DODD-FRANK: Key Implications for Corporate Treasurers

Transcription

1 DODD-FRANK: Key Implications for Corporate Treasurers March 21, 2013 Speaker: With that, let's go ahead and begin our event. Once again, today's PNC's Advisory Series Event and it is my pleasure to turn today's call over to our moderator for today, Alice Dwyer, Marketing Segment Manager of Capital Markets Group. With that, Alice, I'll turn the floor over to you. Thanks, Aaron. Good afternoon, everyone, and thank you for joining us for today's capital markets webinar on Dodd-Frank: Key Implications for Corporate Treasurers Applicable to Foreign Exchange Hedging Transactions. I'm Alice Dwyer, Marketing Segment Manager for PNC's Capital Markets Group and I'll be your moderator for today. It's my pleasure to introduce Rob Giannone, Managing Director with PNC's Capital Markets Group, Tom Bott, Managing Counsel for PNC's Capital Markets Group, and Dan Harty, Head of PNC's Capital Markets Compliance. Today's webinar will cover Title 7 of the Dodd-Frank Wall Street Reform and Consumer Protection Act which imposes a new regulatory regime on the US swaps market. As a swaps dealer, PNC must comply with these requirements and there are a number of regulations that will directly affect you, the swap end user. This webinar will provide you with an overview of the new regulatory environment and what will have an impact on swap end users. We will facilitate a Q&A session at the end of the presentation. You can submit questions at any time throughout the presentation using the questions widget found on the lower portion of your screen. Thanks again for joining us and let me turn it over to Rob. Rob Giannone: Great. Thank you, Alice. And again I'll extend a welcome to everyone for joining us here this afternoon. I'll also extend an apology for scheduling this during the NCAA Tournament. We tried hard to get the scores in the interface here but we had some technical challenges and couldn't pull that off. Hopefully for those of you who are more technically savvy you've found a way to have both the games up and our presentation and we've given you some good cover to look as though you're being very productive as you might be watching and enjoying some of the games. With that, thank you again for joining us. We'll go ahead and get started. So, we're going to talk about a number of things as it relates to Dodd-Frank and specifically Title 7 of Dodd-Frank. First, I'll give you a little bit of background on Dodd-Frank which is officially known as the Dodd-Frank Wall Street Reform and Consumer Protection Act which was signed into law in July And obviously it was one of the government's major responses to both the financial crisis of the late 2000s as well as the ensuing recession that occurred. 1

2 Unquestionably Dodd-Frank and the Consumer Protection Act is the most comprehensive financial regulatory reform our government has taken since the Great Depression. It affects many areas of the financial markets. There are many different sections of Dodd-Frank. There is a whole new agency, the Consumer Financial Protection Bureau. That was enacted in response to the government's response to the financial crisis and the ensuring recession. So, we'll talk about the impact of Dodd-Frank to you, some of the requirements timelines. There are some things we'll explain to you like what an eligible contract participant is and how it may affect you, what a legal entity identifier is and what we'll be asking you to do in order to obtain one of those. We'll talk about some disclosure impacts relative to Dodd-Frank, some post-trade mark to market information that you'll be provided as well as a number of the documentation, record keeping, and swap reporting requirements that are a result of the Dodd-Frank legislation. And then finally we'll talk about clearing requirements that exist today and those that may exist in the future and the impact on all of you as swap users in the marketplace. So, as I mentioned, the overall Dodd-Frank and Consumer Protection Act is an overarching act and we're going to speak today relative to Title 7 of Dodd-Frank. Title 7 of Dodd-Frank really provides a framework for the regulation and supervision of the derivatives market in the United States. And its primary purpose was to address some of the systemic risk issues that occurred during the financial crisis. A lot of those frankly were in the credit default swaps market but the government took a holistic view of swaps and looked at all types of swaps which include certain foreign exchange transactions as well as interest rate transactions which are more commonly done by corporations like yourself. Obviously they were also keen to bring a greater degree of transparency to the overall derivatives market and in conjunction with that providing enhanced disclosures and protection to consumers and customers. So, a lot of what you might have already received from us is a fairly extensive risk disclosure document that talks about the sorts of risks inherent in some of the swaps transactions you may execute with a swap dealer like PNC in connection with hedging or mitigating your commercial risk in your underlying business. Another key area of the Dodd-Frank was to promote market integrity by among other things forcing swap dealers like PNC is and major swap participants to register and go through a series of comprehensive regulation in order to ensure market integrity. There are some aspects of the swaps that will also be imposed - - mandatory clearing and trade execution requirements for some of the standardized derivative products. We'll get into that later on in the presentation and how that currently does not affect FX but may in the future. And finally, one of the things that became clear in the financial crisis was the lack of a singular view of the market. Since many of these products today occur over the counter bilaterally -- so one counterparty like a bank executing a transaction with another counterparty like a corporation, there wasn't one place to go for the government to see what the tangle looked like. This was really an issue in the credit default -- credit swaps market. The government has also mandated significant record keeping and real-time reporting as a response to what occurred during the financial crisis. 2

3 What you should take away from this is the highest burden of all this frankly will fall on the banks or the swap dealers and the major swap participants but there are some areas of the regulation that will affect all of you and we will need your cooperation on some items in order to comply with the new rules mandated under Dodd-Frank. So, I want to talk next about the customer impact. But before I do that I think it's important for all of you to get a sense for PNC's overall approach when dealing with clients. One of the key cornerstones of our brand promise that we work very hard day in and day out across all of the products we deliver is trying to make it easy for our customers to work with us. Obviously the Dodd-Frank legislation has made that into a great challenge for all of us to be able to still honor that but I'll tell you a lot of the decisions we've made and a lot of the things we've come up with, we really did center ourselves around trying to make this as easy as possible for all of you. So, slide four, we walk through the things that we will need your assistance on. The first of which is the provisions of the Dodd-Frank legislation do require a number of disclosures, a number of information to be provided and a number of agreements to be formed between ourselves as a swap dealer and yourselves as a user of swap products with banks. Or swap dealers. So, because of all that, we have had to -- and we are in the process of sending out amendments to underlying agreements that you likely have in place already today with PNC and may have in place with other swap dealers you also work with. They can be an underlying agreement which is the industry standard agreement that covers the swap industry. It could be a proprietary agreement PNC uses called a foreign exchange agreement. So, you might see in your today an from us asking you to execute an amendment to one of those underlying agreements you may have with us and the purpose of that is to incorporate the provisions of Dodd- Frank into our trading documentation. If you do not have an underlying agreement with us today we will send you a separate agreement that covers the Dodd-Frank provisions and we're calling that a Dodd-Frank letter agreement. You will see one of those three documents hopefully by tomorrow from us and we urge you to please review those and ask any questions of us if you may have them and then ultimately try and return them to us so we can continue to work with you without interruption. We're asking for those to be returned to us I believe by April 29. The deadlines that we're working to in the industry is really a May 1 deadline when these agreements need to be in place under the Dodd-Frank rules. The other item we have sent to you already in a couple of communications is a certificate that speaks to an eligible contract participant. We'll talk about that a bit more later on in the presentation as far as what that is. But that is one of the documents we'll need you to complete and return to us as well. We'll talk more about that a little bit later. Another document that we'll be looking for and needing you to obtain first is what's called a legal entity identifier or a CICC number. This is a number and a system that's been created so the government is able to better track swaps to the actual end user that is executing the swaps. That's meant to aid in the reporting requirements of swap transactions across the entire swaps industry. Again, we'll talk about that in a little bit. 3

4 We also sent you two risk disclosure statements that again explain and talk about all the risks inherent in executing swaps whether they be interest rate swaps, foreign exchange swaps, commodity swaps or credit default swaps. There also is a need for you to also keep your own records. We'll talk about that a little bit later in the presentation and finally we'll talk about clearing requirements that exist today and may exist in the future and we'll talk about the end user exception that is available to certain participants in the industry -- in the marketplace. Okay. So, here we have a timeline where we've tried to separate out the things that need to be done now and pretty soon and in the future. So, obviously in the now bucket, we're putting things like executing the Dodd-Frank letter agreement we sent to you or will be sending to you later today or an amendment to one of your underlying existing trading documents. Also completing and returning the ECP certificate which we would have ed to you separately in a separate communication in the past asking you to obtain the legal entity identifier. We also sent out an enrollment form for you to get access to your post-trade daily marks on your outstanding sending swaps. We'll talk about these later as well. And obviously review and retain the rest of the disclosures. Those are the things you should be doing now in order to get ready for Dodd-Frank which really starts in earnest on May 1. Currently there are no clearing requirements that have been determined with regard to foreign currency transactions. There are clearing requirements that will kick in later this year for interest rate swaps, for financial entities that begins on June 10 and for everyone else which most corporate entities fall into the everyone else category, that will begin September 9, Again, we'll talk about that a little bit later, clearing requirements and the end user exception. You should also begin I think April 9 is the time at which you need to begin retaining records regarding any swap transactions you execute and we'll talk about what that means in a future slide. In the future we do anticipate that clearing requirements are likely to be determined for certain foreign currency products. We think that will occur until the earliest fourth quarter of this year and then there is an implementation period before that actually takes effect. We're probably talking more into 2014 and we'll certainly keep you apprised of those developments as they occur. Okay. So, we talked earlier about the eligible contract participant certification that we had previously sent to you. We want to spend a few minutes describing to all of you what an ECP is and why it's relevant. In order to execute certain types of swaps, you in fact need to be an eligible contract participant. And in order to execute certain other types of swaps there are additional provisions around you executing certain types of swaps. So, that's a mouthful. Let me see if I can separate these two. For foreign exchange transactions, if you're an ECP and that is typically -- there are many different types of ECPs but for illustrative purposes we're talking about a corporate entity. There are other types of categories that we'll look at and other types of ways to become an ECP that we'll look at on the next slide but to keep it simple, a corporation that has either $10 million in total assets or $1 million in total net worth and is entering into a swap to mitigate commercial risk is determined to be an ECP. 4

5 And so we mention here that we've already sent certificates out to allow you to help us with that assertion so we can appropriately record your status as an eligible contract participant or not. For FX, really whether you're an ECP or not, we're still able to execute any number of foreign currency products -- foreign exchange products with you. However, there are certain products like nondeliverable forwards or options that if you are not an ECP or non-ecp we need to follow some other rules which we call the retail FX rules which we won't get into today. But suffice it to say that even if you're a non-ecp you still have available to you the full complement of foreign exchange hedging products. If you're an ECP, that's pretty simple. It's no change to how we do things today and you have the full availability of all FX products without any special retail FX rules. This is one of the certificates that we're using and would've sent to many of you already is for a corporate entity and the ways in which you can certify and attest to yourself being an eligible contract participant. You can see here we have the $10 million in assets, we have the $1 million in net worth. You can also become an ECP if a guarantor involved in guaranteeing your swap transaction is an ECP. We can extend that ECP status down to you as well if by yourself you're not an ECP. We can then rely on the guarantor in order to get your ECP status certified. So, that's the ECP. That's the simple version. Obviously your capital markets specialist is available to talk you through that or answer any questions regarding the ECP if you're having any difficulty with the forms. We're certainly happy to help you sort through that. But basically speaking if you're a corporate entity with $10 million assets or $1 million in net worth and executing swaps to hedge commercial risk, most people will fall into that category and there's other ways if you don't fall under that category. We still may be able to classify you and the swap as an ECP. So, legal entity identifier. As I mentioned earlier, this is one of the provisions that the government has come up with to enable it to do a better job of tracking all the swaps that are occurring in the US swaps market. There is a process that we're asking all of you to go through in order to complete and request an application for an LEI number to be provided to you. We include here -- and we've included in previous mailings to you via a link to a website where you can register. This is a third-party process. So, this is not something PNC or any bank or any swap dealer is involved with but this third-party has been charged with providing a mechanism to provide these LEI numbers to everyone involved in the US swaps market. We're asking you to complete this no later than April 10 and then to provide that information back to us so that we can associate that number when we report any swaps you execute with the bank which is something we're required to do. We'll talk a little bit about that in a few minutes. What you need for your registration is your Company's legal name, your Company's legal form. If you're using an agent, the agent's name and contact information. There is a fee for this unfortunately. And that is a fee that is not charged or paid to PNC or any bank for that matter but it is a fee charged by the third-party who is assisting with creating this mechanism for reporting purposes. One of the important parts of Dodd-Frank has to do with transparency in reporting and access to information. We talked earlier about the disclosures we delivered to you that talk about the types of risks inherent in certain swaps transactions. Another area of Dodd-Frank talks about market transparency and 5

6 transparency relative to post-trade transparency. So, we have created a mechanism via a secure website to provide this information to all of our customers. It's a website that will allow you to go in every day and pull a daily mark to market report of your outstanding swaps with PNC bank. We've previously sent to all of you an enrollment form. This is a sample of the enrollment form we would've sent to you. This is how you register for the secure website. I should point out that the daily mid-market mark is a mid-price and it specifically does not include any amounts for profit credit reserves, hedging, funding, liquidity, or any other costs or adjustments. We do create these by using a proprietary model that we believe to be reliable with some assumptions as well and this is pretty typical of how most people in the financial marketplace handle and will be very similar to what you would see from other financial providers as well, as far as how they create their daily mid-market marks and what they're meant to represent to you. Legal documentation. As we mentioned earlier, there's a number of provisions that require agreements between ourselves and you and a number of disclosures and other types of representations that we need to put in an agreement unfortunately which is something that no one likes to do but we, as I mentioned earlier, have worked quite hard to try to make this as easy as possible for all of you in our brand promise of trying to make this easy. We have gone and created a document that PNC -- that conforms to an industry document that the industry is using under the ISDA protocol which I list here as option two. But under option one we've created an amendment to your existing ISDA or foreign exchange agreement that incorporates the provisions of Dodd-Frank into that current agreement. If you don't have a current agreement with PNC we will have sent you or will be sending you a standalone Dodd-Frank letter agreement again whose purpose is to incorporate the provisions of Dodd-Frank into our relationship trading documentation. There are about five areas that this agreement is meant to cover. I'm just going to run through those quickly for all you for a sense of what's in this document. There are a number of disclosures about the risks associated with your swap transactions. There is consent to the manner of delivery of such disclosures that we make to you. There are certain notification that PNC is required to provide regarding your rights to request certain information concerning your swap transactions. For example, there's a right to request a scenario analysis prior to the execution of a swap. The scenario analysis is something that you can look at ahead of time to look at the risks and rewards and the pros and cons if you will and the potential outcomes of a swap over a set of theoretical assumptions in the future. There are also representations from you relating to your eligibility to enter into a swap transaction. And finally there's information relating to the swap transaction itself such as pre and post trade daily marks we just spoke about earlier, risk valuations and other compression exercises and reconciliation exercises. Which really aren't' relevant to the broad majority of corporate end users. Typically those sorts of more complicated exercises are done by mutual funds, hedge funds and other large swap participants. That's what's contained in either option one or two. Those have the same basic structure and cover the same basic 6

7 items I just went through with you. Obviously the PNC option is free. There's no fee for this. We hope it's also easy. That's what we worked quite hard to do. Option two is an industry approach to you if you have an underlying ISDA master agreement in place with PNC bank or a number of banks or a number of swap dealers. This is a mechanism that makes it easy for you to update an agreement with a multitude of counterparties or a multitude of banks by executing or adhering to the ISDA protocol. That would be the benefit of using the ISDA protocol. We list here the website you can go to. It's a two step process. One is going to the ISDA site and first adhering to the ISDA protocol and there is a $500 fee payable to ISDA for the adherence. I'd mention you have to adhere separately for every legal entity you wish on your side to have as a counterparty under a swap. Many larger companies obviously will execute swaps in the name of several different entities with their counterparties or the banks. If that's your case, you would need to pay $500 to ISDA for every one of those entities that you would like to trade with under your Company umbrella. After you do the ISDA adherence there is a website that's developed by market that allows you to complete a questionnaire. The way ISDA has structured the protocol, it's really a two step process, one of executing the adherence and, two, a questionnaire. They structured it this way because it's a one size fits all approach and there's many different kinds of relationships that exist in the marketplace. The questionnaire really enables them to use this as broadly as possible. So, that's the ISDA protocol process. The August protocol was released in August I'm assuming. I can't remember exactly. They are working on and they'll be releasing -- either have released today or will be releasing tomorrow an updated protocol because at the time they developed the August protocol there were a number of items in the law that were kind of in flight and not fully developed. They're already having to put out in the marketplace a second Dodd-Frank protocol. Our agreements and our amendments are fully up to date with all the latest developments regarding Dodd-Frank. That's another benefit of going with the PNC approach. Recording keeping requirements, this page here is meant to walk you through the recording keeping requirements for all of you are participants in the swaps market. I'll start off by saying my -- a fair assumption is probably all of you are already keeping sufficient records to meet what may seem like a new burden to all of you. I would assume most of you keep trade confirmations your banks or PNC sends to you. I'm sure you keep any documents you may execute with a bank in relation to any swaps activity. This really shouldn't be a new burden. But one thing I'll point out that is new is that there is now a record retention period and that period is the life of the swap plus an additional five years. So, you should plan to keep all your trade confirms for the life of the trade and an additional five years is really the big change here to most good standard business practices of already keep confirmations and agreements you may have with your financial partners. Reporting requirements, as I mentioned in the beginning there are a number of reporting requirements that the government has asked us as swap dealers and you as swap participants to do in relation to your swap activity are agreements that we have structure and the ISDA agreement that does push that burden of reporting on to the swap dealer. So, that in essence there is nothing for you to 7

8 worry about relative to reporting swaps. That is something PNC or if you're with another bank, another swap dealer, they will perform that activity for you. Just know that we are and we have been reporting swap to a centralized repository and we've also -- will shortly report historical swaps or swaps that were executed after the enactment of Dodd-Frank and during a transition period. We'll be reporting those to a central repository. That's where we'll use your LEI number and we'll use your LEI number going forward. When we don't have a LEI number we'll make up a unique number in the interim until we can get the LEI number from all of you and then use that on a go forward basis. So, clearing and the end user exemption. As I mentioned earlier, foreign exchange clearing rules are not final. They have not been determined. At this stage, clearing is a non-issue relative to foreign exchange transactions. There is - - many of you have already heard about a provision of Dodd-Frank that talks about an end user exception. And end user exemption frankly is most beneficial to avoid the mandatory clearing requirements of certain swaps. For example, interest rate swaps for which a clearing determination has been made so that if you want to avoid mandatory clearing requirements of interest rate swaps you'll want to go ahead and work toward the end user exception. So, this slide walks you through how to qualify for the end user exception. You must not be a financial entity. Or if you are, you have to qualify for the small bank exclusion and have assets of less than $10 million. You must be purchasing this swap to hedge or mitigate commercial risk and then you must provide information to PNC that we then have to forward on as well relative to your election of the end user exception unless you have previously sent that directly yourself in a filing made annually a year ahead of entering into the swap which most people probably will find difficult to do so we expect most people to provide sufficient information to PNC as the swap dealer with regard to your election of the end user exception. The information we'll be looking for and will likely develop a form for you to complete and send that information to us will be that you are using the hedge to mitigate commercial risk, how your Company expects to meet its financial obligations associated with entering into the uncleared swap. That could either be a credit support agreement, a pledge agreement, a third-party guarantee, or general financial resources of the firm is also and probably will be the most commonly utilized way in which most companies will assert their ability to meet the obligations under the uncleared swap. If you happen to be a public Company, there's a few other things you have to worry about. One is providing your relevant SEC essential index key number on the form and most importantly if you're a public Company this is a Board action for you to elect the end user exception. So that if you plan to go this path make sure that's something you're getting on your Board's schedule in enough time for your Board to review your decision to take the end user exception because that is something the Board must sign off on. It's an annual process and so if you file your report -- your election ahead of time every year it must be renewed as well. So, that is the end user exception. Again, end user mandatory clearing not relevant for foreign exchange. We don't expect those rules to be determined until the fourth quarter of this year and likely not in effect until some time in They will be coming in effect this year for interest 8

9 rate swaps so if you plan to use PNC bank or another bank to do an interest rate swap, I think that begins in September of this year. You'll want to consider using the end user exception election and we'll be providing the form to those of you who would like to do that to make that again easy for you to do, to provide the necessary information to PNC. With that I'm going to turn the call back over to Alice Dwyer to go ahead and run our Q&A session. Thanks, Rob. We'll now move into the question and answer portion of today's event. We have several questions coming in and so time permitting we'll try to respond to all of them. As a reminder you can use the Q&A widget that's in the lower portion of your screen to ask a question. Let's take a look at our first one. I've heard -- somebody's asking here -- I've heard a lot of questions that some foreign exchange products are exempt from some provisions of the Dodd-Frank requirements. Can you explain that in a little more detail? Is that a good one for you, Rob? I can take that one, Alice. This is Tom. The Treasury did make a determination back in November of this past year which exempted FX deliverable forwards and FX swaps from the definition of swaps. So, most of the rules don't apply to deliverable forwards or swaps but they did carve out of that exception trade reporting requirements as well as the business conduct rule. So, this Dodd-Frank amendment agreement that PNC has created and-or the ISDA protocol, that's still going to be required even if you just trade in deliverable forwards because most of that relates to the business conduct rules that would still apply to those types of trades. The other thing you should know is that FX spots are exempt from Title 7 altogether. It really is a graduated scale and the options would be subject to all the rules, deliverable forwards would be subject to the business conduct rules and trade reporting. FX spots would be exempt from everything. Great. Thanks, Tom. Another question here. Could you please discuss protocol 2.0 which as I understand is under effect July1. Could this be implemented by going through the market website and registering once for all counterparties? Rob Giannone: That's a great question. I'll let Tom, maybe if you want to speak to the content of the next protocol that we're expecting out? I can certainly speak to the adherence and market side of it. ISDA issued the August protocol that Rob described earlier in the call back in August and that covered the business conduct rules and some of the trade reporting rules and they have since supplemented that with two addendums to the questionnaire. As Rob mentioned earlier in the call, there's what colloquially known as ISDA protocol 2.0 but it's going to be called -- the official name is going to be the ISDA March 2013 protocol and that is going to be its second protocol. It will be the same process as far as adhering to that and it's got the same setup as far as the supplement, the protocol agreement, the adherence agreement, and the questionnaire. But that one specifically deals with the confirmation portfolio reconciliation and swap trading documentation rules that had not been yet finalized at the time of the August protocol. So, if you do -- if you're relying on the ISDA protocol to amend your documentation you'll have to adhere to both the August protocol as well as this March protocol which Rob mentioned based on our market intelligence we were anticipating that it would be open for adherence 9

10 either today or tomorrow. Those that are looking to use the ISDA protocol, that should be out there shortly. As Rob mentioned, the PNC amendment, what we like about it and why we think it's a more user friendly approach is our amendment covers everything. It's one document covers everything that's in both the August protocol and the March protocol. Rob Giannone: Dan Harty: Dan Harty: Thanks, Tom. Just again to go through the protocol adherence process, it is a two step process. The first part of that process is going to the ISDA website. We have a link here in the presentation deck where you would first go and sign the adherence letter. The next step in that process would be to complete the questionnaire that goes along with the ISDA protocol. There's two ways to do it. One is you can do it manually and send you and your other swap counterparties or swap dealer counterparties the questionnaire manually. Most people are using Mark It which is a Company that has developed a questionnaire relative to Dodd- Frank where you can go onto the Mark It website and use that system and that website to complete the required questionnaire for both protocols, the August protocol and likely there will be a questionnaire related to more than likely the March protocol as well. Rob, let me supplement that by saying the communication that folks on the call have received or will receive in the next day or two has a link to that ISDA protocol. So, they'll be able to click on that link and it's quite robust describing the process and how the whole process works. Thanks very much. Moving on to the next question, does the client need to seek an end user exception or is this not needed because all we do is spot transactions and plain vanilla forwards? This is Dan. For spot transactions there are no requirements that relate to FX spot transactions. So, the end user exception doesn't apply. The eligible contract participant certificate does not apply. But however for forwards, the end user exception would apply for plain vanilla forwards and however the CFTC hasn't made their determination yet. There still is no -- it's unlikely. It doesn't apply right now. And we won't know for sure until the regulators actually make the regulation. Dan, I guess I would segregate deliverable forwards from non-deliverable forwards. And the deliverable forwards, they do enjoy that Treasury exemption from the mandatory clearing. It will be depending on the options for which the end user exception will be relevant. Thanks. Another question came in here asking do we need to execute a Dodd- Frank letter agreement in the ECP certificate if we currently do not have any swap agreements? So, if the client doesn't have any swaps agreements? If the client doesn't have any swap agreements, again no documentation would be required. We expect that the negotiation process will take a little bit of time to iron out any questions you have. So, if you were planning on executing an agreement we think you should allot two weeks to review it and have sufficient time to understand it before you execute it. You're right, Dan. That's why we -- even though May 1 is the compliance date for these rules or most of these rules, we wanted to get our amendment out to you 10

11 all as quickly as possible so you'd have time to take a look at it and we're looking to get that back as far in advance of May 1 as we can just so it won't be disruptive. I think if you go on to the ISDA website for the protocol, if you were going to pursue that path, they likewise suggest you -- they're asking for an April 1 adherence date. They think that makes the most sense. Because even though you adhere on April 1, you sign our amendment, even if you signed it tomorrow, the way our amendment works is that in the ISDA protocol these requirements won't kick in until May 1. Rob Giannone: Dan Harty: I would just add that they were good solid answers but I would just add that think of it this way. If you plan going forward to execute any transactions with us, other than for foreign currency spot transactions, either forwards, non-deliverable forwards, options, or interest rate transactions with PNC, we would ask you to either execute the amendment if you have an underlying agreement with us or if you don't to please execute the stand alone Dodd-Frank letter agreement because that agreement is necessary after May 1 to execute anything other than spot foreign exchange transactions. Thanks, Rob. Another question also to do with timing. Would we need Board approval by August as originally expected or is this delayed until next year if we want to be exempt from clearing? I think the rules on the Board approval, that's only going to apply if they elect the end user exemption. As we've mentioned, the clearing of any kind of FX swaps, the CFTC has made no determination as of today and even once -- they've only made the clearing determination as it relates to some credit default swaps and interest rate swaps. So, they haven't done anything by way of FX and the way the rules works is that even when they do issue those -- that clearing determination and publish that in the federal register, at this point in time, that mandatory clearing requirement will not kick in for 270 days for most of our customers. So, as Rob mentioned earlier, we don't anticipate mandatory clearing for foreign exchange trades until fourth quarter of this year at the earliest but more than likely it's going to spill into next year. Thanks, Tom. Are there any additional reporting or record keeping requirements for clients that they need to be aware of? The short answer is no Rob already explained that the requirement applies that you keep sufficient documentation and we went through that slide. The timing and the retention period is the key as Rob had mentioned earlier. Outside of those on the end user's themselves, there are no other reporting or record keeping requirements. There are several other types of requirements that apply to the banks so we're complying with them as a registered swap dealer but as opposed to the end users, there are no other requirements in those areas. Thanks, Dan. So, another question from a client. Are we legally required to amend PNC requirements? I can handle that question. This PNC Dodd-Frank amendment, the ISDA protocol, this is not a PNC requirement. This is a requirement under Title 7. As Rob I think started out the call with, Title 7 does impose a whole host of obligations on registered swap dealers. PNC is a registered swap dealer. We are required to provide a number of notifications and disclosures to you all. There's also certain 11

12 determinations we need to make to your suitability and we're getting that through the recommendations we're asking for within the documentation. So, it's not a PNC requirement. It's an industry-wide requirement driven by Title 7. I think if you look at our -- if you would compare our letter agreement against the ISDA protocols, as Rob mentioned, the ISDA protocol is a one size fits all and we've found it -- we thought if we created our own form of amendment agreement we could make it more customer friendly. That's our hope and expectation. But it -- again, substantively, it will match up with the ISDA protocols if you were to pursue that path. Thanks, Tom. Thanks again for that great insight and perspective. I'd like to thank all our presenters, Rob, Tom, and Dan, for a great presentation today and taking the time to answer these questions. I'd especially like to thank everybody on the phone for attending. I'd like to direct your attention to the contacts that are up for today's presenters. If you have any questions regarding this presentation don't hesitate to reach out to our team. We'd be more than happy to help you through these processes and answer any follow-ups you might have. A PDF of today's presentation is available for you to download now from the file folder widget that's on the lower portion of your screen. So, we would encourage you to download that as well. I have actually one more question that just came in and I think we have time to answer it. When does the record keeping period start and does it cover current trades done in the past? Dan Harty: For the record keeping requirement as it applies to end users starts -- it starts April 10? April 10. Right. Again, there are certain record keeping requirements that already apply to PNC as a registered swap dealer. We've been complying with those. But for purposes of end users which you all are, the relevant recording keeping requirements start April 10. So, any transaction executed before that would not -- the recording keeping requirements would not apply. Dan Harty: Hopefully, I think Rob mentioned this, the record keeping requirements -- presumably you historically have kept copies of your trade confirmations and ISDA documentation. I don't think that really changes much under these new rules. The one thing that's different is the requirement to keep these records for the life of the swap plus five years after it matures. So, that would be the one difference I would think on how you historically have kept records. Thanks, Tom. Alright. As I said, there's a PDF of today's presentation available for you to download. So, it's on the file folder widget on the lower portion of your screen. We'll also give you a link for a short survey. Your feedback is really important to us. We greatly appreciate your thoughts on today's session and presenters. So, we kindly ask that you take the time to complete that. And this concludes our presentation for today and thank you again for joining us. 12

13 The materials or video that you are going to view were prepared for general information purposes only and are not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in those materials or video be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any opinions expressed in those materials or videos are subject to change without notice. Investment banking and capital markets activities are conducted by PNC through its subsidiaries PNC Bank, National Association, PNC Capital Markets LLC, Red Capital Markets, Inc., and Harris Williams LLC. Services such as public finance advisory services, securities underwriting, and securities sales and trading are provided by PNC Capital Markets LLC and Red Capital Markets, Inc. Merger and acquisition advisory and related services are provided by Harris Williams LLC. PNC Capital Markets LLC, Red Capital Markets, Inc., and Harris Williams LLC are registered broker-dealers and members of FINRA and SIPC. Harris Williams & Co. is the trade name under which Harris Williams LLC conducts its business The PNC Financial Services Group, Inc. All rights reserved. 13