Questions regarding LBI pending trades claims determination deed update – 08/08/2012

Questions

How does the Pending Trade CDD work?
If the Settlement Assumption proves to be correct and I do not have an unsecured claim from my Pending Trade, what type of claim do I have?
What happens if the Settlement Assumption proves to be incorrect?
What is the full list of Settlement Assumptions used in calculating the Minimum Net Financial Claim?
Do the Settlement Assumptions change the nature of my claim for the Pending Trades?
Why does the Pending Trade CDD not fix the unsecured claim that I would have if the Settlement Assumption proves to be incorrect?
I believe that the Settlement Assumption for a Pending Trade is incorrect and LBI agrees. Why does LBIE still wish to use it in the Pending Trade CDD?
Can I transfer my Minimum Net Financial Claim under the Pending Trade CDD to a third party?
What happens if I refuse the offer of a Pending Trade CDD?
Is the Pending Trades CDD available to both CRA and Non-CRA Trust Creditors?
I have Pending Trades but have not been offered a Pending Trade CDD. Why not?

A. How does the Pending Trade CDD work?

The Pending Trade CDD aims to establish the non-contingent aspects of the creditor’s unsecured claim by making hypothetical assumptions (“Settlement Assumptions”) as to whether each Pending Trade settled or failed. The assumptions are designed to produce the minimum possible unsecured claim (“Minimum Net Financial Claim”) that the relevant creditor could have depending on whether each Pending Trade had settled or failed. This will avoid the Administrators having to withhold future dividends from the relevant creditor at a later date once the questions around settlement of LBI Pending Trades and the treatment of LBIE’s claims against LBI are finally resolved, or, in circumstances where withholding from future dividends is not possible (e.g. because the relevant creditor becomes a debtor), a loss potentially being incurred by the general unsecured estate if the debt is irrecoverable.

By way of example, suppose that Creditor A had $1,000 in its margin account at the Time of Administration and an LBI Pending Trade consisting of the purchase of 30 shares in XYZ, Inc. at a price of $6 per share.

If this trade settled, Creditor A would have an asset claim to the purchased securities and an unsecured claim to any remaining cash margin balance after deduction of the purchase price.

If, on the other hand, the trade failed, Creditor A would have no asset claim but the unsecured claim to cash margin balances would not have been reduced by deduction of the purchase price and would therefore remain at $1,000.

For the purposes of the Pending Trade CDD only, an assumption is made that the purchase settled because this outcome results in the creditor having the lowest possible unsecured claim. Thus Creditor A’s Minimum Net Financial Claim will be agreed as $1,000 – (30 x $6) = $820.

B.If the Settlement Assumption proves to be correct and I don’t have an unsecured claim from my Pending Trade, what type of claim do I have?

The answer to this question falls outside of the Pending Trade CDD process, remaining to be determined within LBIE’s asset return programme and as part of LBIE’s omnibus claim against LBI.

The Settlement Assumptions are predicated on a further assumption that where the Settlement Assumption is correct, a creditor may have an asset claim or a cash claim (for sale proceeds), in each case under the SIPA Proceedings, or no claim whatsoever (depending on the trade type), rather than an unsecured claim against LBIE. Further information on trade types and settlement assumption rationale is given at question D below. However, in reality, whether any such claim will actually be capable of being made or sustained in those circumstances will be entirely dependent on the fact pattern applicable to a particular Trust Creditor’s circumstances.
Where such a claim can be successfully established it is not currently known whether any distribution made in the SIPA Proceedings will be sufficient to satisfy such claim in whole or part.

The Pending Trade CDD does not make any determination or admission as to the nature and quantum of any Trust Creditor’s claim under the Pending Trade other than in respect of its unsecured claim and only then in circumstances where the Settlement Assumption is finally determined to have been correct.

C.What happens if the Settlement Assumption proves to be incorrect?

The Pending Trade CDD requires LBIE to notify the creditor if it determines on the basis of relevant information that the Settlement Assumptions relating to their Pending Trades within the Pending Trade CDD are wrong in whole or in part (each affected Pending Trade or affected part of a Pending Trade, a “Recalculable Pending Transaction”). The timetable for making such a determination is uncertain since it depends on achieving finality with LBI.

It may be that the facts relating to the settlement status of a particular Recalculable Pending Transaction give rise to an unsecured claim in excess of the Minimum Net Financial Claim (referred to in the CDD as the “Recalculable Pending Transaction Claim”). In this case, the creditor’s rights with respect to such unsecured claim are specifically preserved by the Pending Trade CDD but will fall to be agreed outside the Pending Trade CDD mechanism, for example, by agreement in the form of a separate CDD.

Equally, it may be that the facts relating to the settlement status of a particular Recalculable Pending Trade do not give rise to any additional unsecured claim. It may give rise to a different type of claim or no claim at all. Again, determination of whether a creditor has any form of claim in these circumstances and if so, the nature and quantum of that claim, will remain to be dealt with as part of the general processes of the Administration.

D.What is the full list of Settlement Assumptions used in calculating the Minimum Net Financial Claim?

LBIE has identified 11 types of Pending Trades that may impact upon the Minimum Net Financial Claim and have made Settlement Assumptions in respect of each. The trade type, settlement assumption and rationale for each is set out below.

Important Legal Disclaimer: Please note that where an assumption is expressed as to the nature or quantum of any claim that might arise if any Pending Trade settles or fails, it is made on a hypothetical basis solely for the purposes of determining the Minimum Net Financial Claim to be agreed in a Pending Trade CDD. There can be no assurance that any such claim will actually be capable of being made or sustained or, if such a claim is successfully established, that any distribution made will be sufficient to satisfy such claim in whole or part. In particular, no admission is made in this website update or the Pending Trade CDD as to the nature and quantum of any Trust Creditor’s claim under the Pending Trade other than in respect of its unsecured claim and only then in circumstances where the Settlement Assumption is finally determined to have been correct.

Trade Type	Trade Description	Settlement Assumption	Rationale
Sale of Long Position	An instruction to sell a security	Settled	Any claim to the proceeds of sale is assumed to be part of the claim against LBI under the SIPA Proceedings and not an unsecured claim against LBIE. An amount equal to the proceeds is therefore excluded from the creditor’s potential unsecured claim for the purposes of determining their Minimum Net Financial Claim.
Purchase of Long Position	An instruction to buy a security	Settled	Settlement results in any unsecured claim to margin cash being reduced by an amount equal to the purchase price and instead an asset claim to the purchased securities is assumed to arise.
Sale of Rehypothecated Long Position	An instruction to sell a security which at the time of instruction had been rehypothecated by LBIE	Settled (including an assumption that the relevant security returned from rehypothecation in full prior to settlement of the sale)	Securities which have been rehypothecated give rise to an unsecured claim to their value while a claim to securities which have not been rehypothecated constitutes an asset claim. Therefore, the assumption that such securities have returned from rehypothecation results in a lower unsecured claim. As with the “Sale of a Long Position” above, any claim to the resulting sale proceeds from the trade’s settlement is assumed to be part of LBIE’s claim against LBI under the SIPA Proceedings, and so an amount equal to the proceeds is excluded from the creditor’s potential unsecured claim for the purposes of determining the Minimum Net Financial Claim.
Stand-alone Rehypothecation	An internal instruction by LBIE to LBI to appropriate securities for its own use.	Failed	Securities which have been rehypothecated give rise to an unsecured claim to their value while a claim to securities which have not been rehypothecated constitutes an asset claim. Therefore, the assumption that an attempt to rehypothecate securities failed results in a lower unsecured claim.
Stand-alone Lift Return	The return of a previously rehypothecated security for reasons that are unassociated with any client trade (for example the ending of an associated financing trade)	Settled	Securities which have been rehypothecated give rise to an unsecured claim to their value while a claim to securities which have not been rehypothecated constitutes an asset claim. Therefore, the assumption that an attempt to return a security from rehypothecation settled results in a lower unsecured claim.
Short Sale	An instruction to sell borrowed securities in return for an obligation to deliver equivalent securities at a future date.	Settled	Any claim to the short sale proceeds is assumed to be part of the claim against LBI under the SIPA Proceedings and not an unsecured claim against LBIE. The proceeds are therefore excluded from the creditor’s potential unsecured claim for the purposes of determining the Minimum Net Financial Claim. In addition, the obligation to deliver equivalent securities gives rise to a debt owing by the creditor to LBIE and therefore the creditor’s potential unsecured claim is reduced by an amount equal to the value of those securities.
Free of Payment Out	An instruction to deliver a security to a third party on a free of payment basis.	Settled	This type of Pending Trade has no potential impact on the unsecured claim (since if it failed, an asset claim would arise and if it settled, no claim would arise). In order to close out any question of there being an unsecured claim, it is assumed to have settled.
Free of Payment Out of a Rehypothecated Long Position	An instruction to deliver a rehypothecated security to a third party on a free of payment basis.	Settled (including an assumption that the relevant security returned from rehypothecation in full prior to delivery being made)	Securities which have been rehypothecated give rise to an unsecured claim to their value. Therefore, the assumption that such securities have returned from rehypothecation results in a lower unsecured claim. In order to close out any question of there being an unsecured claim, the trade is assumed to have settled.
Free of Payment In	An instruction to receive delivery of a security from a third party on a free of payment basis	Failed	This type of Pending Trade has no potential impact on the unsecured claim (since if it settled, an asset claim would arise and if it failed, no claim would arise). In order to close out any question of there being an unsecured claim, it is assumed to have failed.
Free of Payment In to close out a Short Position	An instruction to receive delivery of a security from a third party on a free of payment basis in order to close out a short position.	Failed	Since the obligation to deliver equivalent securities under a short gives rise to a debt (see “Short Sale” above), it is assumed that any attempt to close out the short position by delivering securities in, failed. The creditor’s potential unsecured claim is therefore reduced by an amount equal to the value of the short position for the purposes of determining the Minimum Net Financial Claim.
Purchase of a Long Position to close out a Short Position	An instruction to purchase a security on behalf of the creditor in order to close out a short position.	Failed or Settled according to greatest reduction of unsecured claim	Both the Purchase of a Long Position (see “Purchase of Long Position” above) and the existence of a Short Position (see “Short Sale” above) will reduce the amount of a creditor’s Minimum Net Financial Claim, so a test is performed to see which outcome results in the greater reduction. The purchase will be assumed to have settled if the associated debit from the margin balance of the purchase price is more than the debt which would be owed by the creditor to LBIE if the short position remained in place. If, on the other hand, the debt owed for the short position is more than the debit for the purchase price, the purchase will be assumed to have failed and the creditor’s potential unsecured claim will be reduced by an amount equivalent to the value of the short position for the purposes of determining the Minimum Net Financial Claim.

E.Do the Settlement Assumptions change the nature of my claim for the Pending Trades?

Any assumption as to whether a Pending Trade settled or failed for the purposes of the Pending Trade CDD does not constitute an admission or denial by LBIE or the Trust Creditor that a Pending Trade in fact settled or failed, but is made solely for the purpose of calculating a Minimum Net Financial Claim.

Calculation of a Minimum Net Financial Claim also has no bearing upon, and is entirely without prejudice to, the claims being made by LBIE against LBI on behalf of itself and its underlying clients in the SIPA Proceedings, which include claims to assets or sale proceeds in respect of Pending Trades.

F.Why does the Pending Trade CDD not fix the unsecured claim that I would have if the Settlement Assumption proves to be incorrect?

At this time, LBIE is focusing its resources on agreeing as many claims as possible for all clients who have submitted valid proofs of debt (as prescribed by the Insolvency Rules 1986) (“PODs”) ahead of the 31st July 2012 bar date (“Bar Date”). This is utilising all of its available administrative resources and does not leave sufficient resources to agree valuations for all affected Trust Creditors in respect of claims which may never arise. The Joint Administrators recognise that creditors would prefer to have certainty with respect to all of their unsecured claims. However, they take the view that the Pending Trade CDD as drafted gives the maximum number of affected creditors the greatest opportunity to participate in the first dividend without exposing the Administration to unacceptable levels of risk.

G.I believe that the Settlement Assumption on a Pending Trade is incorrect and LBI agrees. Why does LBIE still wish to use it in the Pending Trade CDD?

LBIE is aware that counterparties may have evidence which suggests that a Pending Trade settled or failed other than in accordance with the Settlement Assumption in the Pending Trade CDD. This may also accord with the current information given to LBIE by LBI. However, in order to best protect the interest of all creditors of the LBIE estate, the Administrators require a relatively high level of proof that this is the case, along with binding assurances regarding the manner in which LBIE’s claims will be allowed in the SIPA Proceedings. To date, LBIE has been unable to satisfy itself with respect to these requirements for any Trust Creditor and it is highly unlikely that an arrangement of this nature can be reached with such creditors before the payment of the first interim dividend. The Joint Administrators therefore take the view that the use of the Settlement Assumptions, as described in this website update, offers the maximum number of Trust Creditors the greatest opportunity to participate in the first dividend without exposing the Administration to unacceptable levels of risk.

H. Can I transfer my Minimum Net Financial Claim under the Pending Trade CDD to a third party?

Transfers may be made, subject to the terms contained in the Pending Trade CDD (which are consistent with the terms used in other CDDs currently used by LBIE to agree creditors’ unsecured claims). Any such transfer will only relate to the Minimum Net Financial Claim and not to any Recalculable Pending Transaction Claim, or any asset claim or any other claim in the SIPA Proceedings.

I.What happens if I refuse the offer of a Pending Trade CDD?

It is entirely up to each Trust Creditor whether to accept an offer made under the terms of a Pending Trade CDD. LBIE currently has no other plans for an interim method of dealing with the uncertainty caused by Pending Trades and LBIE’s SIPA claims against LBI and so any Trust Creditor who elects to refuse such offer is likely to have to wait until after LBIE either implements a settlement with LBI or the litigation between LBIE and LBI is finally determined before being able to have its entire claim agreed and admitted for dividend (see ‘Prospects for Final Resolution’). Until that time, LBIE will continue to reserve in accordance with its policies against claims which such Trust Creditors have made in their PODs.

J. Is the Pending Trades CDD available to both CRA and Non-CRA Trust Creditors?
Yes, but as set out in K below, the Pending Trades CDD may not be appropriate for all Trust Creditors.

K.I have Pending Trades but have not been offered a Pending Trade CDD. Why not?
There may be a number of reasons why a Pending Trade CDD may not be appropriate for all Trust Creditors.

i. Debtor on the basis of the Settlement Assumptions:
The methodology employed to determine a creditor’s Minimum Net Financial Claim may require LBIE to assume that a creditor’s claims in respect of Pending Trades form part of LBIE’s SIPA claim against LBI rather than being a claim against LBIE to an unsecured amount. Applied across a significant population of Pending Trades, this may result, for the purposes of the Pending Trades CDD only, in the creditor’s unsecured position (i.e. excluding its portion of the SIPA claim and other claims which are not the subject of the Pending Trade CDD) moving from that of a net creditor to that of a net debtor to LBIE.

For example, if Creditor B’s entire position with LBIE consists of a cash margin balance of $500,000 and a Pending Trade which is the purchase of 10,000 shares in XYZ, Inc. at a price of $60 per share, the Pending Trade CDD would assume that the purchase had settled giving Creditor B a claim to the 10,000 shares. For the purposes of a Pending Trade CDD only, Creditor B’s potential unsecured claim would therefore be reduced by $600,000, making it a net debtor for $100,000 on the basis of the Settlement Assumption.

In these circumstances, clearly, it would not be possible to agree a Minimum Net Financial Claim and the creditor would need to wait for definite resolution of the Pending Trade before its unsecured claim, if any, could be agreed.

ii. De minimis or No Impact Pending Trades:

It is also possible that the Pending Trades in a Trust Creditor’s portfolio solely consist of trade types which do not impact the unsecured claim. For example, if a creditor’s Pending Trades consist solely of the Sale of Long Positions, the fact that the Settlement Assumption (that the trades settled) proves to be incorrect will not lead to an additional unsecured claim in the form of a Recalculable Pending Transaction Claim (since it is assumed that an asset claim to the securities would arise (see “Sale of Long Position”) . In these circumstances, any offer will be on the basis of a non-Pending Trade CDD.

Alternatively, it may be that the potential additional unsecured claim which may arise if the Settlement Assumptions applicable to a creditor’s Pending Trades prove to be incorrect is so small that in the interests of reducing operational costs for the Administration and the Trust Creditor, LBIE may ask the Trust Creditor to waive any such additional claim. Again, in these circumstances, a non-Pending Trades CDD may be offered. However, it is up to the Trust Creditor whether they wish to accept this form of CDD or if their preference is for a Pending Trades CDD to be used.

Do the Settlement Assumptions change the nature of my claim for the Pending Trades?

Any assumption as to whether a Pending Trade settled or failed for the purposes of the Pending Trade CDD does not constitute an admission or denial by LBIE or the Trust Creditor that a Pending Trade in fact settled or failed, but is made solely for the purpose of calculating a Minimum Net Financial Claim.

Calculation of a Minimum Net Financial Claim also has no bearing upon, and is entirely without prejudice to, the claims being made by LBIE against LBI on behalf of itself and its underlying clients in the SIPA Proceedings, which include claims to assets or sale proceeds in respect of Pending Trades.
Why does the Pending Trade CDD not fix the unsecured claim that I would have if the Settlement Assumption proves to be incorrect?

At this time, LBIE is focusing its resources on agreeing as many claims as possible for all clients who have submitted valid proofs of debt (as prescribed by the Insolvency Rules 1986) (“PODs”) ahead of the 31st July 2012 bar date (“Bar Date”). This is utilising all of its available administrative resources and does not leave sufficient resources to agree valuations for all affected Trust Creditors in respect of claims which may never arise. The Joint Administrators recognise that creditors would prefer to have certainty with respect to all of their unsecured claims. However, they take the view that the Pending Trade CDD as drafted gives the maximum number of affected creditors the greatest opportunity to participate in the first dividend without exposing the Administration to unacceptable levels of risk.
I believe that the Settlement Assumption on a Pending Trade is incorrect and LBI agrees. Why does LBIE still wish to use it in the Pending Trade CDD?

LBIE is aware that counterparties may have evidence which suggests that a Pending Trade settled or failed other than in accordance with the Settlement Assumption in the Pending Trade CDD. This may also accord with the current information given to LBIE by LBI. However, in order to best protect the interest of all creditors of the LBIE estate, the Administrators require a relatively high level of proof that this is the case, along with binding assurances regarding the manner in which LBIE’s claims will be allowed in the SIPA Proceedings. To date, LBIE has been unable to satisfy itself with respect to these requirements for any Trust Creditor and it is highly unlikely that an arrangement of this nature can be reached with such creditors before the payment of the first interim dividend. The Joint Administrators therefore take the view that the use of the Settlement Assumptions, as described in this website update, offers the maximum number of Trust Creditors the greatest opportunity to participate in the first dividend without exposing the Administration to unacceptable levels of risk.
Can I transfer my Minimum Net Financial Claim under the Pending Trade CDD to a third party?

Transfers may be made, subject to the terms contained in the Pending Trade CDD (which are consistent with the terms used in other CDDs currently used by LBIE to agree creditors’ unsecured claims). Any such transfer will only relate to the Minimum Net Financial Claim and not to any Recalculable Pending Transaction Claim, or any asset claim or any other claim in the SIPA Proceedings.
What happens if I refuse the offer of a Pending Trade CDD?

It is entirely up to each Trust Creditor whether to accept an offer made under the terms of a Pending Trade CDD. LBIE currently has no other plans for an interim method of dealing with the uncertainty caused by Pending Trades and LBIE’s SIPA claims against LBI and so any Trust Creditor who elects to refuse such offer is likely to have to wait until after LBIE either implements a settlement with LBI or the litigation between LBIE and LBI is finally determined before being able to have its entire claim agreed and admitted for dividend (see ‘Prospects for Final Resolution’). Until that time, LBIE will continue to reserve in accordance with its policies against claims which such Trust Creditors have made in their PODs.
Is the Pending Trades CDD available to both CRA and Non-CRA Trust Creditors?

Yes, but as set out in K below, the Pending Trades CDD may not be appropriate for all Trust Creditors.
I have Pending Trades but have not been offered a Pending Trade CDD. Why not?

There may be a number of reasons why a Pending Trade CDD may not be appropriate for all Trust Creditors.
1. Debtor on the basis of the Settlement Assumptions:
  
  The methodology employed to determine a creditor’s Minimum Net Financial Claim may require LBIE to assume that a creditor’s claims in respect of Pending Trades form part of LBIE’s SIPA claim against LBI rather than being a claim against LBIE to an unsecured amount. Applied across a significant population of Pending Trades, this may result, for the purposes of the Pending Trades CDD only, in the creditor’s unsecured position (i.e. excluding its portion of the SIPA claim and other claims which are not the subject of the Pending Trade CDD) moving from that of a net creditor to that of a net debtor to LBIE.
  
  For example, if Creditor B’s entire position with LBIE consists of a cash margin balance of $500,000 and a Pending Trade which is the purchase of 10,000 shares in XYZ, Inc. at a price of $60 per share, the Pending Trade CDD would assume that the purchase had settled giving Creditor B a claim to the 10,000 shares. For the purposes of a Pending Trade CDD only, Creditor B’s potential unsecured claim would therefore be reduced by $600,000, making it a net debtor for $100,000 on the basis of the Settlement Assumption.
  
  In these circumstances, clearly, it would not be possible to agree a Minimum Net Financial Claim and the creditor would need to wait for definite resolution of the Pending Trade before its unsecured claim, if any, could be agreed.
2. De minimis or No Impact Pending Trades:
  
  It is also possible that the Pending Trades in a Trust Creditor’s portfolio solely consist of trade types which do not impact the unsecured claim. For example, if a creditor’s Pending Trades consist solely of the Sale of Long Positions, the fact that the Settlement Assumption (that the trades settled) proves to be incorrect will not lead to an additional unsecured claim in the form of a Recalculable Pending Transaction Claim (since it is assumed that an asset claim to the securities would arise (see “Sale of Long Position”) . In these circumstances, any offer will be on the basis of a non-Pending Trade CDD.
  
  Alternatively, it may be that the potential additional unsecured claim which may arise if the Settlement Assumptions applicable to a creditor’s Pending Trades prove to be incorrect is so small that in the interests of reducing operational costs for the Administration and the Trust Creditor, LBIE may ask the Trust Creditor to waive any such additional claim. Again, in these circumstances, a non-Pending Trades CDD may be offered. However, it is up to the Trust Creditor whether they wish to accept this form of CDD or if their preference is for a Pending Trades CDD to be used.

Do the Settlement Assumptions change the nature of my claim for the Pending Trades?

Any assumption as to whether a Pending Trade settled or failed for the purposes of the Pending Trade CDD does not constitute an admission or denial by LBIE or the Trust Creditor that a Pending Trade in fact settled or failed, but is made solely for the purpose of calculating a Minimum Net Financial Claim.

Calculation of a Minimum Net Financial Claim also has no bearing upon, and is entirely without prejudice to, the claims being made by LBIE against LBI on behalf of itself and its underlying clients in the SIPA Proceedings, which include claims to assets or sale proceeds in respect of Pending Trades.
Why does the Pending Trade CDD not fix the unsecured claim that I would have if the Settlement Assumption proves to be incorrect?

At this time, LBIE is focusing its resources on agreeing as many claims as possible for all clients who have submitted valid proofs of debt (as prescribed by the Insolvency Rules 1986) (“PODs”) ahead of the 31st July 2012 bar date (“Bar Date”). This is utilising all of its available administrative resources and does not leave sufficient resources to agree valuations for all affected Trust Creditors in respect of claims which may never arise. The Joint Administrators recognise that creditors would prefer to have certainty with respect to all of their unsecured claims. However, they take the view that the Pending Trade CDD as drafted gives the maximum number of affected creditors the greatest opportunity to participate in the first dividend without exposing the Administration to unacceptable levels of risk.
I believe that the Settlement Assumption on a Pending Trade is incorrect and LBI agrees. Why does LBIE still wish to use it in the Pending Trade CDD?

LBIE is aware that counterparties may have evidence which suggests that a Pending Trade settled or failed other than in accordance with the Settlement Assumption in the Pending Trade CDD. This may also accord with the current information given to LBIE by LBI. However, in order to best protect the interest of all creditors of the LBIE estate, the Administrators require a relatively high level of proof that this is the case, along with binding assurances regarding the manner in which LBIE’s claims will be allowed in the SIPA Proceedings. To date, LBIE has been unable to satisfy itself with respect to these requirements for any Trust Creditor and it is highly unlikely that an arrangement of this nature can be reached with such creditors before the payment of the first interim dividend. The Joint Administrators therefore take the view that the use of the Settlement Assumptions, as described in this website update, offers the maximum number of Trust Creditors the greatest opportunity to participate in the first dividend without exposing the Administration to unacceptable levels of risk.
Can I transfer my Minimum Net Financial Claim under the Pending Trade CDD to a third party?

Transfers may be made, subject to the terms contained in the Pending Trade CDD (which are consistent with the terms used in other CDDs currently used by LBIE to agree creditors’ unsecured claims). Any such transfer will only relate to the Minimum Net Financial Claim and not to any Recalculable Pending Transaction Claim, or any asset claim or any other claim in the SIPA Proceedings.
What happens if I refuse the offer of a Pending Trade CDD?

It is entirely up to each Trust Creditor whether to accept an offer made under the terms of a Pending Trade CDD. LBIE currently has no other plans for an interim method of dealing with the uncertainty caused by Pending Trades and LBIE’s SIPA claims against LBI and so any Trust Creditor who elects to refuse such offer is likely to have to wait until after LBIE either implements a settlement with LBI or the litigation between LBIE and LBI is finally determined before being able to have its entire claim agreed and admitted for dividend (see ‘Prospects for Final Resolution’). Until that time, LBIE will continue to reserve in accordance with its policies against claims which such Trust Creditors have made in their PODs.
Is the Pending Trades CDD available to both CRA and Non-CRA Trust Creditors?

Yes, but as set out in K below, the Pending Trades CDD may not be appropriate for all Trust Creditors.
I have Pending Trades but have not been offered a Pending Trade CDD. Why not?

There may be a number of reasons why a Pending Trade CDD may not be appropriate for all Trust Creditors.
1. Debtor on the basis of the Settlement Assumptions:
  
  The methodology employed to determine a creditor’s Minimum Net Financial Claim may require LBIE to assume that a creditor’s claims in respect of Pending Trades form part of LBIE’s SIPA claim against LBI rather than being a claim against LBIE to an unsecured amount. Applied across a significant population of Pending Trades, this may result, for the purposes of the Pending Trades CDD only, in the creditor’s unsecured position (i.e. excluding its portion of the SIPA claim and other claims which are not the subject of the Pending Trade CDD) moving from that of a net creditor to that of a net debtor to LBIE.
  
  For example, if Creditor B’s entire position with LBIE consists of a cash margin balance of $500,000 and a Pending Trade which is the purchase of 10,000 shares in XYZ, Inc. at a price of $60 per share, the Pending Trade CDD would assume that the purchase had settled giving Creditor B a claim to the 10,000 shares. For the purposes of a Pending Trade CDD only, Creditor B’s potential unsecured claim would therefore be reduced by $600,000, making it a net debtor for $100,000 on the basis of the Settlement Assumption.
  
  In these circumstances, clearly, it would not be possible to agree a Minimum Net Financial Claim and the creditor would need to wait for definite resolution of the Pending Trade before its unsecured claim, if any, could be agreed.
2. De minimis or No Impact Pending Trades:
  
  It is also possible that the Pending Trades in a Trust Creditor’s portfolio solely consist of trade types which do not impact the unsecured claim. For example, if a creditor’s Pending Trades consist solely of the Sale of Long Positions, the fact that the Settlement Assumption (that the trades settled) proves to be incorrect will not lead to an additional unsecured claim in the form of a Recalculable Pending Transaction Claim (since it is assumed that an asset claim to the securities would arise (see “Sale of Long Position”) . In these circumstances, any offer will be on the basis of a non-Pending Trade CDD.
  
  Alternatively, it may be that the potential additional unsecured claim which may arise if the Settlement Assumptions applicable to a creditor’s Pending Trades prove to be incorrect is so small that in the interests of reducing operational costs for the Administration and the Trust Creditor, LBIE may ask the Trust Creditor to waive any such additional claim. Again, in these circumstances, a non-Pending Trades CDD may be offered. However, it is up to the Trust Creditor whether they wish to accept this form of CDD or if their preference is for a Pending Trades CDD to be used.