ICE PowerPoint Template

ICE CLEAR EUROPECDS CLIENT CLEARINGJANUARY 2018

• ICE OTC Overview

• CDS Clearing Product Scope

• Risk - Margin Methodology

• Legal Framework

• Onboarding

• Overview of EMIR Customer Segregation Structures

– Omnibus Segregation Models;

– Individual Segregation through Sponsored Principal Model;

– Individually Segregated Margin-flow Co-mingled Accounts (“ISOC”)

• Appendix

– Treasury Management

– ICE Link Clearing Tools

– EMIR Trade Reporting

AGENDA

2INTERCONTINENTAL EXCHANGE

• RISK MITIGATION:

– Margin requirements, Guaranty Funds and other risk waterfall financial safeguards mitigate the loss of capital in the event of aclearing member default

• CAPITAL EFFICIENCY:

– Firms impacted by Basel III/CRD IV could benefit from lower capital costs for cleared contracts

– Portfolio margining across Index and Single Name CDS positions

• PRICE TRANSPARENCY:

– Settlement prices provide market participants with a transparent and independent pricing methodology to value their positionsdaily

• EXPANDED COUNTERPARTY AVAILABILITY:

– More market participants create greater liquidity and tighter bid/offer spreads for cleared positions

• EMIR REGULATION:

– Clearing Obligation – Regulatory technical standards ‘RTS’ outline a phased-in implementation of mandatory clearing for iTraxx Main and Crossover products executed by a defined category of counterparties

– Frontloading – Requirement for the mandatory clearing of historic bilaterally traded products that are included in the clearing obligation over a defined period of time

– Trade Reporting – Straight through reporting of cleared trades to Trade Repository

WHY CLEAR NOW?


EUROPEAN REGULATORY TIMELINE (CDS)

Current Scope:

• iTraxx Europe Main Series 17 onwards 5Y; and• iTraxx Europe Crossover Series 17 onwards 5Y.

Implementation Timelines:The CDS Clearing Obligation RTS entered into force on 29 May 2016:

• October 9, 2016: Front-loading began for Categories 1 & 2; (Category 1 entities clearing members of at least one of the classes of credit OTC derivatives subject to the clearing obligation & Category 2 entities are Financials and Alternative investment funds above a threshold of non-cleared OTC derivatives);

• February 9, 2017: Clearing Obligation began for Category 1 entities (9 months from entry into force of RTS);

• August 9, 2017: Clearing Obligation began for Category 2 entities (15 months from entry into force of RTS);

• May 9, 2019: Clearing Obligation begins for Category 4 entities (3 years from entry into force of RTS; Category 4 entities are Non-Financials not included in Cat 1, 2 or 3); and

• June 21, 2019: Clearing Obligation begins for Category 3 entities (21 months from entry into force of RTS; Category 3 entities are Financials and Alternative Investment Funds).

The Full Report can be accessed from: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2016_103_R_0003&from=EN

INTERCONTINENTAL EXCHANGE 4

5

ICE OTC OVERVIEW

Intercontinental Exchange Group (ICE) is the leading network of regulated exchanges and clearing houses for financial and commodity markets. ICE delivers transparent, reliable and accessible data, technology and risk management services to markets around the world through its portfolio of exchanges, including the New York Stock Exchange and ICE Futures.

1 As of 15 December, 2017

• March 2009, ICE is the first to clear credit default swaps (CDS)

• Cleared over $91 Trillion CDS globally across over 650 CDS instruments. Over $32 Trillion1 in client clearing

• Open Interest of over $1.6 trillion1

INTERCONTINENTAL EXCHANGE

04,0008,000

12,00016,00020,00024,00028,00032,00036,00040,00044,00048,00052,00056,00060,00064,00068,00072,00076,00080,00084,00088,00092,00096,000

100,000104,000

Q1-09

Q3-09

Q1-10

Q3-10

Q1-11

Q3-11

Q1-12

Q3-12

Q1-13

Q3-13

Q1-14

Q3-14

Q1-15

Q3-15

Q1-16

Q3-16

Q1-17

Q3-17

Quarter-endCumulativeGrossNotional($)

• Global leader in Credit Default Swaps (CDS) with expertise in execution, post-trade processing, clearing and other

operational and risk management processes

• Open platform architecture – each process is available individually and can connect to multiple alternative service providers

• Integrated ICE CDS solution offers an easier, more efficient execution and processing experience

ICE CDS EXPERTISE

6

• Top-tier CDS voice and electronic brokerage offering innovative services: credit event auctions, delta neutral auctions and portfolio compression

• Offer SEF/ATF and non-SEF execution services as of October 2013, leveraging its highly successful existing technology platform

• Post-trade platform connected to over 1,000 CDS buy-side firms in addition to all major dealers, clearing brokers, IDBs, SEFs and SDRs/Trade Repositories

• Helps clients meet new regulatory requirements for automation and standardisation

• ICE Clear Credit (formerly ICE Trust) launched March 2009, the first clearing house to process CDS transactions.

• ICE Clear Europe launched July 2009

• Leading CDS Clearing House’s with significant open interest and extensive product coverage

SWAP TRADE/ CREDITEX


GLOBAL CDS PRODUCT SCOPE

CDX iTraxx Corporates Sovereigns

§ IG – Series 10+

§ HY – Series 20+

§ EM – Series 19+

§ Main – Series 9+

§ Xover – Series 19+

§ HiVol – Series 19-20

§ Snr Fins – Series 19+

§ Sub Fins – Series 22+

§ Asia Ex-Japan – Series 24+

§ Australia – Series 24+

§ 252 North American

§ 195 European

§ 8 Australian

§ 9 Asia Pacific & Emerging Market

§ 17 EMEA Sovs

§ 22 LatAM Sovs

§ 7 Asia Pacific

A full listing of clearing eligible products can be found at theice.com/clear-credit (ICE Clear Credit) & theice.com/clear-europe/cds (ICE Clear Europe)

ICE CLEAR CREDIT PRODUCT COVERAGE:

6

iTraxx Corporates Sovereigns

§ Main – Series 9+

§ Xover – Series 18+

§ HiVol – Series 19-20

§ Snr Fins – Series 19+

§ Sub Fins – Series 22+

§ 195 European § 7 EMEA Sovs

ICE CLLEAR EUROPE PRODUCT COVERAGE:


OFF–FACILITY (NON-ATF) TRADE (BILATERALLY EXECUTED)

1. Buyer and Seller execute trade directly with each other off of a trade facility (non-Authorized Trading Facility, ATF) with intent to clear (no pre-clear limit check)

2. The Dealer/Market Maker alleges the trade from their trade capture system to the middleware affirmation platform (ICE Link) with the Block trade execution details and regulatory reporting details (e.g. USI-UTI, LEI, Execution Time, Price, etc.) and intent to clear; the reporting counterparty regulatory reports the execution (alpha trade) to the Swap Data repository

3. The Middleware Affirmation platform (ICE Link) sends the Block trade details with regulatory reporting details to the Buyer (Buy-side Client/Aggressor)

4. The Buy-side Client Affirms the block trade details or submits matching block trade details to the Middleware Affirmation platform (ICE Link); affirm/match submission includes allocation and clearing instructions (matching trades are automatically affirmed)

5. Buyer and Seller Clearing Brokers receive the Clearing Consent request with the applicable regulatory reporting details (e.g. execution time, price, etc.) from the Middleware Affirmation platform (ICE Link) and returns Consent to Clear the trade

6. The ICE Clearing House workflow platform (ICE Link Middleware Affirmation platform, ICE Link) submits the clearing request to the ICE Clearing House

7. The Clearing House performs risk and collateral checks on the clearing request

8. The Clearing House clears the trade and disseminates the clearing status via the Middleware Affirmation platform (ICE Link)

9. The Clearing House reports the cleared positions (beta/gamma trade) to the Swap Data/Trade Repository for regulatory reporting; the original trade (alpha) confirmation is terminated by the reporting counterparty when cleared

WORKFLOW

Note: ESMA MiFID II RTS 26 requires off-facility trades to be submitted within 30 minutes of being ‘concluded’


MIFID II MTF / RM / SI (ATF) ELECTRONIC TRADE MODELWORKFLOW

1. Buyer and Seller select to execute electronic swap trade order on MTF, RM, OTF platform or electronically with SI1 trade venue (Authorised Trading Facility, ATF)

2. ATF/Trade venue platform sends pre-clear limit check to Buyer/Seller Clearing Broker (if not self clearing)

3. Upon Buyer/Seller Clearing Broker pre-clearing acceptance (within 60 seconds), the ATF/Trade venue submits the trade to the Clearing House within 60 seconds and regulatory reports the execution to the Approved Publication Arrangement (APA) as soon as possible, but no later than 15 minutes (T+2 if qualifies for delay waiver and under Large-in-Scale / Size Specific to Instrument (LIS/SSTI) size), each trade party is to report the trade execution to Approved Reporting Mechanism (ARM) and confirmed trade to the EMIR Trade Repository by T+1

4. The Clearing House receives the clearing request pre-approved by the Clearing Brokers/Members at the Bunched or Self Clearing account level and performs a risk and available collateral check

5. (A) Post a successful risk and collateral check, the Clearing House clears the trade and reports the status to the trade venue no later than 10 seconds or (B) Post a unsuccessful risk and collateral check, the Clearing House rejects the trade and reports the reject status to the trade venue platform no later than 10 seconds; trades rejected due to technical/clerical error may be resubmitted in no more than 60 minutes with the same trade details (but with new trade identifier)

6. Post clearing, the trade parties terminate (or cancels if rejected) the EMIR reported execution confirmation and the Clearing House reports the cleared trade to the EMIR Trade Repository

1. SItoreportfirmpre-tradepricestoAPA;reportingtoAPAreducedto5minutespost3yearsofrulesimplementation;LargeinScaleorSizeSpecifictoInstrumentwaiversallowforpost-tradedelaytoAPAofT+2

2. PerESMAMiFID II/MiFIR RTS26INTERCONTINENTAL EXCHANGE

9

ICE CDS RISK MANAGEMENT FRAMEWORKWATERFALL APPROACH FOR MANAGING SYSTEMIC RISK

10

Ensure Clearing Member has operational capabilities, risk management experience and financial resources

Daily MTM based on EOD settlement prices

Additional margin can be called due to unusual market fluctuations

Additional collateral to mutualise losses under extreme market scenarios

Oblige Clearing Members to contribute additional default funding

Layers of Protection

Daily margin call based on dynamic stress-based regime

Membership Criteria

Mark-To-Market Margin Requirement

Initial Margin Requirement

Guaranty Fund

Intra-day Risk Monitoring Special Margin Call

Execution

Additional Assessment Rights


RISK: INITIAL MARGIN REQUIREMENTSDYNAMIC STRESS-BASED REGIME

11

§ Unexpected credit event losses not accounted for in the market valuation of Single Name (SN) instruments

Concentration Requirement

Basis Risk Requirement

Jump-To-Default Requirement

Risk Captured§ Instrument spread level variability and

changes in credit spread term structure (“curve”) shape

§ Costs associated with large position liquidation

Interest Rate Sensitivity

Requirement

§ Fluctuations of Recovery Rate (RR) assumptions

Liquidity Requirement

Component§ Consider six scenarios

− Widening / contracting credit spread scenarios

− 3 curve shapes per credit spread scenario

§ Consider min. and max. reference entity specific RR to determine additional losses

§ Include Loss-Given-Default for sold protection§ Consider liability associated with 1 credit event

using an assumed SN-specific minimum RR

§ Differences in trading behavior of index-derived and outright SN positions

§ Account for liquidity differences (market views are priced into more liquid index instruments sooner than SNs), and expected cash flow differences

§ Transaction (bid-offer) costs associated with unwinding CDS instruments in the event of a Clearing Participant default

§ Capture the proper liquidation cost for directional as well as well-hedged portfolios

§ Estimate costs based on bid-offer width, derived from the end of day price discovery process

§ Fluctuations in interest rates § Assess sensitivity of portfolio Net Asset Value to default-free discount interest rate changes

§ Reflect market depth and liquidity§ Apply to positions that exceed pre-specified

thresholds§ Increase requirements exponentially

Approach

Initial Margin Requirement

Recovery Rate Sensitivity

Requirement

Spread Response Requirement


PORTFOLIO MARGINING - QUANTIFYING THE BENEFITS

Portfolio Margining Example

§ ICE has formulated an index decomposition margin methodology which provides benefits to long/short index and single name positions

§ Capital efficiencies are achieved by allowing market participants to clear index and single name CDS in segregated customer accounts while maintaining strong risk management protections

§ Voluntarily clearing single names will allow you to achieve these margin benefits against mandatorily cleared indices

Margin Requirement

Portfolio SizeTotal

Requirement

125 SN Positions(Bought Protection on 125

names of $4MM each 5Y tenor)1.25% $500MM $6.25MM

Index PositionIG Series 26 5Y

(Sold Protection on $500mm)2.00% $500MM $10.0MM

Index Arb(Bought SN/Sold Index) 0.50% $1,000MM $5.0mm

Margin Requirements

If margined on a separate basis

Margined on a portfolio basis

$16.25MM $5.00MM

§Margin reduction of $11.25MM achieved through portfolio margining


INDEX DECOMPOSITION MARGIN METHODOLOGY

END OF DAY PRICE DETERMINATION PROCESSESTABLISHES RELIABLE END-OF-DAY VALUATIONS FOR MARGIN/RISK CALCULATIONS

13

Quote Submissions

• Members provide quotes for instruments related to positions they have cleared

• Required to provide quotes for 9 “benchmark tenors” at each coupon in which ICE has cleared interest

§ Multi stage crossing/matching process to arrive at EOD Prices from Member submitted quotes

§ EOD Prices for non-benchmark tenors interpolated from calculated EOD Prices for benchmark tenors

§ Members must enter into firm trades based on the EOD Price Discovery Process and as per rules specified by ICE

§ Controls to ensure that firm trades do not have adverse market impact

§ Control mechanisms consist of the following:

- Index Default Spread Width Matrix - Firm Tradable Instruments- Trade Execution Hierarchy - Firm Trade Limits


Price Discovery Process

Firm Trade Obligations

Controls to Limit Impact on Risk

EMIR ACCOUNT STRUCTURE MODELS


OMNIBUS CLIENT SEGREGATION

15

• Clearing Member is principal to the trade;

• Customer positions and assets are segregated from those of the firm (i.e. House);

• Customer positions are identified by customer legal entity via the Desk set up process;

• Margin is determined on a Customer-by-Customer basis and margin collected from the Clearing Member on a Gross basis;

• Margin is computed at End of Day and CM meets any increase day over day; where one customer requirement goes up this may be netted against another customer’s requirements reducing;

• Customers share “fellow customer risk”:

– At Clearing House, collateral/assets not legally attributed to Customer in terms of asset or value;

– Margin provided in respect of one customer can offset that on another’s positions and gains or losses; one customer margin decrease may offset another’s increase;

– Margin of customer account is potentially subject to mutualisation; – Initial Margin (IM) calls, Variation Margin (VM) calls/pays are “netted” to a

single call or pay per currency - Net VM payable to the CM can be used to cover increased margin requirements;

• Clearing Member can maintain “excess” buffer at Clearing House to “anticipate” changes in margin etc., but this is not attributable to individual clients.


OMNIBUS CLIENT SEGREGATION

16

• Margin not attributed to individual customers in terms of asset or value.

• Pre-default Customer Portability:

– Customer positions can be transferred to another Clearing Member. Assets will usually be returned via the existing Clearing Member;

• Post-Default Portability:

– Individual customer portability of positions is possible;

– Individual customer portability of assets is theoretically possible as Clearing House holds gross margin and logically, an amount that could be attributed to a customer. Current U.S. Bankruptcy Code and English insolvency laws means that “porting” is non-trivial and the “allocation” of assets to customers is not determinate;

– Where all customers consent to transfer all positions and assets to a single non-defaulting Clearing Member, the entire margin pool may be transferred;

– Clients are exposed to the losses of other clients and therefore return of variation margin is likely to rely on a claim from the estate of the defaulting Clearing Member.


INDIVIDUALLY SEGREGATED MARGIN FLOW CO-MINGLED ACCOUNT (“ISOC”)

17

• ICE Clear Europe has developed an Individually Segregated Margin-flow Co-mingled Account model - known as ISOC.

• In this model, the Clearing Member continues to act as principal to the positions but the Clearing House keeps a separate record of positions and assets at individual customer level.

• The ISOC model introduces new workflows to identify each Client’s positions and assets and effects a daily “cover call” for each Client. At EOD, any changes in initial margin or variation margin requirements for each Customer Account are then aggregated into a single margin call from the Clearing Member. The Clearing Member may then seek to re-allocate assets with its individual clients and must report on such allocations to ICE.

• Under the model, margin is attributed to each Client’s account.

• Asset Management (Deposits/Withdrawals) is initiated at the Client Account level (i.e. aggregated across all ISOC accounts) and flows through the external settlement process tagged by Customer.

• ISOC accounts may also be used as “private omnibus accounts” for groups of Customers that are for example related companies of funds under common management.


ISOC ACCOUNT

18

Pre-default Customer Portability:

• ICE Clear Europe has the ability under its Rules to facilitate the transfer of positions and margin subject to the agreement of all counterparties (ISOC client, transferor clearing member, transferee Clearing Member and ICEU);

• Margin is transferred from the Clearing House to the existing Clearing Member that in turn passes it the client. The ISOC client maybe required to pre-fund margin requirements with the Receiving Clearing Member.

Post Default Porting:

• In the event of a Clearing Member default, the Clearing House has the ability under its Rules to facilitate the transfer of positions and margin subject to the agreement of the ISOC client, the Receiving Clearing Member and the Clearing House.

• Individual customer portability of assets is possible as assets are identified at the Clearing House in the name of the individual client and is supported by English insolvency law.


SPONSORED PRINCIPAL MODEL – KEY FEATURES

19

• Full Individual Client Segregation model (Article 39(3)) - known as Sponsored Principal (SP) - whereby a client can become a counterparty to ICE Clear Europe with an existing Clearing Member acting as its Sponsor.

• Key features of the model:

– SP positions are maintained within an identified position account referring the SP at the Clearing House;

– Margin calls will be computed based on individual SP positions and collateral and called solely for the SP account via a discrete call on an APS account;

– The APS account through which margin calls are made may be managed by (or an account of) the Sponsor or may be managed by (or an account of) the SP. Sponsors and SPs must notify ICE of the account to be used. The SP’s nominated APS Bank Account may also be provided by the Sponsor;

– SP assets are maintained within an identified asset account at the Clearing House that is ring-fenced in the event of default of the sponsoring Clearing Member from any other account;

– SP excess collateral can be maintained at the CCP;

– SP will not contribute to the Guaranty Fund (GF) but the Clearing Member (Sponsor) will be responsible for increased GF contributions.

– SP is legal counterparty to the trade with the CCP, jointly and severally liable with the Sponsor. In the event that the SP is in default or fails to pay a call, the Sponsor is liable to meet the margin call;

– Both SP and Sponsor are joint tenants of the account: both are liable and both are able to give instructions (but Sponsor instructions prevail);

– SP must enter into a legal agreements with Clearing House; and a clearing agreement with a Clearing Member who acts as a Sponsor;

– SP accounts are available.


SPONSOR REQUIREMENTS

20

• Sponsor must be a Clearing Member.

• Obligations of the Sponsor will include:

– Fulfil membership requirements including, inter alia:

• EOD price submissions;

• Participate in Default Management Process – including secondment of traders to Default Committee and obligation to participate in default auction;

• Risk Committee membership.

– Contribute to the Guaranty Fund on behalf of SPs that it sponsors:

• GF contributions calculated per SP account;

– Meeting shortfalls in margin for an SP - although initial call is made to the SP, in the event that this call is not met, the Sponsor will be required to pay the outstanding payment obligation for the SP.

• Additional services:

– Operate Middle / Back-office functions on behalf of SP;

– Deposit/withdrawal of SP Assets;

– Paying/receiving settlement amounts on behalf of the SP (all flows settled direct to/from SP Account).


SPONSORED PRINCIPAL REQUIREMENTS

21

• The Clearing House has tailored a set of requirements for SPs ensuring that each SP has sufficient resources and capabilities tomeet obligations arising from operating an SP account.

• The SP requirements include:

– Designation as an SP by a Sponsor;

– Be party to a Sponsored Principal Agreement;

– Demonstrate operational competence (e.g. ability to clear transactions into SP account and accessing banking reports);

– Nomination of APS bank accounts;

– Have in place all the necessary regulatory approvals in its country of origin;

– Pre-fund a minimum amount of margin specified by the Clearing House to a Nominated Bank Account, this amount will be transferred to a Clearing House account prior to the date of attaining SP status; and

– SP may be required to pay additional margin to cover above margin stress-test losses, if its Sponsor is in default

• For further details on SP requirements, please review ICEU’s Rules:

https://www.theice.com/publicdocs/clear_europe/rulebooks/rules/Clearing_Rules.pdf


SPONSORED PRINCIPAL MODELDEFAULT MANAGEMENT

22

Sponsor Default:

• In the event of the default of the Sponsor, its positions will be closed-out utilising the normal Default Management Framework.

• An SP operating a bank account in its name will be given about 10 days (time limit at the discretion of the clearing house) to continue to operate its SP account.

• Within the 10 day period, the SP must take one of the following steps:

– Find a new Sponsor

– Become a full Clearing Member

– Transfer positions to a Customer Account of a Clearing Member

• In the event an SP has not taken one of these steps, their positions may be closed out using the normal default management framework

SP Default:

• Events triggering default of the SP will be set out in the CCP Rules. These will include, inter alia, failure to meet margin calls by 09:00 London Time.

• The Clearing House will inform the Sponsor of the event of default, then:

– Direct all liabilities for the SP to be met from the APS bank account used by the Sponsor for its own Proprietary account transactions

– The Clearing House will transfer the SP’s open positions to the Sponsor’s Proprietary account for termination and the Clearing House may facilitate the transfer of margin or assets registered in the SP’s account.


PORTING PROCESS AND TIMELINE

23

• The Clearing House will notify an Event of Default via publishing a Default Notice by Circular.

• Following publication of the Default Notice, the Clearing House may facilitate the transfer of partial or full positions to a non-Defaulting Clearing Member.

• In accordance with Part 9 of the Clearing Rules and the relevant Standard Terms Annex, Customers will need to submit a properly executed Porting Notice executed by the Transferee Clearing Member and the Client.

- Porting Notice Cover Notes: https://www.theice.com/publicdocs/clear_europe/ICEU_Porting_Documentation_Cover_Notes.pdf

- Porting Notice: https://www.theice.com/publicdocs/clear_europe/ICEU_Default_Porting_Notice.pdf

• Where a valid Porting Notice is received within 4 hours of the Default Notice being published this will be prioritised in order to facilitate the transfer of positions by end of the Business Day or prior to noon the next business day (depending on when the Default Notice is published).

• All other porting Notices will be processed within a reasonable period of time, at the discretion of the Clearing House and subject to operational constraints and depending on market conditions.

• In the event of a liquidation or close-out of positions, ICEU will terminate all the positions within the defaulted Clearing Member’s customer omnibus account and perform a close-out calculation in respect of all outstanding assets and liabilities related to the customer omnibus account. Clients will have a claim against the Insolvency Practitioner of the defaulted Clearing Member.

• For further information on the calculation of the net sum, please review Part 9 of the ICEU Rules:

https://www.theice.com/publicdocs/clear_europe/rulebooks/rules/Clearing_Rules.pdf


LEGAL FRAMEWORK AND DOCUMENTATION

24

Sponsored Principal Accounts:

• The SP and Sponsor are each joint and severally liable with one another in relation to contracts cleared at the Clearing House.

• Legal agreements governing cleared SP positions consist of:

– ICE Clear Europe Clearing Rules, Standard Terms Annex, Procedures, Sponsor/SP Clearing agreement and any other underlying legal agreement (e.g. ISDA/FOA Client Clearing Addendum, German Client Clearing Framework Agreement)

• SP/Sponsor Agreements with the Clearing House could be either of:

– Separate Bilateral Agreements – The Sponsor executes a Sponsor Agreement (https://www.theice.com/publicdocs/clear_europe/Sponsor_Agreement.pdf), then notifies new SPs as and when,

`Each SP executes a separate agreement (https://www.theice.com/publicdocs/clear_europe/Sponsored_Principal_Clearing_Agreement.pdf)

OR, Tripartite Agreement – The Sponsor and Sponsored Principal execute an agreement together

(https://www.theice.com/publicdocs/clear_europe/Tripartite_Sponsored_Principal_Agreement.pdf)

Omnibus and ISOC Accounts:

• The legal documentation set has been designed to allow maximum flexibility such that clearing members and their clients can establish arrangements using documentation similar to that used in either the OTC or futures markets today.

• The Clearing Member to Client relationship is typically be governed by a base document (e.g. an ISDA Master Agreement and ISDA/FOA Clearing Addendum). The Clearing House is agnostic to the type of document used specifies one requirement for these documents: that the Clearing Member and Client agree that the Standard Terms apply and prevail in a way that is legally enforceable. This may be achieved by both parties agreeing the Clearing House rules apply.

For further information on customer documentation, please review the link below:

https://www.theice.com/publicdocs/clear_europe/circulars/C14055.pdf


LEGAL FRAMEWORK AND DOCUMENTATION

25

ISDA/FOA Client Cleared OTC Derivatives

Addendum (11 June 2013)

FOA Clearing Module (11 October 2013) Association of German Banks

Clearing-Framework Agreement (ICEAnnex)

ISDA/FBF Annex to the Client

Cleared OTC Derivatives Addendum (1 August 2014)

This form of documentation complies with the requirements of Rule 202 (b).Please see Clearing House circular C14/055 for further informationhttps://www.theice.com/publicdocs/clear_europe/circulars/C14055.pdf

Subject to one amendment being made, this form of documentation complies with the requirements of Rule 202(b). Please see Clearing House circular C14/055 for further informationhttps://www.theice.com/publicdocs/clear_europe/circulars/C14055.pdf

Subject to executing ICEU’s Annex to the Clearing Framework Agreement for the Clearing of Derivative(https://bankenverband.de/media/contracts/ICE-Annex-EN-44557_0916_Muster.pdf)This form of documentation complies with the requirements of Rule 202(b)

This form of documentation complies with the requirements of Rule 202 (b)

- CMs are required to execute a Clearing Membership Agreement binding the Clearing Member to the Clearing House Rules.

- Rule 202(b) requires CMs to ensure that their customers have agreed to the CDS standard terms which are annexed to the Rules

- CM and Client to execute bilateral agreement underpinning contractual relationship between the two parties (e.g. ISDA Master Agreement or Futures Clearing Agreement)

- Clearing House Standard Terms must be duly cross referenced in the agreement between the CM and Client

- ICE Clear Europe does not review, approve or prescribe specific forms of documentation. Nevertheless, the Clearing House has had sight of various industry standard forms of customer documentation. In this context, CMs and Customers should review the table below:

ClearingHouse

ClearingMember

Client

A principal-to-principal tripartite contract between

(1) The Clearing House; and

(2) The Sponsor and Sponsored Principal (“SP”) acting jointly.

SP/Sponsor Agreements with the Clearing House could be either of:

• Separate Bilateral Agreements – The Sponsor executes a Sponsor Agreement (then notifies new SPs as and when)

• Each SP executes a separate agreement

OR

• Tripartite Agreement – The Sponsor and Sponsored Principal execute an agreement together

Sponsor

Sponsored Principal


CDS ONBOARDING

26

1.SPsignsrequiredlegalagreementswithSponsorandClearingHouse

2.SponsorrequestssetupofSPwithinClearingsystemsandcompletesICELinkonboarding

form

4.ClearinghousesetsupSPwithinclearingsystems(clearingplatformandECS)

3.SPandSponsorcompletefronttobacktesting

5.GoLive

1.ClientselectsClearingMember(s)

2.ClientOnboards withClearingMemberandAffirmationPlatform

3.ClientandClearingMembercompleteFronttoBackTesting

5.GoLive

Omnibus and ISOC Account Sponsored Principal Account

4.ClearingHousesetsupClientwithinclearingsystems


CLIENT CLEARING FEES

27

Product Type Costs

Index (per Million) EUR 5

Single Name (per Million) EUR 15

Application Fee Annual Fee

Segregated Customer Accounts (“S” and “T”)

Waived Waived

Individually Segregated Operationally Co-mingled

(“ISOC”) Account

Waived EUR 5,000 per annum per Individual Customer

Individually SegregatedSponsored Account

(“Sponsored Principal”)

EUR 10,000 per Sponsored Principal

EUR 25,000 per annum per Sponsored Principal

› Standard clearing fees (applicable to all EMIR Customer Accounts):

› Application and Annual Fee:

› For further information on charges and rates of return for EMIR Customer accounts please review these links:https://www.theice.com/publicdocs/clear_europe/circulars/C14098.pdfhttps://www.theice.com/publicdocs/clear_europe/circulars/C15099.pdf


ICE CLEAR EUROPE:

Mark Woodward Vice President, Corporate DevelopmentICE Clear Europe+44 (0)20 7065 [email protected]

Grace BalkwellCDS Product DevelopmentICE Clear Europe+44 (0)20 7065 [email protected]

OTC Financial Sales:

- Nick Holmes +44 (0) 207 429 4613 [email protected]

- Sean O’Brien +44 (0) 207 429 4611 sean.o’[email protected]

28

CONTACTS


APPENDIX:ICE CLEAR EUROPE TREASURY MANAGEMENT

• ICE Clear Europe has appointed JPMorgan Chase Bank NA (JPMorgan), Citibank N.A. and Bank of England (GBP only) as consolidation banks. JP Morgan TSS provides multi-currency payments, global custody and additional securities services, as well as cash investment program. Citibank N.A. provides multi-currency payments and cash investments. Bank of England is used for pounds sterling (GBP).

• ICE Clear Europe has developed the Assured Payment Service (APS) which provides payment finality for transfers between ICE Clear Europe and Clearing Members. The APS has been designated under the Settlement Finality Directive and is approved as a payment system under the U.K. Banking Act 2009 regulated by the Bank of England.

• Current acceptable collateral includes:– Cash – EUR, GBP and USD;– Government Securities – U.S., European and Japanese Governments only;– Gold Bullion– Tri-party arrangements through Euroclear and Clearstream

Full list of permitted cover can be accessed from this link: https://www.theice.com/publicdocs/clear_europe/list-of-permitted-covers.pdf

• ICE Clear Europe’s APS Banks are currently:– Bank of America NA (London Branch);– Barclays Bank plc (London Branch);– BNY Mellon (New York Branch);– Brown Brothers Harriman & Co. (New York Branch);– Citibank NA (London Branch);– Deutsche Bank AG (London Branch);– HSBC Bank plc (House Business Only);– JP Morgan Chase Bank NA (London Branch); and– Skandinaviska Enskilda Banken AB (London Branch) – House Business Only


APPENDIX:ISOC EOD NETTING PROCESS

30

EODProcessWorkflowtoHighlightNettingofEODCalls

CollateralValueatStartofEODProcess

CUSTOMER1/ISOCAcc1

VariationMarginGains/Losses

(B)

Non-CashCollateral

+$50 +$30

+$50

EODProcess EODIMRequirements

-$100+$80

EODCoverCallDeficit

CashBalance(A)+(B)

50

50

CoverCall

+$30

CUSTOMER2/ISOCAcc2

$0 +$100

+$0

-$200$100 100

CoverCall-$100

CUSTOMER3/ISOCAcc3

+$100 -$250

+$200

-$100-$150

100

CoverCall

-$150

CUSTOMER4/ISOCAcc4

$0 +$150

+$60

-$50+$150

50

0

CoverCall

+$150

+150(ExcessCash

balancereleasedsinceauto-releaseenabled)

-$150Deficit

$0sinceauto-release

disabled

-$100Deficit TheCHwillmakeasingle

netcallof-$100(-$100-$150+$150)via

CMAPSbankaccassociatedwiththissegregation

Auto-releasedisabled



Auto-releaseenabled

Non-CashCollateral

CashBalance(A)

+$50

+$0

+$200

+$60

CollateralValueatStartofCoverCall

0

+ =

CoverCall

ExcessCashBalance

StartofDay

Non-CashCollateral

CashBalance

+$80

$200

$0

$0

+$50

+$0

+$200

+$60

$0

$0

$0

$0

AtEndofCoverCall MarginCall

-$150callarisingfromnegativeVM

cashbalance


APPENDIX:ICE LINK CDS CONNECTIVITY


APPENDIX:CLIENT CLEARING TOOLS – CDS MARGIN CALCULATOR

32

• Available to all clients through the ICE Link GUI

• Provides transparency on CDS initial margin methodology with results broken down by component

• Run what-if scenarios on existing positions or custom portfolios

Ability to upload custom portfolios

directly into Calculator

Review Margin Results / Export in CSV format

Training materials available on ICE Link Web GUI (Help Documents) or at www.theice.com/clearcredit

Contact ICE for a demonstration: [email protected] or call +1 770 738 2101 / +44 (0)20 7488 5100

c

Select existing positions in the ICE Link Positions

Blotter and click on “Margin”


APPENDIX:ICE LINK REGULATORY REPORTING TO SDR / TR

33

• ICE Link offers market participants a regulatory reporting compliance solution

– Satisfies ESMA/CFTC requirements for Trade Reporting to a Swap Data/Trade Repository (SDR/TR)

– Determines which workflows and events are reportable

– Stores all required static data relevant to regulatory reporting

– Leverages existing ICE Link affirmation workflow for reporting to SDR/TR

– Communicates and generates Unique Swap/Trade Identifier (UTI/UTI) per ISDA guidelines

– API and web GUI regulatory reporting functionality

– Supported for all CDS products and workflows in ICE Link

• Cleared Trades: Self Clearing and Clearing Brokered

• Non-Cleared, Bilateral and PB: New Trades, Novations, and Terminations

• SEF and Off-facility Trade reporting

– Minimal effort to adopt, no change to existing ICE Link workflows

Cleared or Bilateral* Reportable Events Event

Initiator

Event Available in

ICE Link

Event Available in

Confirm System

UTI Generation UTI Communication ICE Link TR Submission Supported TR

NEW TRADE-UNALLOCATED BLOCK Dealer Y N Dealer/ICE Link ICE Link Y DTCC EuropeNEW TRADE-ALLOCATION Client Y Y ICE Link ICE Link Y DTCC EuropeNOVATION Client Y Y ICE Link ICE Link Y DTCC EuropeTERMINATION Client Y Y Dealer/ICE Link ICE Link Y DTCC EuropeSEF SEF Y Y SEF ICE Link Y DTCC EuropeAMENDMENT Dealer Y Y Dealer/ICE Link ICE Link Y DTCC EuropeCREDIT & SUCCESSION EVENT TIW Y Y N/A ICE Link Y DTCC EuropeNEW TRADE-UNALLOCATED BLOCK Dealer Y N Dealer/ICE Link ICE Link Y TV EuropeCLEARED TRADE (BETA/GAMMA) CCP Y N CCP ICE Link Y TV EuropeSEF SEF Y N SEF ICE Link Y TV EuropeDAILY MTM & COLLATERAL VALUATION** CCP Y N CCP ICE Link Y TV EuropeNETTING CCP Y N CCP ICE Link Y TV EuropeTRANSFER CCP Y N CCP ICE Link Y TV EuropeCREDIT & SUCCESSION EVENT CCP Y N CCP ICE Link Y TV Europe

Bilateral

ICE Cleared


CLIENT CLEARING TOOLS

REPORT DESCRIPTION FORMAT AVAILABILITY*

Clearing Eligible Instruments

A full list of indices and single names eligible for clearing; includes ICE Clear Credit and ICE Clear Europe eligible instruments

CSV Daily

Clearing ActivityProvided at allocated trade level; includes new trades cleared on a specific day

CSV and PDF Daily

Cleared Positions Provided at allocated trade level; includes all open cleared positions from current day in a per trade format

CSV and PDF Daily

Gross MarginProvides the portfolio level margin requirements (initial margin and mark-to-market)

CSV and PDF Daily

Early EOD Pricing file Provides end-of-day closing clearing house prices. Available at 5 pm local time.

CSV Daily

Mark-to-Market Margin Interest Report

Provides the daily interest earned on margin collateral using the MTM balances

CSV and PDF Daily

NettingProvides netting results for accounts set to net; includes terminations and new net trades

CSVDaily / Ad hoc / Selective

§ All reports available in production and test environments for ICE Clear Credit and ICE Clear Europe.

§ Available at 9 pm local time (except for the EOD pricing file which is available at 5pm and 8 pm local); NY for ICE Clear Credit and LDN for ICE Clear Europe

§ Access through the ICE Link web interface or electronically via secure MFT


CDS REPORTS

ICE Trade Vault LLC› ICE Trade Vault, LLC (“ICE Trade Vault US”) was the first Swap Data Repository (“SDR”) in the US to receive provisional

registration approval from the Commodity Futures Trading Commission (“CFTC”).

› ICE Trade Vault US covers reporting for CDS and Commodities.

ICE Trade Vault Europe Limited› Established as a separate legal entity, governed by the laws of England and Wales, in March 2013.

› A private company limited by shares, wholly owned by Intercontinental Exchange Holdings and a subsidiary of Intercontinental Exchange Inc. (“ICE”).

› Trade Vault Board of Directors established; business, compliance and technology staff in place.

› ICE will leverage its existing SDR and post-trade services to deliver a global repository solution and a TR Service that meets the

requirements of EMIR while increasing the efficiency of key operational processes for customers and will:- Help its Clearing Members and market participants meet their EMIR trade reporting obligations.

- Allow ICE Clear Europe to meet its EMIR trade reporting obligations.

- Assist ESMA in ensuring a robust and comprehensive reporting regime.

APPENDIXICE TRADE VAULT


APPENDIXICE’S EMIR TRADE REPORTING SERVICE: KEY BENEFITS

36

› Efficient and cost-effective reporting – leverages existing technology interfaces, workflows and trade data (ICE trading platforms, clearing house systems, ICE eConfirm and ICE Link).

› ICE already holds the master record of all transactions that it clears and has well-documented controls to ensure accuracy of such data. Clearing Members and market participants already consume and reconcile to this data on a daily basis.

› Removal of dependencies between ICE, Clearing Members and market participants. Rather than Clearing Members and market participants having to receive and process data such as UTI and valuation from ICE before reporting to a TR, ICE will report all information directly to ICE Trade Vault Europe.

› Avoidance of resources being consumed by resolving mis-matches or duplicative reporting since ICE (as a shared, single party) will report consistently on behalf of its clearing houses, Clearing Members and market participants.

› ICE will generate UTIs for all exchange-traded derivatives. For OTC-cleared derivatives, ICE intends to report modification and termination events relating to the original OTC bilateral trade (the “alpha trade”) where the alpha trade’s UTI is provided via ICE Link and where ICE Trade Vault Europe has been granted relevant permissions and connectivity with the TR to which the alpha trade was reported.

› No need to sign additional legal agreements – ICE intends to provide delegated reporting services under its exchange and clearing rules.

› No EMIR Trade Reporting Service fees will be charged whilst ICE continues to work with its Clearing Members and market participants to implement EMIR.


EUROPEAN CDS CLEARING MEMBER CONTACTS

37

Firm Name E-Mail Phone

BarclaysAyman GammallJamie Tutt

[email protected] [email protected]

+44 20 3134 8511+44 20 3134 2024

Bank of America Merrill Lynch

Richard ClarkRob van der Meijde

[email protected][email protected]

+44 20 7996 7100+44 20 7996 1843

BNP ParibasMark StaffordGaspard Bonin

[email protected]@uk.bnpparibas.com

+44 20 7595 1670+44 20 7595 9465

Citigroup Thomas Rutter [email protected] +44 20 3569 4117

Credit Suisse Daniel Harding [email protected] +44 20 7888 2131

Deutsche BankJonathan TremainFlorian Peter

[email protected]@db.com

+44 207 547 2208+44 207 545 9850

Goldman Sachs Richard Pape [email protected] +44 20 7774 1075

HSBCRichard IngramDanny Foster

[email protected]@hsbcib.com

+44 20 7991 9271+44 20 7991 6437

JP Morgan Eileen Herlihy [email protected] +44 20 7134 8626

Morgan StanleyOwain RobertsMark Bortnik

[email protected]@morganstanley.com

+44 20 7425 8465+44 20 7677 9685

Societe Generale Newedge Jamie Gavin [email protected] +44 20 7676 8499

UBS Laura Mitchell [email protected]+44 20 7568 6655


38

DISCLAIMER

Intercontinental Exchange (NYSE:ICE) operates the leading network of global futures and equity exchanges and provides world class clearing, data and listing services across many markets. The New York Stock Exchange is the world leader in capital raising and equities trading.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange, Interactive Data and Trayport. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located at www.intercontinentalexchange.com/terms-of-use

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 - Statements in this press release regarding ICE's business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE's Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE's Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on February 7, 2017.
