OIS Derivative Discounting: practical examples and future challenges. New York, November 5, 2012 London, November 7, incisive-training.

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1 incisive-training.com/ois OIS Derivative Discounting: practical examples and future challenges New York, November 5, 2012 London, November 7, 2012 Course highlights Learn why OIS rates became the dominant discount rate Hypothetical examples of how OIS discounting effects funding and pricing at trade level Panel discussion on how the industry is continuing to adapt and respond to changes Presentation on how risks associated with central clearing can be managed Chance to benchmark practices with other industry specialists Discuss the medium-to-long term knock-on effects for new business in the derivatives space

2 practical examples and future challenges About the course Who should attend? Many complexities have stemmed from the industrywide shift from discounting cash-collateralised derivatives using Libor to the relevant overnight indexed swap (OIS) rate. The move was necessitated by the dramatic widening of spreads between Libor and OIS rates at the height of the crisis, and negotiations and disputes between counterparties have continued since. In particular, the existence of multi-currency and multi-asset credit support annex (CSA) agreements has led to disagreements between counterparties over the value of derivatives trades essentially, the price of a derivatives can vary, based on the eligible collateral within the CSA that is agreed between each pair of counterparties. The move to establish a standard CSA is under way, meant to eliminate much of the complexity and optionality within the current document. However, this poses challenges of its own not least, the potential rise in Herstatt risk. The seminar will cover the theoretical basis that underpins the switch from Libor to OIS discounting. In addition, experienced professionals will provide hypothetical examples for pricing various trades using OIS rates under both the current CSA and the new standard CSA. Panels will also discuss some of the unresolved settlement issues around the standard CSA document, and the important role that central clearing facilities will play in determining the outcome to many of the outstanding issues for buyside and clearing member institutions. The nature of the seminar encourages open and frank discussion of the subjects at hand. The course is designed to give participants an opportunity to benchmark their operations against industry leaders, and to understand the needs of their business partners. This seminar has been designed primarily for sell-side firms running derivative sales desks, including investment banks who are designated clearing members, as well as central counterparty clearing houses, trade repositories and regulators. The content of the seminar will also be of significant interest to buy-side firms such as insurance companies, asset managers, hedge funds, pension funds, mutual funds and private equity funds in order to address their concerns in relation to central clearing and trade reporting. This event is a must for all market participants who are involved in OTC derivative trading. Specific Functions: Interest Rate Derivatives Trading Global Rates Trading Derivatives Trading Derivatives Operations Derivatives Documentation Derivatives Legal/Counsel Derivatvies Valuation/Pricing Models Directors, Fixed Income Collateral Management Directors, Quantitative Analysis Client Clearing New Business Executives Directors, Risk Management Counterparty Credit Risk Management Market Risk Management Interest Rate Risk Risk Management Book now call / +44 (0) web incisive-training.com/ois

3 practical examples and future challenges Course Tutors: Please check the website for the most up to date record of confirmed speakers London Elie El Hayek, Managing Director, Global Head of Rates, HSBC Simon Wilson, Managing Director, Head of Euro Swaps Trading, Royal Bank of Scotland Charlie Bristow, Managing Director, Rates Trading, JP Morgan (Invited) Frank Mulder, Senior Trader, GFM Interest Rate Derivatives, Rabobank International Naveed Shaffi, Head of Risk and Exposure Management and Treasury Middle Office, UBS Investment Bank Philip Popple, Asset Servicing Product Management, BNY Mellon Philip Whitehurst, Director, SwapClear Product Management, LCH Clearnet (Invited) New York Donald J. Smith, Associate Professor of Finance, Boson University Management School William Filonuk, Managing Director, BNY Mellon Claire O Dea, Director, SwapClear Product Management, LCH Clearnet (Invited) Patrick Denis, OTC Derivatives, Collateral Management, VP BNP Paribas Americas Dimitry Slobodenyuk, Senior Operations Manager Bank of America Merrill Lynch Risk Management Venues New York Downtown Conference Center 157 William St New York City Book now call / +44 (0) web incisive-training.com/ois London The Grange Holborn Hotel, Southampton Row Holborn London

4 practical examples and future challenges Can t find what you re looking for? Incisive Training values our delegate feedback and is always looking for new ideas and suggestions for interesting topics you would like to see produced as a training course. If you would like to submit a subject area or have a topic you would like to see covered at one of our training events please contact Adriana Lobo via adriana.lobo@incisivemedia.com Coming up in 2012 Counterparty Risk Modelling London 6 7 September 2012 New York September 2012 incisive-training.com/counterparty Modelling, Validating & Implementing the AIRB Approach London 5 6 July 2012 New York July 2012 incisive-training.com/airb The School of Energy Risk Management London September 2012 Houston September 2012 Inflation Based Assets Training London 4 5 September 2012 New York September 2012 Assessing the impact of Basel III on French Financial Institutions Paris September 2012 Assessing the impact of Basel III on German Financial Institutions Frankfurt September 2012 Risk Management Book now call / +44 (0) web incisive-training.com/ois

5 practical examples and future challenges New York Monday 5th November 2012 Day Coffee and registration 0900 The theoretical framework supporting OIS discounting As the basis between Libor and OIS rates ballooned during the credit crisis, banks were forced to reassess methods for pricing cash-collateralised derivatives trades. As the interbank lending markets became increasingly strained, it became clear that an alternative risk-free rate was needed to price derivatives portfolios. In this opening session, the speaker who has researched extensively on the subject will discuss how OIS rates emerged as the theoretical alternative to Libor, and discuss how and why this shift has affected counterparty exposure and funding for market participants. Speaker: Donald J. Smith, Associate Professor of Finance, Boson University Management School 1000 Cash collateral flows and pricing: valuation using OIS in practice #1 Working under the assumption that discounting future cash flows using an OIS curve is the most accurate and the theoretically correct measure, derivatives desks are facing up to the challenge of re-pricing their positions. Before this can be done, there is the question of which OIS curve should be used. In this session, the speaker will provide simple examples of how to execute pricing at the trade level using OIS discounting. This will involve discussions on what collateral to post and what credit charges are applicable based on the counterparty, the relevant CSA and the terms of the trade. Speaker: Donald J. Smith, Associate Professor of Finance, Boson University Management School 1100 Morning break 1130 Cash collateral flows for interest rate swaps: OIS valuation in practice #2 The existence of CSAs that allow counterparties to post collateral from a variety of eligible assets has caused huge complexity in the market. It is widely acknowledged that most rationale counterparties will post the cheapest-todeliver collateral, but this creates problems from a modelling, pricing and hedging perspective. In this follow-up session, an expert will provide further and more detailed examples of how to provide prices on deals at the desk level, also covering technical hedging issues Lasting practical challenges: standardised CSAs and buy-side perspectives The disputes over derivative pricing have affected liquidity, which has hit derivative end-users. The backloading of trades to clearing houses has also stalled as this could lead to a change in discount rates and an impact on the NPV of the trade. Many participants believe the CSA needs to be standardised to eliminate the optionality and cause of disputes. However, the standard CSA poses problems of its own, not least the potential for Herstatt risk. There is also disagreement over which OIS rate to use for cross-currency swaps and minor currencies. This session will cover the broad options available to market participants in regard to collateral agreements and how these affect funding and valuation of derivatives. Moderator: Donald J. Smith, Associate Professor of Finance, Boson University Management School Panellists: William Filonuk, Managing Director, BNY Mellon Patrick Denis, OTC Derivatives Collateral Management, VP BNP Paribas Americas Dimitry Slobodenyuk, Senior Operations Manager Bank of America Merill Lynch 1545 Afternoon break 1615 The responsibility of central clearing counterparties LCH.Clearnet began discounting certain derivatives using OIS rates in 2010 highlighting that this methodology had emerged as market standard. This session will detail the SwapClear methodology, the reasons for the change, and future developments. Speaker: Claire O Dea, Director, SwapClear Product Management, LCH Clearnet (Invited) 1645 Concluding comments and questions Our chairman will deliver a short talk providing his thoughts on the subjects discussed by the group. The group will be encouraged to raise questions about how these changes will affect their institution. Speaker: Donald J. Smith, Associate Professor of Finance, Boson University Management School 1700 Close of seminar 1300 Lunch Speaker to be confirmed Book now call / +44 (0) web incisive-training.com/ois

6 practical examples and future challenges London Wednesday 7th November 2012 Day Coffee and registration 0900 Interview: the theoretical framework supporting OIS discounting As the basis between Libor and OIS rates ballooned during the credit crisis, banks were forced to reassess methods for pricing cash-collateralised derivatives trades. As the interbank lending markets became increasingly strained, it became clear that an alternative risk-free rate was needed to price derivatives portfolios. In this opening session, the chairman will speak with an expert who witnessed OIS emerging as the theoretical alternative to Libor, and discuss how and why this shift has affected counterparty exposure and funding for market participants. Interviewer: Nick Sawyer, Editor-in-Chief, Risk Magazine Interviewee: Elie El Hayek, Managing Director, Global Head of Rates, HSBC 0930 Cash collateral flows and pricing: valuation using OIS in practice #1 Working under the assumption that discounting future cashflows using an OIS curve is the most accurate and the theoretically correct measure, derivatives desks are facing up to the challenge of re-pricing their positions. Before this can be done, there is the question of which OIS curve should be used. In this session, an experienced trader will provide simple examples of how to provide prices on deals at the desk level, explaining which funding curves to use for discounting, what collateral to post and what credit charges are applicable based on the counterparty, the relevant CSA and the terms of the trade. This will be presented in excel format with time for the group to discuss and question the scenarios. Speaker: Frank Mulder, Senior Trader, GFM Interest Rate Derivatives, Rabobank International 1100 Morning break 1130 Cash collateral flows for interest rate swaps: OIS valuation in practice #2 The existence of CSAs that allow counterparties to post collateral from a variety of eligible assets has caused huge complexity in the market. It is widely acknowledged that most rationale counterparties will post the cheapest-to-deliver collateral, but this creates problems from a modelling, pricing and hedging perspective. In this follow-up session, an expert will provide further examples of how to provide prices on deals at the desk level, also covering technical hedging issues Lunch 1415 Lasting practical challenges: standardised CSAs and buy-side perspectives The disputes over derivative pricing have affected liquidity, which has hit derivative end-users. The backloading of trades to clearing houses has also stalled as this could lead to a change in discount rates and an impact on the NPV of the trade. Many participants believe the CSA needs to be standardised to eliminate the optionality and cause of disputes. However, the standard CSA poses problems of its own, not least the potential for Herstatt risk. There is also disagreement over which OIS rate to use for cross-currency swaps and minor currencies. This session will cover the broad options available to market participants in regard to collateral agreements and how these affect funding and valuation of derivatives. Moderator: Nick Sawyer, Editor-in-Chief, Risk Magazine Panellists: Elie El Hayek, Managing Director, Global Head of Rates, HSBC Simon Wilson, Managing Director, Head of Euro Swaps Trading, Royal Bank of Scotland Charlie Bristow, Managing Director, Rates Trading, JP Morgan (Invited) Phillip Popple, Asset Servicing Product Management, Bank of New York Mellon 1545 Afternoon break 1615 The responsibility of central clearing counterparties LCH.Clearnet began discounting certain derivatives using OIS rates in 2010 highlighting that this methodology had emerged as market standard. This session will detail the SwapClear methodology, the reasons for the change, and future developments. Speaker: Philip Whitehurst, Director, SwapClear Product Management, LCH Clearnet (Invited) 1615 Chairman s concluding comments and questions Our chairman will deliver a short talk providing his thoughts on the subjects discussed by the group. The group will be encouraged to raise questions about how these changes will affect their institution. Speaker: Nick Sawyer, Editor-in-Chief, Risk Magazine 1700 Close of seminar and drinks reception Speaker: Naveed Shaffi, Head of Risk and Exposure Management and Treasury Middle Office, UBS Investment Bank Book now call / +44 (0) web incisive-training.com/ois

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