However, the corporate complexity and enterprise integration that characterized the Lehman group conflicted with this mandate. Omnibus cash accounts and wide-flung assets complicated the liquidation. It became clear in the course of the liquidation that the broker-dealer rules did not adequately address these issues or others raised by the infrastructure complexity and global reach of the companies to which they applied. This led some observers to question whether the rules should be revised and whether the broker-dealer should be excluded from all but minimal integration into the holding company's non-regulated businesses.