Toronto, Montreal November 2010 OTC Derivatives Execution and Central Clearing Forum.

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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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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%

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Newedge Contacts

Marc Katz, SVPNewedge USA, LLC550 W. Jackson Blvd, Suite 500Chicago, IL 60661Phone: (312) 762-1338Email: [email protected]

Rod Wilmer, CEONewedge Canada Inc.Exchange Tower, Suite 580130 King Street WestToronto ON M5X 1B1Phone: (416) 682-5101Email: [email protected]