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This article addresses important policy issues raised in the latest Lehman dispute that directly impact the over the counter derivatives market and market participants, specifically in regards to the history and purpose of the Bankruptcy Code’s “safe harbor” provisions for swap agreements.

By examining the background of, and arguments presented in, the ongoing adversary proceeding, Moore Macro Fund, LP v. Lehman Brothers Holdings Inc., and the related bankruptcy case, in re Lehman Brothers Holdings Inc. the authors offer their interpretations of the scope and intent of the applicable safe harbor provisions concerning set-off rights in the context of terminating swap agreements.

Parties to ISDA agreements should carefully monitor this case, as the outcome could shape the enforceability of the Bankruptcy Code and the strategic analysis of counterparties following a counterparty’s or credit support provider’s bankruptcy.

Parties must also be cautious when assuming all contractual provisions in industry-standard master agreements will be enforceable. This case confirms that contractual provisions seeming to reflect the intent of the parties may still be called into question before a court.

Litigation analysis and practical advice on the ongoing changes to the physical, futures and derivatives markets from experienced derivatives/structured products and bankruptcy/commercial restructuring lawyers.