Manage your OTC Derivatives Positions Post-Regulation Devika Darbari Director, PortRec Product Management October 2011 CONFIDENTIAL Agenda  Introduction  Regulatory landscape: reconciliations and collateral management  Regulatory impact to the buy side  MarkitSERV services and solutions – Reconciliation via PortRec – Collateral management in conjunction with AcadiaSoft  Next Steps 2 Regulatory Landscape: Reconciliation and Collateral Dispute Management 3 US regulation: reconciliations and collateral management  Proposed Dodd/Frank  Material term discrepancies to be resolved immediately  Reconciliation of positions on collateralised and uncollateralised  Valuations discrepancies to be resolved in 1 business day – Threshold: (higher valuation – lower valuation) >10% of higher valuation  Recordkeeping – 502(d) – Record of each discrepancy – Length of discrepancy if over one business day – Made available upon request 4 Dodd/Frank: reporting  Reporting and SDR Rules — detailed grid 5 ―Counterparty Exposure Repository‖ ISDA’s consultative report on OTC derivatives data reporting and aggregation requirements (Sept 23, 2011) suggests the need for a single ―Counterparty Exposure Repository.‖  Proposed scope – Single repository for aggregate risk view for regulators – Current trade repositories are designed for transactional level reporting, not portfolio level – Contain the net mark-to-market exposure for each counterparty portfolio and the corresponding collateral, as well as the firm’s calculation of net exposure after the application of collateral 6 Impact to the buy side  Focus on frequent proactive reconciliations  Establish a robust positions dispute management process  Connect collateral and reconciliation workflows  Consider cross asset class and regional considerations  Review reconciliation processes with respect to cleared trades 7 MarkitSERV Services and Solutions 8 MarkitSERV solutions  MarkitSERV offers a single platform solution for OTC trade processing. Our solution supports both affirmation, matching processes, reconciliation, as well as the widest range of transaction types and products.  MarkitSERV users include – 2,200+ buy-side clients – 80+ dealers – 70+ Interdealer brokers and service providers 9 MarkitSERV PortRec solution  Exception focused workflow – Automated reconciliation – Alerts on critical valuation thresholds – Quick identification on economic breaks and DKs  Dispute management features – Interactive dispute communication tools and tracking – Drill down into confirmation and clearing activity – Integration with Markit Portfolio Valuations  Tri-party reconciliation – Third party administrators – Trade Information Warehouse – Extensible to SDRs  Custom reporting  Collaboration with AcadiaSoft 10 MarkitSERV PortRec – Valuations Threshold Report • Set and monitor valuation thresholds by counterparty and/or asset class • Calculate valuation risk on MTM, notional, PV01 or NAV • Quickly identify the positions with the largest risk and aging • Overall risk exposure as a percent of total valuation difference 11 MarkitSERV PortRec – Dispute Management • Single dashboard to monitor economics and valuation disputes • View into root cause and aging details • Auditable communication with your counterparty • Aligned with recommended ISDA Dispute Resolution Procedures 12 MarkitSERV – Reconciliation & collateral messaging workflow Buy Side MarkitSERV AcadiaSoft Auto Reconciliation Auto Call Messaging Valuations Substitutions Dispute Management Dispute Management Broker Dealer Fund Admin Reporting MarkitSERV Confirmations Trade Manager Markit Wire Audit Audit DSMatch SDR 13 Reporting DTCC TIW Markit Portfolio Valuations FCM MarkitSERV Services and Partnership Collateral Messaging: AcadiaSoft 14 AMP product summary  AMP acts as a central service to provide workflow, message delivery and cross referencing between counterparties, offering: – – – – – – – 15 Automated margin call messaging Standards in communication Near real-time visibility of counterparty actions Partial and full dispute notification Full audit trail against each record Detailed management reporting Greater STP into collateral applications AMP overview  AMP has messaging and workflow for bi-lateral derivative margin processes      Margin call Recalls Substitutions Interest statements Replacing the current process  Performed by email 16 AMP overview: workflow AcadiaSoft Platform Hosted BT/Radianz Collateral Management Application •Portal •FTP •API • Outbound • Inbound • No Call  Margin Agreement portal allows you to: – – – – – – – Create margin agreements Manage legal entities Manage users & roles Set up monitoring Manage users Enable interest statements Allow for multiple calls per day  Message Portal allows you to: – Initiate/ respond to margin call – Initiate/ respond to interest statements – Initiate/ respond to substitutions 17 MarkitSERV Services and Partnership Reconciliation: MarkitSERV PortRec Collateral Messaging: AcadiaSoft 18 Collateral management: AcadiaSoft  In 2011 the MarkitSERV portal will provide clients with integrated access to the AcadiaSoft Messaging Platform (AMP), an online service that facilitates and manages communications required for collateral calls.  The joint solution will provide improved communication related to setting and maintaining the collateral required between counterparties to over-the-counter (OTC) derivative transactions.  The new service will enable buy- and sell-side counterparties to manage information electronically on exposures, commitments and adjustments to collateral, and create an audit trail of all communication about margining.  The solution is the first step taken by the two companies to develop a multi-functional collateral processing platform for the OTC derivative market. 19 Future strategy  Further integration of AMP with MarkitSERV PortRec  AMP integration with DTCC Collateral Warehouse  AMP and PortRec integration with other collateral management system vendors 20 Next steps  If your firm is not yet an existing MarkitSERV client then consider Contact sales to schedule a demonstration and discussion of the available MarkitSERV solutions. ([email protected])  Current MarkitSERV clients in need of more information may contact the MarkitSERV Client Account Group. ([email protected])  Visit the MarkitSERV.com website for more information including upcoming events, fact sheets, related links and to access the new MarkitSERV video overview of our buy-side clearing solutions. (www.markitserv.com) 21 Disclaimer The content, information and any materials (―data‖) provided by MarkitSERV and/or its group companies ("MarkitSERV") in this presentation is on an ―as is‖ basis. MarkitSERV expressly disclaims all warranties, expressed or implied, as to the accuracy of any data provided, including, without limitation, liability for quality, performance and fitness for a particular purpose arising out of the use of the data. MarkitSERV shall not have any liability, duty or obligation for or relating to the data contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall MarkitSERV be liable for damages, including, without limitation, damages resulting from lost data or information or lost profits or revenue, the costs of recovering such data, the costs of substitute data, claims by third parties of for other similar costs, or any special, incidental, or consequential damages, arising out of the use of the data. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing may violate the intellectual property rights of MarkitSERV under any intellectual property laws such as copyright laws, trademark laws and communications, regulations and statutes. MarkitSERV Limited is authorised and regulated by the Financial Services Authority. This communication is directed only at persons who can be categorised as Eligible Counterparties or Professional Clients in accordance with COB 3.5 & 3.6 of the FSA Handbook, and the services described herein are available only to such persons. Any other persons should not rely on any information contained in this material. 22