P.O. Box 560 Concord, MA USA Tel: Fax: Overview: CCPs in Securities Lending October 14, 2013

2 The rationale for securities lending CCPs BorrowersLenders Reduce costs of capitalPotential improvements in borrower fees under Basel III Ease counterparty credit lending limits Margin pledges or similar low cost collateral obligations where available Optimize exposure netting for some or all loans under Basel III Widen range of acceptable borrowers Margin and collateral rules important for determining whether CCPs add value Driven by borrower demand at present

3 OCC  Participants must be both a DTC and OCC clearing member  Margin collateral: cash, US or Canadian government securities, GSE debt securities, and certain corporate bonds, letters of credit and stock  Both borrowers and lenders must post margin based on OCC STANS methodology  Borrowers are using OCC to ease counterparty credit limits and lend excess hard to borrows Netting across OCC, CME and ICE products OCC is clearing for AQS, a Quadriserv platform  Agent lenders and beneficial owners have not yet adopted OCC: need for a clearing agent, margin costs and asset holder regs are obstacles

4 OCC securities lending volumes Source: OCC

5 Eurex Clearing  Newly launched in 2012, service allows asset holders to pledge margin collateral (no cash movement) for non-cash collateral including equities, bonds and ETFs No requirement for clearing member Cash collateral requires margin  Eurex Clearing targets borrowers affected by new cost of capital requirements Clearing member borrowers must still post margin and contribute to default fund  As of October 2013, Eurex Clearing had published seven banks signed up to its service  Asset owners may be persuaded by borrowers to join Eurex Clearing for netting benefits

6 Eurex Clearing CCP model for securities lending Source: Eurex Clearing 6 Eurex Clearing Validation Novation Confirmation *Flow Provider used as the entry channel from market participants to Eurex Clearing e.g. for New loan transactions, Re-rates, Recalls, Returns etc. Flow Provider* Agent Lender Payment Bank ICSD Loan life-cycle management Beneficial Owner Specific Lender License Data transmission Agency agreement Real-time loan validation Tri-party Agent CSD Clearing Settlement Trading Broker- Dealer Clearing Member Loan NegotiationLenderBorrower Loan securities Loan information Clearing Membership Loan information Clearing Membership Principal Collateral CashNon-cashEquitiesBonds

7 Contact Information Finadium LLC P.O. Box 560 Concord, MA USA Tel: Fax: Josh Galper, Managing Principal