x-markets GmbH | Frankfurter Str. 63-69 | 65760 Eschborn

x-markets GmbH | Frankfurter Straße 63-69 | 65760 Eschborn Telefon +49 6196 777-1255 | Fax +49 6196 777-1297 | Mail info@x-markets.com | Web x-markets.com Sitz und Registergericht Frankfurt a. M. | HRB 76 449 | St.-Nr. 043 248 76009 | Geschäftsführung Jens Döring, Robert Orth, Boris Wedel Bankverbindung Hypovereinsbank AG Frankfurt | IBAN DE79503201910008422907 | BIC HYVEDEMM430

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DMP Workshop Outline

1. Default Management Process (DMP) General: Having a well-established and standardized Default Management Process (DMP) in place has become essential for Clearing Houses / Central Counterparties (CCPs) worldwide – especially after the financial crisis and the connected insolvency of Lehman Brothers in 2008. Transparent and clearly defined rules and procedures are now in place at world-wide leading Clearing Houses, applying to regulatory standards like EMIR or Dodd-Frank. Focus of the workshop is to provide an overview on the Default Management Process, giving insights on the key elements being applied by leading CCPs . The Default Management is one of the key aspects of the CCP management. It can be broadly divided into pre-default and post-default activities. Pre-Default activities are comprised of the identification of abnormal events and the potential activation of the default procedure. Post-Default activities begin with the declaration and the gathering of the Default Management Committee. The portfolio of the defaulting Clearing Member will be stabilized and prepared by e.g. hedging activities for further measures like independent liquidations or an auctioning process. In the end the settlements take place and the final financial impact for the defaulting Clearing Member, the Lines of Defense and the Clearing House will be calculated.

Takeaway for the participants: Understanding of the key aspects of a well-established and proofed Default Management Process of leading CCPs - potential identification of missing aspects in own default process. Detail: Regulatory Background-Overview: Leading Clearing Houses are overseen by comprehensive regulatory frameworks. These regulations will be presented with an emphasis on the relevant aspects for the Default Management Process. In particular, the following regulations will be described: • CPMI/IOSCO Principles: CPMI/IOSCO published 24 principles and five responsibilities,

addressing the risks faced by central security depositories, central counterparties / clearing houses, payment systems, securities settlement systems and central trade repositories. Two specific principles focus on the Default Management and propose clear default rules and segregation and portability possibilities of client’s positions.

• EMIR: As implementation of the G20 commitment to reduce systemic, counterparty and operational risk, to increase transparency in the OTC derivatives market and to protect against market abuse, in 2012 the EU introduced the European Market Infrastructure

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Regulation (EMIR). The regulations include requirements for the reporting of derivative contracts and implementation of risk management standards. It also established common rules for central counterparties and trade repositories. Furthermore, the European Securities and Markets Authority (ESMA) was established as an independent EU authority to safeguard the stability of the EU's financial system, to enhance the protection of investors and to promote stable and orderly financial markets. Among others, authorisation and monitoring of CCPs and trade repositories is the responsibility of ESMA.

• Dodd-Frank Act: In the USA, the Dodd-Frank Act imposed obligations similar to EMIR regarding the clearing, margining and reporting of derivative transactions. The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are both authorities regulating and supervising CCPs.

Takeaway for the participants: By understanding the regulatory framework major CCPs have to comply with, the participants will develop an understanding for the relevant measures which need to be implemented for a viable Default Management solution.

Case example: Default Management Process at a world-wide leading Clearing House

Taking a leading Clearing House as an example for well-defined procedures of the Default Management Process, the key actors and their responsibilities will be described and best practices will be explained.

Takeaway for the participants: Insights into a well-established Default Management Process – understanding of professional procedures in a regulated framework.

2. DMP FireDrill General: Focus will be drawn on the DMP Firedrill to strengthen the resilience of a CCP. DMP fire drills, regulatory required to be performed regularly they offer the possibility for the Clearing House and its market participants, CSDs, national authorities and regulators to train the DMP process and establish sound working procedures.

Detail: Regularly executed DMP fire drills are not only relevant for market-leading Clearing Houses. Also local / smaller Clearing Houses need to have a process in place for the execution of Fire drills. The importance of fire drills will be characterized in the workshop, explaining why and how a fire drill has to be set up. Special attention will be drawn on the participation of the different stakeholders: Apart from Clearing Houses and their Clearing Members, also local authorities, the national bank, CSDs and regulators have to be onboarded. A fire drill gives the

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possibility to identify if there are any gaps in the processes or in the regulatory documentation. Participants will be able to validate their role in the process and if the duties are known and clearly defined.

Takeaway for the participants: Increased sensibility for the importance of DMP Fire drills. Participants can derive/create a own checklist which can be applied to the individual circumstances of the local Clearing House, considering specific regulations and market participants in order to be able to tailor an individual Default Management Process including regularly organized Fire Drills.

Following or during the presentation, participants will be able to take ask any question. Questions will be answered during the session or if more complex via mail after the session.