Asset Backed Securities Product Descriptions 1
Products CMBX Swaps ABX Swaps Product Specifications ICAP s SEF will participate in the following mortgage backed securities market: ABX and CMBX The ABX and CMBX are baskets of CDSs on two securitized products: asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). The ABX is based on ABS home equity loans and the CMBX on CMBS. So, the ticker ABX.HE.AA, for example, denotes an index that is based on a basket of 20 ABS Home Equity (HE) CDSs whose reference obligations are 'AA'-rated bonds. There are five separate ABX indexes for ratings ranging from 'AAA' to 'BBB-'. The CMBX also has the same breakdown of five indexes by ratings, but is based on a basket of 25 CDSs, which reference CMBS securities. Daily trading involves cash settlements between the two parties to any transaction, and the CMBX indexes are rolled over every six months to bring in new securities and continuously reflect the current health of the commercial mortgage markets. This "pay as you go" settlement process considers three events in the underlying securities as "credit events": principal write downs, principal shortfalls (failures to pay on an underlying mortgage) and interest shortfalls (when current cash flows pay less than the CMBX coupon). For more information on ABX please see: http://www.markit.com/en/products/data/indices/structured-finance-indices/abx/abx.page For more information on CMX please see: http://www.markit.com/en/products/data/indices/structured-finance-indices/cmbx/cmbx-prices.page Indices CMBX.NA.AAA.1 CMBX.NA.AA.1 CMBX.NA.A.1 CMBX.NA.BB CMBX.NA.BBB.1 CMBX.NA.BBB-.1 Notional o Amortization mirrors that of the underlying bonds Fixed Rate o Established 1-day prior to roll date. Payable monthly based on average balance 2
Floating Rate Payments o Interest Shortfall, Write down, Principal Shortfall Additional Fixed Payments o Interest Shortfall Reimbursement, Write down Reimbursement, Principal Shortfall Reimbursement Quotations o Dealers will quote a current market spread and exchange upfront amounts based on the difference between the current market spread and the Fixed Rate Physical Settlement o Not Applicable Accruals o Accrues 25th to 25th Payments o Payments made on the 25th of each month Day Count o Actual/360 ABX Swaps Specifics This ABX Transactions Standard Terms Supplement (the ABX Standard Terms ) hereby incorporates by reference the definitions and provisions contained in the 2003 ISDA Credit Derivatives Definitions, as published by the International Swaps and Derivatives Association, Inc. (the Credit Derivatives Definitions ). In the event of any inconsistency between the Credit Derivatives Definitions and these ABX Standard Terms, these ABX Standard Terms will govern. The parties agree that, by entering into a transaction governed by these ABX Standard Terms (a Master Transaction ), they have entered into a separate Credit Derivative Transaction (each, a Component Transaction ) in respect of each Reference Obligation listed in the Relevant Annex (as defined below). Upon entering into a confirmation or other document (including in electronic form) (a Confirmation ) for a Master Transaction incorporating these ABX Standard Terms, the parties thereto shall be deemed to have entered into a Confirmation in respect of each such Component Transaction with respect to the related Reference Obligation listed in the Relevant Annex. Subject to paragraph 7 below and except as otherwise expressly provided herein or in the relevant Confirmation, each Component Transaction constitutes an independent Transaction for purposes of the Master Agreement (as specified in the relevant Confirmation). References in these ABX Standard Terms to a Reference Obligation and the terms relating thereto shall be to the terms of such Reference Obligation set out in the applicable Underlying Instruments (as defined below) as amended from time to time unless otherwise specified below. The terms of each Component Transaction to which these ABX Standard Terms relate are as follows: 3
General Terms: Index: Index Sponsor: Trade Date: Effective Date: Scheduled Termination Date: Component Transaction Scheduled Termination Date: CDS IndexCo LLC With respect to a Component Transaction, the Legal Final Maturity Date for the applicable Reference Obligation, subject to adjustment in accordance with the Following Business Day Convention. to Termination Date: With respect to a Component Transaction, the last occur of: (a) (b) (c) the fifth Business Day following the Effective Maturity Date in respect of the relevant Reference Obligation; the last Floating Rate Payer Payment Date in respect of such Reference Obligation; and the last Additional Fixed Amount Payment Date in respect of such Reference Obligation. Floating Rate Payer: Seller ). Fixed Rate Payer: As shown in the relevant Confirmation (the As shown in the relevant Confirmation (the Buyer ). Aggregate Floating Rate Payer Calculation Amount: Calculation Agent: only Calculation Agent City: If both parties are licensees of the Index, Seller. If one party is a licensee of the Index, such party. New York. 4
Business Day: Business Day Convention: Reference Entity: the Reference Obligation: the New York and London. Following (which, with the exception of the Effective Date, the Final Amortization Date, each Reference Obligation Payment Date and the period end date of each Reference Obligation Calculation Period, shall apply to any date referred to in these ABX Standard Terms that falls on a day that is not a Business Day). With respect to a Component Transaction, applicable Reference Entity contained in the Index and listed in the Relevant Annex, and any entity that succeeds to the obligations of such Reference Entity under the related Reference Obligation. Section 2.2 of the Credit Derivatives Definitions shall not apply. With respect to a Component Transaction, Reference Obligation specified in the Index and set out opposite the applicable Reference Entity in the Relevant Annex. Section 2.30 of the Credit Derivatives Definitions shall not apply. The Reference Obligation is used herein solely to make certain calculations hereunder and there is no requirement that Buyer or Seller own the Reference Please see 2003 ISDA Credit Derivative Definitions and Supplements for further details. 5