The Information Technology Division Presents

TECH SOLUTIONS FOR OTC CCP November 4, 2010

Prepared and Moderated by

Tellefsen and Company, L.L.C.

CGConsultants to the Financial Services Industry

AGENDA

I. Introduction, Our Distinguished Panel

II. Background and Evolution of OTC Clearing

III. Questions for Our Panel

CGConsultants to the Financial Services Industry

I. OUR DISTINGUISHED PANEL

Ted Brooks– Director, Clearing Initiatives MarkitSERV

Peter Fredriksson– CEO, Bay Markets AB

Richard Hulit– Executive Vice President, SunGard Brokerage and

ClearanceJohn Rapa– President / CEO, Tellefsen and Company, L.L.C.

CGConsultants to the Financial Services Industry

II. OTC CLEARING – BACKGROUND

Growth and evolution of OTC markets, asset classes

Dealer versus broker models

Growth of OTC volumes at exchanges/clearing houses – post-Enron

Impact of de-leveraging on transaction volumes, prices, spreads

Bi-lateral clearing versus central clearing

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OTC CLEARING BACKGROUND (Cont’d) …

Evolution of futures “look alike” products

OTC markets create liquidity: many products/low volume/short duration

Clearing house structure to mitigate counterparty risks

Push to move OTC products into central clearing houses

Forthcoming FinReg reforms – US, UK, EU

Tech impact of new regulations for OTC cleared products

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PROS AND CONS OF CENTRAL CLEARING

PROs:– Safeguards, default protection process– Clearing house risk oversight– Transparency of pricing– Multilateral netting– Efficient post-trade processing– Segregation of customer funds – default/bankruptcy protection– Ability to convert OTC products to futures

CONs:– Lack of fungibility - OTC products– Accounting rules for certain hedges requires perfectly matched offsets– OTC product set may not fit hedgers needs– Margin capital costs– Can be heavily broker-mediated

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TECHNOLOGY DRIVERS

Support for new products that have little or no standardization

Need for Straight Through Processing (STP)

Growing rate of regulatory change

Build versus Buy – state of application solutions available for Buy Side, Sell Side firms

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OUTSTANDING VALUE – CDS, INTEREST RATE AND FX SWAPS

Source: WSJ

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2009 GLOBAL LISTED AND OTC DERIVATIVES VOLUMES, NOTIONAL OUTSTANDING

LISTED FUTURES VOLUMESFUTURES 8,179MMOPTIONS 9,521MMTOTALS 17,700MM

NOTIONAL AMOUNTS OUTSTANDING - OTC DERIVATIVESINTEREST RATE SWAPS $437 TrillionCREDIT DEFAULT SWAPS $39 TrillionEQUITIES $9.7 TrillionTOTAL NOTIONAL $605 Trillion

NOTIONAL AMOUNTS OUTSTANDING LISTED GLOBAL DERIVATIVESTOTAL NOTIONAL $81 Trillion

Sources: Bank for International Settlements, International Swap Dealers Association

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OTC PRODUCT VOLUMES AT MAJOR EXCHANGES

2009 Volumes 2010 YTD VolumesCME Group - ClearPort 1,395M 4,300MCoalCommoditesCreditEmissionsEnergyFXFreightMetalsPowerPetrochemicalsEurex Clearing ~960M N/ AEmissionsEquity OptionsCreditFixed IncomeIndicesSwapsICE Clear 249M 149M

~$7 Trillion Notional ~12 Trillion NotionalCredit Default SwapsEnergyIron OreMetalsNatural GasPowerLiffe Clear/ Bclear ~250M N/ A

~$8 Trillion NotionalCommoditiesCredit Default SwapsEquitiesLCH Clearnet ~475M N/ A

~22 Billion NotionalCredit Default SwapsInterest RatesBulk FreightSGX AsiaClear ~80M N/ A

~$6 Billion NotionalEnergyBulk FreightIron Ore

Sources: Exchanges web sites, FIA

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QUESTIONS FOR OUR PANEL

CGConsultants to the Financial Services Industry

THANKS TO OUR PANEL!!!