Clearing: The Strategic View Dennis Dutterer, The Clearing Corporation Phupinder Gill, Chicago Mercantile Exchange Daniel Gisler, EUREX David Hardy, London Clearing House George Hender, The Options Clearing Corporation Neal Wolkoff, New York Mercantile Exchange Moderator: John P. Davidson, Morgan Stanley Futures & Options Expo November 6, 2003

2 Clearing Strategies: A Brief Overview  Dutterer: Please explain the Clearing Corporation’s strategy with respect to both EUREX and the other markets for which it provides clearing services. Is EUREX in effect subsidizing these other markets? How does the EUREX clearing link differ from the CME-SIMEX Mutual Offset System?  Gill: What is the strategic plan for the Common Clearing Link post- implementation? What prevents the CBOT from taking their clearing business elsewhere, now that they have DCO status? Does CME plan to offer clearing services to other markets?  Gisler: What has been the impact of the introduction of EUREX Clearing AG as the central counterparty in the German equity market? Why is EUREX spending resources on the highly competitive markets in America when virtually undeveloped Eastern Europe lies at your doorstep?

3 Clearing Strategies: A Brief Overview 2  Hardy: Will the LCH-Clearnet merger change the focus on expanding SWAPSCLEAR? Is there any hope for an expansion to Credit Default Swaps when there are so many integration issues on your plate? Why should the LSE continue to utilize LCH as its CCP when a competitor has a significant ownership interest in LCH?  Hender: Has the fungibility of single stock options at The OCC been detrimental to the interests of the US options exchanges? Does OCC have a proactive role in innovation in the US equities markets, or is it simply reactive to the needs of its owner exchanges?  Wolkoff: How is NYMEX expanding its clearing franchise beyond pit- traded conventional futures contracts? Your strategy of converting OTC energy contracts into futures contracts is very distinct from the LCH’s strategy with SWAPCLEAR. Was necessity (e.g. systems limitations) the mother of that invention, or is there an important legal or economic imperative? Will this approach change once the OnExchange software is implemented?  All: To what extent did clearing members play any role in the development of the above strategies?

4 Clearing Strategies: Horizontal vs. Vertical Integration  Hardy and Hender: At least historically, your clearing organizations have been models of the “horizontal” view of clearing as a “utility” that provides key services to a number of markets. Are there systemic risk advantages to this view of clearing? If there are no competitors in a horizontally organized clearing universe, what keeps costs low?  Hardy: How has your view on this debate changed since the Clearnet transaction? Is it possible for Euronext to maximize shareholder value without a vertically integrated central counterparty and central securities depository?  Dutterer: The Clearing Corporation provides clearing services to multiple markets; has your new largest shareholder placed restrictions on your ability to do this in the future?  Gill, Gisler & Wolkoff: Is the vertical integration of exchange, central counterparty and central securities depository (where relevant) a fundamental component of your strategy, or the result of historical “accident?” To what extent does this integration limit your ability to offer clearing services for products that do not trade at organized exchanges?

5 Clearing Strategies: Distribution of “Profit”  Gill and Gisler: Why should your shareholders participate in the distribution of profit from the provision of clearing services when they do not participate in the mutualization of risk? What is the explicit and unique return on a clearing participant’s deposit into your clearing fund? Why do providers of debt and equity capital receive an explicit return but providers of this form of capital do not?  Dutterer and Hender: How is a “clearing fee rebate” different from a “dividend?” Would not the public interest be better served by permanently lower fees?  Hardy and Wolkoff: To what extent do “per contract” transaction fees bear any relationship to the cost of providing clearing services? How are you compensated for the variable duration that a contract is held “open?” Why do you assume that clearing has the same value to each clearing member and thus charge them an identical price?

6 Clearing Strategies: OTC Products  Hardy and Wolkoff: What is the “end game” for clearing OTC derivatives? If we assume the major categories of OTC product are interest rate, credit, equity and energy, is there room for more than one provider of clearing services to each segment? To what extent is there a need for linkages among the service providers in each segment?  Hender, Gisler and Gill: Each of your organizations has a successful franchise for clearing exchange-traded equity related derivatives. Yet none of you provide clearing services for either equity swaps or OTC equity options. Are there characteristics of these products that make them more difficult to clear, or characteristics of the marketplace that make clearing less attractive?  Dutterer: Single-name and basket credit default swaps are notoriously difficult to document, confirm and model. The DTCC has just kicked off a confirmation matching service for this market, but as yet no one provides clearing. Do you see the DTCC’s clearing subsidiaries as likely providers of clearing for this market, or is a listed derivatives clearing organization a better choice?

7 Clearing Strategies: Regulatory Oversight  Gisler: Who is the appropriate regulator of a market or a clearing organization that has a large number of cross-border participants?  Hardy: Upon completion of the Euronext transaction the primary regulator of LCH will become the French banking regulator. Do you see any essential differences in the approach of a banking regulator vs. a securities regulator in the oversight of clearing services?  Wolkoff: How involved is FERC in the clearing dimension of your markets? Do they understand clearing and settlement issues? Is there good cooperation with CFTC?  Hender: How would you compare SEC and CFTC oversight of clearing?  Dutterer and Gill: Clearing organizations have enormous pools of Treasury Securities and other “window eligible” collateral. Should clearing organizations be able to borrow from the Fed at the “Discount Window” in the event of a clearing member default? What about in the event of the insolvency of a settlement bank?  All: Should clearing organizations have a majority of public directors on their Boards?

Clearing: The Strategic View Please remember there are additional Clearing sessions at 10:45 a.m., 1:00, 2:15 and 4:00 p.m. today. Futures & Options Expo November 6, 2003