May 3, 2016 Presented by: Jamila Piracci, Vice President, OTC Derivatives Alessandra Riccardi, Director of Capital and Risk NFA Webinar: Margin Model Approval Process

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Exploratory Discussions  NFA’s goal from these discussions is to gain an understanding of the following:  The status and timelines for the firm’s model implementation  Model risk  Model validation governance  Model test results and overall control framework

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Margin Model Submission: Key Areas  Cover letter from the Chief Risk Officer or equivalent, describing:  Senior managements’ involvement in and approval of the margin model implementation process  Proposed start date for using the margin model  Statement confirming that the margin model meets all applicable CFTC requirements

Margin Model Submission: Key Areas  Description of the scope of the model’s application, including a summary of products to be subjected to the model  An inventory of reports related to the firm’s internal model validation  Detailed description of the margin model implementation process  Detailed description of the model development and limitations  Detailed model validation results and analysis

Margin Model Submission: Key Areas  Detailed description of work performed to conduct an independent review of the margin model  Any additional detail on the suitability and key assumptions embedded in the model, as well as the firm’s internal assessment of the inherent risk and use of the model

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Review and Assessment  NFA’s review will evaluate whether:  The submitted initial margin model is conceptually sound  The submitted margin model is appropriate in terms of implementation and use  Descriptions provided in the margin model submission are adequate and comprehensive  Testing is successfully complete  The CFTC Covered Swap Entity can demonstrate adherence to applicable CFTC regulations

Margin Model Review Phases  Phase I—Conceptual soundness examination, including reviews of:  The scope of application of the model  Model governance  Model development documentation  Model validation results  The firm’s internal gap analysis of compliance with regulations  The firm’s internal audit procedures  The firm’s ongoing performance monitoring

Margin Model Review Phases  Phase II—Assessment of model use and ongoing performance, including evaluations of:  The scope of the model’s application and use  Information on how the firm generates inputs and parameters for the model  Further validation of the model, if necessary  Policies and procedures for ongoing performance monitoring

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Exploratory Discussions Model Submission Review / Assessment Approval / Implementation Monitoring for Ongoing Suitability Margin Model Approval Process

Contact NFA Alessandra Riccardi Director of Capital and Risk