ACSDA 2011 General Assembly - Bermuda

1. The increasing role of the CSD in collateral management and OTC trade registration ACSDA 2011 General Assembly - Bermuda

2. Secular trends impacting our business • Mitigation of “too big to fail”– prevention of “too big to save”. • Regulation and transparency: -EMIR - Creation of new pan-European regulator - Basel III. • Risk management focus across the financial industry. • Larger clients now seek services across asset classes. • Competition and consolidation above us in the securities lifecycle. • In Europe, public sector intervention directly into the CSD space: -Target 2 Securities - Code of Conduct on Clearing and Settlement - Consultation process on CSD regulation.

3. In Europe, an enormous amount of external influences are already in train… EU financial service action plan / Lisbon agenda Private sector Code of Conduct Interoperability CSD competition Price transparency Service comparability Market access Service unbundling Removal of Giovannini Barriers Particularly: Legal and tax IT interfaces Market access Market harmonisation MIFID Price transparency CSD competition Customer protection T2S &CCBM2 EUR settlement Common CSD market access Via a common collateral platform (CCBM2) Integration of European market infrastructures Efficient interoperability Virtual asset poolaccess for CSD customers Low investment costs – quick to market Facilitator for T2S Interoperability and competition No barriers Level playing field Reduced costs Cross-border efficiency Common goal: a single harmonised financial market with standardised processes

4. …and further regulation is in the course of implementation… • EMIR – European Market Infrastructure Regulation - follows a similar approach to Dodd-Frank in the USA. - seeks to regulate the OTC derivatives market through: - greater volume of CCP clearing in OTC derivatives - greater transparency in OTC derivatives exposure - registration of OTC derivatives trades - collateralisation of counterparty exposure - inclusion of non-financial corporates in the regulation. -implementation – December 2012. • Basel III – a game changer for the utilisation of bank balance sheets.

5. What does this mean for the infrastructure providers in Europe? Multi-value support Value-added services Pan-European settlement Price / cost leadership - Maximum liquidity re-use (central bank money settlement combined with commercial bank money settlement) - Single access point connectivity - Excellence in custody services - Collateral management services - Critical breadth of asset classes coverage: fixed income, equities, investment funds, derivatives - Broad market coverage - Reliable and STP process - Choice of settlement locations (eg CSD / ICSD) - Cross-border transaction fees lower than today’s domestic fees - Low fixed fees - Capacity to finance continuing investment Successful providers will need to offer the market…

6. The evidence of change so far… • Dramatic increase in demand for:-combined CSD / ICSD and collateral management services - anonymous access to the money markets. • Confusion / Consternation amongst the ill-prepared corporate sector. • Widespread projects to seek maximum collateral / capital optimisation within banks. • Pressure from national central banks to remove structural barriers to more efficient liquidity access. • CSDs working together, more than ever before, to seek opportunities in the new environment: - Link Up Markets - REGIS-TR - Clearstream and CETIP – collateral management. CSDs find themselves at the epicentre of the changes impacting global capital markets

7. REGIS-TR a case study in CSD collaboration in OTC derivatives

8. REGIS-TR – The trade repository for OTC derivatives

9. European Market Infrastructure Regulation – Draft Proposal Proposed European Regulation Key components in respect to trade repositories are: • The risk mitigation goals impact financial and non-financial (i.e. corporate) market participants • Clearing to be mandatory also for non-financial market participants beyond a certain activity threshold; non-standardised, non-clearable contracts should be electronically confirmed with an auditable monitoring process • A reporting obligation for OTC derivatives positions no later than trade date plus 1 to record and report contracts with ESMA-registered trade repositories • Competition promoted among trade repositories in general and by derivatives class, providing a transparent service on a cost-related basis • ESMA will define the technical standards for reporting by June 2012 • The new regulations apply from end-2012

10. REGIS-TR Shareholders and governance structure 50% 50% • Shareholders: • Two well known European Market Infrastructures • Providing exchange trading, clearing, settlement and custody services • European based (Luxembourg) entity with global reach • Open governance structure • To be ESMA regulated and looking for compliance with non-European regulators across the globe • Service covering all OTC derivative products (one-stop-shop) before regulation materialises • Servicing all types of market participants and respective activity profiles in the OTC derivative space

11. Future developmentsParallel development of optional value-added services for the industry Value-added Services Transaction reporting: • Application as ARM under MiFiD • Offering of transaction reporting for OTC derivatives in accordance with MiFiD II Exposure valuation: • Inclusion of pricing and valuation data: • Directly by the participant – bilateral exposure agreements • Independent third-party exposure valuation Collateral Management: • Existing international or domestic collateral pools for collateralisation of exposures in OTC derivatives White-labelled Trade Repository services: • Provision of REGIS-TR expertise to domestic repository solutions – discussions ongoing in Americas, Africa and Asia/Pacific

12. Clearstream & CETIP a case study in CSD collaboration in collateral management

13. CETIP wishes to develop… OTC contract Services OTC contract Services“life stage”“life cycle” Registration Initial collateral Payment calculation Payment netting Payment Exposure calculation Exposure capture Exposure matching Exposure netting 3. Servicing (tri-party collateral mgt and reporting 4. Repo services 5. Termination Collateral level calculation Collateral haircut Calculation Collateral identify / optimisation Collateral calls and movement Collateral mark-to-market Asset servicing / corporate actions Basic client reporting Basic regulatory reporting Advanced client reporting Advanced regulatory reporting Tri-party repo Settlement payment calculation Settlement payment 1. Establishment 2. Servicing (payment and exposure mgt) Service currently offered by Service supported by Algorithmics system Service supported by collaboration CETIP & Clearstream …a comprehensive collateral management offering to help Brazilian banks reduce their capital requirement and improve process efficiency

14. Scope of the agreement (1/2) • CETIP and Clearstream will cooperate in the area of collateral management for the benefit of the Brazilian market and its participants. • Cooperation will be guided by feedback received from market participants, CVM and the Central Bank. • Step-by-step phased roll-out of service – CETIP and Clearstream agreed on scope of first project phase: - collateralisation of OTC derivative exposures registered at CETIP - exposure calculation as optional feature - CETIP and SELIC assets eligible as collateral - collateral management functions powered by Clearstream - collateral movements will only occur domestically, ie Brazilian jurisdiction - reporting will re-use most of Clearstream’s existing reporting facilities (translated into Portuguese). - implementation of phase 1 is scheduled to the beginning of 3Q11

15. Scope of the agreement (2/2) • Second project phase will be subsequently agreed following requirements and feedback from the market place. • Current ideas include: - inclusion of international assets held at Clearstream - triparty repo service.

16. Collateral management structure OTC derivatives trades Giver Receiver Mobilisation of domestic assets using triparty collateral management Exposure notification Exposure notification CETIP Exposure notification Collateral transfer instruction Triparty collateral management functions Eligibility checkSecurities valuationAutomatic allocation Automatic margin callsUnlimited substitution processReporting CETIP & SELIC assets

17. In summary… • The external environment has become very volatile. • Consequently we are all faced with new situations – both opportunities and threats. • The CSD role must change dramatically to react to this new environment… …and the key decision is how best to navigate to your target business and operating model - Very few CSDs have the financial and management means to cope alone with all the changes… …even those that do are well advised to collaborate – leveraging “economies of network” is faster, cheaper and more efficient than buying “economies of scale” - CSDs that do not learn to collaborate risk being marginalised Hence why we believe firmly in partnership and interoperability

18. Thank you