SwapClear Member Notification

Dear SwapClear Member,

As all market participants are experiencing, the investment needed to conform to unprecedented global regulation continues to rise. The OTC markets continue to grow and are fast adapting to required change. For LCH Clearnet this has required significant outlay in the development and introduction of new cleared products, the management of increased global membership and volume, oversight of the move to buy-side central clearing, adherence to an array of global and regional regulation and enhanced Risk Management.

It is therefore necessary for SwapClear to increase tariffs for the first time in more than two years, effective April 1, 2013*. This will enable us to maintain the level and quality of service you expect, while continuing to enhance and extend the services we provide.

In the next 12 to 18 months, we are planning a series of technology upgrades, the introduction of real-time registration, reporting refresh, collateral segregation, additional trade sources, limit management tools, and infrastructure/service upgrades. We also need to prepare for the next wave of cleared products and to ensure that we are compliant with the emerging regulatory environment in the multiple jurisdictions in which we operate, facilitating centralized clearing for Members and Clients.

As a reminder, the key SwapClear service developments during the last two years include:

Product launches and enhancements

• Introduction of Forward Rate Agreements in 11 currencies to assist in the management of short-dated IRS risk with commensurate cross-margin benefit within an OTC IRD portfolio
• OIS swaps clearing in CAD
• Extension of current products — Euro, US dollars and Sterling to 50 yrs; NZD to 15 yrs; Japanese Yen to 40 yrs; AUD, CAD, CHF, and SEK to 30 yrs
• Addition of variable notional swaps (amortizing and accreting swaps, including roller-coasters)
• Expansion of cleared currency set to include Hungarian Forint (HUF), Czech Koruna (CZK), and Singaporean Dollars (SGD) out to 10 years

Improved Acceptable Collateral

• Collateral extensions, e.g. CAD cash, GNMA, MBS, FNMA/FHLMC/FHLB debentures

Risk methodologies and reporting

• More accurate tenor basis valuation
• Extension of OIS discounting in Japanese Yen and Australian Dollars
• Regulatory trade reporting of cleared trades to the DTCC SDR Enhanced reporting and data and margin replication tools (e.g., introduction of SMART)

Regulatory compliance

• Launch and continued enhancement of our client clearing models to allow full compliance with evolving global mandates
• Fundamental rewrite of clearing framework, incorporating recalibration of clearing membership criteria, segregation of the default fund, and a revised Default Management Process
• Continuous and sizable investment in improved, scalable, and resilient risk, operations, and technology

SwapClear fees from 1 April 2013

As currently, a single tariff will be applied to a Member Group, taking into account all trades cleared by that group within a calendar-year. There will be a new one-off onboarding fee for an Affiliate Member, set at £50,000.

Tariff A1:

1. A new ultimate tariff (A1) of £2,250,000 per year for 30,000 trades per year or more will be implemented.

Tariff A2: This tariff replaces the old Tariff A

1. The top standard tariff (“Band A”) will be increased from £1,250,000 to £1,500,000 with a ceiling of 20,000 trades per year, and renamed tariff A2. Additional trades beyond 20,000 will incur a booking fee of £75 per new trade but no maintenance fee.
2. The charges will be collected in equal monthly installments of £125,000 monthly in arrears and an invoice will be posted to the Members’ account. All clearing fees will be payable in GBP.
3. Members will have a fee cap of £2,250,000 in the calendar year, equating to 30,000 trades annually. A fee holiday is given for the balance of the year if the £2,250,000 cap is reached and the following year will automatically be invoiced at Tariff A1.

Tariff B: Introductory tariff

1. Tariff B will retain its existing entry level at £500,000 collected in equal monthly installments of £41,667 plus £75 per trade booking fee and a £6 per existing trade maintenance fee per month, but with the cap increased to £1,500,000.
2. If a Tariff B Member reaches the £1,500,000 cap, a fee holiday will be given for the remainder of the year unless more than 20,000 trades are cleared in the calendar year.
3. A Tariff B Member that does not reach the Tariff B cap in the calendar year will begin the following year on Tariff B. However, a Tarrif B Member who does reach the £1,500,000 cap within the calendar year will automatically begin the following year on Tariff A2.
4. A Tariff B Member can at any time elect to move to a higher tariff. This enables smoother billing over the rest of the year.

Should you have any questions please contact your member service representative.

We thank you very much for your continued support and look forward to working with you in 2013 and beyond.

Michael Davie

*Subject to regulatory review

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