CLIFFORD CHANCE LLP

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CLIFFORD CHANCE OPINION LETTER -

RULEBOOK OF LCH. CLEARNET LIMITED

CLIFFORD CHANCE LLP

10 UPPER BANK STREET

LONDON

E14 5JJ

TEL +44 20 7006 1000

FAX +44 20 7006 5555

DX 149120 CANARY WHARF 3

www.cliffordchance.com

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CLIFFORD CHANCE LLP IS A LIMITED LIABILITY PARTNERSHIP REGISTERED IN ENGLAND AND WALES UNDER NO.

OC323571. THE FIRM'S REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS IS AT 10 UPPER BANK STREET

LONDON E14 5JJ. THE FIRM USES THE WORD "PARTNER" TO REFER TO A MEMBER OF CLIFFORD CHANCE LLP OR AN

EMPLOYEE OR CONSULTANT WITH EQUIVALENT STANDING AND QUALIFICATIONS. THE FIRM IS AUTHORISED AND

REGULATED BY THE SOLICITORS REGULATION AUTHORITY.

12 June 2014

LCH.Clearnet Limited

Aldgate House

33 Aldgate High Street

London EC3N 1EA

Our ref: 70-40536345

Direct Dial: +44 20 7006 4979

E-mail: simon.gleeson@cliffordchance.com

Opinion letter in respect of the Rulebook of LCH.Clearnet Limited

1. INTRODUCTION AND TERMS OF REFERENCE

We have acted as your English legal advisers in connection with the application of

LCH.Clearnet Limited (the "Clearing House") for "Recognised Central Counterparty" status,

pursuant to Article 17 of Regulation (EU) No 648/2012 of the European Parliament and the

Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories

("EMIR") and Section 288 of the Financial Services and Markets Act 2000 ("FSMA") (the

"EMIR Application").

Terms not otherwise defined in this opinion shall have the meanings ascribed to them in the

EMIR Rulebook (as defined below). The Clearing Membership Agreement and the

Rulebook (as defined below) together establish the framework for the contractual relationship

between the Clearing House and each of its Clearing Members. In the context of the EMIR

Application, we have assisted the Clearing House in a review of the Pre-EMIR Rulebook and

the Clearing Membership Agreement in order to assess their compliance with the

requirements of EMIR, the CCP RTS and the Indirect Clearing RTS (each as defined below)

(the "EMIR Review").

As a result of the EMIR Review, a number of amendments to the Pre-EMIR Rulebook have

been incorporated into a revised draft of the Rulebook (the "EMIR Rulebook", as more fully

described below). We summarise and explain a number of the key requirements of the EMIR

Level 1 and Level 2 Regulations (as defined below) and the amendments made to the Pre-

EMIR Rulebook in respect thereof in paragraph 4 (Summary of Key Requirements of the

Level 1 and Level 2 EMIR Regulations).

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The purpose of this opinion letter is to opine on the contractual validity and enforceability of

the EMIR Rulebook and the compliance of the EMIR Rulebook with relevant provisions of

the EMIR Level 1 and Level 2 Regulations.

The EMIR Level 1 and Level 2 Regulations impose a large number of obligations on the

Clearing House. Whilst, the EMIR Rulebook provides a framework for the operation of the

Clearing House it does not address each of the requirements of the EMIR Level 1 and Level 2

Regulations. In addition to making amendments to the Rulebook, we understand that the

Clearing House has amended and supplemented or will amend and supplement its internal

policies, procedures and all other relevant documentation (including, but not limited to its

website), practices and guidance (whether written or not) (together, the "Ancillary Practices

and Procedures") to ensure that such Ancillary Practices and Procedures are, and the

Clearing House as a whole is, compliant with the requirements of the EMIR Level 1 and

Level 2 Regulations.

Save to the extent expressly stated to the contrary in this opinion letter, we express no

opinion on the compliance of the Ancillary Practices and Procedures with the requirements of

the EMIR Level 1 and Level 2 Regulations or on whether the Clearing House operates and

conducts itself in accordance with or complies with the requirements of the EMIR Level 1

and Level 2 Regulations. In particular and furthermore, we express no opinion as to whether

the account structures described in the EMIR Rulebook (i) will be operated in compliance

with the EMIR Level 1 and Level 2 Regulations, including but not limited to Article 39 of

EMIR or (ii) reflect the accounts actually operated by the Clearing House.

This opinion letter does not address issues related to the effectiveness of the segregation,

default management, collateralisation, set-off, netting and porting arrangements provided for

in the EMIR Rulebook in a default of a Clearing Member (whether insolvency-related or

otherwise). These issues are considered, as a matter of English law in our opinion entitled

"Opinion letter in respect of the LCH.Clearnet Limited EMIR-compliant model" and dated 12

June 2014 (the "Affiliated Opinion"), which should be read in conjunction with this opinion.

2. TERMS OF REFERENCE

2.1 Defined terms

In this opinion letter:

(a) "Articles of Association" means the articles of association of the Clearing

House (adopted by special resolution on 1 May 2013);

(b) "CCP RTS" means Commission Delegated Regulation (EU) No. 153/2013 of

19 December 2012 with regard to regulatory technical standards on

requirements for central counterparties ("CCPs");

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(c) "Certificates of Incorporation" means the Certificate of the Incorporation of

a Company (relating to The London Produce Clearing House, Limited and

dated 1 October 1945), the Certificate of Incorporation on Change of Name

(relating to a change of name from The London Produce Clearing House,

Limited to International Commodities Clearing House Limited and dated 14

May 1973), the Certificate of Incorporation on Change of Name (relating to a

change of name from International Commodities Clearing House Limited to

The London Clearing House Limited and dated 4 June 1991) and the

Certificate of Incorporation on Change of Name (relating to a change of name

from The London Clearing House Limited to LCH.Clearnet Limited and dated

19 December 2003);

(d) "EMIR Level 1 and Level 2 Regulations" means EMIR, the CCP RTS and

the Indirect Clearing RTS, each as interpreted in light of the ESMA Q&A;

(e) "ESMA Q&A" means the Questions and Answers on the Implementation of

the Regulation (EU) No 648/2012 on OTC derivatives, central counterparties

and trade repositories (EMIR) published by the European Securities and

Markets Authority on 22 October 2013 (ESMA/2013/1527);

(f) "Indirect Clearing RTS" means Commission Delegated Regulation (EU) No

149/2013 of 19 December 2012 with regard to regulatory technical standards

on indirect clearing arrangements, the clearing obligation, the public register,

access to a trading venue, non-financial counterparties, and risk mitigation

techniques for OTC derivative contracts not cleared by a CCP;

(g) "Pre-EMIR Rulebook" means the version of the Rulebook dated June 2013

(as published on the Clearing House's website);

(h) "Rulebook" means the General Regulations, Procedures, Default Rules,

Settlement Finality Regulations and such other rules of the Clearing House, as

published and amended from time to time;

(i) "Schedule of Matters Reserved" means the Clearing House's schedule of

matters (stated to be adopted by the board of directors of the Clearing House

on 1 May 2013) as set out in a document entitled "LCH.Clearnet Group -

Board Reserved Matters & Reglement Interieur, Executive Delegation, Roles

and Responsibilities, Delegated Authorities and Principal Boards and

Committees" accessed from the Clearing House's website on 11 June 2013;

and

(j) headings are for ease of reference only and shall not affect the interpretation of

this opinion letter.

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2.2 Opinion Documents

The opinions given in this opinion letter relate to the following documents, which are

expressed to be governed by English law:

(a) the version of the Rulebook dated 9 June 2014 and submitted to and approved

by the Bank of England as part of the EMIR Application (the "EMIR

Rulebook");

(b) the Product Specific Contract Terms and Eligibility Criteria Manual;

(c) the Clearing Membership Agreement (such agreement, together with the

documents referred to in paragraphs (a) and (b) above, being the "Opinion

Documents"); and

(d) in respect of paragraphs 4.6 and 6(g) only, the Policy for identification of

conflicts of laws issues dated 16 May 2013 and the Policy for changes to

Rulebook of LCH.Clearnet Ltd dated 16 May 2013 (the "Policy for Rule

Changes" and together with the conflicts of law policy referred to in this

paragraph (d), the "Relevant Policy Documents").

For the purpose of issuing this opinion letter we have reviewed only the documents

and completed only the searches and enquiries referred to in ‎Schedule 1 (Documents

and enquiries) to this opinion letter.

2.3 Applicable law

This opinion letter and the opinions given in it are governed by English law and relate

only to English law as applied by the English courts as at today's date. All non-

contractual obligations and any other matters arising out of or in connection with this

opinion letter are governed by English law. We express no opinion in this opinion

letter on the laws of any other jurisdiction.

2.4 Taxation

We express no opinion on any taxation matter, and none is implied or may be inferred.

2.5 Assumptions and reservations

The opinions given in this opinion letter are given on the basis of the assumptions set

out in ‎Schedule 2 (Assumptions) and are subject to the reservations set out in ‎Schedule

3 (Reservations) to this opinion letter. The opinions given in this opinion letter are

strictly limited to the matters stated in paragraph 6 (Opinions) and do not extend to

any other matters.

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3. CLEARING MEMBERSHIP AGREEMENT

3.1 Contractual arrangements

In accordance with Procedure 1.2.1 of the Pre-EMIR Rulebook each applicant for

Clearing Member status must execute a Clearing Membership Agreement. Pursuant to

clause 2.10 of the Clearing Membership Agreement, the relevant Clearing Member

agrees to abide by the Clearing House's General Regulations, Default Rules, Default

Fund Rules, Settlement Finality Regulations and Procedures and such other rules of

the Clearing House as published and amended from time to time.

3.2 Amendment procedure

Regulation 34(a) (Alteration of Regulations and the Procedures) of the Pre-EMIR

Rulebook provides that:

"[u]nless the Clearing Membership Agreement or these Regulations

specifically provide [otherwise]… the Clearing House may from time to time,

by notice delivered to the Exchanges and Members amend or extend these

Regulations and such amendment or extension may be made with immediate

effect or with such deferred effect as the Clearing House shall determine".

Regulation 34(b) (Alteration of Regulations and the Procedures) of the Pre-EMIR

Rulebook provides that the Clearing House has equivalent authority to amend the

Procedures.

These provisions give the Clearing House wide powers to amend the versions of the

Regulations and Procedures contained in the Pre-EMIR Rulebook and, through the

Clearing Membership Agreement, amendments made in accordance with such

provisions (including as set out in the EMIR Rulebook) will constitute contractual

arrangements between the Clearing House and each Clearing Member.

4. SUMMARY OF KEY REQUIREMENTS OF THE EMIR LEVEL 1 AND

LEVEL 2 REGULATIONS

4.1 Account segregation and client clearing

Pursuant to 39(2) and Article 39(3), respectively, of EMIR, CCPs are required to offer

to keep separate records and accounts enabling each clearing member to distinguish in

accounts with the CCP (i) the assets and positions of that clearing member from those

held for the accounts of its clients ("omnibus client segregation") and (ii) the assets

and positions held for the account of a client from those held for the account of other

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clients ("individual client segregation"). Article 39(9) of EMIR further specifies that

the obligation to distinguish assets and positions in accounts is satisfied where

(a) the assets and positions are recorded in separate accounts;

(b) the netting of positions recorded on different accounts is prevented;

and

(c) the assets covering the positions recorded in an account are not

exposed to losses connected to positions recorded in another account.

A number of amendments have been made to the Pre-EMIR Rulebook to provide the

levels of segregation required pursuant to EMIR in respect of each of the Services. In

particular, Regulation 11 of the EMIR Rulebook (Client Clearing Business) provides

a framework for the provision of omnibus client segregation and individual client

segregation and Regulation 10 (Accounts) of the EMIR Rulebook provides for

account structures, in respect of both Proprietary Accounts and Client Accounts,

which are intended to reflect the requirements of Article 39(9) of EMIR.

4.2 Indirect clearing

Pursuant to Article 3(1) of the Indirect Clearing RTS, a CCP may not subject indirect

clearing arrangements to business practices "which act as a barrier to their

establishment on reasonable commercial terms" and must

"[a]t the request of the a clearing member… maintain separate records and

accounts enabling each client to distinguish in accounts held with the CCP the

assets and positions of the client from those held for the accounts of the

indirect clients of the client"

Regulation 11(j) of the EMIR Rulebook introduces a framework for the provision of

indirect clearing services by a Clearing Client. In particular:

(a) only Individual Segregated Clearing Clients may provide indirect

clearing services to Indirect Clearing Clients; and

(b) a single Indirect Omnibus Segregated Account will be opened in

respect of all of the Indirect Clearing Clients of an Individual

Segregated Clearing Client who are receiving indirect clearing services

in respect of a particular Service.

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4.3 Default waterfall

Article 45(4) of EMIR requires a CCP "to use its own resources before using the

default fund contributions of non-defaulting clearing members". Article 35 of the

CCP RTS specifies that the amount of dedicated resources for the purposes of Article

45(4) of EMIR should be not less than 25% of minimum capital and that where the

CCP has established more than one default fund, the total dedicated own resources

appearing in the waterfall prior to non-defaulters' contributions shall be allocated to

each of the default funds in proportion to the size of each default fund.

In addition, Article 36 of the CCP RTS provides that where the CCP has not yet had

the opportunity to reinstate its dedicated own resources after the first default, only the

residual amount of such dedicated own resources shall be applied to losses resulting

from subsequent defaults.

Accordingly, Default Rule 15(c) of the EMIR Rulebook:

(a) references Article 35 of the CCP RTS as the basis for quantifying the

Clearing House's own resources contributions to the default waterfall;

(b) references Article 35 of the CCP RTS as the reference by which the

Clearing House's own resources contributions to the default waterfall

are to be allocated between default funds in different Services; and

(c) states that, in the case of a subsequent default where the Clearing

House has not yet reinstated its own resources after the first default,

only the residual amount of the own resources shall be applied.

4.4 Access to the Clearing House

Article 37 of EMIR requires that admission criteria for clearing members be non-

discriminatory, transparent and objective and that the CCP may only impose

participation criteria that restrict access to the extent that their objective is to control

risk for the CCP. It also requires that the CCP’s rules allow it to gather certain

information from Clearing Members on the criteria and arrangements for allowing

clients to access the service.

In addition, Article 7(1) of EMIR provides that:

"a CCP that has been authorised to clear OTC derivative contracts shall

accept clearing such contracts on a non-discriminatory and transparent basis,

regardless of the trading venue".

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Procedure 1 (Clearing Member, Non-Member Market Participant and Dealer Status)

of the EMIR Rulebook specifies that (a) admission as a Clearing Member should be

determined by reference to criteria that are non-discriminatory and objective; and (b)

conditions which restrict the access of Clearing Member to the Clearing House may

only be imposed where they are aimed at controlling the exposure of the Clearing

House to risk. Furthermore, Regulation 11(e) (Client Clearing Business) in the EMIR

Rulebook provides that the Clearing House shall be entitled to require the delivery of

information from Clearing Members regarding the Clearing Members’ criteria and

arrangements for allowing clients to access Client Clearing Services.

In addition and in light of the transparency requirement imposed by Article 7(1) of

EMIR, sub-section 1.3.3 (Approved Trade Source Systems) of Section 2C of the

Procedures (SwapClear), sub-section 1.1.9 (Approved Trading Platform) of Section

2D of the Procedures (EquityClear), sub-section 1.1.6 (OTPs) of Section 2E of the

Procedures (LCH EnClear OTC Services) and sub-section 1.3.2 (ForexClear

Matchers) of Section 2I of the Procedures (ForexClear) of the EMIR Rulebook state

that the information regarding applications by trading venues will be contained on the

website.

4.5 Interoperability

Articles 51 to Article 54 of the EMIR Rulebook set out the key provisions in respect

of interoperability arrangements (i.e. an arrangement between two or more CCPs that

involves a cross-system execution of transactions).

In both the Pre-EMIR Rulebook and the EMIR Rulebook the term "Co-operating

Clearing House" is used to describe a CCP who is party to an interoperability

arrangement with the Clearing House. For the sake of clarity, Regulation 6 (Co-

operating Clearing House) of the EMIR Rulebook provides a high level explanation

of the status of a Co-operating Clearing House under the EMIR Rulebook and notes

that the admission of Co-operating Clearing Houses is governed by the policies of the

Clearing House and not the Procedures.

4.6 Compliance policies and procedures

Pursuant to Article 5(2) of the CCP RTS a CCP must identify and analyse the

soundness of the rules, procedures and contractual arrangements of the CCP and have

a process for proposing and implementing changes to its rules and procedures and,

prior to implementing any material changes, consult with all affected clearing

members and submit proposed changes to the competent authority.

In light of this provision, the EMIR Rulebook rationalises the Rulebook amendment

process as previously provided for in the Pre-EMIR Rulebook. Pursuant to Regulation

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44 (Alterations of Regulations and the Procedures) of the EMIR Rulebook, the

process and wording of Rulebook alterations, amendments and extensions will be

determined by the Rules Change Committee in accordance with the Policy for Rule

Changes.

4.7 Business continuity

Article 34 of EMIR and Articles 17 to 23 of the CCP RTS impose a number of

obligations in respect of the business continuity obligations of CCPs. Accordingly

Procedure 6 (Business Continuity) of the EMIR Rulebook has been amended to be

consistent with the relevant policies and procedures of the Clearing House.

4.8 Record keeping

Pursuant to Article 29(1) of EMIR, a CCP must retain records on the services and

activity provided for a period of at least ten years.

Clause 4.2 of the Clearing Membership Agreement provides that:

"the Clearing House agrees that for a period of six years after termination of

a Registered Contract it shall maintain records thereof".

In light of Article 29 of EMIR, Regulation 43 (Records) of the EMIR Rulebook

makes clear that:

"[n]otwithstanding any provision in the Clearing Membership Agreement…

[the Clearing House] shall maintain all records and information on all

contracts it has processed for a period of at least ten years".

4.9 Reporting

Article 9(1) of EMIR requires CCPs to report details of contracts to trade repositories.

The Pre-EMIR Rulebook contains does not make provision for the Clearing House to

report to trade repositories.

In contrast, Regulation 41(a) (Disclosure and Reporting) and Section 1.10 of

Procedure 3 (Financial Transactions) of the EMIR Rulebook authorise the Clearing

House to make reports to trade repositories.

5. ARBITRATION

Regulation 51(b) of the EMIR Rulebook provides that

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"any dispute arising from or in relation to any Contract or in relation to these

Regulations shall, unless resolved between the Clearing House and a Member,

be referred to arbitration under the Relevant Rules in accordance with

Regulation 33".

Regulation 33 of the EMIR provides for arbitration of disputes relating to certain

types of Contracts namely:

(a) Cleared Exchange Contracts, EquityClear Contracts or LCH EnClear

OTC Contracts (for Physical Delivery) – which are to be resolved

pursuant to the arbitration provisions in the relevant Exchange Rules

(Regulation 33 (a) – (c));

(b) Turquoise Derivatives Cleared Exchange Contracts – which are to be

referred to arbitration under the LCIA Rules (see Regulations 33 (d) –

(f)); and

(c) LCH EnClear OTC Contracts – which are to be referred to arbitration

under the LCIA Rules (see Regulations 33(g) – (i)).

Regulation 33 of the EMIR Rulebook does not provide for arbitration in respect of

disputes arising in relation to SwapClear Contracts, RepoClear Contracts, ForexClear

Contracts, Nodal Contracts, NLX Contracts or FEX Contracts or disputes in relation

to the Regulations more generally.

6. OPINIONS

We are of the opinion that:

(a) Corporate existence

The Clearing House is a company duly incorporated in England and the

Articles of Association do not contain restrictions which expressly restrict the

objects of the Clearing House and has the capacity and power to adopt the

rules, regulations and procedures in the form of the EMIR Rulebook and to

exercise its rights and to perform its obligations thereunder.

(b) Legal, valid, binding and enforceable obligations

The obligations expressed to be assumed by the Clearing House in the Opinion

Documents (including such obligations as are assumed under the provisions

described in Section 4 above) constitute its legal, valid, binding and

enforceable obligations.

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(c) Governing law

(i) In any proceedings for the enforcement of the contractual obligations

of the Clearing Members, the English courts or a duly constituted

arbitral tribunal with its seat in England would give effect to the choice

of English law as the governing law of the Opinion Documents subject

to, and in accordance with, the provisions of Council Regulation (EC)

No 593/2008 of 17 June 2008 on the law applicable to contractual

obligations (the "Rome I Regulation") or, if the Rome I Regulation

does not apply to proceedings before an arbitral tribunal, the provisions

of the Arbitration Act 1996 and the LCIA Arbitration Rules.

(ii) In any proceedings for the enforcement of any non-contractual

obligations of the Clearing Members arising from or in connection

with the Opinion Documents, the English courts or a duly constituted

arbitral tribunal with its seat in England would give effect to the

parties' agreement to submit to English law any non-contractual

obligations arising from or in connection with the Opinion Documents

subject to, and in accordance with, Council Regulation (EC) No

864/2007 of 11 July 2007 on the law applicable to non-contractual

obligations (the "Rome II Regulation") or, if the Rome II Regulation

does not apply to proceedings before an arbitral tribunal, the provisions

of the Arbitration Act 1996 and the LCIA Arbitration Rules provided

that (if the Rome II Regulation applies) the non-contractual obligation

is within the scope of the Rome II Regulation, the provision of the

Opinion Documents setting out the choice was freely negotiated and all

the parties to the Opinion Documents are pursuing a commercial

activity.

(d) Arbitration

(i) The arbitration agreement contained in the Opinion Documents is a

valid and effective agreement to submit to arbitration.

(ii) The English courts will, on the application of a party to an arbitration

agreement, stay proceedings in respect of a matter which under the

Opinion Documents is to be referred to arbitration.

(e) Submission to jurisdiction

The submission to the jurisdiction of the courts of England and Wales by the

Clearing Members contained in the Opinion Documents is legal, valid and

binding.

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SCHEDULE 1

DOCUMENTS AND ENQUIRIES

1. DOCUMENTS

We have reviewed only the following documents for the purposes of this opinion

letter.

(a) A PDF copy of each of the Opinion Documents.

(b) A PDF copy of each of the Relevant Policy Documents.

(c) A PDF copy of the Articles of Association.

(d) A PDF copy of each of the Certificates of Incorporation.

(e) A copy of the Schedule of Matters Reserved.

2. SEARCHES AND ENQUIRIES

We have undertaken only the following searches and enquiries for the purposes of this

opinion letter.

(a) A search was conducted with the Registrar of Companies in respect of the

Clearing House on 11 June 2014.

(b) An enquiry by telephone was made at the Companies Court in London of the

Central Index of Winding Up Petitions on 11 June 2014 at 4:14 p.m. with

respect to the Clearing House.

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SCHEDULE 2

ASSUMPTIONS

The opinions in this opinion letter have been made on the following assumptions.

1. ORIGINAL AND GENUINE DOCUMENTATION

(a) All copy documents are complete and conform to the originals.

(b) Any certificate referred to in ‎Schedule 1 (Documents and enquiries) is correct

in all respects.

2. CORPORATE AUTHORITY OF THE CLEARING HOUSE

(a) There have been no amendments to the form of the Articles of Association or

Certificates of Incorporation.

(b) All required corporate action has been taken to authorise the adoption by the

Clearing House of the EMIR Rulebook and the exercise by it of its rights and

the performance by it of its obligations under the EMIR Rulebook.

(c) Without prejudice to the generality of paragraph (b) above, the board of

directors of the Clearing House has delegated authority as deemed appropriate,

in accordance with the Articles of Association: (i) for any matters which might

otherwise be matters reserved for decision by it in accordance with the

Schedule of Matters Reserved; and, in particular (ii) for approval of changes

made to the Clearing House's Default Fund Rules for the purposes of

preparing the EMIR Rulebook.

3. NO INSOLVENCY

No Clearing Member is subject to a reconstruction, arrangement, compromise or

scheme with creditors or any insolvency, liquidation, administration, moratorium or

reorganisation proceedings or any similar proceedings generally affecting the rights of

creditors.

4. OBLIGATIONS OF THE CLEARING MEMBERS

(a) Each Clearing Member has the capacity, power and authority to enter into and

to exercise its rights and to perform its obligations under the Opinion

Documents.

(b) Each Clearing Member has duly executed and delivered the Clearing

Membership Agreement.

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5. SEARCHES AND ENQUIRIES

There has been no alteration in the status or condition of the Clearing House as

disclosed by the searches and enquiries referred to in Schedule 1 (Documents and

enquiries). However, it is our experience that the searches and enquiries referred to in

paragraphs 2(a) and (b) of ‎Schedule 1 (Documents and enquiries) may be unreliable.

In particular, they are not conclusively capable of disclosing whether or not

insolvency proceedings have been commenced in England, nor do they indicate

whether or not insolvency proceedings have begun elsewhere.

6. ACTIONS

Each Clearing Member and the Clearing House acts in accordance with the provisions

of the EMIR Rulebook.

7. AMENDMENTS

In making amendments to the Pre-EMIR Rulebook for the purposes of preparing the

EMIR Rulebook, the Clearing House has complied with all applicable obligations and

the requirements of all applicable processes including, without limitation:

(a) the obligation to notify Clearing Members and Exchanges in accordance with

Regulation 34 of the Pre-EMIR Rulebook;

(b) any obligation to consult with, or to conduct a ballot of, the Clearing Members;

and

(c) any obligation to consult, or to seek the prior approval of, any Regulatory

Body.

8. AUTHORISATION

Each Clearing Member has obtained all authorisations and/or licences required in

order to perform its obligations under the Opinion Documents.

9. OTHER DOCUMENTS

(a) Apart from any circulars, notifications and equivalent measures published by

the Clearing House in accordance with the Rulebook, is no other agreement,

instrument or other arrangement between any of the parties to any of the

Opinion Documents which modifies or supersedes any of the Opinion

Documents.

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(b) There is no document, instrument or agreement which modifies or supersedes

the Relevant Policy Documents.

10. OTHER LAWS

All acts, conditions or things required to be fulfilled, performed or effected in

connection with the Opinion Documents under the laws of any jurisdiction other than

England have been duly fulfilled, performed and effected.

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SCHEDULE 3

RESERVATIONS

The opinions in this opinion letter are subject to the following reservations and qualifications.

1. LIMITATIONS ARISING FROM INSOLVENCY LAW

(a) Any provision in any Opinion Document which confers, purports to confer or

waives a right of set-off or similar right may be ineffective against a liquidator,

administrator or creditor.

(b) Any rights or powers expressed to be available to the Clearing House or a

Clearing Member under the Opinion Documents may be affected by the

opening of insolvency proceedings or the institution of reorganisation

measures in respect of a Clearing Member or the Clearing House (as

applicable). However, Part 7 of the Companies 1989 ("Part 7") provides for

certain protections in the context of insolvency proceedings in respect of a

Clearing Member. The effects of Part 7 are discussed in the Affiliated Opinion

which should be read in conjunction with this opinion.

2. ENFORCEABILITY OF CLAIMS

In this opinion letter "enforceable" means that an obligation is of a type which the

English courts or, as the case may be, a duly constituted arbitral tribunal with its seat

in England may enforce. It does not mean that those obligations will be enforced in

all circumstances in accordance with the terms of the Opinion Documents. In

particular:

(a) the opinion set out in paragraph 6(b) (Legal, valid, binding and enforceable

obligations) of this opinion letter is subject to any limitations arising from

insolvency proceedings, measures for reorganisation, moratorium,

reconstruction, administration or resolution, a scheme of arrangement under

section 425 of the Companies Act 1985, a scheme within the meaning of Part

VII of FSMA, a compromise or any similar proceedings generally affecting

the rights of creditors and any direction issued to the Clearing House pursuant

to Part XVIII of FSMA. As noted above, Part 7 provides for certain

protections in the context of insolvency proceedings in respect of a Clearing

Member. The effects of Part 7 are discussed in the Affiliated Opinion which

should be read in conjunction with this opinion;

(b) the power of an English court or arbitral tribunal to order specific performance

of an obligation or other equitable remedy is discretionary and, accordingly,

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an English court or arbitral tribunal might make an award of damages where

specific performance of an obligation or another equitable remedy is sought;

(c) where any party to the Opinion Documents is vested with a discretion or may

determine a matter in its opinion, that party may be required to exercise its

discretion in good faith, reasonably and for a proper purpose, and to form its

opinion in good faith and on reasonable grounds;

(d) enforcement may be limited by the provisions of English law applicable to

agreements held to have been frustrated by events happening after their

execution;

(e) proceedings to enforce a claim may become barred under the Limitation Act

1980 or the Foreign Limitation Periods Act 1984 or may be or become subject

to a defence of set-off or counterclaim;

(f) a party to a contract may be able to avoid its obligations under that contract

(and may have other remedies) where it has been induced to enter into that

contract by a misrepresentation or where there has been any bribe or other

corrupt conduct and the English courts and arbitral tribunals will generally not

enforce an obligation if there has been fraud;

(g) any provision providing that any calculation, determination or certification is

to be conclusive and binding may not be effective if such calculation,

determination or certification is fraudulent, arbitrary or manifestly incorrect

and an English court or arbitral tribunal may regard any certification,

determination or calculation as no more than prima facie evidence; and

(h) by virtue of the International Monetary Fund Act 1979 and the Bretton Woods

Agreements Order in Council (SI 1946/36), any obligation of a Clearing

Member under the Opinion Documents which involves the currency of any

member of the International Monetary Fund and which is contrary to the

exchange control regulations of that member may not be enforceable in the

English courts.

3. APPLICATION OF FOREIGN LAW

(a) If any obligation arising under the Opinion Documents is or is to be performed

in a jurisdiction outside England, it may not be enforceable in the English

courts or in an arbitral tribunal to the extent that performance would be illegal

or contrary to public policy under the laws of the other jurisdiction. Further an

English court or arbitral tribunal may give effect to any overriding mandatory

provisions of the law of the place of performance insofar as they render the

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performance unlawful or otherwise take into account the law of the place of

performance in relation to the manner of performance and the steps to be taken

in the event of defective performance.

(b) An arbitral tribunal may, in practice, take account of mandatory rules or the

public policy of a third country in which its award is to be enforced.

4. DEFAULT INTEREST AND INDEMNITIES BETWEEN PARTIES

(a) Any provision of the Opinion Documents requiring any person to pay amounts

imposed in circumstances of breach or default may be held to be

unenforceable on the grounds that it is a penalty. If the Opinion Documents

do not provide a contractual remedy for late payment of any amount payable

thereunder that is a substantial remedy within the meaning of the Late

Payment of Commercial Debts (Interest) Act 1998, as amended, the person

entitled to that amount may have a right to statutory interest (and to payment

of certain fixed sums) in respect of that late payment at the rate (and in the

amount) from time to time prescribed pursuant to that Act. Any term of the

Opinion Documents may be void to the extent that it excludes or varies that

right to statutory interest or purports to confer a contractual right to interest

that is not a substantial remedy for late payment of that amount, within the

meaning of that Act.

(b) There is some possibility that an English court or arbitral tribunal would hold

that a judgment on any Opinion Document, whether given in an English court

or elsewhere, would supersede that Opinion Document so that any obligations

relating to the payment of interest after judgment or any currency indemnities

would not be held to survive the judgment.

(c) An agreement requiring a party to pay the whole or part of the costs of

arbitration in any event is valid only if made after the dispute in question has

arisen. An English court or arbitral tribunal may in its discretion decline to

give effect to any provision for the payment of legal costs incurred by a

litigant.

5. PRIVITY OF CONTRACT

Where the operation of the provisions of the Contracts (Rights of Third Parties) Act

1999 is expressly excluded in any document, any person who is not a party to such

agreement may be unable to enforce provisions of that agreement which are expressed

to be for the benefit of that person but such exclusion does not affect any right or

remedy of such party that exists or is available apart from pursuant to that Act.

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6. CROSS-ISA CLIENT EXCESS DEDUCTION

Pursuant to the arrangements for a Cross-ISA Client Excess Deduction the Opinion

Documents permit a Clearing House to apply Client Excess held in an Individual

Segregated Account of a Clearing Member on behalf of an Individual Segregated

Account Clearing Client to meet margin calls on other Individual Segregated

Accounts held by such Clearing Member on behalf of the same Individual Segregated

Account Clearing Client.

Article 39(3) of EMIR provides that

"a CCP shall offer to keep separate records and accounts enabling each

clearing member to distinguish in accounts with the CCP the assets and

positions held for the account of a client".

Article 39(9)(c) of EMIR further provides that

"the requirement to distinguish assets and positions with the CCP in accounts

is satisfied where [...] (c) the assets covering the positions recorded in an

account are not exposed to losses connected to positions recorded in another

account".

The use of the term "another account" in Article 39(9)(c) of EMIR could be

interpreted as precluding a CCP from applying Client Excess held on one Individual

Segregated Account to meet margin calls on another Individual Segregated Account

(even where both "accounts" are held by the same Clearing Member on behalf of the

same client). However, the obligation in Article 39(3) requires the CCP to distinguish

"assets and positions held for the account of a client from those held for the account

of other clients". In light of Article 39(3), the reference to "another account" in Article

39(9)(c) should, in our view, be interpreted as referring to an account of another client.

A Cross-ISA Excess Deduction can only be made between two Individual Segregated

Accounts held for the account of an individual client and does not expose the relevant

client to losses connected to positions of other clients of the Clearing Member.

Accordingly, in our view a Cross-ISA Excess Deduction is consistent with the

obligation under Article 39(3) and the better interpretation is that Article 39(9)(c) of

EMIR should not preclude Cross- ISA Excess Deductions.

Nevertheless, it cannot be excluded that a court could take a different view and could

determine that Cross-ISA Excess Deductions are not compliant with a literal

interpretation of the obligations imposed under EMIR.

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7. ARBITRATION

(a) There remains a doubt as to whether, under English law, an agreement to

arbitrate disputes may be validly combined with a clause giving one or more

parties the right to elect for court proceedings. The current practice of the

English courts is to uphold such provisions and in our view they will continue

to do so. Moreover, and without prejudice to the foregoing, an English court

may not allow election for arbitration proceedings where the party making the

election participated in court proceedings or has otherwise conducted itself so

as to lead another party to understand that the matters in dispute would be

determined in court proceedings.

(b) A party will lose the right to apply for a stay of English court proceedings in

respect of a matter which under the Opinion Documents is to be referred to

arbitration if he has taken any step in those proceedings to answer the

substantive claim.

(c) An arbitral tribunal may decline jurisdiction, and an English court may decline

to stay English court proceedings if the subject matter is deemed incapable of

being resolved by arbitration or is otherwise non-arbitrable for reasons of

public policy (or otherwise) or where the court or arbitral tribunal is satisfied

that the arbitration agreement has become inoperable or incapable of being

performed.

(d) An English court may be unable to restrain proceedings commenced in

another court, notwithstanding the provisions of the Opinion Documents

requiring that the subject matter of those proceedings is to be referred to

arbitration.

(e) Under certain circumstances, an English court may determine whether there is

a valid arbitration agreement or whether an arbitral tribunal has jurisdiction to

determine any question, notwithstanding any provision to the contrary in the

Opinion Documents. Further, an English court may be required to recognise

and give effect to a decision of a court of another Member State of the

European Union or of Iceland, Norway or Switzerland that an arbitration

agreement is not valid or not effective, given as a preliminary issue in

proceedings before that court, notwithstanding the fact that the subject matter

of those proceedings has been referred to arbitration with a seat in England in

accordance with the arbitration provisions in the Opinion Documents.

(f) Under English law, the parties may waive the right to appeal against an

arbitral award on a question of law. An arbitral award may, however, be

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challenged on the grounds set out in sections 67 (substantive jurisdiction) and

68 (serious irregularity) of the Arbitration Act 1996 or on the ground of public

policy.

(g) Unless the parties have agreed otherwise, an arbitral tribunal has no power to

order consolidation of separate arbitration proceedings, whether under the

same arbitration agreement or different arbitration agreements.

(h) An English court will not grant leave to enforce an award if it is shown that

the arbitral tribunal lacked substantive jurisdiction to make the award or if the

subject matter of the award is not capable of settlement by arbitration or if the

award is contrary to English public policy. We express no opinion as to

whether an arbitral award may be enforced otherwise than by leave of the

court under the Arbitration Act 1996.

(i) There is some doubt as to whether the Rome I Regulation and the Rome II

Regulation would apply to arbitration proceedings.

8. OTHER QUALIFICATIONS

(a) The parties to an Opinion Document may be able to amend that Opinion

Document by oral agreement or by conduct despite any provision to the

contrary.

(b) Any provision of any Opinion Document which constitutes, or purports to

constitute, a restriction on the exercise of any statutory power by any party to

an Opinion Document or any other person may be ineffective.

(c) To the extent that any matter is expressly to be determined by future

agreement or negotiation, the relevant provision may be unenforceable or void

for uncertainty.

(d) Any provision of the Opinion Documents stating that a failure or delay, on the

part of the Clearing House, in exercising any right or remedy under the

Opinion Documents shall not operate as a waiver of such right or remedy may

not be effective.

(e) The effectiveness of any provision of an Opinion Document which allows an

invalid provision to be severed in order to save the remainder of that Opinion

Document will be determined by the English courts or arbitral tribunal in their

discretion.

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(f) The opinions expressed in this opinion letter are subject to the effects of any

United Nations, European Union or United Kingdom sanctions or other

similar measures implemented or effective in the United Kingdom with

respect to any party to the Opinion Documents which is, or is controlled by or

otherwise connected with, a person resident in, incorporated in or constituted

under the laws of, or carrying on business in a country to which any such

sanctions or other similar measures apply, or is otherwise the target of any

such sanctions or other similar measures.

(g) In some circumstances an English court may, and in certain circumstances it

must, terminate or suspend proceedings commenced before it, or decline to

restrain proceedings commenced in another court, notwithstanding the

provisions of the Opinion Documents providing that the courts of England

have jurisdiction in relation to the subject matter of those proceedings.

(h) In decision no 11-26.022 (26 September 2012), the French Cour de cassation

decided that a jurisdiction clause in a form similar to that in the Opinion

Documents was ineffective because it did not comply with the requirements of

article 23 of Council Regulation (EC) No 44/2001 on jurisdiction and the

recognition and enforcement of judgments in civil and commercial matters and,

as a result, that the clause did not confer jurisdiction on the court identified in

it. The decision of the Cour de cassation is not binding on other courts in the

European Union, and we believe that there are strong arguments why its

decision should not be followed. However, whilst we consider that currently

the English courts would not on their own adopt the same approach, the matter

might be referred to the Court of Justice of the European Union either by

another court in the European Union or indeed by an English court, for

example where the relevant court considered that the French decision resulted

in the position being uncertain. It is possible that the Court of Justice of the

European Union (whose decisions are binding on all courts within the

European Union, including the English courts), would reach the same

conclusion as the Cour de cassation. If so, the Opinion Documents may be

ineffective to confer jurisdiction on the courts of England, in which case the

jurisdiction of the English and other courts would be determined by reference

to the general law applicable in those courts. Similar concerns arise where

jurisdiction is determined on the basis of the Agreement between the European

Community and the Kingdom of Denmark on Jurisdiction and the Recognition

and Enforcement of Judgments in Civil and Commercial Matters and the 2007

Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil

and Commercial Matters.

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(i) We express no opinion as to whether the execution or delivery of the Clearing

Membership Agreement by the Clearing Members or the performance by

Clearing Members of their obligations under the Opinion Documents

contravenes any requirement imposed on Clearing Members by FSMA (as

amended) or any applicable rules made under that Act (as amended).