ICE Trust CDS Clearing DCO Model

June 2011

Copyright 2011. ICE. All rights reserved.

Agenda
Overview of ICE CDS Clearing Client Clearing Solution Operational Workflow Impact of Dodd-Frank Act on ICE Trust CDS Clearing ICE Next Steps Client Next Steps

Copyright 2011. ICE. All rights reserved.

ICE Introduction
IntercontinentalExchange (ICE) is the leading operator of integrated futures and over-the-counter (OTC) markets, clearing, processing and data services for global derivatives markets. ICE established in 2000, (NYSE: ICE) market capitalization of $8.64B* Member of S&P 500 and Russell 1000 3 Futures and 2 OTC global derivatives markets across energy, agriculture, equity indexes, FX, and credit Five clearing houses for futures and OTC markets in U.S., Europe & Canada Market participants in more than 70 countries Significant depth and investment in CDS market

ICE Integrated Marketplace

*As of

May 31, 2011

Copyright 2011. ICE. All rights reserved.

ICE CDS Milestones and Volume Cleared

ICE Global CDS Cumulative Volume
Over $18.6 Trillion notional cleared globally ICE Trust cleared over $6.4 Billion in client-related notional $20,000 $18,000 $16,000 $14,000 $12,000 In Billions $10,000 $8,000 $6,000 $4,000 $2,000 $
ICE Trust Launches CDS Clearing 3/09 ICE Clear Launches CDS Clearing 7/09 ICE Trust Launches Buy-side Clearing ICE Trust/ICE Clear Launches Single Names 12/09 ICE CDS Clearing Surpasses $10 Trillion Globally 07/10 ICE CDS Clearing Surpasses $15 Trillion Globally 01/11

As of June 3, 2011
Copyright 2011. ICE. All rights reserved.

Current Status Products and Clearing Participants

75 Indices North America (CDX)

IG S8 S16 HY S8 S16 HVOL S8 S16

Europe (iTraxx)
Main XO HVOL S7 S15 S9 S15 S7 S15

Clearing Participant (CP)

Bank of America Barclays BNP Paribas Citibank Credit Suisse

ICE Trust

ICE Clear Europe

249 Single Names Sector

Consumer Services Industrials Consumer Goods Utilities Financials Basic Materials Telecommunications Healthcare Oil & Gas Technology

North America
30 18 15 6 22 7 3 9 9 9

Europe
22 15 19 16 15 14 13 2 4 1

Deutsche Bank Goldman Sachs HSBC JPMorgan Merrill Lynch Morgan Stanley Nomura RBS Societe Generale UBS Unicredit AG -

As of June 13, 2011

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Features of ICE Trust Clearing

Gross margin held at ICE, not at Futures Commission Merchant/Broker Dealer*

Customer Protection

Default protections designed to work within existing bankruptcy laws Pre and post default portability of positions and collateral supported World class risk management specifically designed for CDS Guaranty fund covers simultaneous default of 2 largest Clearing Participants (CPs)

Over 300 cleared CDS products across US and Europe

Expertise & Depth

15 dealers actively clearing today Managed numerous Credit Events, Succession Events and Matured Contracts Leading market connectivity processing thousands of trades daily

Leverage existing infrastructure

Ease of Doing Business

Trades cleared intra-day, on near real-time basis Open access provided through support of multiple affirmation platforms No costly significant technology build

* The Dodd-Frank Act requires any entity that accepts customer funds in connection with cleared swaps be registered with the CFTC as a Futures Commission Merchant (FCM) for broad based indices and with the SEC as a Broker-Dealer (BD) for cleared narrow based indices and single name CDS
Copyright 2011. ICE. All rights reserved.

Agenda
Overview of ICE CDS Clearing Client Clearing Solution Operational Workflow Impact of Dodd-Frank Act on ICE Trust CDS Clearing ICE Next Steps Client Next Steps

Copyright 2011. ICE. All rights reserved.

Margin Segregation
Gross Margin is held at ICE, not at the Futures Commission Merchant/Broker Dealer

CLIENT CLIENT A A Gross IM Gross IM $2MM $2MM

CLIENT B Gross IM $1MM

FCM required to collect the Gross Initial Margin (ICE Minimum Initial Margin) from each client Margin calculator available to clients to calculate Margin requirements full transparency provided

FCM required to post total Gross Initial Margin to ICE FCM Gross IM = 3MM FCM can charge an Excess Initial Margin FCM and Client negotiate the timing of margin payment

ICE-FCM Client Omnibus Account Gross IM = 3 MM for Client A and Client B

Gross IM held at ICE in the FCMs Client Omnibus Account Client Account is fully segregated from the House Account

* Customer segregation is subject to change following the promulgation of final rules by the CFTC and SEC under the Dodd-Frank Act.
Copyright 2011. ICE. All rights reserved.

Risk Management Waterfall

Layers of Protection Ensure CP has sufficient financial resources, operational capabilities and risk management experience Daily margin call based on dynamic stress test regime Daily MTM based on EOD settlement prices Additional margin can be called unusual market fluctuations Additional collateral to mutualize losses under extreme market scenarios Oblige CPs to contribute additional default funding

Risk Management Waterfall*

Membership Criteria

1. Defaulting Buy-side Margin 2. Defaulting CP House Margin 3. Defaulting CP Guaranty Fund 4. Non-default clients of CP (net only) 5. ICE Priority Guaranty Fund (GF) 6. Non-defaulting CPs GF/ ICE remaining GF 7. Assessment of CPs

Initial Margin Requirement Mark-To-Market Margin Requirement Intra-day Risk Monitoring Special Margin Call Execution Guaranty Fund

Additional Assessment Rights

*CP Default Related to Client Positions

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Initial Margin Requirement

Dynamic Stress-Based Regime
Summary Of Risks Captured by Model Components
Spread Response Requirement

Risk associated with spread moves, curve shape changes and recovery rates

Jump-To-Default (JTD) Requirement

JTD requirement based on expected losses of a default

Liquidity/Basis Risk Requirement

Costs associated with Bid/Offer exposure upon portfolio liquidation

Interest Rate Risk Requirement

Risk associated with parallel moves in interest rates

Concentration Requirement

Costs associated with large position liquidation

Initial Margin Requirement

Total risk requirement

Copyright 2011. ICE. All rights reserved.

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Agenda
Overview of ICE CDS Clearing Client Clearing Solution Operational Workflow Impact of Dodd-Frank Act on ICE Trust CDS Clearing ICE next Steps Client Next Steps

Copyright 2011. ICE. All rights reserved.

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How To Clear a Trade

ICE Supports the Existing OTC Model and Multiple Platforms

Trade Execution & Capture

Affirmation & Clearing Consent

Clearing & Confirmation by ICE

Voice or e-trade

Trade Capture

Affirmation Platform

ICE

Executing Broker Alleges Block Trade

Buy-side Affirms, Allocates and Routes to FCM

FCM Affirms and Routes to ICE

ICE Runs Risk Filter Checks and Accepts Trade

Trade Cleared & Confirmed

Trade Routed to TIW

Multiple Platforms Supported

Multiple Affirmation Platforms Supported (ICE Link, Bloomberg, Tradeweb, MarketAxess, MarkitSERV)

Trades Cleared Intra-day on Near Real-Time Basis

Copyright 2011. ICE. All rights reserved.

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Agenda
Overview of ICE CDS Clearing Client Clearing Solution Operational Workflow Impact of Dodd-Frank Act on ICE Trust CDS Clearing ICE Next Steps Client Next Steps

Copyright 2011. ICE. All rights reserved.

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Key Provisions of the Dodd-Frank Act Title VII

Jurisdiction
Mandates the CFTC regulate swaps including broad based indices (e.g., index CDS) and the SEC regulate security-based swaps including narrow based indices and single name CDS

Clearing Mandate

Clearing will be mandated for standardized swaps as determined by the CFTC and SEC

Execution

Swaps that are required to be cleared must be executed on a swap execution facility (SEF), designated contract market or national securities exchange

U.S. Customer Clearing

Requires any entity that accepts customer funds in connection with cleared swaps be registered with the CFTC as a FCM for broad based indices and with the SEC as a Broker-Dealer (BD) for cleared narrow based indices and single name CDS

Margin Segregation
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Funds collected are customer property and must be held in an account segregated from non-customer (house) funds

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ICE Trust DCO/SCA Conversion

Areas of Impact Legal Structure
ICE Trust will transition to a DCO upon effective date of Dodd-Frank in July of 2011 ICE Trust secured an extension of its existing SEC exemptive order through the Dodd-Frank effective date and will be deemed a Securities Clearing Agency (SCA) on the effective date Clearing Participants must clear customer business through FCM/BD entity Customer relationship to FCM governed by a bilateral futures agreement Customer relationship to BD governed by a securities account agreement ICE Trust Rules govern CDS clearing No separate ICE Trust Addendum for customer and FCM/BD to bilaterally execute Portability and customer segregation governed by CFTC and SEC regulations CFTC regulated customer omnibus account ICE Trust will seek to hold both indices and single names in the same OTC account class (Cleared OTC Derivatives Account Class 4(d)(f))

Documentation

Customer Segregation

Product/ Infrastructure

CDS product will remain the same Upfront fees will be netted with margin movements Customers and CPs can leverage current OTC technology infrastructure (e.g., ICE Link)

Margin Methodology
Copyright 2011. ICE. All rights reserved.

ICE Trust is seeking regulatory approval for portfolio margining (Index Decomposition margin methodology) Acceptable margin collateral and permissible margin investments to be determined once final rules are published by CFTC and SEC

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Agenda
Overview of ICE CDS Clearing Client Clearing Solution Operational Workflow Impact of Dodd-Frank Act on ICE Trust CDS Clearing ICE Next Steps Client Next Steps

Copyright 2011. ICE. All rights reserved.

16

ICE Next Steps

Q2 2011
Rollout of additional single names ICE Trust and CPs operationally ready to support client clearing under the DCO/SCA Model Client testing under the DCO/SCA Model

Q3 2011
Upon July 2011 effective date of the Dodd-Frank Act: ICE Trust deemed a DCO and SCA ICE Trust and CPs live with client clearing under the DCO/SCA Model Rollout of IG NA single names for client clearing Portfolio Margining (index/single names) Rollout of HY single names for CP-CP and client clearing

Copyright 2011. ICE. All rights reserved.

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Agenda
Overview of ICE CDS Clearing Client Clearing Solution Operational Workflow Impact of Dodd-Frank Act on ICE Trust CDS Clearing ICE Next Steps Client Next Steps

Copyright 2011. ICE. All rights reserved.

18

Client Next Steps

To begin clearing CDS, Buy-side clients need to: Establish relationships with one or more Clearing Participant(s)1 Execute legal documentation with Clearing Participant(s) and review ICE Trust Rules Establish access to a connectivity provider2

The Margin Simulation Calculator is available for estimation of margin requirements: Provides full transparency into the initial margin methodology Provides detailed analysis of results provided at the net position level Allows users to utilize existing positions or upload custom portfolios to run what if scenarios Access available through the ICE Link web interface

1 Clearing

Participants as of May 31, 2011 - Bank of America/Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Nomura, RBS, Socit Gnrale and UBS. Unicredit AG is a Participant of ICE Clear only. providers include ICE Link, Bloomberg, Tradeweb, MarketAxess and MarkitSERV
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2 Connectivity

Copyright 2011. ICE. All rights reserved.

How to Stay Updated

ICE Website www.theice.com Regularly updated and provides information on Clearing Eligible Products, EOD Prices and Eligible Collateral

ICE Trust Circulars Sign up for ICE Trust Circulars to receive updates directly from the clearinghouse at www.theice.com/subscribe

ICE Trust Webinars Webinars available on the website include: Margin Methodology, use of the Margin Simulation Calculator, Clearing Workflows, and Dodd-Frank Impact

ICE CDS Newsletter Monthly newsletter summarizing ICE CDS developments. To subscribe, visit the ICE Subscription Center at www.theice.com/subscribe and choose Credit Derivatives from the Products menu
Copyright 2011. ICE. All rights reserved.

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Clearing Eligible Instruments available at theice.com

Link to ICE Trust Clearing Eligible Instruments: https://www.theice.com/publicdocs/ice_trust/ICE_Trust_Contract_Roster.xls

Link to ICE Clear Europe Clearing Eligible Instruments: https://www.theice.com/publicdocs/clear_europe/ICE_Clear_Europe_Cleared_Prod ucts_List.xls

Copyright 2011. ICE. All rights reserved.

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US Clearing Participant Contacts

Firm
Barclays Bank of America BNP Paribas Citigroup Credit Suisse Deutsche Bank Goldman Sachs HSBC JPMorgan Merrill Lynch Morgan Stanley Nomura RBS UBS

Name
Peter Borstelmann Bob Burke Mark Esparrago Christopher Perkins Greg Laughlin Hester Serafini Luciana Miranda Michael Dawley Amy Elliott Donna Parks Peter Sughrue Joanne Qiao James Hill Stephen Scalzo Kevin Collins Mark Daniels Paul Hamill

E-Mail
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Copyright 2011. ICE. All rights reserved.

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European Clearing Participant Contacts

Firm
Barclays Bank of America Citigroup Credit Suisse Deutsche Bank Goldman Sachs HSBC JP Morgan Morgan Stanley RBS UBS

Name
Ayman Gammall Andrew Lally Brooks Stevens Andy Sterry Paul Twohey Trudy Ross Hakan Guney Robert Forkan Anthony Normand Dale Braithwait Brian Oliver Owain Roberts Mark Bortnik William Knottenbelt Marcus Butt Paul Hamill

E-Mail
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Copyright 2011. ICE. All rights reserved.

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ICE Contacts
Chris Edmonds President ICE Trust US Email: [email protected] Office: 312-836-6810 Peter Barsoom Chief Operating Officer ICE Trust US Email: [email protected] Office: 212-323-8508 Corry Bazley Director Sales and Marketing ICE Trust US Email: [email protected] Office: 212-323-6022
Copyright 2011. ICE. All rights reserved.

Paul Swann President ICE Clear Europe Email: [email protected] Office: +44 (0)20 7065 7615 Suzanne Hubble Director CDS Development ICE Clear Europe Email: [email protected] Office: +44(0)20 7065 7625

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