A spectacular event in August 1996, apart from the Olympics in Atlanta, was the closure of two derivative product companies. The first, Fisher King Derivative Products (Fishco), a termination vehicle, was wound up when its parent Fisher King & Co fell below BBB investment grade.
That forced the termination of over 500 interest rate and currency swaps, caps, floors and other structures, with more than 200 counterparties, totalling over $100 billion in notional principal amount.
The market was hit by a wall of demand for close-outs within the next 10 days, during the least liquid month of the year. The $800 million of collateral posted by Fisher King with Fishco to cope with just such an event, together with its core capital of $100 million, had been well above the mark-to-market value of Fishco's exposure to its clients.
But in the subsequent market disruption, spreads on over-the-counter derivatives widened so far...
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