U.S. Payments Landscape Moderator: Cheryl T. Lambert ACSDA Leadership Forum Moderator: Cheryl T. Lambert ACSDA Leadership Forum

2 Two U.S. Major Large-Value Payment Networks Federal Reserve System and Federal Reserve Bank of New York I will introduce, including how DTCC relies on Fed services. This is a preview before visiting the Federal Reserve Bank of New York this afternoon. The Clearing House and CHIPS Tim Mills and Ellen Jacques of The Clearing House are with us to describe their role. Federal Reserve System and Federal Reserve Bank of New York I will introduce, including how DTCC relies on Fed services. This is a preview before visiting the Federal Reserve Bank of New York this afternoon. The Clearing House and CHIPS Tim Mills and Ellen Jacques of The Clearing House are with us to describe their role.

3 Brief History of Federal Reserve and Fedwire Federal Reserve Bank Board

4 Fedwire Communication System The ability to transfer balances held at the Reserve Banks using a secure communications network. The elements of this feature remain the foundation of Fedwire operations. Today, takes advantage of the flexibility and efficiency of the Internet Protocol (IP). The ability to transfer balances held at the Reserve Banks using a secure communications network. The elements of this feature remain the foundation of Fedwire operations. Today, takes advantage of the flexibility and efficiency of the Internet Protocol (IP).

5 Fedwire consists of a set of computer applications that route and settle payment orders. As a real-time gross settlement system for the USA and the US dollar, the Federal Reserve Banks' Fedwire® plays a critical role in US monetary policy.® Fedwire consists of a set of computer applications that route and settle payment orders. As a real-time gross settlement system for the USA and the US dollar, the Federal Reserve Banks' Fedwire® plays a critical role in US monetary policy.® Fedwire Communication System

6 Fedwire Payments Most importantly, for the financial industry, Fedwire transactions are irrevocable, and finality of payment is critically important. The Fedwire Funds Service is a real-time gross settlement system. Most importantly, for the financial industry, Fedwire transactions are irrevocable, and finality of payment is critically important. The Fedwire Funds Service is a real-time gross settlement system.

7 Fedwire Participants More than 9,500 participants initiate funds transfers that are immediate, final, and irrevocable when processed. More than 9,500 participants initiate funds transfers that are immediate, final, and irrevocable when processed. Participants that maintain a Federal Reserve account can use Fedwire to send payments to, or receive payments from, other account holders directly. Participants use Fedwire to handle large-value, time-critical payments.Participants that maintain a Federal Reserve account can use Fedwire to send payments to, or receive payments from, other account holders directly. Participants use Fedwire to handle large-value, time-critical payments.

8 Fedwire & DTC DTC relies on Fedwire for the receipt of funds related to principal and interest, redemptions, and reorganizations. In June 2007 this represented more than $380 billion. DTC relies on Fedwire for the receipt of funds related to principal and interest, redemptions, and reorganizations. In June 2007 this represented more than $380 billion.

9 DTC customers rely on Fedwire to make their daily Settlement Progress Payments (SPPs). When a customer reaches its net debit cap, an SPP sent to DTC will relieve the transactional blockage. On a daily basis, DTC typically receives 130 SPPs valued at $38 billion. DTC customers rely on Fedwire to make their daily Settlement Progress Payments (SPPs). When a customer reaches its net debit cap, an SPP sent to DTC will relieve the transactional blockage. On a daily basis, DTC typically receives 130 SPPs valued at $38 billion. Fedwire & DTC DTCC Participant Net Debit Cap SPP Additional Securities Settled FEDWIRE DTC

10 DTC & Fed’s National Settlement Service For end-of-day settlement payments, DTC and through DTC, many of DTCC’s other businesses, rely on NSS. NSS is the Fed’s multilateral settlement procedure which enables US private clearing arrangements to settle their participants’ net obligations with same day finality. Besides DTC, users of NSS include US credit card processors, check clearinghouses and automated clearing houses (ACH) networks, automated teller machines (ATM) networks. Of critical importance to DTC and our customers, NSS transactions are irrevocable, ensuring finality of payment. For end-of-day settlement payments, DTC and through DTC, many of DTCC’s other businesses, rely on NSS. NSS is the Fed’s multilateral settlement procedure which enables US private clearing arrangements to settle their participants’ net obligations with same day finality. Besides DTC, users of NSS include US credit card processors, check clearinghouses and automated clearing houses (ACH) networks, automated teller machines (ATM) networks. Of critical importance to DTC and our customers, NSS transactions are irrevocable, ensuring finality of payment.

11 NSS – Multilateral Net Settlement at Fed (2) Net Debits DTC Settlement Bank 1 DTC Settlement Bank 2 DTC Settlement Bank 5 DTC Settlement Bank 7 (2) Net Debits DTC Settlement Bank 1 DTC Settlement Bank 2 DTC Settlement Bank 5 DTC Settlement Bank 7 (3) Net Credits DTC Settlement Bank 3 DTC Settlement Bank 4 DTC Settlement Bank 6 DTC Settlement Bank 8 NSS (1) DTC File of Net Cash Settlement Obligations (4) DTC Cash Settlement Finality

12 NSS Provides: Automated mechanism for submitting settlement files to the Reserve Banks Improves operational efficiency Reduces settlement risk to participants by granting settlement finality on settlement day Enables Reserve Banks to manage and limit risk by incorporating risk controls that are as robust Automated mechanism for submitting settlement files to the Reserve Banks Improves operational efficiency Reduces settlement risk to participants by granting settlement finality on settlement day Enables Reserve Banks to manage and limit risk by incorporating risk controls that are as robust

13 DTC Relies on Fedwire & NSS $58 billion in daily netted DTC/NSCC settlement First six months of 2007, more than 73,000 funds transactions valued at $12 trillion processed through our Fed link. Four DTC settlement wire locations Business Continuity Process (BCP) $58 billion in daily netted DTC/NSCC settlement First six months of 2007, more than 73,000 funds transactions valued at $12 trillion processed through our Fed link. Four DTC settlement wire locations Business Continuity Process (BCP)

14 Introducing: The Clearing House Tim Mills, Vice President – The Clearing House Ellen Jacques, Training Manager – The Clearing House Tim Mills, Vice President – The Clearing House Ellen Jacques, Training Manager – The Clearing House