Good morning Mr Azariah and Mr Prasad

Transcription

1 Good morning Mr Azariah and Mr Prasad Attached are quick reference guides prepared by ISDA from an Asian participant s viewpoint. While we hope that recipients will find these useful, please note that they do not constitute legal advice and recipients should consult with their own legal advisers and any other adviser they deem appropriate. Please feel free to circulate these to your members. The guides are as follows: 1) Overview of US and EU OTC derivatives regulatory reforms. 2) Applicability of DFA requirements to non-us persons. 3) Applicability of EMIR requirements for OTC derivatives. 4) Relevance of ISDA protocols/documents to Asian counterparties. 5) Asian clearing and reporting snapshot. 6) Summary of reporting requirements in Australia, Hong Kong and Singapore. 7) Summary of recent webinars and FAQs related to protocols and other documentation requirements to meet new regulatory requirements. Best regards Jackie Jacqueline ML Low Senior Counsel Asia International Swaps and Derivatives Association, Inc. (ISDA) 50 Collyer Quay #09-01 OUE Bayfront Singapore (tel) (DID) jlow@isda.org

2 Webinars: Note: Webinars / member call recordings are archive on ISDA website for a period of six months. Dodd-Frank Note: The webinar replays are on: or CFTC s Final Cross-border Guidance Webcast - October 9, 2013 ISDA hosted a public webcast to provide an update on the CFTC s Final Cross-border Guidance. Cross-Border Representations on ISDA Amend September 13, 2013 In July, the CFTC published an Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations providing guidance as to when the CFTC will assert jurisdiction over swap transactions that have a non-u.s. element. ISDA published a Cross-Border Swaps Representation Letter in August. The letter allows market participants to provide counterparties with status representations needed to determine whether compliance is required. This webinar discusses the contents of the Representation Letter as well as how the Representation Letter will appear on ISDA Amend, featuring Cadwalader, Wickersham & Taft LLP, ISDA and Markit. ISDA Amend Protocol II June 23, 2013 This webinar replay explains the process of completing the ISDA Amend Protocol II Questionnaire in Markit Counterparty Manager, in accordance with ISDA March 2013 Dodd-Frank Protocol II (DF Protocol 2.0) requirements. The video demonstration has been prepared by Markit and ISDA along with Cadwalader, Wickersham & Taft LLP. e=normal ISDA Reporting Protocol June 21, 2013 ISDA hosted a public webcast to provide an update on the ISDA Reporting Protocol.

3 Expiration of Compo Swaps no-action relief: Impact on market participants June 17, 2013 On June 30, the CFTC's time-limited no-action relief for compo swaps expires. Once this relief expires, there will be additional obligations under Dodd-Frank for parties who trade these products. Certain persons may have registration requirements; there will also be reporting, recordkeeping and business conduct requirements. The impact on Swap Dealers, Major Swap Participants and clients will vary. This webinar discusses the impact of the relief expiration on market participants, featuring Ilene K. Froom, Partner, Jones Day. (presentation only) ISDA Amend: ISDA March 2013 DF Protocol II Questionnaire June 5, 2013 This webinar replay explains the process of completing the ISDA Amend Protocol II Questionnaire in Markit Counterparty Manager, in accordance with ISDA March 2013 Dodd-Frank Protocol II (DF Protocol 2.0) requirements. The video demonstration has been prepared by Markit and ISDA along with Cadwalader, Wickersham & Taft LLP. e=normal ISDA March 2013 DF Protocol May 13, (presentation only) Are you ready for May 1? Complying with the CFTC s External Business Conduct Rules March 21, 2013 By May 1, all counterparties must have provided their registered Swap Dealers with legal classifications and representations to allow the Swap Dealers to comply with the CFTC s External Business Conduct Rule (EBCR). After the EBCR deadline, Swap Dealers will only continue offering and executing swaps with in-scope counterparties who have provided the necessary information for compliance. ISDA has developed a standard documentation solution to ease some of the operational burdens of the process, and has partnered with Markit to provide an online tool for compliance. Broadly speaking, there are three steps to compliance which will be discussed during the webinar. (presentation only) EMIR Note: The webinar replays are on: Market Education Webcast on EMIR Counterparty classification Tool October 18, Market Education Webcast on the ISDA 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol and Reporting Guidance Note September 16

4 Market Education Webcast on the ISDA 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol and Reporting Guidance Note September 10, Other Webinars Rates Multilateral Amendment Agreement - September 12, 2013 ISDA hosted a public webcast to provide an update on the 2013 Multilateral Amendment Agreement for Certain Rate Swap and Other Transactions. FX Multilateral Amendment Agreement July 26, 2013 ISDA hosted a public webcast to provide an update on the 2013 Multilateral Amendment Agreement for Asian Currency Non-Deliverable FX and Currency Option Transactions with Supplements. Protocols FAQs: Note: These open protocols are on:. ISDA 2013 Discontinued Rates Maturities Protocol Open from October 11, 2013 The ISDA 2013 Discontinued Rates Maturities Protocol enables parties to amend the terms of Protocol Covered Transactions to address future rate discontinuations where longer and shorter maturities remain for a discontinued rate. ISDA 2013 EMIR Port Rec, Dispute Res and Disclosure Protocol Open from July 19, 2013 The ISDA 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol enables parties to amend the terms of their Protocol Covered Agreements to reflect the portfolio reconciliation and dispute resolution requirements imposed by EMIR as well as to include a disclosure waiver to help ensure parties can meet the various reporting and record keeping requirements under EMIR without breaching confidentiality restrictions.

5 ISDA Derivatives/FX PB Business Conduct Allocation Protocol Open from May 6, 2013 The purpose of the protocol is to enable swap dealers that are parties to Covered Give-up Arrangements to incorporate into those agreements an apportionment of responsibilities, pursuant to a CFTC Interim Final Rule issued on April 30th, for compliance with obligations under the CFTC's External Business Conduct Standards. ISDA, the FXC (Foreign Exchange Committee) and the FMLG (Financial Markets Lawyers Group) have developed Annex A to the protocol which provides for the allocation of responsibilities between two registered swap dealers as provided in the no action relief. ISDA March 2013 DF Protocol (NOTE: THIS IS NOT AN UPDATED VERSION of the August DF Protocol. SWAP DEALERS require client adherence to both AUGUST and MARCH Protocols.) Open from March 22, 2013 This protocol (which is NOT an updated version of the August 2012 DF Protocol) facilitates compliance with the CFTC s rulemakings on (i) Swap Trading Relationship Documentation, Confirmation, Portfolio Reconciliation and Portfolio Compression, (ii) End-User Exception to the Clearing Requirement and (iii) Clearing Requirement Determination. Required Compliance Start Date: July 1, ISDA 2013 EMIR NFC Representation Protocol Open from March 8, 2013 The Protocol enables parties to amend the terms of their ISDA Master Agreements to reflect certain know your counterparty requirements. ISDA 2012 FATCA Protocol Open from August 15, 2012 ISDA 2012 FATCA Protocol addresses the effects of the Foreign Account Tax Compliance Act (FATCA) on derivatives transactions. ISDA August 2012 DF Protocol Open from August 13, 2012 This Protocol is part of ISDA s Dodd-Frank Documentation Initiative relating to compliance with the CFTC s External Business Conduct Rules. Required Compliance Start Date: May 1,

6 About ISDA Since 1985, ISDA has worked to make the global over-the-counter (OTC) derivatives markets safer and more efficient. Today, ISDA has over 800 member institutions from 60 countries. These members include a broad range of OTC derivatives market participants including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure including exchanges, clearinghouses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is on the Association's web site: ISDA is a registered trademark of the International Swaps and Derivatives Association, Inc.

7 OVERVIEW OF US AND EU OTC DERIVATIVES REGULATORY REFORMS COVERED TRANSACTIONS Exclusions CENTRAL CLEARING Exceptions US Swaps broadly defined. Swap Section 1a(47) Commodity Exchange Act. Security-based swap Section 3(a)(68) Securities Exchange Act, FX spots not covered. Excludes some physically-settled commodity and security forwards. US Treasury Secretary s exemption of physically-settled FX forwards and swaps from clearing, trade execution and margin requirements, will also not count for purposes of SD/MSP registration determination. Swap defined to exclude any transaction to which a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the US is a party. It shall be unlawful for any person to engage in a swap unless that person submits such swap for clearing to a registered or exempt DCO if the swap is required to be cleared. Non-financial entity end-users. Intra-group transactions. EU Broad range of derivatives, including non-otc. derivative or derivative contract Article 2(5) EMIR: points (4) to (10) of Section C of Annex I to Directive 2004/39/EC. FX spots not covered. Excludes some physically-settled commodity transactions. ESMA may decide to exclude physically-settled FX forwards and swaps - EMIR recital states that due account should be taken of the specific nature of the relevant classes of OTC derivative contracts. The predominant risk for transactions in some classes of OTC derivative contracts may relate to settlement risk, which is addressed through separate infrastructure arrangements, and may distinguish certain classes of OTC derivative contracts (such as foreign exchange) from other classes. CCP clearing specifically addresses counterparty credit risk, and may not be the optimal solution for dealing with settlement risk. The regime for such contracts should rely, in particular, on preliminary international convergence and mutual recognition of the relevant infrastructure. Transactions between (i) two EU financial counterparties, (ii) an EU financial counterparty and an EU non-financial counterparty that exceeds a clearing threshold (but once exceeded, all transactions must be cleared) or (iii) two EU non-financial counterparties that each exceeds a clearing threshold must be cleared. Intra-group transactions. Pension schemes (time-limited). 1 JL Nov 19, 2013

8 CENTRAL CLEARING (cont.) Application to sovereigns US Does not apply to swaps with a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the US. In the final rule for the end-user clearing exception, CFTC has taken the position that foreign governments, foreign central banks and international financial institutions are not subject to the clearing obligation. EU Does not apply to EU central banks and public debt management bodies, BIS, European Financial Stability Facility and European Stability Mechanism, multilateral development banks, public sector entities owned and explicitly guaranteed by EU central governments. Others, including third country central banks may be exempted by the EC. US and Japanese central banks and public debt management bodies have been exempted by the EC. Apart from US and Japan, the EC also reviewed Switzerland, Australia, Canada and Hong Kong (these being the 6 most important jurisdictions in terms of volumes of contracts traded). The EC reported that the Swiss regime will exempt foreign central banks and public debt management bodies, the Australian and Hong Kong regimes are likely to exempt foreign central banks and public debt management bodies and Canada s regime is expected to exempt foreign central banks and public debt management bodies. The EC concluded that it will monitor developments in these countries with a view towards exempting them. Back-loading No back-loading required if reported. No-back loading required. But front-loading (i.e. of trades entered into after CCP has been authorized by its national regulator to clear that class of transactions but before a mandatory clearing requirement is imposed) required of transactions exceeding a specified remaining maturity. Start date IRS and CDS For SDs, MSPs and active funds Mar 11, For commodity pools, private funds and persons predominantly engaged in banking or financial activities Jun 10, For all other entities Sep 9, Summer 2014? 2 JL Nov 19, 2013

9 US EU CENTRAL CLEARING (cont.) ET application CFTC has jurisdiction over activities outside the US which either have a direct and significant connection with activities in, or effect on, commerce of the US, or where it is necessary or appropriate to prevent evasion. SEC has jurisdiction over activities outside the US where it is necessary or appropriate to prevent evasion. US regulators can prohibit a non-us person from participating in the US swap markets if such person s home country s swap regulatory scheme undermines the stability of the US financial system. Applies to transactions by EU covered parties with non-eu entity if such non-eu entity would have been subject to the clearing mandate had it been established in the EU. Also applies to transactions between two non-eu entities if they would have been subject to the clearing mandate had they been established in the EU and if the contract has a direct, substantial and foreseeable effect within the [EU] or where such an obligation is necessary or appropriate to prevent the evasion of any provisions of [EMIR]. TRADE EXECUTION Applies if it must be cleared unless no DCM or SEF makes the swap to trade. Under the proposed MiFIDII/MiFIR, ESMA to determine which transaction classes that are subject to the clearing mandate should also be subject to the trade execution requirement. Application to sovereigns Same as for clearing. Same as for clearing. ET application Same as for clearing. Same as for clearing. TRADE REPORTING All swaps (cleared and uncleared) with an SD, MSP or US person must be reported to an SDR or if none, to the relevant regulator. All counterparties and CCPs must report all derivative contracts (cleared and uncleared) to a registered or recognized trade repository or if none, to ESMA. Application to sovereigns Does not apply to swaps with a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the US. As foreign governments, foreign central banks and international financial institutions are not subject to the registration requirements, they will not be subject to the reporting requirements. However, covered counterparties dealing with them will still have to report the transaction. Does not apply to EU central banks and public debt management bodies and BIS. Others, including third country central banks may be exempted by the EC. US and Japanese central banks and public debt management bodies have been exempted by the EC. Apart from US and Japan, the EC also reviewed Switzerland, Australia, Canada and Hong Kong (these being the 6 most important jurisdictions in terms of volumes of contracts traded). 3 JL Nov 19, 2013

10 US EU TRADE REPORTING (cont.) Application to sovereigns (cont.) Back-loading Must back-load all swaps entered into or outstanding on or after Jul 21, 2010 (enactment date of DFA). The EC reported that the Swiss regime will exempt foreign central banks and public debt management bodies, the Australian and Hong Kong regimes are likely to exempt foreign central banks and public debt management bodies and Canada s regime is expected to exempt foreign central banks and public debt management bodies. The EC concluded that it will monitor developments in these countries with a view towards exempting them. * The EC stated that under EMIR, covered counterparties dealing with exempt central banks and public debt management bodies will still have to report the transaction. Must back-load derivative contracts entered into or outstanding on or after Aug 16, 2012 (date of entry into force of EMIR). Start date IRS and CDS For SDs date on which they must register as SD (generally Jan 1, 2013). For MSPs date on which they must register as MSP (if earlier than Apr 10, 2013). For non-sds and non-msps that are financial entities (as defined in Section 2(h)(7)(C) of the CEA) Apr 10, For non-sds and non-msps that are not financial entities Jul 1, FX, Equity and Commodity For SDs and MSPs Feb 28, For non-sds and non-msps that are financial entities - May 29, For non-sds and non-msps that are not financial entities Aug 19, Not yet confirmed. 90 days after registration of relevant TR or latest Jul 1, 2015 for reporting to ESMA (if no TR). Current indicative date by ESMA: Feb 12, 2014 (assuming first TR is registered by Nov 7, 2013 which has happened)). 4 JL Nov 19, 2013

11 US EU MARGIN AND SEGREGATION REQUIREMENTS FOR UNCLEARED SWAPS Application to sovereigns ET application Applies if one party is an SD or MSP. But possible exception where counterparty qualifies for end-user clearing exception. In CFTC s proposal, requirements differ depending on counterparty type. With finalization of BCBS-IOSCO s paper in Sep 2013, CFTC s draft of final rules expected. Does not apply to swaps with a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the US. BCBS-IOSCO s Sep 2013 paper recommends that transactions with sovereigns, central banks, multilateral development banks and BIS be exempted. CFTC s final cross-border swap guidance imposes the requirements where one party is a US SD or MSP (including its foreign branches). Does not apply where a non-us SD or MSP (not acting through its US deals with a non-us person that is not a guaranteed or conduit affiliate. EU financial counterparties and non-financial counterparties that exceed a clearing threshold required to implement bilateral risk mitigation techniques including timely, accurate and appropriately segregated exchange of collateral. With finalization of BCBS-IOSCO s paper in Sep 2013, ESMA s draft technical standards expected. Does not apply to EU central banks and public debt management bodies, BIS, European Financial Stability Facility and European Stability Mechanism, multilateral development banks, public sector entities owned and explicitly guaranteed by EU central governments. BCBS-IOSCO s Sep 2013 paper recommends that transactions with sovereigns, central banks, multilateral development banks and BIS be exempted. The EC has stated that it will pay close attention to the recommendations and its implementation in other jurisdictions. Applies to contracts entered into between third country entities that would be subject to those obligations if they were established in the [EU], provided that those contracts have a direct, substantial and foreseeable effect within the [EU] or where such obligation is necessary or appropriate to prevent the evasion of any provision of [EMIR]. 5 JL Nov 19, 2013

12 REGISTRATION REQUIREMENTS US Required to register with CFTC if you are a SD or MSP (or with SEC if you are a security-based swap dealer or major security-based swap participant). EU EU dealers already required to be authorized as investment firms under MiFID unless exempt. Scope may be extended under MiFIDII/MiFIR. Capital requirements Yes, set by prudential regulator or if none, CFTC/SEC. Yes, authorized investment firms subject to Basel II. Basel III to be implemented pursuant to CRDIV. Business conduct rules Entity-level and transaction-level requirements prescribed by CFTC. SEC rules pending. Clearing, reporting and risk mitigation requirements for uncleared derivatives under EMIR Title II. Application to sovereigns In the final entity definitions, CFTC has taken the position that foreign governments, foreign central banks and international financial institutions are not required to register as SDs or MSPs. Not subject. 6 JL Nov 19, 2013

13 Swap Dealer A swap dealer is a person who: o Holds himself out as a swap dealer, or o Makes a market in swaps, or o Regularly enters into swaps as an ordinary course of business, or o Engages in activities causing him to be known as a swap dealer. A person is not a swap dealer if he: o Enters into swaps but not as part of a regular business, or o Engages in only de minimis swap dealing activity, or o Is a bank offering swaps in connection with originating loans. Indicators of dealing activity Liquidity o Seeking to profit by providing liquidity. Advice o Providing advice in connection with swaps or structuring swaps. Clients o Presence of regular clientele and actively soliciting clients. Brokers o Use of inter-dealer brokers. Market maker o Acting as a market maker on an organized exchange or trading system. Set prices o Helping to set prices offered in the market. 90 swap dealers as at Nov 14, De minimis exception Thresholds are based on gross notional amounts over prior 12 months. US person must count all swaps. A guaranteed or conduit affiliate (GCA) must count all swaps. A non-us person that is not a GCA must count all swaps with: o US persons other than foreign branches of US bank SDs. o Guaranteed affiliates, except where the guaranteed affiliate is: 7 JL Nov 19, 2013

14 Registered as a SD, Not a SD but engages in de minimis swap dealing activity and is affiliated with a SD, or Guaranteed by a non-financial entity. A non-us person that is not a GCA need not count swaps entered into anonymously on a DCM, SEF or FBOT and cleared. Swaps of all group entities (except an entity that is registered as a SD) must be aggregated towards the threshold. Major Swap Participant A major swap participant is a person other than a swap dealer who: o Maintains a substantial position in swaps in any major swap category (excluding positions held for hedging or mitigating commercial risk and positions maintained by any employee benefit plan for the primary purpose of hedging or mitigating risks directly associated with the operation of the plan), or o Has substantial counterparty exposure that could have serious adverse effects on the financial stability of the US banking system or financial markets, or o Is a financial entity that is not subject to capital requirements imposed by any federal banking agency, is highly leveraged relative to the amount of capital it holds and maintains a substantial position in swaps in any major swap category. Substantial position test: o Daily average current uncollateralized exposure of USD1 billion for each of credit, equity or commodity and USD3 billion for rates, or o Daily average current uncollateralized exposure plus potential future exposure of USD2 billion for each of credit, equity or commodity and USD6 billion for rates. Substantial counterparty exposure test: o Daily average current uncollateralized exposure of USD5 billion for all swaps, or o Daily average current uncollateralized exposure plus potential future exposure of USD8 billion for all swaps. Safe harbor based on caps on uncollateralized exposures and notional positions. Another 3 safe harbors based on caps on uncollateralized exposure plus computation on a monthly (instead of daily) basis. 2 major swap participants as at Mar 1, Swap Execution Facility A swap execution facility is a many-to-many trading platform that allows participants to execute swaps with each other (and that is not registered as a DCM). A facility meeting the SEF definition and that has US persons as participants must register as a SEF. Swaps that are subject to a mandatory clearing requirement must be executed on a SEF or DCM once a SEF or DCM makes the swap to trade - Required Transactions. SEFs and DCMs will initially determine whether a swap they list for trading should be made to trade, and either submit such determination to the CFTC for approval, or self-certify (subject to CFTC s review) that the swap is to trade. Other swaps that are listed for trading by a SEF or DCM are Permitted Transactions. Such swaps may but need not be executed on a SEF or DCM. 8 JL Nov 19, 2013

15 APPLICABILITY OF DFA REQUIREMENTS TO NON-US PERSONS Non-US person (that is not a SD/MSP or GCA) dealing with: US SD or MSP (other than through foreign Foreign branch of US SD or MSP Non-US SD or MSP (other than through US Entity-Level Requirements First Category Capital adequacy Yes Yes Yes but SC Chief compliance officer Yes Yes Yes but SC Risk management Yes Yes Yes but SC Swap data recordkeeping (excluding those relating to customer complaints and sales and marketing materials) Yes Yes Yes but SC US branch of non- US SD or MSP Yes but SC Yes but SC Yes but SC Yes but SC US person 1, 2 N.A. N.A. N.A. Yes Non-US person (including a GCA 3 ) N.A. N.A. N.A. N.A. 1 US person definition can be found at pages and of CFTC s Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations. 8 prongs but not exhaustive ("generally to include, but not be limited to"). Includes the foreign branches and agencies of a US person. o Thus, Singapore branch of a US bank is a US person. Legal entity that is (i) organized or incorporated under US law or (ii) has its principal place of business (PPB) in the US. o PPB is the nerve center where the high level officers direct, control and co-ordinate the entity s activities or location of the senior personnel responsible for the formation/ promotion of the fund or implementation of its investment strategy. Commodity pool, pooled account, investment fund or other collective investment vehicle (CIV) not covered by the legal entity prong that is majority-owned by one or more US persons, unless it is publicly offered only to non-us persons and not offered to US persons. o Majority-ownership determined by counting direct beneficial owners and looking-through beneficial ownership of entities controlled by or under common control with CIV. o May rely on representations of unrelated investor entity unless CIV has reason to believe investor was formed or is operated principally for the purpose of avoiding lookthrough. Legal entity (other than an entity where all of the owners have limited liability) that is directly or indirectly majority-owned by US persons and in which such persons bear unlimited responsibility. Remaining prongs cover natural persons, estates of decedents, pension plans, trusts, individual or joint accounts. 2 Only the Non-registrant Requirements - clearing, trade execution, real-time reporting, large trader reporting, SDR reporting and swap data recordkeeping - applies to non-registered US persons. 3 A guaranteed or conduit affiliate (GCA) is a non-us person (i) whose swap obligations are guaranteed by a US person or (ii) who is an affiliate conduit. Factors that the CFTC will consider in determining whether a non-us person is an affiliate conduit include whether the non-us person is majority-owned (directly or indirectly) by, or controls, is controlled by or under common control with, a US person, whether its financial results are consolidated with the financial statements of the US person, and whether the non-us person, in the regular course of its business, enters into swaps with non-us counterparties for the purpose of managing risks faced by or to take positions for its US affiliates and transfers the risks and benefits of such swaps to its US affiliates through offsetting swaps or other arrangements with them. Affiliates of SDs will generally not be considered to be conduit affiliates. 1 JL - Nov 19, 2013

16 Non-US person (that is not a SD/MSP or GCA) dealing with: Entity-Level Requirements Second Category Swap data reporting (including historical swap reporting) Swap data recordkeeping relating to customer complaints and sales and marketing materials US SD or MSP (other than through foreign Foreign branch of US SD or MSP Non-US SD or MSP (other than through US Yes Yes Yes but SC if CFTC has direct access to data stored at the foreign TR Yes Yes Yes but SC US branch of non- US SD or MSP Yes but SC if CFTC has direct access to data stored at the foreign TR Yes but SC US person Large trader reporting Yes Yes Yes Yes Yes Yes Yes Yes Non-US person (including a GCA) N.A. N.A. 2 JL - Nov 19, 2013

17 Non-US person (that is not a SD/MSP or GCA) dealing with: US SD or MSP (other than through foreign Foreign branch of US SD or MSP 4 Transaction-Level Requirements Category A Clearing and swap processing Yes Yes but SC and 5% exemption 6 Margin and segregation for Yes Yes but SC and uncleared swaps 5% exemption Trade execution Yes Yes but SC and 5% exemption Swap trading relationship documentation Portfolio reconciliation and compression Yes Yes Yes but SC and 5% exemption Yes but SC and 5% exemption Real-time public reporting Yes Yes but SC and 5% exemption Trade confirmation Yes Yes but SC and 5% exemption Non-US SD or MSP (other than through US 5 US branch of non-us SD or MSP US person No Yes Yes N.A. No Yes N.A. N.A. No Yes Yes N.A. No Yes N.A. N.A. No Yes N.A. N.A. No Yes Yes N.A. No Yes N.A. N.A. Non-US person (including a GCA) 4 It is not sufficient that the swap is booked into the foreign branch of the US SD or MSP. The foreign branch must be a foreign branch of a US bank; it must maintain accounts independently of the home office and the accounts of other foreign branches, with the profit or loss accrued at each branch determined as a separate item for each foreign branch; and it must be subject to substantive regulation in banking or financing in the jurisdiction where it is located. In addition, employees negotiating and agreeing the terms of the swap (or if the swap is executed electronically, managing the execution of the swap) must be located in that or another foreign branch, that foreign branch (or another foreign branch on its behalf pursuant to a master netting or similar trading agreement) is the office through which payments and deliveries under the swap are made, the swap documentation specifies the office through which the US SD or MSP is acting as that foreign branch, the swap is entered into by that foreign branch in its normal course of business and is treated as its swap for tax purposes, and the swap is reflected in its local accounts. 5 The swap must not be arranged, negotiated or executed by personnel or agents of the non-us SD located in the US. 6 5% exemption is only where the branch is located outside the 6 jurisdictions (Australia, Canada, EU, HK, Japan and Switzerland). 3 JL - Nov 19, 2013

18 Non-US person (that is not a SD/MSP or GCA) dealing with: US SD or MSP (other than through foreign Foreign branch of US SD or MSP Transaction-Level Requirements Category A Daily trading records Yes Yes but SC and 5% exemption Category B External business conduct standards Non-US SD or MSP (other than through US US branch of non-us SD or MSP US person No Yes N.A. N.A. Yes No No Yes N.A. N.A. Non-US person (including a GCA) 4 JL - Nov 19, 2013

19 Where one party to the trade is an: APPLICABILITY OF EMIR REQUIREMENTS FOR OTC DERIVATIVES Reporting Clearing Risk mitigation requirements for uncleared trades Timely Portfolio Portfolio Dispute Daily confirmation reconciliation compression resolution valuation, margin FC 1 Yes Yes, if other Yes Yes Yes Yes Yes Yes party is an FC or NFC+ or TCE 2 that would have been an FC or NFC+ had it been established in the EU NFC+ 3 Yes Yes, if other Yes Yes Yes Yes Yes No party is an FC or NFC+ or TCE that would have been an FC or NFC+ had it been established in the EU NFC- 4 Yes No Yes Yes Yes Yes No No Higher capital requirements for unmargined trades, reporting of unconfirmed trades/unresolved disputes to competent authority 1 The definition of financial counterparty can be found in Article 2(8) of EMIR: EU-authorized investment firms, credit institutions, insurance/reinsurance undertakings, UCITS/UCITS managers, pension schemes and alternative investment funds managed by alternative investment fund managers. It includes foreign branches of the EU-established entity. 2 A third country entity is an entity established outside the EU. 3 A non-financial counterparty is an undertaking established in the EU (including its foreign branches) other than a CCP or an FC (Article 2(9) of EMIR). An NFC+ is an NFC that exceeds one of the clearing thresholds. The thresholds are EUR 1 billion in gross notional amount (on a rolling average basis over 30 working days) where the asset class is credit or equity and EUR 3 billion for interest rate, FX or commodity and others combined. Once a threshold for any asset class is breached, all asset classes become subject to the clearing mandate (if any). 4 An NFC- is an NFC that does not exceed any of the clearing thresholds. 1 JL - Nov 19, 2013

20 ESMA s final draft RTS on the cross-border application of EMIR provides that the above requirements will apply to OTC derivative contracts between two TCEs where 5 : One of them is guaranteed by an FC, the aggregate gross notional amount of the guaranteed contracts is at least EUR 8 billion (or a proportion thereof where the guarantee covers less than 100% of the liability from the contracts), the guarantee is at least equal to 5% of the current OTC derivatives exposures of the guarantor; or Both of them execute the transaction through their EU branches and would qualify as FCs had they been established in the EU, And provided that neither TCE is established in a jurisdiction deemed to be equivalent. 5 Article 4(1)(a)(v) provides that the clearing requirement will apply to an OTC derivative contract between two TCEs that would have been subject to the clearing obligation had they been established in the EU (i.e. they would have been FCs or NFC+s) provided that the contract has a direct, substantial and foreseeable effect within the EU or where necessary or appropriate to prevent evasion. Similarly, Article 11(12) provides that the risk mitigation requirements for uncleared contracts will apply to a contract between two TCEs that would have been subject to such obligations had they been established in the EU (i.e. they would have been FCs or NFCs) provided that the contract has a direct, substantial and foreseeable effect within the EU or where necessary or appropriate to prevent evasion. 2 JL - Nov 19, 2013

21 Asian counterparty that is not an SD/MSP or GCA 1 dealing with: RELEVANCE OF ISDA PROTOCOLS/DOCUMENTS TO ASIAN COUNTERPARTIES US SD (other than through foreign Foreign branch of US SD 2, 3 Non-US SD (other than through US 4, 5 US branch of FC 7 NFC+ 8 NFC- 9 non-us SD 6 Protocol/Document and Brief Description DFA EMIR August 2012 DF Protocol (Aug 13, 2012) Largely addresses Transaction-Level Requirements (especially Category B ones), but also addresses swap data recordkeeping and reporting and large trader reporting requirements. March 2013 DF Protocol (Mar 22, 2013) Addresses swap trading relationship documentation, portfolio reconciliation and trade confirmation requirements. Also addresses status representations required in connection with mandatory clearing requirements and the end-user clearing exception. relevant all requirements apply relevant all requirements apply Relevant other than Category B, all requirements apply relevant all requirements apply Some relevance - swap data recordkeeping and reporting and large trader reporting requirements apply Not relevant relevant all requirements apply relevant all requirements apply N.A. N.A. N.A. N.A. N.A. N.A. 1 A guaranteed or conduit affiliate (GCA) is a non-us person (i) whose swap obligations are guaranteed by a US person or (ii) who is an affiliate conduit. Factors that the CFTC will consider in determining whether a non-us person is an affiliate conduit include whether the non-us person is majority-owned (directly or indirectly) by, or controls, is controlled by or under common control with, a US person, whether its financial results are consolidated with the financial statements of the US person, and whether the non-us person, in the regular course of its business, enters into swaps with non-us counterparties for the purpose of managing risks faced by or to take positions for its US affiliates and transfers the risks and benefits of such swaps to its US affiliates through offsetting swaps or other arrangements with them. Affiliates of SDs will generally not be considered to be conduit affiliates. 2 It is not sufficient that the swap is booked into the foreign branch of the US SD. The foreign branch must be a foreign branch of a US bank; it must maintain accounts independently of the home office and the accounts of other foreign branches, with the profit or loss accrued at each branch determined as a separate item for each foreign branch; and it must be subject to substantive regulation in banking or financing in the jurisdiction where it is located. In addition, employees negotiating and agreeing the terms of the swap (or if the swap is executed electronically, managing the execution of the swap) must be located in that or another foreign branch, that foreign branch (or another foreign branch on its behalf pursuant to a master netting or similar trading agreement) is the office through which payments and deliveries under the swap are made, the swap documentation specifies the office through which the US SD is acting as that foreign branch, the swap is entered into by that foreign branch in its normal course of business and is treated as its swap for tax purposes, and the swap is reflected in its local accounts. 3 Assuming that substituted compliance and the 5% exemption is not. 4 The swap must not be arranged, negotiated or executed by personnel or agents of the non-us SD located in the US. 5 Assuming that substituted compliance is not. 6 Assuming that substituted compliance is not. 7 The definition of financial counterparty can be found in Article 2(8) of EMIR: EU-authorized investment firms, credit institutions, insurance/reinsurance undertakings, UCITS/UCITS managers, pension schemes and alternative investment funds managed by alternative investment fund managers. It includes foreign branches of the EU-established entity. 8 A non-financial counterparty is an undertaking established in the EU (including its foreign branches) other than a CCP or an FC (Article 2(9) of EMIR). An NFC+ is an NFC that exceeds one of the clearing thresholds. The thresholds are EUR 1 billion in gross notional amount (on a rolling average basis over 30 working days) where the asset class is credit or equity and EUR 3 billion for interest rate, FX or commodity and others combined. Once a threshold for any asset class is breached, all asset classes become subject to the clearing mandate (if any). 9 An NFC- is an NFC that does not exceed any of the clearing thresholds. 1 JL - Nov 26, 2013

22 Asian counterparty that is not an SD/MSP or GCA dealing with: US SD (other than through foreign Foreign branch of US SD Non-US SD (other than through US US branch of non-us SD FC NFC+ NFC- Protocol/Document and Brief Description DFA EMIR 2013 EMIR NFC Representation Protocol (Mar 8, 2013) together with Form of Change of Status Notice (Sep 9, 2013) Allows a party (including third country entities) to provide its counterparties with representations as to whether it is an NFC+ or NFC-. A third country entity will make the representation on the basis that it would or would not have been an NFC+ or NFC- had it been established in the EU. A party that is an FC can also adhere without making the NFC representation so that it can benefit from the representations given by its adhering counterparties. Also includes a mechanism for adherents to notify subsequent changes in status EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol (Jul 19, 2013) Addresses portfolio reconciliation and dispute resolution requirements. Also includes a disclosure waiver to permit compliance with reporting and recordkeeping requirements without breaching confidentiality restrictions. DF Disclosure Documents Category B Transaction-Level Requirements entail certain disclosures by SDs to a counterparty before trading. These documents are standard form general as well as product-specific disclosure statements and Section 2.12 of Schedule 2 of the August 2012 DF Protocol specifies how such disclosures can be delivered to a counterparty. N.A. N.A. N.A. N.A. relevant applicability of clearing and risk mitigation requirements for uncleared trades depend on status of parties N.A. N.A. N.A. N.A. relevant all requirements apply relevant Category B requirements apply Not relevant Not relevant relevant Category B requirements apply relevant applicability of clearing and risk mitigation requirements for uncleared trades depend on status of parties relevant all requirements apply N.A. N.A. N.A. relevant applicability of clearing and risk mitigation requirements for uncleared trades depend on status of parties relevant all requirements apply 2 JL - Nov 26, 2013

23 Asian counterparty that is not an SD/MSP or GCA dealing with: US SD (other than through foreign Foreign branch of US SD Non-US SD (other than through US US branch of non-us SD FC NFC+ NFC- Protocol/Document and Brief Description DFA EMIR Cross-Border Swaps Representation Letter (Aug 19, 2013) Allows a party to provide its counterparties with representations as to whether it is (i) a US or non-us person; (ii) in the case of a non-us person, whether it is an affiliate conduit or its swaps are guaranteed by a US person; and (iii) in the case where its swaps are guaranteed by a US person, whether the guarantor is a financial entity and whether it is affiliated with a SD. Note: These representations are also relevant to the question of whether swaps with the representee need to be counted towards the de minimis threshold for SD/MSP registration. Cross-Border Swaps Representation Letter for US Banks (Sep 16, 2013) Allows a US bank SD to provide its counterparties with representations that swaps booked into its specified foreign branches satisfy the foreign branch characteristics and other conditions so that such swaps are deemed to be with such foreign branches. Also allows a US bank SD to provide its counterparties with representations that the 5% exemption applies to swaps with its specified foreign branches. relevant applicability of Transaction- Level Requirements and to a more limited extent, Entity-Level Requirements depends on status of counterparty relevant applicability of Transaction- Level Requirements depends on whether the swaps are deemed to be with its foreign branch relevant applicability of Transaction- Level Requirements and to a more limited extent, Entity-Level Requirements depends on status of counterparty relevant applicability of Transaction- Level Requirements depends on whether the swaps are deemed to be with its foreign branch relevant applicability of Transaction- Level Requirements and to a more limited extent, Entity-Level Requirements depends on status of counterparty relevant applicability of Transaction- Level Requirements and to a more limited extent, Entity-Level Requirements depends on status of counterparty N.A. N.A. N.A. Not relevant Not relevant N.A. N.A. N.A. 3 JL - Nov 26, 2013

24 Asian counterparty that is not an SD/MSP or GCA dealing with: US SD (other than through foreign Foreign branch of US SD Non-US SD (other than through US US branch of non-us SD FC NFC+ NFC- Protocol/Document and Brief Description DFA EMIR ISDA DF Protocol Extension Agreement (Sep 10, 2013) Where (a)(i) one party is a US person and the other party is established in the EU or otherwise subject to EMIR and (ii) at least one party is an SD or MSP and (b) both parties have adhered to the March 2013 DF Protocol but have not adhered to the 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol, this document allows the parties to bilaterally amend the March 2013 DF Protocol to apply the portfolio reconciliation and dispute resolution provisions found in the 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol. ISDA 2013 DF Agreement for Non-U.S. Transactions and Annexes (Nov 15, 2013) Where one party is a non-us SD or a US bank SD acting through its foreign branches and the other party is a non-us person (including a GCA), allows parties to bilaterally agree on incorporating the relevant provisions from the August 2012 DF Protocol and the March 2013 DF Protocol into their trading relationship. Annex I addresses Entity-Level Requirements that apply to a non-us SD or a US bank SD acting through its foreign branches. Annex II addresses Category A Transaction-Level Requirements that apply to a non-us SD dealing with a GCA or to a US bank SD acting through its foreign branches. EMIR Timely Confirmation Amendment Agreement (Mar 8, 2013) Allows parties to bilaterally agree on the allocation of obligations relating to the timely delivery and return of confirmations. Not relevant (as one party must be a US person and the other party must be established in the EU) Not relevant Not relevant (as one party must be a US person and the other party must be established in the EU) Both Annexes I and II are highly relevant when deemed to be dealing with its foreign branch Not relevant (as one party must be a US person and the other party must be established in the EU) Annex I is highly relevant Not relevant (as one party must be a US person and the other party must be established in the EU) Annex I is highly relevant N.A. N.A. N.A. N.A. relevant N.A. N.A. N.A. N.A. N.A. N.A. relevant relevant 4 JL - Nov 26, 2013

25 Asian counterparty that is not an SD/MSP or GCA dealing with: US SD (other than through foreign Foreign branch of US SD Non-US SD (other than through US US branch of non-us SD FC NFC+ NFC- Protocol/Document and Brief Description DFA EMIR EMIR Reporting Guidance Note (Jul 19, 2013) Allows parties to bilaterally agree on their reporting roles and obligations and the extent of the confidentiality waiver. EMIR Portfolio Reconciliation Operational Guidance Note (Sep 10, 2013) Provides guidance on the EMIR portfolio reconciliation and dispute resolution requirements. N.A. N.A. N.A. N.A. relevant N.A. N.A. N.A. N.A. relevant relevant relevant relevant relevant 5 JL - Nov 26, 2013

26 ASIAN CLEARING AND REPORTING SNAPSHOT Domestic CCP Mandatory clearing Products subject to mandatory clearing Domestic TR Australia China Hong Kong India Malaysia Japan Singapore South Korea Taiwan ASX SCH HKEx CCIL JSCC SGX KRX IRS possibly RMB IRS possibly IRS and NDF possibly INR FX Forwards; INR IRS likely -- JPY IRS; Japanese underlier CDS IRS and NDF possibly KRW IRS -- Mandatory reporting Products subject to mandatory reporting All asset classes (except for electricity) subject to phase-in, starting with rates and credit CFETS HKMA CCIL DTCC Singapore RMB IRS and FX forwards All asset classes subject to phase-in, starting with IRS and NDF INR IRS and FX and onshore CDS Likely to be all asset classes subject to phase-in IRS, FX forwards, CDS and equity All asset classes subject to phase-in, starting with rates and credit Bank of Korea IRS, FX forwards, CDS and equity GTSM All asset classes Launched or implemented In progress or expected No plans announced or known JL - Nov 19, 2013

27 AUSTRALIAN, HONG KONG AND SINGAPORE TRADE REPORTING COMPARISON Who has to report? Is anyone exempted? Australia Hong Kong Singapore (i) An Australian entity (i) Authorized institutions (AI) (i) Any bank in Singapore licensed under (ii) A foreign subsidiary of an Australian (ii) Licensed corporations (LC) the Banking Act entity that is an Authorised Deposittaking (iii) Approved money brokers (AMB) (ii) Any subsidiary of a bank incorporated Institution (ADI) or Australian (iv) Hong Kong persons above the in Singapore Financial Services (AFS) Licensee reporting threshold. The reporting (iii) Any merchant bank approved as a (iii) A foreign ADI that has an Australian threshold is yet to be determined. financial institution under the MAS Act branch (iv) Any finance company licensed under (iv) A foreign company that is required to the Finance Companies Act be registered under Division 2 of Part (v) Any insurer registered under the 5B.2 of the Corporations Act. Insurance Act (vi) Any approved trustee (vii) Any holder of a capital markets services license (viii) Any other person who is, or who belongs to a class of persons as prescribed by MAS significant derivatives holder prescribed: Singapore resident with aggregate gross notional exceeding SGD 8 billion over 4 consecutive quarters. Firms may approach ASIC for relief from Central banks, monetary authorities and (i) Singapore Government and statutory various parts of the trade reporting regime. certain public bodies and global institutions boards (e.g. IMF, BIS). (ii) Foreign central banks and central governments (iii) Foreign governmental agencies with non-commercial purposes (iv) Following: African Development Bank Asian Development Bank BIS European Bank for Reconstruction and Development European Economic Community European Investment Bank Inter-American Development Bank World Bank IFC IMF Counterparty to an exempt person will also be exempted from reporting. 1 JL - Nov 19, 2013