ICE Trust CDS Clearing
Buy-side Client Overview
DCO Model
January 2011
www.theice.com
Agenda
 Overview of ICE CDS Clearing
 Client Clearing Solution
 Operational Workflow
 Impact of Dodd-Frank Act on ICE Trust CDS Clearing
 ICE Timeline
 Client Next Steps
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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 $8.7B*
ICE Integrated Marketplace
 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
*As of
January 3, 2011
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ICE CDS Milestones and Volume Cleared
ICE Global CDS Cumulative Volume
ICE CDS Clearing
Surpasses
$14 Trillion
Globally
 Over $15 Trillion notional cleared globally
 ICE Trust cleared over $4.6 Billion in client-related notional
ICE Trust Launches
Buy-side Clearing
ICE Trust/ICE Clear
Launches Single
Names
12/09
In Billions
ICE Trust
Surpasses $3
Trillion
ICE Clear
Launches CDS
Clearing
ICE Trust
Launches
CDS Clearing
7/09
3/09
As of January 21, 2011
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ICE CDS Clearing
Surpasses
$10 Trillion
Globally
Current Status - Products and Clearing Participants
68 Indices
North America (CDX)
Europe (iTraxx)
IG
S8 – S15
HY
S8 – S15
HVOL S8 – S15
Main
XO
HVOL
S7 – S14
S9 – S14
S7 – S14
190 Single Names
Sector
North America
Europe
Consumer Services
Industrials
Consumer Goods
Utilities
Financials
Basic Materials
Telecommunications
Healthcare
Oil & Gas
Technology
23
15
12
6
7
5
3
6
7
5
21
11
11
16
14
11
13
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1
1
Clearing
Participant (CP)
ICE Trust
ICE Clear
Europe
Bank of America


Barclays


BNP Paribas


Citibank


Credit Suisse


Deutsche Bank


Goldman Sachs


HSBC


JPMorgan


Merrill Lynch

-
Morgan Stanley


Nomura


RBS


Societe Generale
-

UBS


Unicredit AG
-

As of January 14, 2011
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Why Clear with ICE?
 Gross margin held at ICE, not at Futures Commission Merchant/Broker Dealer*
 Default protections designed to work within existing bankruptcy laws
Customer
Protection
 Pre and post default portability of positions and collateral
 World class risk management specifically designed for CDS
 Guaranty fund covers simultaneous default of 2 largest Clearing Participants
 Over 250 cleared CDS products across US and Europe
Expertise &
Depth
 14 dealers and hedge fund and asset managers actively clearing today
 Managed numerous Credit Events, Succession Events and Matured Contracts
 Leading market connectivity processing thousands of trades a day
 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
* Dodd-Frank Act 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
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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 Timeline
 Client Next Steps
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Margin Segregation
Gross Margin is held at ICE, not at the Futures Commission Merchant/Broker Dealer
CLIENT A
CLIENT A
Gross IM $2MM
Gross IM $2MM
CLIENT B
Gross IM $1MM
 FCMs 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
 FCMs required to post total Gross Initial Margin to ICE
FCM
Gross IM = 3MM
 FCMs can charge an Excess Initial Margin. Client and
FCM negotiate where Excess Margin is held
 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 FCM’s 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.
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Risk Management Waterfall
Risk Management Waterfall*
Layers of Protection
Membership Criteria
Ensure CP has sufficient financial
resources, operational capabilities
and risk management experience
Initial Margin
Requirement
Daily margin call based on
dynamic stress test regime
Mark-To-Market Margin
Requirement
Daily MTM based on EOD
settlement prices
Intra-day Risk Monitoring
Special Margin Call
Execution
Additional margin can be called
unusual market fluctuations
Guaranty Fund
Additional collateral to mutualize
losses under extreme market
scenarios
Additional Assessment
Rights
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
Oblige CPs to contribute
additional default funding
*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
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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 Timeline
 Client Next Steps
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How To Clear a Trade
ICE Supports the Existing OTC Model and Multiple Platforms
Trade Execution & Capture
Voice or
e-trade
Trade
Capture
Executing
Broker Alleges
Block Trade
No Changes to Trade Execution
Multiple Platforms Supported
Affirmation & Clearing Consent
Affirmation Platform
Buy-side Affirms,
Allocates and
Routes to FCM
FCM Affirms
and Routes to
ICE
Multiple Affirmation Platforms
ICE
ICE Runs Risk
Filter Checks and
Accepts Trade
Trade
Cleared &
Confirmed
12
Trade
Routed to
TIW
Trades Cleared Intra-day on Near Real-Time
Basis
Supported
(ICE Link, Bloomberg, Tradeweb)
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Clearing & Confirmation by ICE
Agenda
 Overview of ICE CDS Clearing
 Client Clearing Solution
 Operational Workflow
 Impact of Dodd-Frank Act on ICE Trust CDS Clearing
 ICE Timeline
 Client Next Steps
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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
14
Areas of Impact for ICE Trust
Legal
Structure
Documentation
Customer
Segregation
 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 DoddFrank effective date and will be deemed a Securities Clearing Agency 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 (Cleared OTC Derivatives Account Class 4(d)(f))
 ICE Trust will seek to hold both indices and single names in the same OTC account class
Product/
Infrastructure
 CDS product will remain the same
 Upfront fees will move to T+1 and netted with margin movements
 Customers and CPs can leverage current OTC technology infrastructure (e.g., ICE Link)
Margin
Methodology
 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 Timeline
 Client Next Steps
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ICE Timeline
Present
Q2 2011
Q3 2011
 ICE Trust live with client clearing under Derivatives Clearing Member
(DCM) Model
 Margin Simulation Calculator available
 ICE Trust and CPs operationally ready to support client clearing under
the DCO Model
 Client testing under the DCO Model
 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 Model
 Rollout of IG NA single names for client clearing
 Portfolio Margining (index/single names)
 Start rollout of HY single names
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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 Timeline
 Client Next Steps
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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 January 7th, 2011 - Bank of America/Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche
Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Nomura, RBS and UBS. Societe General & Unicredit AG are
Participants of ICE Clear only.
2 Connectivity
providers include ICE Link, Bloomberg, Tradeweb
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How to Stay Updated
ICE Website – www.theice.com
Regularly updated and provides information on Clearing Eligible products and
EOD prices
ICE CDS Newsletter
Monthly newsletter providing a summary of ICE CDS developments. To subscribe,
visit the ICE Subscription Center at www.theice.com/subscribe and choose Credit
Derivatives from the Products menu
ICE Webinars
Webinars will be made available on the website explaining the ICE clearing model
in more detail
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US Clearing Participant Contacts
Firm
Name
E-Mail
Barclays
Peter Borstelmann
Peter.borstelmann@barclayscapital.com
Bank of America
Bob Burke
robert.p.burke@baml.com
BNP Paribas
Mark Esparrago
mark.esparrago@americas.bnpparibas.com
Citigroup
Christopher Perkins
christopher.perkins@citi.com
Credit Suisse
Greg Laughlin
greg.laughlin@credit-suisse.com
Deutsche Bank
Hester Serafini
Luciana Miranda
hester.serafini@db.com
luciana.miranda@db.com
Goldman Sachs
Michael Dawley
Amy Elliott
michael.dawley@gs.com
amy.elliott@gs.com
HSBC
Donna Parks
donna.m.parks@us.hsbc.com
JPMorgan
Peter Sughrue
peter.m.sughrue@jpmorgan.com
Merrill Lynch
Joanne Qiao
joanne_qiao@ml.com
Morgan Stanley
James Hill
james.hill@morganstanley.com
Nomura
Stephen Scalzo
stephen.scalzo@nomura.com
RBS
John Wilson
john.wilson@rbs.com
UBS
Mark Willkehr
Paul Hamill
mark.willkehr@ubs.com
paul.hamill@ubs.com
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European Clearing Participant Contacts
Firm
Name
E-Mail
Barclays
Ayman Gammall
ayman.gammall@barclayscapital.com
Bank of America
Andrew Lally
Brooks Stevens
andrew_lally@ml.com
brooks_stevens@ml.com
Citigroup
Andy Sterry
andrew.sterry@citi.com
Credit Suisse
Paul Twohey
paul.twohey@credit-suisse.com
Deutsche Bank
Trudy Ross
Hakan Guney
trudy.ross@db.com
hakan.guney@db.com
Goldman Sachs
Robert Forkan
robert.forkan@gs.com
HSBC
Anthony Normand
anthony.normand@hsbcib.com
JP Morgan
Dale Braithwait
Emma Priestley
dale.t.braithwait@jpmorgan.com
emma.l.priestley@jpmorgan.com
Morgan Stanley
Owain Roberts
Mark Bortnik
owain.roberts@morganstanley.com
mark.bortnik@morganstanley.com
RBS
John Wilson
john.wilson@rbs.com
UBS
Andrew Downes
andrew.downes@ubs.com
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ICE Contacts
Chris Edmonds
President
ICE Trust US
Email: chris.edmonds@theice.com
Office: 312-836-6810
Paul Swann
President
ICE Clear Europe
Email: paul.swann@theice.com
Office: +44 (0)20 7065 7615
Peter Barsoom
Chief Operating Officer
ICE Trust US
Email: peter.barsoom@theice.com
Office: 212-323-8508
Suzanne Hubble
Director – CDS Development
ICE Clear Europe
Email: suzanne.hubble@theice.com
Office: +44(0)20 7065 7625
Corry Bazley
Director – Sales and Marketing
ICE Trust US
Email: corry.bazley@theice.com
Office: 212-323-6022
Helen Fermor
CDS Product Manager
ICE Clear Europe
Email: helen.fermor@theice.com
Office: +44(0)20 7065 7626
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