"A view on EMIR" - Keynote speech given at ISITC Europe Quarterly Meeting in London, June 2011

1. A view on EMIR John Wilson Former RBS Global Head of OTC Clearing

2. John Wilson Former RBS Global Head of OTC Clearing & MD Led the formation of the OTC clearing business and the subsequent development of the clearing solution for House and Client Services Prominent role in the development of end user services at many international CCPs Led sales efforts with international client base and provided advice to many key accounts on the impact of clearing and related regulatory changes Close involvement in the global regulatory debate and frequently represented the industry in Governmental meetings on regulatory change See http://uk.linkedin.com/in/johndwilson

3. Assessment of the impact of EMIR Much of EMIR is welcomed by Banks Clearing provides many benefits for banks Trade repositories will improve regulatory transparency Segregation provision [hopes to] override the inconsistencies created by 27 national insolvency regimes Robust and well capitalised CCPs are important for financial stability given their role in managing systemic risk BUT the devil is in the detail PLUS EMIR is only one element of a Tsunami of international regulatory change hitting in industry in short order – “too much, too quickly”.

4. Regulatory Pipeline Overview Not exhaustive, just exhausting! Equity Market Infrastructure Securities Directive OTC Derivatives – Trading Platforms Interest Rate Risk – Banking Book OTC – Infrastructure Non Equities Price Transparency Short Selling Fundamental review of trading book Securitisations Market Abuse OTC – Capital Market Risk US Banking Reform External Credit Ratings LargeExposures FSA liquidity framework Leverage Structural Separation Capital Remuneration UK Bank levy Resolution Systemic Banks Cross-border funding restrictions IGL restrictions Recovery EU Bank Levy Supervisory Architecture Basel Liquidity Procyclicality EU Crisis Management Regulations in final stage of policy setting – Actual impact and mitigation numbers, appropriate external engagement Regulations in early stages of policy setting – Impact and mitigation, Initial steps in external engagement Regulations in early stages of discussion or not yet identified – Regulatory Intelligence

5. Politics and not risk is driving the agenda EMIR is currently bogged down in political battles amongst Member States [“Council”] Scope [OTC v all derivatives] Central Bank liquidity National Regulator v ESMA oversight Exemptions [Pension Funds, Intra-group transactions] Fair & Open Access to execution venues and CCPs Extra-territoriality & Third Countries EU Parliamentary Committee has agreed a text for a Parliamentary vote but inconsistencies with the Council exist Front-loading Third countries

6. Assessing the impact of EMIR Huge uncertainty exists at present Product scope [“Class of Derivatives”] Participants Segregation requirement [CCP and method] Capital requirements [for cleared v bilateral trades; for providing clearing services] Costs for banks and end users Fee Transparency Time to implement Historic trades [“Front loading”] Bilateral risk impact Impact on pricing and liquidity fragmentation Role of ESMA Third country counterparties and cross border trade Liquidity impact CCP will hold between $2tn - $2.5tn collateral Buy-side impact Costs Liquidity & Collateral Management Operational and infrastructure changes

7. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

8. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

9. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

10. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

11. Current and potential CCP OTC offerings

12. The cross-border nightmare - Examples Only now are US and EU beginning to understand the issues of cross border trades Consider examples US Bank with third country Bank UK Bank and French Bank for EUR CDS, both of whom are swap dealers US Fund using a UK fund manager with a US bank for a USD or EUR IRS French Fund using a French fund manager with a UK bank for USD or EUR CDS UK Fund using a US fund manager with a Japanese Bank for a JPY IRS or CDS US Branch of UK Bank with a French Bank for USD IRS EU Branch of US Bank with a Dutch Pension Fund for EUR IRS EU Subsidiary of US Bank with an EU Agency for USD IRS Consider the impact on Method of execution [OTC or Exchange requirement] Trade reporting [real-time; where; block exemptions] Clearing obligation [requirement based on?; where to clear?]

13. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

14. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

15. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

17. Buy a standardised derivative hedge that is cheaper, but remain exposed to basis risk (and loss of hedge accounting treatment)

19. May have accounting implications

20. Management of market risks moved from bank to client

21. Cost of hedge to client is lower vs. OTC derivative

22. Non-business risks assumed by client (earnings volatility/mandate issues)

23. Management of market risks moved from bank to client

24. Cheapest upfront costs for clients

25. Increased costs through additional capital passed on to client either via OTC price and margin/collateral.

26. Cost of hedge vs. exchange traded derivative higher.

28. Areas of concern Segregation Portability Cross-border and Extra-territoriality Fair & Open Access Silos Cross-margin Central Bank Liquidity Financial “Skin in the game” Too big to fail

29. CCPs – The Financial “Nuclear Power” Station

30. The “Elephant in the Room”

31. John Wilson John.Wilson@mpaua.com +447850543065 http://www.linkedin.com/in/johndwilson Twitter: @cdsclearing @irsclearing @otcclearing @fxclearing @clientclearing @otcderivatives