Triparty Collateral Management The effective outsourced answer for overseeing and securing repo exchanges

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Triparty Collateral Management The effective outsourced answer for overseeing and securing repo exchanges AMEDA meeting Beirut – 29 April 2010 Bernard Ferran Regional Head, Relationship Management bernard.ferran@euroclear.com

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AMEDA – Beirut 29 April 2010 Agenda Introduction Repos and the repo markets Triparty guarantee administration Collateral Allocation Interface – Central Bank show

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Market turmoil The key points of reference Concerns about the valuation of organized items various speculation stores solidify reclamations Emergency save of Bear Stearns Lehman Brothers liquidation Leverage emergency and credit crunch transforms into an out and out bankruptcy issue 15 Sep 2008 13 March 2008 9 Aug 2007 Drying-up of between bank showcase Absence of term financing Shortage of USD financing in Europe Massive de-utilizing Political readiness of the universal group to search for a worldwide answer for a worldwide emergency Coordinated activities of national banks Increasing intermediation part Special term operations and securities loaning plans A more extensive scope of qualified insurance

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Market turmoil Eurepo/Euribor 3M Problems at Northern Rock Rescue of Bear Stearns Collapse of Lehman Brothers Problems at Sachsen LB and West LB Citi closes 7 SIVs Problems at IKB Bear Stearns close down two HFs Aug 23 – ECB Long Term Reserve Operation March 11 - Other CB composed exertion reporting $200bn of new crisis loaning for banks Sep 12 – ECB Long Term Reserve Operation Dillon Read HF close around UBS Dec 12 - deliberate CB activity (FED, ECB, BOE, SNB) – TAF sell off

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A noteworthy emergency Across all market sections Securities loaning Repo Central bank credit/liquidity Unsecured Money markets Cash driven Routine (e.g. tenders, … ) Securities guarantee No insurance ! Securities driven Contingency Cash insurance Unsecured market became scarce Term showcase vanished Concerns of last Beneficial Owners on certain money reinvestment programs No more term financing Secured currency advertise CCP GC crate Massive intermediation Contingency plans + -

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What speculators concentrate on ? Needs By request or need, the currency markets speculators will concentrate on Credit/counterparty chance Liquidity hazard Return Need to discover a secured financing arrangement  The repo markets

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From Unsecured to Secured Financing The club is becoming Unsecured is no more drawn out an alternative Move to the secured space, specifically to the repo space However, overseeing insurance brings new difficulties: Operational dangers, substitution, settlement, corporate activities, valuation, and so forth. Requires assets and know-how Cash financial specialists (e.g. MMF, Corporates, mutual funds, insurance agencies) as new participants in guarantee administration pick the Triparty Solution

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AMEDA – Beirut 29 April 2010 Agenda Introduction Repos and the repo markets Triparty security administration Collateral Allocation Interface – Central Bank show

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Repos and the repo markets A presentation What is a repo? Repo can be characterized as an understanding in which one gathering offers securities or different resources for a counterparty, and at the same time resolves to repurchase the same or comparative resources from the counterparty, at a concurred future date , at a repurchase value equivalent to the first deal cost in addition to a premium History of repo Created by the Federal Reserve Bank of New York in 1916 Boosted by the Glass-Steagall demonstration of 1933 when US venture banks greatly began to subsidize their stock (improvement of the 'general insurance repo').

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Repos and the repo markets A presentation What are the distinctive repo items? "Repos" – obtain of money against securities "Turn around repos" – speculation of money against securities "SecLending" - get against money "Add up to Return Swap"

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Repos and the repo markets The mechanics of a repo exchange A Dutch Bank An is exchanging a one-month repo with Spanish Bank B at a rate of 0.885% Dutch Bank A Spanish Bank B €10,000,000 of DE0001134492 D-day € 12,157,315.07 Dutch Bank A Spanish Bank B €10,000,000 of DE0001134492 D-day + 1 month € 12,166,579.96

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Repos and the repo markets Bloomberg screen

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Repos and the repo markets The elements of a repo work area Firm financing Borrowing money to finance long positions in securities Match book exchanging Traders make two-way managing costs on repo Customers financing (multifaceted investments) Proprietary exchanging Securities loaning Borrowing of securities to cover short positions Structured exchanging

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Repos and the repo markets Risks and hazard alleviation Legal hazard Market standard lawful understandings (e.g. GMRA) Risk of default of counterparty Thorough determination of counterparties Market and liquidity chance on securities insurance Clear meaning of adequate guarantee Imposed enhancement through fixation restricts Over-collateralisation of exchanges through edges Operational hazard Settlement chance Corporate occasion chance

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Repos and the repo markets The European repo advertise

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The European repo showcase Collateral investigation Share of sovereign insurance 81. 2%

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AMEDA – Beirut 29 April 2010 Agenda Introduction Repos and the repo markets Triparty guarantee administration Collateral Allocation Interface – Central Bank display

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Triparty Collateral Management History Bevil, Bressler and Schulman, a US securities firm Bankruptcy in 1985 Hold-in-authority (HIC) repos 'Twofold plunging' BB&S was utilizing a similar bit of insurance for more than one repo Loss of over $1bn The US Securities and Exchange Commission (SEC) asked US banks Chase Manhattan Bank and Bank of New York to wind up caretakers for repos ("Triparty operators") Triparty was propelled in Europe in the mid 90's

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Euroclear Triparty customer base Increasing financing openings Custodian Bank* Investment Managers Asset Managers, Money Market Funds, Corporates … Collateral Takers Agent moneylenders Commercial Banks Central Banks Custodian Bank* Hedge Funds Collateral Givers Commercial Banks Broker Dealers 1993 … 2010 * Acting as delegate

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Repos and the repo markets Risks and hazard relief Legal hazard Market standard lawful assentions (e.g. GMRA) Risk of default of counterparty Thorough determination of counterparties Market and liquidity hazard on securities insurance Clear meaning of worthy guarantee Imposed broadening through fixation constrains Over-collateralisation of exchanges through edges Operational hazard Settlement chance Corporate occasion chance Triparty Collateral Management Triparty Collateral Management

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Interest rate chance Market instability Foreign trade chance Credit chance Country chance Event chance Liquidity chance The outsourcing arrangement Market and liquidity danger of securities guarantee Risks Risk alleviation Criteria Time to development Instrument sort ELIGIBILITY Rating Issuer sort Country CONCENTRATION LIMITS Quotation age Capitalisation Traded volume MARGIN PERCENTAGES Mitigating liquidity and market dangers

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Triparty security administration The Collateral Management outsourcing arrangement Bi-horizontal Contract Triparty Service Agreement Operating Procedures Terms and Conditions Eligibility profile Concentration profile Margin rates Collateral provider Collateral taker ELIGIBILITY SET 1 Eligible : AAA - A No focus x % hair style ELIGIBILITY SET 2 Eligible : AAA - BBB just y % of BBB z % hair style Neutral operator

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Triparty guarantee administration Operational hazard Bilateral understanding Collateral taker Collateral supplier + Triparty benefit assention Processing Reporting Validation & coordinating Margin Settlement Custody Risk administration Trade reproduction Match terms of the exchange Verify guarantee qualification Daily check to-market Automatic edge calls Automatic substitutions Calculate, enter and settle directions (DVP or FOP) Automatic exchange of coupons

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Triparty guarantee administration Mitigating dangers of repo exchanges Daily stamp to-market Automatic and one-sided edge calls Cash presentation of the repo Value of Securities security Triparty Collateral Management

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The outsourcing arrangement Mitigating the operational hazard TRANSACTION Collateral taker Collateral supplier Triparty Services Matching Selection Transfer Valuation In a proficient, versatile, chance controlled environment Custody Reporting

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Triparty guarantee administration Customer's advantages Collateral Takers Collateral Givers By outsourcing and mechanizing the operational weight identified with guarantee administration, you decrease your back-office workload and operational hazard Optimum use of security assets Pool your insurance assets and collateralise crosswise over items (repo, securities loaning, subordinates,… ) Easily indentify financing openings utilizing our 'cutting edge' exchanging test system Gain access to an extensive variety of counterparties over all market portions of the business, all inside Euroclear Bank Mitigate showcase chances by executing guarantee criteria in accordance with your hazard hunger and expansion prerequisites Benefit from 'first class' resource assurance Top quality resource administrations for securities utilized as security Granular reporting for full control over the administration of the introduction

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Reporting Triweb: exchange reenactment & granular reporting Monitoring guarantee position Static information (triparty understandings) Dynamic information (overhauled 8 times each day) Supporting exchanging action Funding conceivable outcomes Customized reports

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Reporting Triweb: exchange recreation & granular reporting

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Triparty Collateral Management The Collateral Hub Rely on a vigorous and tried guarantee administration foundation Outsource non-center action to a particular firm Contro

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