ACSDA General Assembly Panel 2 – Collateral Management Brett Lancaster Thursday 24 March, 2011 v05

2 Collateral Management Managing Director – Securities for the Americas

3 Recovery from the crisis is underway … … but the scars from Lehman, AIG and Bear Stearns remain The management of costs, risks and impact of new regulation are now dominant drivers for many securities firms

4 The result is that Dodd-Frank Wall Street Reform Act will bring widespread and sweeping change Chris DoddBarney Frank Changes are deep and include the need for formal collateralization for OTC Derivatives, which has a gross market value of $25T

ISDA’s open letter to the Fed committed firms to send electronic collateral messages, by end of AllianceBernstein Bank of America-Merrill Lynch Barclays Capital BlackRock, Inc. BlueMountain Capital Mgt LLC BNP Paribas Citadel Investment Group, L.L.C. Citi Credit Suisse Deutsche Bank AG D.E. Shaw & Co., L.P. DW Investment Management LP Goldman Sachs & Co. 70% of OTC Derivatives surveyed are collateralized (170k contracts margin value of $3T) with heavy reliance on faxes, phone and Signatories Goldman Sachs Asset Mgt, L.P. HSBC Group J.P.Morgan Managed Funds Association Morgan Stanley PIMCO, LLC The Royal Bank of Scotland Group AMF / SIFMA Société Générale UBS AG Wachovia Bank, N.A. Wellington Mgt Company, LLP

6 In response, SWIFT developed ISO based messages, across the entire collateral lifecycle Margin Call Processing Margin Call Processing Substitution Processing Substitution Processing Interest Payment Processing Interest Payment Processing Reporting Margin call request Margin call response Cancellation request Cancellation status Collateral proposal Collateral response Dispute notification Substitution request Substitution response Substitution confirmations Interest payment request Interest payment response Interest statement Non-standard files: Pricing reports for valuation Portfolio reporting for reconciliation Exposure reports Regulatory reports Bilateral Collateral Management Business Flow Currently, collateralization is voluntary. Regulation will dictate central clearing, standard contracts, daily margining and cash pools

SWIFT offers standard ISO messages and testing tools that work seamlessly with the SWIFT network 7 SWIFT Collateral Management Messages and Tools –Messages cover margin calls, disputes, substitutions, interest payments and reporting –Matches business flows defined by ISDA –Covers all asset classes –ISO XML based messages, completed Q2 ‘10 –Suite of GUI-based testing tools, completed Q4 ‘10 SWIFT Network –Secure, scalable infrastructure with % availability –Guaranteed non-repudiated delivery with authentication –Automatic message validation of syntax and schema –CM messages are compatible with downstream clearing –SWIFT is used by 9,500 firms across 209 countries –88% penetration for Americas Buy-Side, by AUM –96% penetration for Americas Sell-Side, by market cap

Ready Application Collateral Management 2011 We are helping ISDA define the next milestone – the interoperability between platforms ISO is well placed to be the message suite for interoperability 8 We are also working with the major tool providers to enable them to become SWIFT compliant and also to adopt ISO standard Enabling Tool Providers to be SWIFT Compliant

Toronto Sep 2011