Overview of Central Clearing

Requirements for End-User Exception:

1. Must not be a financial entity (small bank exemption can be used for banks with less than $10bn in assets)

2. Must be hedging commercial risk

3. If public, must have board approval to not clear trades

4. Must complete CFTC end-user exception questionnaire and submit to a swap data repository

Clearing Timeline

1. Proposed mandatory clearing determination published by CFTC in the Federal Register on August 7th, 2012.

2. 30 day comment period ends September 6th, 2012.

3. Final mandatory clearing determination released as early as September 7th, 2012 (not expected to slip more than a month or two if it does slip)

4. Swap dealers, major swap participants, and active funds (private funds executing an average of 20 trades or more a month) required to clear as early as December 5th, 2012

5. Most other financial entities required to clear as early as March 5th, 2013

6. Entities managing multiple third party accounts or non-financial end-users not qualifying for exception required to clear as early as June 3th, 2013

Clearing Checklist

1. Evaluate potential FCMs (clearing member regulated by CFTC) and select one or two

2. Negotiate and sign Clearing Agreement and OTC Addendum with each selected FCM

3. Negotiate and sign Cleared Derivative Execution Agreement (give-up agreement) with each dealer you wish to execute derivatives with

4. Sign up with MarkitSERV (MarkitWIRE) and sign proper documentation

5. Select DCO (clearing house regulated by CFTC) and sign End-User License Agreement

6. Run test trade(s) to insure everything is properly set up

Interest Rate Swap Trades in First Proposed Mandatory Determination

For more information, the proposed determination and Overview of Central Clearing