FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 1 Karel Engelen, ISDA Lyteck Lynhiavu, ISDA Richard Barton, Algorithmics/Chair, FpML Collateral WG Scalable Collateral Management Using ISDA’s FpML Open Standard FpML - Financial products Markup Language

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 2 FpML makes your data portable What is FpML? An open electronic standard, based on XML, freely-licensed, sponsored by ISDA Provides a standard for communicating within & between firms about OTC derivatives Provides flexible representation of OTC transactions and business processes –including collateral management– enables automation and reduces costs

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 3 Proposal to use FpML as a universal data exchange format for collateral management – the standard is vendor-neutral – enables true interoperability Benefits of using FpML – Open standard defined by the OTC industry – Collective design FpML Collateral WG has been meeting weekly since January 60+ participants, 37 firms represented – Provides flexible framework for future requirements – Basis for company wide systems integration, process automation, and interoperability. FpML covers collateral and more

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 4 Open standard gives you choice Proprietary messaging format locks you and limits you to a particular vendor/application/service/network – You can’t communicate with partners that do not use the same service (limited network) – You haven’t solved your data translation problems internally FpML open standard gives you choice and control – Choice of vendors, services, partners (vendor and platform neutral) – Control over your data (audit, reporting, long term availability) – Streamlines business processes, increases automation – Enables interoperability with external systems without data conversion – Benefit from an evolving standard developed by peers – Extend the standard to meet your internal needs

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE Q1 Phase I Processes Margin Call (completed) Substitution (completed) Interest (completed) Phase II (TBD) Portfolio Reconciliation Dispute Resolution Settlement (?) FpML 5.1 (First draft)FpML 5.1 REC Margin call development + reusable collateral building blocks Fed Commitment Letter March 1 Jan Feb March FpML 5.1 deliverables Kick-off Full set of collateral messages in FpML 5.1 Final version on schedule for December 2010 Draft available now for review & implementation Collaborative design, industry-driven Weekly meetings (since January) Open forum, transparent decisions (all communications, minutes available online) Full set of collateral messages in FpML 5.1 Final version on schedule for December 2010 Draft available now for review & implementation Collaborative design, industry-driven Weekly meetings (since January) Open forum, transparent decisions (all communications, minutes available online) April May JuneJuly Aug SeptOct Nov Dec Q2Q3Q4 1 st Working Draft Last CallTrial Recommendation RECOMMENDATION ISDA electronic messaging Nov 09 2 nd Working Draft Collateral Mgmt Roadmap April 15 Substitution Interest FpML Collateral Roadmap …

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 6 FpML Standards Process The ISDA electronic messaging document is a set of detailed business requirements that have gone through a standards process that includes extensive analysis, committee review and standard reviews to ensure it fits within the overall FpML structure and answers industry needs. Open Extensive analysis Broad industry input, real world scenarios Scrutiny Implementation (leverages 5 th Gen. framework) Group review  Testing Feedback  Refinements  Agreement Quality Technical reviews Public reviews (working drafts) New messages validated for industry use New industry requirements e.g., Collateral messaging

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 7 FpML vs ISO vs original data reqs Open forum (all s, minutes, decisions are publicly available online / the only open forum) Vendor neutral (only a vendor-neutral standard can enable true interoperability) Broad industry participation (60+ participants, 37 firms represented) Evolved from the ISDA requirements the messages evolved from the original requirements based on the input from the group to support greater scalability from the perspective of agreement types supported or the margining scenarios supported i.e. – support for segregated independent amounts, – gross vs net exposure treatment – full disclosure to expedite dispute identification – It also recognized where requirements had evolved i.e. dispute resolution piece and segregated independent amounts. Reusable components built upon FpML’s inherent building block design – The substitution messages could be designed in one session. The interest messages only took 2-3 sessions thanks to the work put into designing reusable components during the development of the Margin Call messages (6 months of weekly meetings) Benefits from FpML’s broad reach in the OTC derivatives space – Portfolio Reconciliation (already available in FpML 4.4) – CCP (LCH, CME, ICE actively participate in the development FpML, chair the FX WG, contribute proposals to BPWG, collateral WG, are on the FpML Standards Committee) – Collateral industry will need a standard that can reach across the collateral process (Collateral Margin Call + Subst. + Interest + Portfolio Rec + CCP) long term working towards a common business model with both FpML and ISO compliant syntax

FpML Collateral Working Group Copyright © 2010 International Swaps and Derivatives Association, Inc. OCTOBER 2010 – SLIDE 8 Collateral Industry Challenges and solution Margin Call Substitution Interest Port Rec Clearing FpML Inter- operability FpML data exchange standard provides existing functionality that spans across key collateral activities - an open, extensible, and rich framework that can be freely used as a common language internally and between trading partners - an inherent way to interconnect disparate processes together, enable interoperability and meet regulatory demands