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Transforming Market Structures as a Recognised Market
Operator (RMO) for OTC Derivatives

                   Strictly Private and Confidential   1
THE STORY SO FAR…

Current Industry Scenario

The Industry Challenge

Cleartrade Exchange – Benefits for stakeholders




                            Strictly Private and Confidential   2
Regulatory Reform
      Opportunity for change
      OTC instruments are subject
      to global regulatory reform.                                                       Demand Curve of Regulation
      By late 2012 institutional &
      retail traders and brokers
      under the Wall Street &
      Consumer Protection Act                     Regulation                                                           Wall Street &
                                                                                   $600 Trillion                  Consumer Protection Act
      (Dodd Frank) will be required                                                                               (Dodd Frank)
                                                                            Derivatives Market
      to      execute     trades via
      regulated swap execution                                                                     SEF Rules definition
      facilities (SEF’s).                                                                                 CFTC


      Globally,   regulators   are                                                   Mfid Review                          What size market can
      tightening     rules     and                                                                                         we expect to see ?
      emulating the Dodd Frank Act.                                     Dodd Frank Act
                                                                        July 2011


                                                                                 2011                   2012                  2013
                                                                                                                                  Time

Wall Street Reform and Consumer Protection (Dodd–Frank) Act lays the foundation defining a SEF as a “facility, trading system or platform in
which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open
                                               to multiple participants in the facility or system”.
                                                        Strictly Private and Confidential                                            3
                            Cleartrade Exchange comfortably satisfies this definition
Summary of SEF Principles
Everyone will want to be a SEF ! But what is it ?

These are the core principles to which a SEF must adhere are:
   Compliant
                  (1) Complying with the CEA and the CFTC rules,
                  (2) Enforcing trade processes for market participants that will deter abuses, ensure impartial
                  access to markets and capture information on rule violations,
                  (3) Preventing swaps from being readily susceptible to manipulation,
                  (4) Monitoring trading to prevent manipulation, price distortion and disruptions of the delivery or
                  cash settlement processes,
                  (5) Establishing rules to obtain information to provide to the CFTC,
                  (6) Establishing position limitations and accountability to prevent market manipulation or
                  congestion,
                  (7) Establishing mechanisms for ensuring financial integrity of swaps,
                  (8) Establishing an emergency procedure to liquidate or transfer open positions in a swap or
                  suspend trading on the swap,
                  (9) Publishing trading information such as public information on price, trading volume and other data,
                  (10) Maintaining records of activities, including a “complete audit trail” for a five year period
                  (11) Not unreasonably restraining trade,
                  (12) Establishing rules for minimizing and resolving conflicts of interest,
                  (13) Providing adequate financial resources,
                  (14) Establishing system safeguards and
                  (15) Assigning a chief compliance officer who reviews compliance with core principles & CFTC rules.



                                                Strictly Private and Confidential                                          4
The industry challenge
      … bridging the “gap”




*Freight / Ferrous Metals Complex of Derivatives
                                                   Strictly Private and Confidential   5
Introducing The Cleartrade Exchange

Cleartrade Exchange provides seamless transaction flow of OTC derivatives
from electronic execution, through to GCM via Credit Filter to clearing house(s),
and back.




                              Strictly Private and Confidential               6
The Cleartrade Exchange (CLTX)
    - Introduction
•     Centralised, transparent & anonymous electronic market
•     Regulated by Monetary Authority of Singapore (MAS) as an RMO
•     Leading technology and operational infrastructure with an open API
•     Venue for OTC cleared derivatives
       – Launched with Dry FFAs, Iron Ore, Steel and Fertilizer swaps
       – Will launch Container derivatives in Q4’11
       – Established two Spot Indices for the development and settlement of swaps
          markets. ( Cleartrade China Steel Index, World Container Index assessed by Drewry)
•     Supports many-to-many participants trading styles
•     Easy to deploy web based screen interface
•     No screen costs, software, set up costs or membership fees, transaction fee based
•     Multiple clearing house connections ( LCH, NOS, SGX, CME)

                                        Cleartrade Exchange Timeline
      2009                                   2010                 2011                                     Over
      Market Study                      (FEB) Cleartrade Exchange                                      160,000 LOTS
                                        Incorporation in Singapore       1st IDB    RMO License          Processed
    Regulated Market
                        Technology                      Credit Filter         Member       3 Product
                       Design & Build                 & Clearing House       Onboarding     Families                  7
The Cleartrade EDGE Platform
the infrastructure of a regulated marketplace

                                                                     EDGE Execution Platform
                                                                                                                                                                           Principals
                                                              Orders, Routing, RFQ’s, & Trade                                  Link to Broker             Trade Hub
                                                               Management, Credit Matrix,                                      Trade / recap            Web interface
                      Quote Vendor                                                                                                                                         GCM’s
                                                                       Recap Engine                                            Management                  (Trade &
                         Feeds                                      Rules & algorithms                                            Systems               Recap reports)


                                                                                                                                                                                        LCH
      3rd Party
                                                                                                                                                              Cleartrade
   Trading Screens
                                                                                                                                                               Clearing
                                                                                                                                                              Operations




                                                                                                                               HUB API
                                                                                         TRADE HUB
                                     EDGE API




                                                        EDGE                                                                                                                            NOS
                                                 Execution : Pre & Post Trade            Post Trade Reporting and Management
                                                  Processing : Marketplace
                                                management, trading rules and
                                                         algorithms


                                                                                FIX5.0
                                                                                                                               GCM                 STP Gateway
   Cleartrade Mobile                                                                                                           Credit                                                   SGX
Price & Trade Discovery
                                                                                                                               Matrix




                                                                                                                                         Cleartrade Credit Matrix for GCM’s             CME
                                                                                                                                           Set financial margins by account
                                                                                                                                         import positions, Net P&L risk view

       Cleartrade Screens
      Broker – Trade - GCM

              Execution to Clearing : PriceStrictly Private andTrade Reporting : Risk Management
                                            Discovery : Confidential                                                                                                                          8
Fully integrated exchange solution

The Cleartrade EDGE platform
consists of 5 key elements:

1.    Electronic execution screen                          Recap
                                                       manager / web
2.    Block trading / deal registration                 and sw appl.
                                                       Version + RM
3.    Link via credit filter to clearing                  module
      houses for pre-approval of
      trades
                                                         API access for
4.    Consolidated recap manager                          third party
      and risk management system                        trading system
                                                           (Trayport,
5.    Market supervision and                              Elysian etc)
      operations team (17hrs p/day)

      Cleartrade Exchange
     provides the “plumbing
     between execution and
            clearing”                                                          Clearing House

                                           Strictly Private and Confidential                    9
How we translate the rules…
Screen Familiarization
                            Trades Window                 Transparency Window




Quick Trade / Order Entry             User Definable Contract Layouts
Trading Scenarios
Global access for all members and
to all relevant commodities …
                               INITIATOR                      AGGRESSOR


                               Principal                      Principal

                               Principal                          Broker       Principal

                                                                           Principal




           Principal
                                Broker                        Principal
                   Principal




           Principal
                                Broker                            Broker       Principal

                   Principal                                               Principal




           Principal
                                           Broker (Block Trade)                Principal

                   Principal                                               Principal




                                                                                           11
Benefits of partnering with Cleartrade Exchange

                                Broker                                                                      Principal

   Participating brokers do not share prices and do not co-broker
                                                                               Easy to access open market prices -Trade direct for regular trades
              “Use Cleartrade as internal white board”


 Cleartrade fee structure does not undercut brokerage commissions                 Trade via a broker for more complex tailored orders - Retain
      and does not add significantly to the cost of transactions                                          relationship


             Brokers can route orders securely to traders                     “Legging” functions gives better view of available spreads and ratios


  All open screen prices are shown anonymously to all participants                 Bespoke contract functions for time strips / calendar strips

Block trading of pre-matched trades (dark trades) are available to OTC
                                                                             MTF risk management function allows full visibility of positions and P+L
                               brokers

      Cut your back office costs and let Cleartrade take care of              Automated recap system and downloadable reports integrates with
         confirmations, clearing registration and recording                                       your accounting systems

Multi product platform enables cross selling of prices to relationship        Private and Confidential trades allowed in block trading system (very
                             clients                                                                       dark trades)
Positions you in a positive light with clients by participating in a level                   Better closing prices and forward curves
                              playing field


                                                         Strictly Private and Confidential                                                        15
The story continues…
• Cleartrade Exchange is at the heart of the OTC market
  transformation.
• Multiple products listed and trading (Dry FFA, Iron Ore, Steel,
  Fertilizers) and connected to multiple clearing houses.
• Monitoring closely the regulatory frameworks and will adjust the
  business model, rulebook with MAS, as further OTC regulation gets
  defined
• Remain focused on working with the market, this is a critical pivot
  point and open dialogue with all partners is essential – we work
  within an complex eco-system of dependencies
• We have the experience of working with the market over the last
  two years on the sensitive issues – this is a journey not a
  destination

  Cleartrade Exchange meets to needs of a Swap Execution
Facility and will register accordingly to address the US market.
                          Strictly Private and Confidential         16
THANK YOU
Contact :
Richard Baker,
Chief Executive Officer
Email : rbaker@thecleartrade.com




PS. Please stop raining !
Come on Andy Murray in the US Open…


                      Strictly Private and Confidential   17

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Transforming Market Structures as a Recognised Market Operator (RMO) for OTC Derivatives

  • 1. Transforming Market Structures as a Recognised Market Operator (RMO) for OTC Derivatives Strictly Private and Confidential 1
  • 2. THE STORY SO FAR… Current Industry Scenario The Industry Challenge Cleartrade Exchange – Benefits for stakeholders Strictly Private and Confidential 2
  • 3. Regulatory Reform Opportunity for change OTC instruments are subject to global regulatory reform. Demand Curve of Regulation By late 2012 institutional & retail traders and brokers under the Wall Street & Consumer Protection Act Regulation Wall Street & $600 Trillion Consumer Protection Act (Dodd Frank) will be required (Dodd Frank) Derivatives Market to execute trades via regulated swap execution SEF Rules definition facilities (SEF’s). CFTC Globally, regulators are Mfid Review What size market can tightening rules and we expect to see ? emulating the Dodd Frank Act. Dodd Frank Act July 2011 2011 2012 2013 Time Wall Street Reform and Consumer Protection (Dodd–Frank) Act lays the foundation defining a SEF as a “facility, trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system”. Strictly Private and Confidential 3 Cleartrade Exchange comfortably satisfies this definition
  • 4. Summary of SEF Principles Everyone will want to be a SEF ! But what is it ? These are the core principles to which a SEF must adhere are: Compliant (1) Complying with the CEA and the CFTC rules, (2) Enforcing trade processes for market participants that will deter abuses, ensure impartial access to markets and capture information on rule violations, (3) Preventing swaps from being readily susceptible to manipulation, (4) Monitoring trading to prevent manipulation, price distortion and disruptions of the delivery or cash settlement processes, (5) Establishing rules to obtain information to provide to the CFTC, (6) Establishing position limitations and accountability to prevent market manipulation or congestion, (7) Establishing mechanisms for ensuring financial integrity of swaps, (8) Establishing an emergency procedure to liquidate or transfer open positions in a swap or suspend trading on the swap, (9) Publishing trading information such as public information on price, trading volume and other data, (10) Maintaining records of activities, including a “complete audit trail” for a five year period (11) Not unreasonably restraining trade, (12) Establishing rules for minimizing and resolving conflicts of interest, (13) Providing adequate financial resources, (14) Establishing system safeguards and (15) Assigning a chief compliance officer who reviews compliance with core principles & CFTC rules. Strictly Private and Confidential 4
  • 5. The industry challenge … bridging the “gap” *Freight / Ferrous Metals Complex of Derivatives Strictly Private and Confidential 5
  • 6. Introducing The Cleartrade Exchange Cleartrade Exchange provides seamless transaction flow of OTC derivatives from electronic execution, through to GCM via Credit Filter to clearing house(s), and back. Strictly Private and Confidential 6
  • 7. The Cleartrade Exchange (CLTX) - Introduction • Centralised, transparent & anonymous electronic market • Regulated by Monetary Authority of Singapore (MAS) as an RMO • Leading technology and operational infrastructure with an open API • Venue for OTC cleared derivatives – Launched with Dry FFAs, Iron Ore, Steel and Fertilizer swaps – Will launch Container derivatives in Q4’11 – Established two Spot Indices for the development and settlement of swaps markets. ( Cleartrade China Steel Index, World Container Index assessed by Drewry) • Supports many-to-many participants trading styles • Easy to deploy web based screen interface • No screen costs, software, set up costs or membership fees, transaction fee based • Multiple clearing house connections ( LCH, NOS, SGX, CME) Cleartrade Exchange Timeline 2009 2010 2011 Over Market Study (FEB) Cleartrade Exchange 160,000 LOTS Incorporation in Singapore 1st IDB RMO License Processed Regulated Market Technology Credit Filter Member 3 Product Design & Build & Clearing House Onboarding Families 7
  • 8. The Cleartrade EDGE Platform the infrastructure of a regulated marketplace EDGE Execution Platform Principals Orders, Routing, RFQ’s, & Trade Link to Broker Trade Hub Management, Credit Matrix, Trade / recap Web interface Quote Vendor GCM’s Recap Engine Management (Trade & Feeds Rules & algorithms Systems Recap reports) LCH 3rd Party Cleartrade Trading Screens Clearing Operations HUB API TRADE HUB EDGE API EDGE NOS Execution : Pre & Post Trade Post Trade Reporting and Management Processing : Marketplace management, trading rules and algorithms FIX5.0 GCM STP Gateway Cleartrade Mobile Credit SGX Price & Trade Discovery Matrix Cleartrade Credit Matrix for GCM’s CME Set financial margins by account import positions, Net P&L risk view Cleartrade Screens Broker – Trade - GCM Execution to Clearing : PriceStrictly Private andTrade Reporting : Risk Management Discovery : Confidential 8
  • 9. Fully integrated exchange solution The Cleartrade EDGE platform consists of 5 key elements: 1. Electronic execution screen Recap manager / web 2. Block trading / deal registration and sw appl. Version + RM 3. Link via credit filter to clearing module houses for pre-approval of trades API access for 4. Consolidated recap manager third party and risk management system trading system (Trayport, 5. Market supervision and Elysian etc) operations team (17hrs p/day) Cleartrade Exchange provides the “plumbing between execution and clearing” Clearing House Strictly Private and Confidential 9
  • 10. How we translate the rules… Screen Familiarization Trades Window Transparency Window Quick Trade / Order Entry User Definable Contract Layouts
  • 11. Trading Scenarios Global access for all members and to all relevant commodities … INITIATOR AGGRESSOR Principal Principal Principal Broker Principal Principal Principal Broker Principal Principal Principal Broker Broker Principal Principal Principal Principal Broker (Block Trade) Principal Principal Principal 11
  • 12. Benefits of partnering with Cleartrade Exchange Broker Principal Participating brokers do not share prices and do not co-broker Easy to access open market prices -Trade direct for regular trades “Use Cleartrade as internal white board” Cleartrade fee structure does not undercut brokerage commissions Trade via a broker for more complex tailored orders - Retain and does not add significantly to the cost of transactions relationship Brokers can route orders securely to traders “Legging” functions gives better view of available spreads and ratios All open screen prices are shown anonymously to all participants Bespoke contract functions for time strips / calendar strips Block trading of pre-matched trades (dark trades) are available to OTC MTF risk management function allows full visibility of positions and P+L brokers Cut your back office costs and let Cleartrade take care of Automated recap system and downloadable reports integrates with confirmations, clearing registration and recording your accounting systems Multi product platform enables cross selling of prices to relationship Private and Confidential trades allowed in block trading system (very clients dark trades) Positions you in a positive light with clients by participating in a level Better closing prices and forward curves playing field Strictly Private and Confidential 15
  • 13. The story continues… • Cleartrade Exchange is at the heart of the OTC market transformation. • Multiple products listed and trading (Dry FFA, Iron Ore, Steel, Fertilizers) and connected to multiple clearing houses. • Monitoring closely the regulatory frameworks and will adjust the business model, rulebook with MAS, as further OTC regulation gets defined • Remain focused on working with the market, this is a critical pivot point and open dialogue with all partners is essential – we work within an complex eco-system of dependencies • We have the experience of working with the market over the last two years on the sensitive issues – this is a journey not a destination Cleartrade Exchange meets to needs of a Swap Execution Facility and will register accordingly to address the US market. Strictly Private and Confidential 16
  • 14. THANK YOU Contact : Richard Baker, Chief Executive Officer Email : rbaker@thecleartrade.com PS. Please stop raining ! Come on Andy Murray in the US Open… Strictly Private and Confidential 17