ICE Swap Trade CDS Execution May 2014
Agenda ICE Overview ICE Swap Trade Overview Execution Methodologies Block Trades Readiness Checklist Fees Workflows 2
ICE Overview IntercontinentalExchange (ICE) is a leading operator of global markets, clearing houses, trade processing and data services for the derivatives markets. Formed in 2000 with a market capitalization of $26 Billion, ICE is the second largest exchange operator in the U.S. Diversified Markets / Global Footprint Credit, energy, emissions, agricultural, equity index and foreign exchange Global benchmarks in energy, agriculture, FX and equity indexes Screens distributed around the globe 17 regulated exchanges & global OTC markets 6 regulated clearing houses in North America, Europe and Asia Ahead of the Curve Leadership in clearing the OTC derivatives markets has created significant transparency and supports liquidity in the swaps markets in advance of regulatory reform Delivering on industry needs in credit execution, post-trade processing, clearing and other operational and risk management process 3
Why ICE Swap Trade? 1. Over 10 years of proven execution technology for CDS and Futures exchange traded products 2. Broadest range of coverage including both SEF listed and Non SEF products - CDX & itraxx Indices - NA & EUR Single Names - Options & Tranches - Sovereigns 3. Committed liquidity Firm streaming prices in both Indices and across the most liquid 50 NA and 50 EUR Single Names Only multi-dealer platform with Indices and Single Names 4. Flexible execution methodologies Anonymous Central Limit Order Book - Request for Quote (RFQ) Request for Cross (RFC) - Voice Brokerage Block 5. Multiple options for accessing liquidity GUI & Direct API Dealer platforms / Independent Software Vendors 6. Clients do not need to be direct participants or sign a Participant agreement 7. Integrated solutions for lifecycle of trade from execution to post-trade processing to clearing 4
Execution Platform Market Places Marketplace ICE Swap Trade All to All Non-SEF IDB SEF NON-SEF Products NA and EUR Indices* Options Tranches NA and EUR Single names & Sovereigns Global Products (NA and EUR SN & EUR Options/Tranches/Index & Sovereigns & EM) Execution Methods CLOB, RFC, Block CLOB Voice Brokered & Hybrid Cleared Cleared & Bilateral Cleared & Bilateral Cleared & Bilateral Access ICE ISV or FIX API Dealer Platforms Other ISVs All non-direct participants will need sponsored access for bilateral trading via an Introducing Broker FCMs will authorize clients for trading cleared swaps Creditex GUI / API 5 * All clearing eligible indices including instruments mandated to clear
Central Limit Order Book Overview Fully Anonymous Pre & Post-Trade for cleared contracts; name give up for bilateral Outright (Buy/Sell), Curve and Switch trades Limit, Market and Iceberg orders Price and time priority for matching logic Users may easily: Cancel single or all orders with one click Post or repost a run of prices Click a single price or stack of prices to execute a trade View STP & clearing status of trades via Blotter Can access Trade Blotter from compass on top right corner of screen Can increase size 6 Today s pricing & yesterday s close Full market depth Live ticker showing price entries & trades Trades done in the market Trades you ve done Double check trade details Once confirmed, click here to execute trade
Work-up / Volume Clearing Work-up / Volume Clearing launches after an Order Book execution Everyone trades at mid You enter an anonymous order for the full size you want to execute; no one else knows the size you want to execute Original counterparties receive priority execution Buy and Sell orders for everyone else are matched in time priority Enter total order size into blue Buy/Sell cells Total size done of total size entered Trade Details 7
Request for Cross (RFC) Allows you to arrange a trade off-sef if less than CFTC Minimum Block Size Orders flashed to the market for 2 seconds Original two counterparties are executed after 2 seconds unless a better order for at least the same size is in the order book Allows counterparties to agree to a trade off-facility and conveniently execute in 2 seconds on the SEF 8
What is a Block? CFTC requires that for a swap to be executed as a block it must meet 4 conditions: The swap must be listed on a SEF Must occur away from the SEF Must be executed pursuant to the SEF s rules and reported to the SEF Must be a large notional trade (see table below) CFTC Notional Block Limits in USD MM Notional Tenor Traded Spread Groups (basis points) 0-175 176-350 351+ 0-2 Years (0-746 days) 320 140 66 2-4 Years (747-1476 days) 200 82 41 4-6 Years (1477-2207days) 110 32 26 1 6-8½ Years (2208-3120) 110 20 13 8½-12½ Years (3121-4581) 130 26 13 12½+ Years (4582+ days) 46 63 41 1 Example: CDX.NA.IG - 5 year, traded spread of 120 bps, notional of 110+ may be executed off-facility and reported to a SEF 9
ICE Solutions for Block Trades Arrange a block trade any way you want ICE Swap Trade offers market participants flexibility in delivering the trade to the SEF MAT Block Trade leverages existing client clearing workflow ICE Swap Trade GUI entry leverages the SEF Direct workflow MAT Block Trade Workflow ICE Swap Trade (IST) GUI EB Submission ICE Client Clearing Workflow IST GUI Entry FCM Consent ICE Client Clearing Workflow IST Limit Facilities Client Affirm & Allocate ICE Client Clearing Workflow No affirmation Bunched Trade Workflow for allocation CCP Submission ICE Client Clearing Workflow SEF Direct Client Requirements No onboarding requirement; Everyone with a clearing account can use this Onboarded to IST 10
Execution of a Block Trade MAT Block Trade Workflow Execute as you do today Arrange block trade via any method (Voice, IB, e-mail etc) Executing Broker alleges block trade details to client via the ICE Link MAT Block Workflow Client affirms and allocates using any affirmation platform (ICE Link, BBG VCON and Markitwire) FCM consents to clearing Trade routed to SEF for reporting Trade cleared Advantages for Clients Traders trade as they do today for non-sef trades Utilize existing clearing workflow No paperwork or setup required 11
Trading Single Names Electronically Only platform with anonymous central limit order book for Index and Single Names Client can access single name market directly via Introducing Broker Screen or ICE Swap Trade GUI Multiple dealers are providing firm liquidity for ~50+ Single Names Client leg of trade is back-to-back with Introducing Broker/Prime Broker Swaps Dealer Swaps Dealer CLIENT B INTRODUCING BROKER 1 INTRODUCING BROKER 2 CLIENT A EXECUTION CLIENT C Swaps Dealer Swaps Dealer MARKET MAKER 1 MARKET MAKER 2 12
STP Connectivity For All SEFs ICE Link is connected to every SEF for Credit All ICE Link clients can view all of their SEF trades across all credit SEFs in the ICE Link Trade Blotter Auto-Affirmation clients can receive an STP feed for all of their SEF trades across all credit SEFs STP feed is available in your existing integration 13
Fees for Index Trades SEF Execution Fees Per Transaction Per Side* Product Category CLOB / RFC / Block CDX NA IG USD 10 CDX NA HY USD 10 itraxx Main EUR 10 itraxx Crossover EUR 10 CDX EM USD 10 SovX USD 10 itraxx Senior Financials EUR 10 itraxx Subordinated Financials EUR 10 Full fees schedule can be found at www.theice.com/swaptrade * Additional Markit index license fee is USD 5 per transaction per side 14
Readiness Checklist Determine accessto trade on ICE Swap Trade via: - ICE GUI or direct API connectivity; - Independent Software Vendor or - Dealer trading platform For clearedtrades, contact Clearing Members to startthe onboarding process for ICE Swap Trade and complete CM documentation For bilateral trades, contact Introducing Broker/Prime Broker and complete IB/PB documentation Complete onboarding documents required by ICE Swap Trade: 1. Direct access to IST GUI / API - Execution of IST GUI or API agreement & complete onboarding form 2. Use of MAT Block Trade Workflow only - No onboarding required Contact ICE Link Account Management to enable STP feed of all your SEF trades 152
Who to Contact for More Information OTC Financial Sales ICESales.OTCFinancial@theice.com NA: + 1 212 323 6020 EUR: + 44 (0)20 7429 4500 ICE Credit Execution ICESwapTradeAMG@theice.com NA: + 1 212 323 8500 EUR: + 44 (0)20 7429 3000 ICE Link Account Management icelinkhelp@theice.com NA: +1 770 738 2101 (Option 3+1+1) EUR: +44 (0)20 7488 5100 (Option 3+1+ 2) Visit www.theice.com/swaptrade for further information including the ICE Swap Trade Rulebook, Rule Filings and SEF Data Subscribe for automated updates from ICE Swap Trade and all ICE offerings at www.theice.com/subscribe 162
17 Appendix
Certainty of Execution Comprehensive Pre Order Credit Checks FCM/Client credit checks supported via Ping and Push models FCM/Client credit checks are prior to order-matching FCM may provide Kill Switch in real-time FCM Designated Credit Checking Methodologies PING Connectivity to FCMs via direct API connections and hubs Pre-trade limit check for all orders/quotes FCM Kill Switch to revoke a client and/or individual limit Sub-second latency PUSH FCMs can upload limits via hub Supports notional based limits at a product level Ping fallback and Kill Switch optional Low latency 18
SEF Direct to CCP 1. Client limits established by FCM and checked by SEF at time of client order entry 2. ICE Cleared CDS Swap executed on SEF 3. SEF submits to Clearing House via ICE Link API 4. SEF optionally delivers STP to counterparties and SEF RT & PET message to SEF s SDR of choice 5. Trade is submitted to Clearing House via ICE Link 6. Clearing House accepts trade and messages back to participants and SEF via ICE Link 7. Cleared trade legs reported to Trade Vault by Clearing House 8. Participant can optionally perform post-clearing enrichment of internal Trade Reference Identifier via the ICE Link API Note: No enrichment, affirm or submission provided by EB or FCM between execution and clearing acceptance SEF EXECUTION 1 BUYER SEF EXECUTION 4 SEF STP & SDR 4 TRADE CAPTURE BUYER FCM CLEARING HOUSE SDR LIMITS & TRADE 2 ICE LINK LIMIT CHECK 3 6 CLEARING SUBMISSION, NOTIFICATION & 6 8 POST-CLEARING ENRICHMENT 8 5 7 TRADE CAPTURE SELLER SELLER FCM RT & PET to SDR LIMITS & TRADES 1 19
Cleared Swap Allocations Bunched Trade Workflow 1. Trade executed on SEF. SEF sends trade to ICE via SEF Direct workflows for clearing. The Fund Manager has been authorized by its FCM (referred to as the Give-Up Firm) to allocate post-execution 2. Clearing House accepts SEF trade for clearing and notifies SEF and participants. ICC notifies Fund Manager via ICE Link or approved vendor that it must provide 100% of allocations as soon as practicable but no later than Clearing House close 3. Client provides all allocations for trade executed in step (1) via ICE Link or approved vendor. Individual allocations include the specific fund, the fund s FCM (referred to as the Take-Up firm if it is different than the Give-Up firm) and the amount of the allocation. For Fund Manager this process is technically the same as allocations for an offfacility cleared trade 4. Allocations are sent to both the Give-Up Firm and the Take-Up Firm for consent who are anonymous to each other. These give-up requests are processed as new trades 5. Give-Up Firm and Take-Up Firm both consent to request. Give-up Firm consents even if allocation is to a clearing account at the Give-Up Firm 6. Clearing House and Fund Manager notified. Clearing House processes Give-Up instruction 20 SEF EXECUTION CLEARING HOUSE ALLOCATION GIVE UP GIVE-UP FIRM AFFIRM TRADE CAPTURE & RISK 3 4 1 2 EXECUTION ALLOCATION 5 CONSENT 5 6 AFFIRM TAKE-UP FIRM TRADE CAPTURE & RISK Terminology Definitions - ICE & Industry Discussions: Give-Up Firm: Standby FCM Take-Up Firm: Final FCM SEF Executed ICE Cleared CDS Swap Allocation: Bunched Trade Workflow is utilizing common terminology across its Futures and Cleared Swaps products
Block Trade Workflow 1. Executing Broker (EB) alleges trade to Client. Trade references a MAT credit and exceeds Block Limits. EB sets large notional flag on allege 2. Client affirms block details and provides allocations and FCM(s). 3. Trade routed to FCM(s)for clearing consent. 4. FCMs consent to the trade 5. Trade routed to ICE Swap Trade (IST). IST assign USI and Trade Execution time 6. Trade RT and PET reported to SDR as Block trade 7. Trade routed to CH 8. Trade accepted by CH and status provided to EB, FCMs and Buyside 9. Cleared legs Confirm reported to SDR Notes: Enhancements to workflow appear in Blue IST will accept all fully affirmed Block trades on MAT credits No change to off-facility workflow for Non-MAT credits 21 21
SEF Direct Workflow with Pre-trade Allocations 1. Client provides allocations to the SEF 2. Client limits established by FCM at the allocation level and checked by SEF at time of Client order entry 3. Client executes at the bunched level 4. SEF sends trade execution and allocations to ICE via SEF Direct to CCP workflow in one message 5. ICE clears the allocations for the FCM and bunched trade for the EB. ICE will support Client to Client trades with different allocation shapes on both sides 6. Clearing statuses are returned to the SEF and the participants. ICE CCP updates SDR 22 Available in production Q2 2012
Bilateral Trade Contracts not included in the clearing mandate 1. Credit limits established by Introducing or Prime Broker (IB/PB) 2. Client enters an order into ICE Swap CLOB via the ICE GUI or via an Independent Software Vendor (e.g. UBS NEO with UBS acting as the Introducing Broker) 3. Swap Dealers streaming firm prices into the ICE Swap CLOB 4. Order is matched and executed in the ICE Swap CLOB 5. STP of resulting trades to each counterparty via ICE Link; Client: bilateral trade with IB/PB IB / PB: Swap Dealer bilateral trade 1 Pre-trade credit limit check with IB / PB CLIENT OR CLIENT 2 Order UBS NEO ICE LINK ICE SWAP CLOB MATCHED AND EXECUTED CLIENT IB / PB 5 IB / PB TRADE 1 Order posted to CLOB Order Streaming Firm Prices TRADE 2 Client is anonymous at all times to other parties in the ICE SWAP Trade CLOB 4 3 SWAP DEALERS SWAPS DEALER 23