NAVIGATING REGULATIONACI Moscow

17th March 2011

Robin Poynder, Head of FX & Money Markets, EMEA

CONFIDENTIAL

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G20 RECOMMENDED REGULATORY CHANGES

In September 2009 the G20 recommended reforms to address the concerns raised during the Credit Crisis, with an end 2012 deadline for implementation

• G20 aim was to reduce counterparty risk, operational risk and systemic risk within the financial markets, and in particular in OTC derivatives trading

The G20 reforms look to have the following impact

A change to the OTC Derivatives trading workflow:

• Derivatives trades need to be cleared through a central counterparty (CCP): non cleared trades will incur additional capital charges and must be mark-to-market daily

• These cleared trades need to be executed on an exchange or regulated trading platform (SEF in US, MTF or OTF in Europe) with focus on multi-quote, transparency, efficiency

• Customers must understand regulatory status of trading counterparty i.e. their clearing / reporting obligation

CONFIDENTIAL

G20 RECOMMENDED REGULATORY CHANGES

Continued…

An increase in transparency

• Report executed trades to a Trade Repository

• Provide aggregated view of derivatives trading

Greater supervision of banks

• Basle III increase in capital and liquidity requirements

• Additional rules for organizations deemed “systemically important”

Other areas under scrutiny

• Limiting proprietary trading, commodity trading, high-frequency trading, short selling, dark pools

• More focus on Hedge Funds, Private Equity Funds, and credit rating agencies

KEY CURRENT REGIONAL REGULATIONS

Passed Dodd Frank Act in July 2010:

• Regulators SEC and CFTC given ~360 days to turn this legislation into rules

• Additional to G20: requiring banks to spin off some derivatives trading (Lincoln amendment), barring proprietary trading and curbing involvement in private equity and hedge funds (Volcker Rule) and restricting ownership of trading platforms and clearing houses (Lynch amendment)

Passed Dodd Frank Act in July 2010:

• Regulators SEC and CFTC given ~360 days to turn this legislation into rules

• Additional to G20: requiring banks to spin off some derivatives trading (Lincoln amendment), barring proprietary trading and curbing involvement in private equity and hedge funds (Volcker Rule) and restricting ownership of trading platforms and clearing houses (Lynch amendment)

USAUSA

Still drafting its legislation:

• European Market Infrastructure Regulation (EMIR) published15 Sept 2010, the Capital Requirements Directive (CRD IV) and MiFID II published 8 Dec 2010. Newly created regulator ESMA (European Securities Market Authority) responsible for implementation

• Additional to G20 to date: increased transparency requirements for all assets, best execution, HFT, taxing banks (UK specific)

Still drafting its legislation:

• European Market Infrastructure Regulation (EMIR) published15 Sept 2010, the Capital Requirements Directive (CRD IV) and MiFID II published 8 Dec 2010. Newly created regulator ESMA (European Securities Market Authority) responsible for implementation

• Additional to G20 to date: increased transparency requirements for all assets, best execution, HFT, taxing banks (UK specific)

EUROPE / UKEUROPE / UK

No consensus view across region:

• Japan and some others are looking to comply with G20 around the clearing requirement• Other countries may look to take advantage of an alternative regulatory environment and so are in “watching” mode

No consensus view across region:

• Japan and some others are looking to comply with G20 around the clearing requirement• Other countries may look to take advantage of an alternative regulatory environment and so are in “watching” mode

ASIAASIA

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Although there is widespread agreement on the need for consistent application of financial regulations, regulations differ by geography and instruments, with different areas of focus and requirements to comply, including varying enforcement timescales.

IOSCO (International Organisation of Securities Commissions):

Consistent international standards across OTC derivatives regulation in trading, data reporting, clearing and oversight (Jan. 2012)

• OTC Derivatives Task Force set up to develop consistent global standards through a number of deliverables• Exchange and Electronic Platform Trading (Jan 2011)• Data reporting and Aggregation requirements (July 2011)

IOSCO (International Organisation of Securities Commissions):

Consistent international standards across OTC derivatives regulation in trading, data reporting, clearing and oversight (Jan. 2012)

• OTC Derivatives Task Force set up to develop consistent global standards through a number of deliverables• Exchange and Electronic Platform Trading (Jan 2011)• Data reporting and Aggregation requirements (July 2011)

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KEY ISSUESKEY ISSUES

• To satisfy regulator/shareholder demands for price valuation transparency and identify their counterparties to comply with Crime and Fraud Prevention

• Enable connectivity to provide reporting of all trades to a Trade Repository

• Enable customers to gain a real time view of their total risk position, at a given point in time, to a client, client group, sector and geography

FINANCIAL REGULATORY REFORM:POTENTIAL IMPACT TO YOUR BUSINESS MODEL

AREAAREA POTENTIAL CHANGES/IMPLICATIONSPOTENTIAL CHANGES/IMPLICATIONS

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• Independent Pricing and Reference Data from fragmented trading venues

• Know Your Counterpart to optimize pricing and trading decision

• Providing aggregated view of derivatives trading• Efficient connectivity and reporting to meet

clearing and reporting regulatory obligations• Risk and Compliance can no longer be managed

in silos • Credit exposure measurement and management

• Derivatives trades to be cleared through a central counterparty (CCP)

• Cleared trades to be executed on an exchange or regulated trading platform

• Proposed changes to investment stakes in trading platforms

• Identification of where, how and with whom you trade at point of pricing

• Enable confirmation and connectivity to clearing • Impact on market liquidity from increased

transparency/ fragmentation and increased capital costs

• Obligation to price to wider market at time of customer pricing

• Regulatory impact on Single Bank Portal• Impact of trades executed by sales desks

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THANK YOU

Robin Poynder, Head of FX & Money Markets, EMEArobin.poynder@thomsonreuters.com