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Toronto, MontrealNovember 2010
OTC DerivativesExecution and Central Clearing Forum
2
Core Principles:Adapting the Futures Model to CCP OTC Derivatives
Risk based capital and risk based margin– Broadens participation, enhances liquidity
– Open access principles
– No artificial barriers
History of safety and soundness; protection in crises
OTC clearing and execution venues not new for Futures Commission Merchants, some Clearinghouses or Newedge– ClearPort, ICE Europe, Singapore Exchange, IDCG, Eris
3
Benefits of Centrally Cleared Derivatives
Takes debt out of system Provides transparency of OTC participants’ obligations A structure favored by regulators to reduce systemic risk
Systemic BenefitsSystemic Benefits
Buyside BenefitsBuyside Benefits
Sellside BenefitsSellside Benefits
Substantially eliminates counterparty risks Eliminates or reduces direct and indirect costs of bi-lateral OTC, including:
– Uncertain credit charges– Transaction unwind-related charges– Potential replacement cost in event of counterparty failure– Counterparty credit valuation haircuts
Enjoy position portability Transact with more dealers Benefit from clearinghouse performance guarantee; security of futures
market protections Independent valuation / transparency from CHs Ease of documentation: no ISDA/CSA required
Substantially eliminates counterparty risks Reduces capital use; eliminates need to hedge bi-lateral counterparty credit risk Ease of documentation: no ISDA/CSA required Reduced operational risk; ease of administration Viable OTC CCP platforms for largest OTC derivative asset class – IRS Preserve market bid / ask
4
Clearing and Execution Platform - Client Considerations
Platform objective
– Clearing
– Execution
Market adoption
– Contract design – implicit target market
– Product scope – potential margin / capital efficiencies
- OTC
- Futures
- Securities
Governance
– Clearing member criteria
- Access principles, access implications for:
- FCMs / Clearing Brokers
- Other Liquidity Providers
- End Users
- Incumbent Dealers
– Economic interests
– Product adoption
– Independence
5
Clearing and Execution Platform - Client Considerations
Financial resources
– Margin methodology
– Default fund
Regulatory
– Status
– Jurisdiction
Default Management
Operations scalability
Fee disaggregation
- Clearing house fees
- Clearing firm fees
- Liquidity provider (dealer) bid / ask, exclusive of credit and bi-lateral OTC operations
Execution Facilities
– Sponsorship
– Clearing platform Integration
– Format
- Voice
- RFQ
- CLOB
6
IRS: Execution and Credit Intermediation
trend trend
trend
7
CCP IRS Platforms
CME OTC IRS IDCG Eris FuturesLCH SwapClear US
FCM CCPLCH SwapClear Incumbent (UK)
Newedge Member: In discussion TBD CA and SG
Product OTC IRS OTC IRS Cleared Future / OTC IRS coming
OTC IRSFutures Exchange
CME Cleared
OTC IRS OTC IRS
ClearedVolume
~$660MM ~$600MM
~$500MM Newedge brokered
$10 BLargely among
Founding Members;
Newedge cleared
Not launched $229 T
MembershipCriteria
$1B ANC or Parent Guarantee
Capable FCM CME Member TBD $5 B capital or Parent G’tee;
Internal Default Mgt capability; $1T
swap book
Initial DefaultFund $50MM
$2.5MM Futures / $5MM OTC
account class
None (CME futures pool)
TBD £[125]MM
8
CCP On-boarding Requirements
Global Terms of Business Clearing Account– Accommodates futures, OTC, securities– Newedge credit approval– KYC review– Client authorizations; approved traders
Clearing house Terms of Use or registration / participation agreement
Estimated on-boarding time – 3 to 5 weeks
9
Capital flows and trades have moved to point where capital is deployed
Customers seek cross border trading
Alpha available in emerging markets
Newedge is at the Intersection of 3 Secular Trends in Financial Services
RE
GU
LA
TIO
N
Increased liquidity on exchanges
Open and broad access to reduce systemic risks
Lower transaction costs and spreads
Unlike equities, futures markets are presently, vertically integrated
Dodd-Frank
OTC Clearing /Transparent Execution
OTC Clearing /Transparent Execution
Customers
Exchanges
Products
Electronification& SEFs
Electronification& SEFsGlobalizationGlobalization
10
Leading Global Multi-Asset Broker
Formed in 2008 from the merger of Fimat and Calyon Financial businesses
History going back over 30 years
50/50 ownership by Société Générale and Crédit Agricole CIB
Agency model
Leader in market share on most Global exchanges
2,800 employees
23 locations in 17 countries
85+ exchanges
€40 billion in client assets
Futures, Options & EquitiesClearing and Execution
– Leading Futures, Equities and OTC execution– Leading CME market share
Fixed Income, Currencies & Commodities
– Clearing and execution across a Broad range of products and services that include Fixed Income strategies, inter-dealer brokerage, commodities, energy, metals, FX, repos, derivatives and margin financing
Clearing & Professional Trading Group– Provides global clearing services to the world’s
largest banks, financial institutions as well as high frequency / DMA firms
– New liquidity providers for OTC derivatives with CCP
Prime Brokerage– Robust prime brokerage offering and ability to
further leverage VAR margining capabilities
Newedge GroupNewedge Group Business LinesBusiness Lines
11
MARKET COVERAGEMARKET COVERAGE
Futures
Fixed Income / Rates
Foreign Exchange
Equities and Indexes
Options and Repos
Agricultural and Softs
OTC/Listed Energy
Metals
Institutional
Asset Managers
Hedge Funds /
CTAs / Investors
Financial
Institutions
Corporations
Professional
Trading Groups
CLIENTS PRODUCTS
EUROPE &EUROPE &MIDDLE EASTMIDDLE EASTLondonParisFrankfurtZurich GenevaMadridDubai
ASIA-ASIA-PACIFICPACIFICHong KongSingaporeShanghaiTaipeiTokyoSeoulSydneyMumbai
THETHEAMERICASAMERICASChicagoNew YorkKansas CitySan FranciscoSao PauloMontréalTorontoCalgary
LOCATIONS
BROKERAGE SERVICESBROKERAGE SERVICES
Execution
Clearing
Prime Brokerage
Financing / Margining
Capital Introductions
Advisory
Electronic Trading / DMA
Research
Newedge Has a Complete Global and Multi Asset Platform
12
Newedge: a Leading Clearing Broker
-
5
10
15
20
25
30
35
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06Jan
-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07Jan
-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08Jan
-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09Jan
-10
Mar-10
May-10
Jul-10
$ B
illio
ns
NEWEDGE
GOLDMAN SACHS
JP MORGAN
UBS
DEUTSCHE BANK
CITIGROUP
(1) Source : CFTC(2) Prior Sep. 2008 data reflects Newedge Financial Inc., Newedge USA LLC., Calyon Financial Inc., and FIMAT USA LLC
Top FCMs Based on Client Segregated Funds
13
Leading Market Share in Both Execution and Clearing
MARKETS SERVICE RANKING
AMERICAS
CME GROUPExecution / Clearing CME 1 / 1
Execution / Clearing CBOT 1 / 1
KCBT Clearing 1
MX Execution 3
EUROPE
EUREX Clearing 2*
NYSE LIFFE EURONEXT
PARIS Execution 2*
LONDON
Execution Commodities 2
Clearing Commodities 1
Execution financials 5
ASIA PACIFIC
HKEX Execution 1
OSE Execution / Clearing 1 / 1*
SFE Execution / Clearing 2 / 5
SGX-DT Execution / Clearing 1 / 3
TSE Execution / Clearing 1 / 1*
Newedge global market share in listed derivatives
11.1% Financials 17.1% Commodities
* Rankings as of 31 January 2010Source: Rankings provided by derivatives markets. Market share computed internally using our own methodology as of 30 June 2010.
14
Benefits of Agency Model / Non-Proprietary Trading
Clients interests first– Newedge acts as a pure intermediary without economic interests in clearing platforms– Facilitate with unbiased information– Diverse range of platforms ensures best access and execution and best of breed
technology
Expertise in many platforms supported by Newedge – agnostic
LiquidityProvider
ClientsX, Y, Z, …
• Finds interest in the market• Crosses the deal in the• Exchange
– bi-laterally or– directly intermediates
Exchanges & Clearinghouses
CME Clearport
15
Recognized Market Leader
#1 Futures Broker – Futures Magazine, December 2009
Best Multi Asset Prime Broker Award – 2010 HFMWeek US Hedge Fund Services Awards
Newedge Prime Brokerage agency model ranked #7 overall, #5 Europe – 2010 HFMWeek
“Most innovative prime broker” – 2009 HFMWeek Service Provider Award
Best in Class in 8 out of 10 categories – Global Custodian, June 2009
Top 5 Futures CommissionMerchants by Customer Funds
Source: CFTC (U.S. regulator) as of 31 August 2010
Based on Segregated Funds - U.S. Only Based on Segregated Funds - U.S. Only
RankSegregatedFunds ($Bn)
1 Newedge USA LLC $19.3 Bn
2 Goldman Sachs & Co $19.0 Bn
3 JP Morgan Futures Inc $16.3 Bn
4 Deutsche Bank Securities Inc $11.1 Bn
5 Citigroup Global Markets Inc $10.9 Bn
Based on Segregated Funds and Funds of Based on Segregated Funds and Funds of Customers Trading Commodities outside the U.S. Customers Trading Commodities outside the U.S.
Rank
SegregatedFunds andPt. 30 ($Bn)
1 Goldman Sachs & Co $25.5 Bn
2 Newedge USA LLC $25.4 Bn
3 JP Morgan Futures Inc $18.1 Bn
4 UBS Securities LLC $14.0 Bn
5 Citigroup Global Markets Inc $12.4 Bn
16
Diversified Financial Strength
Americas42%Europe &
Middle East47%
Asia Pacific
11%
Source: Newedge Financial Report 2009
2009 Net Banking Income€ 949 million
2009 Net Banking Income€ 949 million
2009 Net Banking Incomeby Business Line
2009 Net Banking Incomeby Business Line
FF&O Clearing
22%
Commodities14%
Prime Brokerag
e13%
Fixed Income
11%
Forex6%
Other6%
FF&O & Equities Executio
n28%
17
Newedge Contacts
Marc Katz, SVPNewedge USA, LLC550 W. Jackson Blvd, Suite 500Chicago, IL 60661Phone: (312) 762-1338Email: marcus.katz@newedge.com
Rod Wilmer, CEONewedge Canada Inc.Exchange Tower, Suite 580130 King Street WestToronto ON M5X 1B1Phone: (416) 682-5101Email: Rod.Wilmer@newedge.com
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