ACSDA Seminar

1
ACSDA Seminar New Cross-Border Developments at
DTCC October 2, 2008
2
New Cross-Border Developments at DTCC

• Agenda
• EuroCCPs Pan-European Clearing
• DTC - Euroclear Settlements
• DTC CDS Settlements

3
EuroCCP Focusing on MTFs and Dark Pools of
Liquidity

• Multi-lateral trading facilities (MTF) are newly
  defined entities, under the European Unions
  Markets in Financial Instruments Directive
  (MiFID)
• High-speed and efficient automated platforms,
  matching buyers and sellers
• Similar to a US Electronic Communications Network
  (ECN)
• Examples Turquoise and SmartPool, both clearing
  with EuroCCP

4
What EuroCCP Is

• A new wholly owned subsidiary of DTCC
• UK limited company based in London
• Has received FSA Recognized Clearing House
  approval
• Selected by Turquoise and SmartPool
  (NYSE/Euronext) to provide clearing and
  settlement services
• In active discussions with other planned European
  MTFs
• EuroCCP is using Citigroup as its Settlement
  Agent and Cash Concentration Bank, to connect to
  European CSDs and to process cash payments

5
What EuroCCP Offers for Pan-European Market

• Ability to net and settle trades in 14 markets
  and 7 currencies
• Leverages DTCCs experience, expertise and
  economies of scale
• Ability to process significant volumes
• Lowest European fee schedule
• State of the art risk management
• Netting across multiple trading platforms will
  reduce collateral requirements and settlement
  instructions

6
Life of a Pan-European Trade
Client of Trading Member B
Trading Member A
Client of Trading Member A
Trading Member B
Trading Platform
Validation Enrichment Execution Trade Matching
Reporting
Reporting
Gross
EuroCCP
Validation Novation Netting Risk Management
Margining Settlement instruction
Reporting
Reporting
Clearing Participant A
Clearing Participant B
Net
Citi GTS
Agent Bank Counterparty A
Agent Bank Counterparty B
Settlement Management
Settlement Agent
Settlement agent
Net
Net
Net
Central Securities Depository
Agent Client Account or CSD Account
Agent Client Account or CSD Account
EuroCCP (managed by Citi GTS)
7
EuroCCP Launch Timeline

• EuroCCP build completed and internally tested in
  late 2007
• EuroCCP/Citi testing completed Feb 2008
• Point to point testing throughout 2Q/08
• Full integration testing (Platform, EuroCCP,
  Citi, Participants, Agents)-mid May to mid July
• Turquoise soft launch on August 15 and
  commercial launch on September 12 now in full
  operation, with 20 clearing members as of
  September
• Peak day of 417,000 sides traded, 98 netting
  ratio
• Smooth closeout of Lehman Brothers
• SmartPool launch scheduled for late October

8
DTC - Euroclear Links

• Longstanding Euroclear account at DTC (via JPM)
  is used for position re-balancing for US issues
  (inventory held at DTC)
• New DTC account at Euroclear will allow
  free-of-payment position re-balancing of European
  issues (inventory maintained at Euroclear Bank
  and/or Euroclear Group CSDs)
• The new account can help support dually listed
  securities that trade in local currency (e.g.
  European issues dually listed on NYSE Euronext
  in USD)
• In addition, other inventory re-positioning needs
  will be supported

9
DTC CDS Links

• Longstanding CDS-sponsored New York Link and DTC
  Direct accounts at DTC and/or NSCC support
  DTC-eligible (mainly US) issues in US dollars
  (USD).
• Now, a new link DTCs Canadian Settlement
  Service interfacing DTC and CDS to facilitate the
  processing and settlement of CDS-eligible
  Canadian issues in Canadian dollars (CAD) within
  DTC.
• Through DTC-to-CDS interface, DTC can offer its
  participants a single, low-cost northern North
  American depository service and CAD settlement
  capabilities.

10
DTCs Canadian Settlement Service How It Works
Northbound

• DTC and CDS had existing omnibus accounts to
  support free of payment and USD movements for
  many years
• Those same DTC/CDS omnibus accounts are now
  moving DTC participants Canadian issues vs. CAD
  (or free) to and from Canadian counterparts
• DTC participants who join this elective service
  can opt to move securities DVP in CAD (or FOP)
  between and among DTC accounts and those of CDS
  members. DTC provides full asset servicing on
  Canadian assets, including Canadian
  tax-withholding (which CDS provides to DTC)
• All activity flows through members existing DTC
  accounts, with no additional membership
  requirements, and with Canadian Settlement
  Services fees included on the DTC bill.
  Eliminates the need to separate USD and CAD
  inventory in same Canadian issues
• All DTC participants transactions are covered by
  DTCs Risk Management Controls. DTC works with
  participants to establish a Canadian dollar debit
  cap and member appoints CAD settlement bank.
  DTC settles at the end of the day in CAD with CDS
  and with the participants appointed CAD
  settlement banks
• Settlement instructions are submitted to DTC via
  PBS, MQ or SWIFT in MT 15022 messages. DTC works
  with members to establish messaging connectivity