1. Enterprise Risk Management
October 9, 2007
Marie Rey, Managing Director
Risk Management, DTCC

2. Enterprise Risk Management Governance
DTCC Board of Directors
Credit & Market Risk Management Committee
Compliance & Operational Risk Management Committee
DTCC Chairman & Chief Executive Officer
FRBNY
NYSBD
PWC IA
Risk Management Managing Director
DTCC Executive Management Committee Member
Risk Management Department
DTCC Confidential

3. Enterprise Risk Management
DTCC Confidential

4. Role of Risk Management
Protect the safety & soundness of clearance & settlement
Reduce risk of loss due to member failure
Insure settlement continues in face of member failure
DTCC Confidential

5. Credit & Market Risk Responsibilities
Assess new applicants
On-Going Financial Surveillance
Market Surveillance
DTCC Confidential

6. Securities Valuation Responsibilities
Pricing of collateral held across the complex
Ratings obtained from outside sources
Market prices – external & internal sources
Evaluation of adequacy of pricing
Determination of appropriate haircuts
DTCC Confidential

7. Quantitative Analysis Responsibilities
Mathematical modeling of components of clearing fund requirements
Models validated by third parties
Performance of stress tests
Performance of back tests
DTCC Confidential

8. Project Management Responsibilities
Liaison between risk system users and risk technology staff
DTCC Confidential

9. Credit Risk Assessment of an Applicant
Detailed Review
Adherence to Corporate Rules
Presentation to Credit & Market Risk Management Committee
DTCC Confidential

10. Credit Risk Ongoing Financial Surveillance
Credit Risk Matrix
Parameter Monitoring
Periodic Reviews 7
DTCC Confidential

11. Market Risk Surveillance
Clearing Fund
DTC Market Risk Review
Market Watch 8
DTCC Confidential

12. Market Risk Clearing Fund
The Clearing fund is maintained to protect the Corporation and its members in the event of a member default
NSCC guarantees trades at midnight of T+1
GSD guarantees trades at point of trade comparison
DTCC Confidential

13. Market Risk Clearing Fund - Composition
The Clearing Fund is comprised of:
Cash (USD)
U.S. Treasuries
DTCC Confidential

14. Market Risk Clearing Fund
Calculated overnight
Requirements sent automatically via to Members typically by 7:00 A.M.
9:30-10:00 A.M. deadline for receipt of deficit payment
DTCC Confidential

15. NSCC Clearing Fund Methodology
Risk-Based Margining
Volatility
Mark-to Market
Fails
Market Maker Domination
Illiquid Charges
Premium
Intraday Monitoring
DTCC Confidential

16. Market Risk Volatility
Largest component of the clearing fund requirement
VaR for equities and fixed income securities
Haircuts
DTCC Confidential

17. Haircuts OTCBB, Pink Sheets and IPOs
Applied in instances where there is insufficient statistical data
DTCC Confidential

18. Mark-To-Market (“MTM”)
Unrealized profit and loss on unsettled positions, including fails
(System Price*Net Quantity) – (Contract Value)
No credit is given for a total net credit MTM
DTCC Confidential

19. Fails A trade that has not settled as scheduled
Minimum haircut on market value of long and short (abs) failing positions
Haircut may increase based on internal credit rating
DTCC Confidential

20. Market Maker Domination
Measures exposure of correspondent Market Makers
Limited to OTC listed market concentrations
Charge mitigated by credit worthiness
DTCC Confidential

21. Illiquid Charges To capture exposure in illiquid securities
Overnight calculation is based on several components, such as:
Internal credit rating of firm
Position size
Primary market
Average daily volume
Price
DTCC Confidential

22. Premium Clearing Fund > 1= Premium Capital
Member’s clearing fund requirement vs. Member’s capital
Clearing Fund
> 1= Premium
Capital
DTCC Confidential

23. GSD Clearing Fund Methodology
Clearing fund components
Premium
Coverage component
Margin requirement
differential
Volatility
DTCC Confidential

24. Margin Requirement Differential
Captures changes in VaR
Applies front weighted average of fluctuations
DTCC Confidential

25. Coverage Component Back Test Based
Compares historic P&L of trades against clearing fund requirement
Front weighted
DTCC Confidential

26. DTC Market Risk DTC maintains a fully collateralized system
Collateralization
Net debit caps
DTCC Confidential

27. Collateralization
Participant is required to have sufficient collateral in its account to support net settlement debits
Collateral includes:
- Participant's deposit to the Participants Fund
- Designated collateral securities in participant’s account
- Securities that are the subject of deliveries from other participants
Collateral is marked-to-market every day, less a haircut
Transactions pend until sufficient collateral is available to support net settlement debit
DTCC Confidential

28. Collateralization Review
Review impact of systemic overrides
Review impact of price and haircut adjustments made by Securities Valuation
Review impact of price movements
DTCC Confidential

29. Net Debit Cap
Based on three largest intra-day net debit balances over a rolling 70 business day period
Limited on a case-by-case basis
Maximum Net Debit Cap
Transactions pend if settlement transactions exceed net debit cap
DTCC Confidential

30. Market Risk Market Watch
Links to news services
Market events analyzed
Chronology maintained of market events and actions taken
Closeout simulations
DTCC Confidential

31. End of Day Line of Credit
Liquidity Needs
Resources
DTCC Confidential