NASDAQ OMX NLX PRODUCT TERMS German Government Bond Futures These terms (the "Product Terms") shall apply to (i) any transaction entered into between Participants on the Market, in respect of which the parties enter into a Transaction Confirmation 1 pursuant to the Rules 2 in the form set out in Schedule 2 to these Product Terms and (ii) upon registration of any Exchange Contract incorporating these Product Terms with the CCP, to the resulting contracts between each Participant and the CCP. 1. Definitions 1.1 Terms used in these Product Terms and not defined herein shall have the meanings given to them in the NASDAQ OMX NLX Rule Book (the "Rule Book") and the Trading Procedures. 1.2 In addition, in these Product Terms: "Balancing Amount" means the amount specified as such in Schedule 1 (Transaction "Breach of Obligation" has the meaning given to it in Clause 7.2(d). "Buy-in Cost" has the meaning given to it in Clause 7.5. "Buyer" means (i) in respect of the Exchange Contract incorporating these Product Terms, the Participant identified as such in the Transaction Confirmation and (ii) in respect of any Cleared Contract incorporating these Product Terms, the person determined to be the "Buyer" in accordance with the Clearing Regulations. "Cash Settlement" means the procedures set out in Clauses 7.5 (following a Delivery Default) and 7.6 (following a Settlement Payment Default). "CCP " has the meaning given to it in the NASDAQ OMX NLX Rule Book. "CCP Designated Default" has the meaning given to it in Clause 7.2(e). "Cleared Contract" means each contract incorporating these terms between a Participant identified in the Transaction Confirmation and the CCP. "Clearing Regulations" means the LCH.Clearnet Rulebook (including the General Regulations, Procedures, Default Rules, Default Fund Rules and Settlement Finality Regulations) in force from time to time. 1 2 The method of "entering into" a Transaction Confirmation will be entirely electronic, without the need for any paper-based confirmation. The fact that entering into a transaction on the Market has the effect of causing an Exchange Contract to arise between the Participants will be set out in the Rules and/or Trading Procedures which are binding on both Participants. The mechanisms for actually entering into transactions (including matters such as details of trading platform and hours, matching algorithms, trade registration services minimum tick size and calculation of the Final Settlement Price) w ill be dealt w ith by the Rules and/or the Trading Procedures rather than in these Contract Terms as these are matters to be determined by the Operator, w hich is not a party to the relevant Exchange Contract or Cleared Contract.
"Clearing System" means any clearing system through which settlement of the parties' obligations under Clauses 5.1 and 5.1 is to occur pursuant to the Clearing Regulations or, in the case of an Exchange Contract, as selected by the parties to this Agreement. "Contract" means the Exchange Contract or Cleared Contract (as applicable) constituted by these Product Terms. "Contract Price" means the price identified as such in the Transaction Confirmation. "Conversion Factor" means, in respect of any Deliverable Bond, the Conversion Factor calculated by the Exchange in respect of that Deliverable Bond pursuant to the Trading Procedures in accordance with the formulae set out in Schedule 3 ( Calculation of Conversion Factor). "Daily Accrued" means the amount specified as such in Schedule 1 (Transaction "Default" has the meaning given to it in Clause 7.2. "Default Rules" means NLX Rule Book and the LCH.Clearnet Rulebook (including the General Regulations, Procedures, Default Rules, Default Fund Rules and Settlement Finality Regulations) in force from time to time, provided that, to the extent of any conflict between the NLX Rule Book and the LCH.Clearnet Clearing Rulebook the LCH.Clearing Rule Book shall prevail. "Defaulting Party" has the meaning given to it in Clause 7.2. "Delayed Settlement Period" means, in the case of a Settlement Failure, the period from (and including) the Settlement Date to (but excluding) the earlier to occur of (i) the first date on which the Settlement Failure has been cured and (ii) the date on which the obligations of the Buyer to pay the Settlement Amount and the Seller to deliver the Deliverable Bonds are discharged pursuant to Clauses 7.5 or 7.6 (as the case may be). "Deliverable Bond Characteristics" has the meaning given in Schedule 1 (Transaction "Deliverable Bonds" has the meaning given in Schedule 1 (Transaction "Delivery Default" has the meaning given to it in Clause 7.2. "Delivery Month" means the month identified as such in the Transaction Confirmation. "Delivery Notice" means a notice from the Seller to the Buyer containing the information specified in Clause 3.2 and, in the case of a Cleared Contract, such other information as may be prescribed in the Clearing Regulations. "Exchange Contract" means the contract formed between the Participants identified in the Transaction Confirmation incorporating these Product Terms. "Fallback Reference Rate" means the interest rate specified in or determined pursuant to the methodology specified in Schedule 1 (Transaction "Final Settlement Price" has the meaning specified in Schedule 1 (Transaction "Former Busine ss Day" has the meaning given to it in Clause 6 (Adjustment to Business Days) of these Product Terms. - 2-
"Initial Accrued" means the amount specified as such in Schedule 1 (Transaction "Last Trading Day" means the day specified as such in Schedule 1 (Transaction "Last Trading Time" means the time specified as such in Schedule 1 (Transaction "Maturity Range" means the period specified as such in Schedule 1 (Transaction "Non-Defaulting Party" means, in respect of a Default, the party which is not the Defaulting Party. "Notional Coupon" has the meaning specified in Schedule 1 (Transaction "Number of Lots" means the number specified as such in the Transaction Confirmation. "Payment Default" has the meaning given to it in Clause 7.2."Sale Price" has the meaning given to it in Clause 7.6. "Seller" means (i) in respect of the Exchange Contract incorporating these Product Terms, the Participant identified as such in the Transaction Confirmation and (ii) in respect of any Cleared Contract incorporating these Product Terms, the person determined to be the "Seller" in accordance with the Clearing Regulations. "Settlement Amount" means the amount specified as such in Schedule 1 (Transaction "Settlement Date" means the date specified as such in Schedule 1 (Transaction "Settlement Failure" has the meaning given to it in Clause 5.3. "Settlement Payment Default" has the meaning given to it in Clause 7.2. "Trading Procedures" means the NASDAQ OMX NLX Trading Procedures. "Transaction Confirmation" means the transaction confirmation in the form set out in Schedule 2 (Transaction Confirmation) to these Product Terms. 2. Constitution of Contracts, Application of Rule s, Trading Procedure s and Clearing Regulations 2.1 By entering into a Transaction Confirmation, the Buyer and Seller enter into an Exchange Contract on the terms set out in these Product Terms and the Transaction Confirmation and agree to perform their obligations as set out in and subject to these Product Terms, the Rules and the Trading Procedures. In the event of any conflict between these Product Terms and either the Rules or the Trading Procedures, the Rules or Trading Procedures shall prevail. 2.2 Upon registration of any Exchange Contract constituted pursuant to Clause 2.1 with the CCP in accordance with the Clearing Regulations, the Participants shall be released from their obligations under that Exchange Contract and the rights and obligations of the parties to each resulting Cleared Contract shall be subject to the terms of the Clearing Regulations. In the - 3-
event of any conflict between these Product Terms and the Clearing Regulations, the Clearing Regulations shall prevail. 3 3. Delivery of Settlement Notice This Clause 2.2 shall only apply if the Seller is not the CCP. 3.1 The Seller shall, on or before the Notification Time, deliver a Delivery Notice to the Buyer in the manner prescribed in the Rules and the Clearing Regulations. 3.2 Any Delivery Notice delivered by the Seller pursuant to Clauses 3.1 shall specify the Deliverable Bond which will be delivered on the Settlement Date in respect of each lot. Only one Deliverable Bond may be specified in respect of each lot referred to in the Seller's Delivery Notice. 3.3 By delivering a Delivery Notice, the Seller represents to the Buyer that: on the Settlement Date, the Seller will be entitled to transfer all right, title and interest in such Deliverable Bonds free of any proprietary or equitable interest of any other person other than any lien or other security interest routinely imposed by law or pursuant to the rules of any clearing system; and without prejudice to sub-paragraph, if the Seller is not the person which transfers the Deliverable Bonds, the Seller has no proprietary interest in such Deliverable Bonds and waives any such interest it may have to the extent it may arise. 4. Allocation of Deliverable Bonds This Clause 4 shall only apply if the Seller is the CCP. The Seller shall, pursuant to the Clearing Regulations, notify to the Buyer of the Settlement Date and the Deliverable Bonds which will be delivered by the CCP on the Settlement Date in respect of each lot. 5. Settlement 5.1 On the date specified in the LCH.Clearnet Procedures: (d) the Seller shall deliver the Deliverable Bonds to the Buyer; the Buyer shall pay to the Seller the Settlement Amount; if the Balancing Amount is greater than zero, the Seller shall pay to the Buyer the Balancing Amount; and if the Balancing Amount is less than zero, the Buyer shall pay to the Seller the absolute value of the Balancing Amount. 5.2 The time and method for making any payment or delivery required to be made in respect of this Contract shall be as specified in the Rules, the Trading Procedures and the Clearing Regulations (as applicable) 4, and, in the case of a Cleared Contract, Buyer and Seller shall comply with any instructions made by the CCP for the purpose of effecting settlement of their obligations pursuant to Clause 5.1. 3 The actual entry into the Cleared Contracts between the Participants and the CCP w ill occur pursuant to registration 4 provisions in the Clearing Regulations. The Rules, Trading Procedures and Clearing Regulations should set out standard terms that apply to how payments are made. This is currently contained in Section 2J of the LCH Clearing House Procedures, although may change from time to time. - 4-
5.3 A "Settlement Failure" shall occur if the Deliverable Bonds are not received by the Buyer or the Settlement Amount is not received by the Seller on the Settlement Date for any reason whatsoever, including, without limitation: (d) the failure of the Clearing System to effect settlement of such delivery or payment; any error, failure, closure or suspension of the Clearing System; a failure by any third party to make any required transfer of such Deliverable Bonds to the Seller or any settlement agent for the Seller in time to enable the Seller to make delivery to the Buyer pursuant to Clause 5.1; or any failure by either Buyer or Seller, or any settlement agent for either Buyer or Seller, to input any necessary instructions required by the Clearing System or pursuant to the Clearing Regulations to effect settlement, including as a result of any fault or failure of any computer or communication system. 5.4 A Settlement Failure shall be "cured" on the Business Day on which the Deliverable Bonds have been received by the Buyer and the Settlement Amount has been received by the Seller. 5.5 If a Settlement Failure occurs, the Buyer and Seller shall co-operate to cause such Settlement Failure to be cured as soon as possible, including by adopting alternative settlement procedures as may be appropriate in the circumstances. In the case of a Cleared Contract, any decision as to such alternative settlement procedures made by the CCP shall be binding on the parties. 5.6 If a Settlement Failure occurs, where the Seller is not the CCP, the Seller shall, on the day on which the Delayed Settlement Period ends, pay to the Buyer an amount (the "Settlement Adjustment Amount") equal to the sum of: except where the Buyer is a Defaulting Party, an amount equal to 0.4 per cent per day of the Settlement Amount; and an amount equal to the product of: (i) (ii) the Settlement Amount; a rate equal to: (A) (B) in the case of a Cleared Contract, the average of the effective rate for the marginal lending facility of the European Central Bank at the close of each Business Day during the Delayed Settlement Period plus 100 basis points; or in the case of an Exchange Contract, the average of EONIA for each Business Day during the Delayed Settlement Period; and (iii) the number of calendar days in the Delayed Settlement Period divided by 360; and if any dividend or coupon is paid on the Deliverable Bonds specified in the Delivery Notice pursuant to Clause 3.3 by the issuer thereof on any day during the Delayed Settlement Period, an amount equal to the gross amount of such dividend (without any withholding or deduction on account of any tax). 5.7 Except for the payment of any Settlement Adjustment Amount pursuant to Clause 5.6, but without prejudice to Clause 7, no other additional amounts shall be payable by Buyer or Seller in connection with the Settlement Failure, and neither Buyer nor Seller may claim any other costs, losses, claims or other expenses in connection with such Settlement Failure. - 5-
5.8 For the avoidance of doubt, a Settlement Failure may also constitute a Default where the relevant event also constitutes a Default pursuant to Clause 7.2. 6. Adjustment to Business Days If, at any time on or prior to the date which was expected to be the Settlement Date, the Operator determines in accordance with the Rules and the Trading Procedures that any date which was expected to be a Business Day will not be a Business Day (such day a "Former Business Day"), then: if that Former Business Day was the date which was expected to be the Last Trading Day, then the Last Trading Day shall be the next following Business Day and the Settlement Date shall also be adjusted accordingly; if that Former Business Day was the date which was expected to be the Settlement Date, then the Settlement Date shall be the next following Business Day; and if that Former Business Day is any other day then such determination shall have no impact on the Exchange Contract or any Cleared Contract (as applicable). 7. Default 7.1 If either Buyer or Seller is a Defaulting Party, the Default Rules shall apply and the remaining provisions of this Clause 7 shall apply to the extent not otherwise provided in the LCH.Clearnet Default Rules. 7.2 A "Default" shall occur in respect of a party (which shall be the "Defaulting Party") if any of the following occurs: (d) (e) in respect of the Seller, the failure by the Seller to deliver the Deliverable Bonds specified in the Delivery Notice delivered pursuant to Clause 3.3 to the Buyer on the Settlement Date (a "Delivery Default"); in respect of the Buyer, the failure by the Buyer to pay the Settlement Amount on the Settlement Date (a "Settlement Payment Default"); in respect of either party, the failure by that party to pay any other amount payable by that party pursuant these Product Terms on the day on which such amount was due (a "Payment Default"); in the case of either party, the failure by that party to comply with any other obligation under this Agreement (a "Breach of Obligation"); or in the case of a Cleared Contract only: (i) (ii) the failure by a party to comply with any instruction from the CCP pursuant to the Clearing Regulations in respect of this Agreement; or the CCP otherwise determines that that party is in default pursuant to the Default Rules, each a ("CCP Designated Default"). 7.3 A Default shall be "continuing" until: in the case of a Delivery Default, the earlier to occur of (i) the date on which the Seller has delivered the relevant Deliverable Bonds to the Buyer in accordance with the Rules, the Trading Procedures and the Clearing Regulations (if applicable) and (ii) - 6-
the date on which the Seller pays any additional amount payable by the Seller pursuant to Clause 7.5; (d) (e) in the case of a Settlement Payment Default, the date on which the Buyer has paid the Settlement Amount to the Seller in accordance with the Rules, the Trading Procedures and the Clearing Regulations (if applicable), together with any Settlement Adjustment Amount and any other amount payable by the Buyer pursuant to Clause 7.6; in the case of a Payment Default, the date on which the relevant amount has been paid by the Defaulting Party; in the case of a Breach of Obligation, the date on which the Defaulting Party has complied with the relevant obligation; and in the case of a CCP Designated Default, the date on which the CCP determines that such CCP Designated Default is no longer continuing. 7.4 If a Delivery Default or a Settlement Payment Default occurs: the Defaulting Party shall continue to perform its obligations pursuant to this Agreement except to the extent otherwise provided in this Clause 7; the Non-Defaulting party shall continue to attempt to perform its obligations pursuant to this Agreement until the end of the fifth Business Day following the Settlement Date; and if the Delivery Default or Settlement Payment Default (as applicable) is continuing at the end of the fifth Business Day following the Settlement Date: (i) (ii) in the case of a Delivery Default, the Buyer may, in its sole and absolute discretion, elect for Cash Settlement to apply pursuant to Clause 7.5; or in the case of a Settlement Payment Default, the Seller may, in its sole and absolute discretion, elect for Cash Settlement to apply pursuant to Clause 7.6. 7.5 If the Buyer elects for Cash Settlement to apply pursuant to Clause 7.4(i): (d) the Buyer may acquire Deliverable Bonds (which, for the avoidance of doubt, need not be the specific Deliverable Bonds which were specified in the Delivery Notice pursuant to Clause 3.3, but may be any other bonds which are Deliverable Bonds) from any other person and apply those Deliverable Bonds in satisfaction of the Seller's obligation to deliver the Deliverable Bonds pursuant to Clause 5.1, and the Buyer shall be released from the obligation to pay the Settlement Amount to the Seller pursuant to Clause 5.1; the Buyer may reject any subsequent attempted delivery of the Deliverable Bonds (or any part thereof) by the Seller; if the total cost to the Buyer in acquiring the Deliverable Bonds referr ed to in Clause 7.5 (including any reasonable costs, fees and expenses and funding costs incurred in connection therewith) (the " Buy-in Cost") is greater than the Settlement Amount, the Seller shall pay to the Buyer the amount by which the Buy-in Cost exceeded the Settlement Amount; and if the Buy-in Cost is less than the Settlement Amount, the Buyer shall not be obliged to pay such amount to the Seller. 7.6 If the Seller elects for Cash Settlement to apply pursuant to Clause 7.4(ii): - 7-
the Seller may sell Deliverable Bonds (which, for the avoidance of doubt, need not be the specific Deliverable Bonds which were specified in the Delivery Notice pursuant to Clause 3.3, but may be any other bonds which are Deliverable Bonds) to any other person and apply the net proceeds of sale (after deducting all reasonable costs, fees and expenses incurred in connection therewith) (the "Sale Price") in satisfaction of the Buyer's obligation to pay the Settlement Amount to the Seller pursuant to Clause 5.1, and the Seller shall be released from its obligation to deliver the Deliverable Bonds to the Buyer pursuant to Clause 5.1; if the Sale Price is less than the Settlement Amount, the Buyer shall pay to the Seller the amount by which the Settlement Amount exceeded the Sale Price; and if the Sale Price is greater than the Settlement Amount, the Seller shall not be obliged to pay such amount to the Buyer. 7.7 For the avoidance of doubt, the obligation of the Buyer or the Seller (as applicable) to pay the Balancing Amount or Settlement Adjustment Amount shall not be affected by the application of Cash Settlement in respect of any Delivery Default or Settlement Payment Default. 7.8 In addition to any other amounts payable by the parties pursuant to this Agreement, a Defaulting Party shall bear all costs, losses, claims and ex penses of whatsoever nature incurred by both Buyer and Seller as a consequence of the Default. This term shall be without prejudice to the exercise by the CCP of its rights under the Clearing Regulations in respect of any fees or other charges. 8. Dispute Resolution Any dispute between Buyer and Seller shall be determined pursuant to the dispute resolution provisions in the Rules, Trading Procedures and/or Clearing Regulations (as applicable). 9. Governing Law This Contract, and any non-contractual obligations arising in respect of this Contract shall be governed by English law. - 8-
SCHEDULE 1 TRANSACTION SPECIFICATIONS For the purpose of these Product Terms: Unit of Trading EUR 100,000 Maturity Range Schatz: Between 1 years and 9 months to 2 years and 3 months; Bobls: Between 4 years and 6 months to 5 years and 6 months; Bunds: Between 8 years and 6 months to 10 years and 6 months. Notional Coupon 6 % Last Trading Day Last Trading Time The day falling two Business Days prior to the Settlement Date. 11.30 London time on the Last Trading Day. Notification Time Final Settlement Price: Settlement Date Settlement Amount: 13.30 London time on The Last Trading Day, as specified in the LCH.Clearnet clearing regulations. The price determined as per the Trading Procedures at 11:30 London time on the Last Trading Day, to be expressed as the price per EUR 100 nominal of a Deliverable Bond which would have a Conversion Factor of 1. The tenth calendar day of the Delivery Month or, if such day is not a Business Day, the next following Business Day. An amount equal to the sum of the following in respect of each lot comprising this contract, the sum of: (i) the product of: (A) 1000; (B) (C) the Final Settlement Price; the Conversion Factor for the Deliverable Bond in respect of that lot; and (ii) the sum of: (A) (B) the Initial Accrued in respect of the Deliverable Bond in respect of that lot; and the product of the Daily Accrued for the - 9-
Deliverable Bond in respect of that lot and the number of days from and including the first day of the Delivery Month to and including the Settlement Date. Initial Accrued Daily Accrued Balancing Amount In respect of each Deliverable Bond, the amount specified as such by the Exchange in accordance with the Trading Procedures. In respect of each Deliverable Bond, the amount specified as such by the Exchange in accordance with the Trading Procedures. An amount equal to the product of: (i) the Final Settlement Price minus the Contract Price; and (iii) 1000. Deliverable Bonds Deliverable Bond Characteristics Bonds which satisfy the Deliverable Bond Characteristics and are identified as such by the Exchange for the purpose of these Product Terms not less than ten Business Days prior to the Settlement Date in accordance with the Trading Procedures. Deliverable Bonds shall: be debt securities issued by the Federal Republic of Germany; have an original term of no longer than 11 years; have a minimum issue amount of EUR 5 billion; and have a period to redemption which falls within the relevant Maturity Range. - 10-
SCHEDULE 2 TRANSACTION CONFIRMATION By entering into a transaction on the Market in respect of which the terms identified below are identified 5, the Buyer and Seller agree to enter into an Exchange Contract incorporating the Product Terms identified below which relate to the Contract Type. Contract Type Bund/Bobl/Schatz Futures Product Terms Final Delivery Month Buyer [to be agreed] [to be agreed] Seller [to be agreed] Number of Lots [to be agreed expressed as a whole Number of Lots] Contract Price GBP [to be agreed expressed as the price per EUR 100 nominal of a deliverable bond which would have a Conversion Factor of 1] 5 The method of "entering into" this Transaction Confirmation w ill be entirely electronic, w ithout the need for any paperbased confirmation. The fact that entering into a transaction on the Market has the effect of causing an Exchange Contract to arise between the Participants should be set out in the Rules and/or Trading Procedures which are binding on both Participants. - 11-
SCHEDULE 3 CALCULATION OF THE CONVERSION FACTOR FOR DELIVERABLE BONDS AGAINST THE GERMAN GOVERNMENT BOND FUTURES The Conversion Factor is calculated by the Operator, according to the formula shown below, and is used to determine the clean price of the Deliverable Bond upon delivery, by multiplying the Final Settlement Price (FSP) of the Future and the Conversion Factor of the Deliverable Bond. The Final Settlement Amount shall be (Future FSP x Conversion Factor o f Delivered Bond) + Accrued Interest to the Delivery Date. ( ) ( ) ( ) [ ( ( ) ) ( ) ] Where: CF = the conversion factor of the deliverable bond; P (x) = the clean price per 100 nominal of the deliverable bond priced at a yield of x% pa, being the notional coupon of the future, for settlement on the delivery date of the future contract; x = notional coupon of the future; c = annual coupon per 100 nominal of the deliverable bond; r = the number of days between next coupon date and delivery date if delivery date occurs before one year prior to next coupon date, or otherwise; r = the difference of next coupon date and delivery date plus the number of days in the time span between one and two years prior to the next coupon date; s = the number of days between next coupon date and one year prior to next coupon date if delivery date occurs before one year prior to next coupon date, or otherwise; s = the number of days in the time span between one and two years prior to the next coupon date otherwise; d 1 = the fraction of the coupon c given by the ratio of the number of days between next coupon date and last coupon date to the number of days between the next coupon date and one year prior to next coupon date; n = the number of full coupon periods between the next coupon date and the redemption date of the deliverable bond; AI = the accrued interest per 100 nominal of the deliverable bond; Accrued Interest (AI) is given by: [ ] d Act is the calendar daycount of the calendar year preceding the next coupon date if the numerator in the corresponding year fraction is negative and is the calendar daycount of the calendar year preceding the date that is one year prior to the next coupon date. - 12-