The IMA says that Lehman’s collapse resulted in a large number of failed trades which had been placed with Lehman’s brokerage operation by investment managers.
The association says the FSA may need new powers to take control of client monies promptly in the event of a default.
In the case of Lehmans, the IMA says resolving managers’ and clients’ positions will be a long and much more complex process than that experienced in other financial centres and with previous defaults.
The IMA blames a number of factors for these problems, which it says resulted from the fragmentation of trading venues following MiFID.
These factors include a market structure that allowed Lehman to use a non-segregated account for exchange trades, preventing clients from getting the benefit of the clearing house default rules.
The IMA also highlights the freezing of trades within Crest, the UK’s equity settlement system, for up to nine weeks and argues that it is still unclear why this happened.
The association says there is a need for terms of business between brokers and their clients to deal fairly and transparently with the needs of both parties.
IMA chief executive Richard Saunders says: “The Lehman default has resulted in a state of chaos for managers – operationally, legally and from a risk perspective.
“As things stand, if another broker were to default, the same problems would arise again.
“Reforms are needed to ensure that defaults within the UK equity market can be dealt with swiftly and authoritatively, and that investors obtain early certainty about their trades and associated market risk.
“The work should keep investor interests foremost and not be overly concerned with the impact on market intermediaries.
He adds: “We call upon the FSA to lead a review as matter of urgency to secure this outcome, which we see as essential to maintaining market confidence.”