Enterprise Risk Management October 9, 2007 Marie Rey, Managing Director Risk Management, DTCC

Enterprise Risk Management Governance DTCC Board of Directors Credit & Market Risk Management Committee Compliance & Operational Risk Management Committee DTCC Chairman & Chief Executive Officer FRBNY NYSBD PWC IA Risk Management Managing Director DTCC Executive Management Committee Member Risk Management Department DTCC Confidential

Enterprise Risk Management DTCC Confidential

Role of Risk Management Protect the safety & soundness of clearance & settlement Reduce risk of loss due to member failure Insure settlement continues in face of member failure DTCC Confidential

Credit & Market Risk Responsibilities Assess new applicants On-Going Financial Surveillance Market Surveillance DTCC Confidential

Securities Valuation Responsibilities Pricing of collateral held across the complex Ratings obtained from outside sources Market prices – external & internal sources Evaluation of adequacy of pricing Determination of appropriate haircuts DTCC Confidential

Quantitative Analysis Responsibilities Mathematical modeling of components of clearing fund requirements Models validated by third parties Performance of stress tests Performance of back tests DTCC Confidential

Project Management Responsibilities Liaison between risk system users and risk technology staff DTCC Confidential

Credit Risk Assessment of an Applicant Detailed Review Adherence to Corporate Rules Presentation to Credit & Market Risk Management Committee DTCC Confidential

Credit Risk Ongoing Financial Surveillance Credit Risk Matrix Parameter Monitoring Periodic Reviews 7 DTCC Confidential

Market Risk Surveillance Clearing Fund DTC Market Risk Review Market Watch 8 DTCC Confidential

Market Risk Clearing Fund The Clearing fund is maintained to protect the Corporation and its members in the event of a member default NSCC guarantees trades at midnight of T+1 GSD guarantees trades at point of trade comparison DTCC Confidential

Market Risk Clearing Fund - Composition The Clearing Fund is comprised of: Cash (USD) U.S. Treasuries DTCC Confidential

Market Risk Clearing Fund Calculated overnight Requirements sent automatically via email to Members typically by 7:00 A.M. 9:30-10:00 A.M. deadline for receipt of deficit payment DTCC Confidential

NSCC Clearing Fund Methodology Risk-Based Margining Volatility Mark-to Market Fails Market Maker Domination Illiquid Charges Premium Intraday Monitoring DTCC Confidential

Market Risk Volatility Largest component of the clearing fund requirement VaR for equities and fixed income securities Haircuts DTCC Confidential

Haircuts OTCBB, Pink Sheets and IPOs Applied in instances where there is insufficient statistical data DTCC Confidential

Mark-To-Market (“MTM”) Unrealized profit and loss on unsettled positions, including fails (System Price*Net Quantity) – (Contract Value) No credit is given for a total net credit MTM DTCC Confidential

Fails A trade that has not settled as scheduled Minimum haircut on market value of long and short (abs) failing positions Haircut may increase based on internal credit rating DTCC Confidential

Market Maker Domination Measures exposure of correspondent Market Makers Limited to OTC listed market concentrations Charge mitigated by credit worthiness DTCC Confidential

Illiquid Charges To capture exposure in illiquid securities Overnight calculation is based on several components, such as: Internal credit rating of firm Position size Primary market Average daily volume Price DTCC Confidential

Premium Clearing Fund > 1= Premium Capital Member’s clearing fund requirement vs. Member’s capital Clearing Fund > 1= Premium Capital DTCC Confidential

GSD Clearing Fund Methodology Clearing fund components Premium Coverage component Margin requirement differential Volatility DTCC Confidential

Margin Requirement Differential Captures changes in VaR Applies front weighted average of fluctuations DTCC Confidential

Coverage Component Back Test Based Compares historic P&L of trades against clearing fund requirement Front weighted DTCC Confidential

DTC Market Risk DTC maintains a fully collateralized system Collateralization Net debit caps DTCC Confidential

Collateralization Participant is required to have sufficient collateral in its account to support net settlement debits Collateral includes: - Participant's deposit to the Participants Fund - Designated collateral securities in participant’s account - Securities that are the subject of deliveries from other participants Collateral is marked-to-market every day, less a haircut Transactions pend until sufficient collateral is available to support net settlement debit DTCC Confidential

Collateralization Review Review impact of systemic overrides Review impact of price and haircut adjustments made by Securities Valuation Review impact of price movements DTCC Confidential

Net Debit Cap Based on three largest intra-day net debit balances over a rolling 70 business day period Limited on a case-by-case basis Maximum Net Debit Cap Transactions pend if settlement transactions exceed net debit cap DTCC Confidential

Market Risk Market Watch Links to news services Market events analyzed Chronology maintained of market events and actions taken Closeout simulations DTCC Confidential

End of Day Line of Credit Liquidity Needs Resources DTCC Confidential