DTCC Confidential DTCC Deriv/SERV Trade Information Warehouse

DTCC Confidential Transformation of Credit Derivatives Market Rapid, multi-dimensional growth on a global scale Trading volumes; new products; new market participants; secondary market development Rapid spread of automated trade confirmation Bulk of all trading is now confirmed on an automated basis – both inter-dealer and dealer-to-customer Rapid, multi-dimensional growth on a global scale Trading volumes; new products; new market participants; secondary market development Rapid spread of automated trade confirmation Bulk of all trading is now confirmed on an automated basis – both inter-dealer and dealer-to-customer Trends create both concern around post-trade processing and opportunity to mitigate

DTCC Confidential Growth in Credit Derivatives Market (Notional Value Outstanding) $US Trillions

DTCC Confidential Spread of Automated Confirmation through Deriv/SERV Global buy-side take-up* * Includes 2 nd tier dealers All major dealers globally use Deriv/SERV

DTCC Confidential Current Bilateral Administration Environment Parties must constantly “sync up” during contract life Payments, events, margining, etc. Many manual and duplicative reconciliation/resolution processes (internal and between firms) Each party is hostage to its counterparties’ processing You’re only as good as your counterparty – your records may be right, but if your counterparty disagrees or doesn’t know, you have a problem Operating models vary across firms: different processes for different counterparties Parties must constantly “sync up” during contract life Payments, events, margining, etc. Many manual and duplicative reconciliation/resolution processes (internal and between firms) Each party is hostage to its counterparties’ processing You’re only as good as your counterparty – your records may be right, but if your counterparty disagrees or doesn’t know, you have a problem Operating models vary across firms: different processes for different counterparties

DTCC Confidential Central Trade Information Warehouse Two primary components: A comprehensive, centralized trade database with the most up-to-date record of each contract A central processing capability to standardize and automate “downstream” processing of payments and other post-confirm processes Processing flows automatically from the electronic confirmation environment Two primary components: A comprehensive, centralized trade database with the most up-to-date record of each contract A central processing capability to standardize and automate “downstream” processing of payments and other post-confirm processes Processing flows automatically from the electronic confirmation environment

DTCC Confidential Model for Warehouse Central asset servicing through central securities depositories or listed derivative clearing houses But NO book-entry DVP services and NO central counterparty (CCP) credit intermediation Central asset servicing through central securities depositories or listed derivative clearing houses But NO book-entry DVP services and NO central counterparty (CCP) credit intermediation Complexities of OTC derivatives demanded a multitude of unique and innovative servicing solutions.

DTCC Confidential Warehouse Schematic – 1 st Phase * Events include credit events, assignment consents Trade Warehouse Contract Maintenance Event Processing* Payment Calculation Bilateral Netting Deriv/SERV Automated Confirmation Back Loading External Data Sources (notional factors, etc.) ECNs, e-Checkout Services, AffirmXpress Market Participants Central Funds Settlement Agents Automated Funds Transfer

DTCC Confidential Warehouse Schematic – Potential Build Out* * Events include credit events, assignment consents, corporate actions Trade Warehouse Contract Maintenance Event Processing* Payment Calculation Margin Calculation Bilateral Netting Deriv/SERV Automated Confirmation Back Loading External Data Sources (add pricing, resets, etc) ECNs, e-Checkout Services, AffirmXpress Market Participants Other Automated Confirm Services Central Securities Depositories Central Funds Settlement Agents Automated Funds Transfer Automated Collateral Transfer *Assuming market participant support

DTCC Confidential Core Principle – Extensible Design Assets  Functions  Credit Derivs Rates Derivs Equity Derivs FX Derivs Commodity Derivs Contract Maintenance Release 1 2 nd half ’06  Event Processing Release nd half ’06 (both)  Full Payment Processing (bilateral net) Release nd half ’06; 1 st half ’07  Full Margin Processing (bilateral net) 

DTCC Confidential Participant Cost Savings Processes eliminated: Verbal or ad hoc trade checkouts Portfolio substantiation/tie-outs Bilateral cash flow reconciliation Assignment processes Margin disputes, delays Investigation of breaks with respect to the above Processes eliminated: Verbal or ad hoc trade checkouts Portfolio substantiation/tie-outs Bilateral cash flow reconciliation Assignment processes Margin disputes, delays Investigation of breaks with respect to the above Overhead reduced: Reduced nostro fees Efficient collateral processing Standardized, automated processing for credit (and other) events More efficient portfolio management (tear-ups, position netting, etc.) Overhead reduced: Reduced nostro fees Efficient collateral processing Standardized, automated processing for credit (and other) events More efficient portfolio management (tear-ups, position netting, etc.)

DTCC Confidential Participant Risk Reduction Correct balance sheet: Achieves immediate contract transparency Reduces risk in: Reporting (corporate, regulatory, etc.) Market risk management Counterparty credit risk management Correct balance sheet: Achieves immediate contract transparency Reduces risk in: Reporting (corporate, regulatory, etc.) Market risk management Counterparty credit risk management Other risk reduction: Credit event management (especially multiple credit event scenarios) Ad hoc reconciliation eliminated Fully transparent data set Standard messaging Similar for other events Payments always correct and complete Collateral always correct and complete Other risk reduction: Credit event management (especially multiple credit event scenarios) Ad hoc reconciliation eliminated Fully transparent data set Standard messaging Similar for other events Payments always correct and complete Collateral always correct and complete

DTCC Confidential User Oversight Global Senior Oversight Group Established by OTC Derivatives Operations & Planning Committee of DTCC Board Dealers – Senior personnel from the 14 major dealers All committed to their European and North American regulators to support this project and undertake other actions regarding reducing operational risk in the credit derivatives market Other dealers are eligible to participate if they make the same commitments Buy-Side – Senior personnel from Europe and North America Where possible, nominated by hedge fund and traditional and asset manager trade associations Global Senior Oversight Group Established by OTC Derivatives Operations & Planning Committee of DTCC Board Dealers – Senior personnel from the 14 major dealers All committed to their European and North American regulators to support this project and undertake other actions regarding reducing operational risk in the credit derivatives market Other dealers are eligible to participate if they make the same commitments Buy-Side – Senior personnel from Europe and North America Where possible, nominated by hedge fund and traditional and asset manager trade associations