Clearing, a prerequisite for a derivatives market Philip Buyskes, CEO, Frontclear Building African Financial Markets 17 September, JSE, South Africa

Brazil market structure vs other emerging markets Frontclear Management B.V.2 Source: BIS, 2011

Brazil in the 90s and Africa today Economic circumstanceBrazilAfrica Limited credit risk appetite between banks ✓✓ Legal risk for OTC markets (netting, collateral title transfer uncertainty) ✓✓ Volatile macro environment / high demand for hedging ✓✓ Low liquidity in cash markets ✓✓ Regulatory limits on spot FX, bond markets ✓✓ Law required registration of all derivatives ✓ X Pension funds can only trade cleared derivatives ✓ X The exchange / CCP excels at market development ✓ X Single market that is large enough ✓ X Frontclear Management B.V.3

Clearing, a prerequisite for an African derivative market?  Introduction of clearing at early stage in market development can allow market to leapfrog to new level  Compliments OTC markets by facilitating liquid & stable interbank markets  Clearing of OTC trades feasible on the back of liquid FX and interest rate futures market  But African markets are small and highly fragmented  Pan-African or regional CCP cannot settle or accept margin in local currency  Cost of establishing local CCPs too high, perceived credit worthiness from offshore a concern Frontclear Management B.V.4

About Frontclear  Provides guarantees covering counterparty credit risk in both OTC & exchange traded derivative and repo markets  Facilitates use of local currency collateral in cross-border interbank trading  G20 financial crisis reforms forces hard currency collateralized trading / clearing & penalizes un- collateralized trading – creates systemic risk?  Frontclear guarantee mitigates against wrong way risk between credit risk and collateral  Global diversification to achieve capital efficiency for market participants  Supports CCPs through:  Provision of capital in lieu of guarantee fund  Mitigation of cross-border settlement and margining processes / risk Frontclear Management B.V.5

Frontclear Investors & Counter-guarantors Frontclear Management B.V.6

Support to a single CCP Frontclear Management B.V.7

Enabling cross border settlement / margining Frontclear Management B.V.8

Thank you… Philip Buyskes Chief Executive Officer Frontclear Mail: Tel: Frontclear Management B.V.9