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Transforming Market Structures as a Recognised Market Operator (RMO) for OTC Derivatives

THE STORY SO FAR…

Current Industry Scenario The Industry Challenge Cleartrade Exchange – Benefits for stakeholders

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Regulatory Reform Opportunity for change OTC instruments are subject to global regulatory reform. By late 2012 institutional & retail traders and brokers under the Wall Street & Consumer Protection Act (Dodd Frank) will be required to execute trades via regulated swap execution facilities (SEF’s). Globally, regulators are tightening rules and emulating the Dodd Frank Act.

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Regulation

Time 2011 2012 2013

Mfid Review

SEF Rules definition CFTC

Wall Street & Consumer Protection Act (Dodd Frank)

Wall Street Reform and Consumer Protection (Dodd–Frank) Act lays the foundation defining a SEF as a “facility, trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open

to multiple participants in the facility or system”.

Cleartrade Exchange comfortably satisfies this definition

Dodd Frank Act July 2011

Demand Curve of Regulation

$600 Trillion Derivatives Market

What size market can we expect to see ?

Summary of SEF Principles These are the core principles to which a SEF must adhere are:

(1) Complying with the CEA and the CFTC rules, (2) Enforcing trade processes for market participants that will deter abuses, ensure impartial access to markets and capture information on rule violations, (3) Preventing swaps from being readily susceptible to manipulation, (4) Monitoring trading to prevent manipulation, price distortion and disruptions of the delivery or cash settlement processes, (5) Establishing rules to obtain information to provide to the CFTC, (6) Establishing position limitations and accountability to prevent market manipulation or congestion, (7) Establishing mechanisms for ensuring financial integrity of swaps, (8) Establishing an emergency procedure to liquidate or transfer open positions in a swap or suspend trading on the swap, (9) Publishing trading information such as public information on price, trading volume and other data, (10) Maintaining records of activities, including a “complete audit trail” for a five year period (11) Not unreasonably restraining trade, (12) Establishing rules for minimizing and resolving conflicts of interest, (13) Providing adequate financial resources, (14) Establishing system safeguards and (15) Assigning a chief compliance officer who reviews compliance with core principles & CFTC rules.

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Compliant

Everyone will want to be a SEF ! But what is it ?

The industry challenge … bridging the “gap”

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*Freight / Ferrous Metals Complex of Derivatives

Introducing The Cleartrade Exchange

Cleartrade Exchange provides seamless transaction flow of OTC derivatives from electronic execution, through to GCM via Credit Filter to clearing house(s), and back.

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The Cleartrade Exchange (CLTX) - Introduction

• Centralised, transparent & anonymous electronic market • Regulated by Monetary Authority of Singapore (MAS) as an RMO • Leading technology and operational infrastructure with an open API • Venue for OTC cleared derivatives

– Launched with Dry FFAs, Iron Ore, Steel and Fertilizer swaps – Will launch Container derivatives in Q4’11 – Established two Spot Indices for the development and settlement of swaps

markets. ( Cleartrade China Steel Index, World Container Index assessed by Drewry) • Supports many-to-many participants trading styles • Easy to deploy web based screen interface • No screen costs, software, set up costs or membership fees, transaction fee based • Multiple clearing house connections ( LCH, NOS, SGX, CME)

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Cleartrade Exchange Timeline

Market Study Regulated Market

2009 2010 (FEB) Cleartrade Exchange Incorporation in Singapore

Technology

Design & Build

2011

Credit Filter & Clearing House

1st IDB RMO License

Over 160,000 LOTS

Processed

3 Product Families

Member Onboarding

The Cleartrade EDGE Platform the infrastructure of a regulated marketplace

Strictly Private and Confidential 8 Execution to Clearing : Price Discovery : Trade Reporting : Risk Management

EDGE Execution Platform

Orders, Routing, RFQ’s, & Trade Management, Credit Matrix,

Recap Engine Rules & algorithms

EDGE API

TRADE HUB Post Trade Reporting and Management

FIX5.0

HUB API

LCH

NOS

SGX

Trade Hub Web interface

(Trade & Recap reports)

Cleartrade Clearing

Operations

3rd Party Trading Screens

STP Gateway GCM Credit Matrix

Principals

GCM’s

Cleartrade Screens Broker – Trade - GCM

Link to Broker Trade / recap Management

Systems

CME

Cleartrade Mobile Price & Trade Discovery

Cleartrade Credit Matrix for GCM’s Set financial margins by account

import positions, Net P&L risk view

Quote Vendor Feeds

EDGE Execution : Pre & Post Trade

Processing : Marketplace management, trading rules and

algorithms

Fully integrated exchange solution

The Cleartrade EDGE platform consists of 5 key elements: 1. Electronic execution screen 2. Block trading / deal registration 3. Link via credit filter to clearing

houses for pre-approval of trades

4. Consolidated recap manager and risk management system

5. Market supervision and operations team (17hrs p/day)

Cleartrade Exchange provides the “plumbing between execution and

clearing”

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Recap manager / web

and sw appl. Version + RM

module

API access for third party

trading system (Trayport,

Elysian etc)

Clearing House

Trades Window Transparency Window

User Definable Contract Layouts Quick Trade / Order Entry

How we translate the rules… Screen Familiarization

Trading Scenarios Global access for all members and to all relevant commodities …

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Principal Principal

Principal Broker

INITIATOR AGGRESSOR

Principal

Principal

Broker Principal Principal

Principal

Broker Broker Principal

Principal

Principal

Principal

Broker (Block Trade) Principal

Principal

Principal

Principal

Broker Principal

Participating brokers do not share prices and do not co-broker “Use Cleartrade as internal white board”

Easy to access open market prices -Trade direct for regular trades

Cleartrade fee structure does not undercut brokerage commissions and does not add significantly to the cost of transactions

Trade via a broker for more complex tailored orders - Retain relationship

Brokers can route orders securely to traders “Legging” functions gives better view of available spreads and ratios

All open screen prices are shown anonymously to all participants Bespoke contract functions for time strips / calendar strips

Block trading of pre-matched trades (dark trades) are available to OTC brokers

MTF risk management function allows full visibility of positions and P+L

Cut your back office costs and let Cleartrade take care of confirmations, clearing registration and recording

Automated recap system and downloadable reports integrates with your accounting systems

Multi product platform enables cross selling of prices to relationship clients

Private and Confidential trades allowed in block trading system (very dark trades)

Positions you in a positive light with clients by participating in a level playing field

Better closing prices and forward curves

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Benefits of partnering with Cleartrade Exchange

The story continues… • Cleartrade Exchange is at the heart of the OTC market

transformation. • Multiple products listed and trading (Dry FFA, Iron Ore, Steel,

Fertilizers) and connected to multiple clearing houses. • Monitoring closely the regulatory frameworks and will adjust the

business model, rulebook with MAS, as further OTC regulation gets defined

• Remain focused on working with the market, this is a critical pivot point and open dialogue with all partners is essential – we work within an complex eco-system of dependencies

• We have the experience of working with the market over the last two years on the sensitive issues – this is a journey not a destination

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Cleartrade Exchange meets to needs of a Swap Execution Facility and will register accordingly to address the US market.

THANK YOU

Contact : Richard Baker, Chief Executive Officer Email : rbaker@thecleartrade.com PS. Please stop raining ! Come on Andy Murray in the US Open…

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