OTC FX Clearing

2014 CME Group. All rights reserved.
OTC FX Clearing
September 2014
Security. Neutrality. Transparency.
2014 CME Group. All rights reserved. 2014 CME Group. All rights reserved.
CME Group is the worlds leading and most diverse derivatives exchange. Its where
companies, institutions and individuals from around the globe come to manage their
business risks, hedge against fluctuations and protect themselves against price
volatility.
CME Group: Who We Are
Our Global Reach
ACCESS IN
150 Countries
CONNECTIONS THROUGH
11
Global
Hubs
RELATIONSHIPS WITH
12
Partner
Exchanges
2
Offering a superior solution to meet clients needs
Customer Focus
Global multi-asset class clearing solution for IRS, CDS, FX, and Commodities
Transparency through reporting directly to customers
Follow-the-Sun Global Client Service Support

Margin Efficiencies
Customer margin is based on 5-day historical VAR methodology
Margin offsets for OTC FX trades

Operational Flexibility
Ability to real-time clear trades in all time zones
No requirement of pre-funding to clear trades in normal course of business
Automated portability for default scenarios

Customer Protections
Offering clients the option of LSOC, LSOC with Excess, and Combined Cash Flow under
LSOC with Excess
Why Customers are Choosing CME Group
3
CME OTC FX Product Offering

Currently there is not a draft proposal on the desk of the CFTC Chairman, but there is still the
possibility of a Q4 2014 public proposal for an FX mandate, with implementation starting Q2
2015 (assuming a Q4 announcement):
- Information at this point is the CFTC is fully focusing on equivalency before mandating more
products.
Still expecting that a move to MAT status for NDFs could occur quickly, which means trading
moves to SEFs (assuming no no-action letters are implemented)
- In order to ensure we offer our clients choice in execution, we are engaged with multiple SEFs to
get them connected to CME
FX Options are not expected in the initial mandate, but are expected at some point in the
future as they are classified as swaps

Estimated Regulatory Timeline*
5
Q4 2014* Q1 2015 Q2 2015
Once the Mandate is
announced:
90 day comment period is
opened
Entered into Federal Register:
After the comment period, the
implementation clock starts,
meaning 90 day implementation
for the first phase of participants
Q3 2015
*All dates indicated are subjective, timeline is based on a beginning Q1 announcement.
Overview
Provides post-execution clearing solution and settlement service designed to meet the risk-
management needs of FX market participants
Allows customers to retain the flexibility of OTC products, utilize any established OTC
execution method (Voice, SEF, Single Dealer Platform, other ECN), while mitigating
counterparty credit risk

Product Scope
Initial focus centered on 12 Non-deliverable Forwards (NDFs) and 26 Cash-Settled Forwards
(CSFs)
FX options to be delivered at a later date
Notional can be any amount as long as it conforms to market convention submissions and is
for any valid business date out to 2 years

CME Group OTC FX Clearing
6
Expand Liquidity
Increase volume with existing accounts by freeing up bilateral credit lines by clearing via CME
Access to new counterparties previously unattainable for legal or credit reasons

Mitigate Counterparty Risk
CME acts as the central counterparty to all transactions

Reduce Risk and Utilize Efficient CME Network
Sequestered customer account treatment (cleared OTC Derivatives Account class) -
Provides the benefits of bankruptcy protection and portability of customer funds under the full
financial safeguards package of the CME Clearing House
Balance Sheet Efficiencies - Exchange-style multilateral offsets of OTC FX positions reduce
the need to allocate balance sheet to cover bi-lateral counterparty limits
Pre-Trade Credit Check Supported Via SEF or credit hubs CME offering supports pre-trade
credit checking flows to speed up execution and clearing acceptance.

Benefits
7
2014 CME Group. All rights reserved. 2014 CME Group. All rights reserved. 8
FX Clearing Overview

Trade Submission
Platform-agnostic open clearing service via CME ClearPort
Compatible with Straight Through Processing (STP) providers allowing for real-time trade
submission or migration of existing portfolios (Traiana, Bloomberg-VCON, MarkitServ)
Valuation & Settlement
Cleared as OTC Forwards (not futures) with the trades held at the original trade price
Daily mark-to-market (MTM) generates realized P&L, with 2-way flow of cash variation
margin
Currently, positions held on a line item basis, netting/compression to be introduced on a
future date
NDFs will settle to the EMTA recommended official fix in each pair, while currently the
CSFs will use the WMR 4pm London price (Operational handbook available for more
detailed fix sources and day conventions)
Risk Management
Initial margins calculated utilizing historical VaR, using a 99%, 5-day loss coverage
assumption
Collateral held in the Customer OTC Sequestered account class
Currently OTC FX is in the F&O pool, no initial contribution required by F&O clearers
DMP process currently a work in progress, procedures have passed F&O risk committee
and will be filed with regulators shortly.
CME has independent default waterfalls for each major asset class
9
CME Clearing Financial Safeguards
IRS Financial Safeguards
Defaulted Clearing Member
IRS Fund Performance Bonds
Defaulted Clearing Member
IRS Guaranty Fund Contribution
$150M
CME Designated Working Capital
for IRS Guaranty Fund

Non-Defaulting Clearing Members
IRS Guaranty Fund Contributions
Assessment Powers
3
rd
and 4
th
largest CM shortfalls
Base Financial Safeguards
Defaulting Clearing Member
Base Fund Performance Bonds
Base Guaranty Fund Contribution
$100M
for Base Guaranty Fund
Base Guaranty Fund Contributions
Assessment Powers
275% of GF per Default
1
CDS Financial Safeguards
CDS Fund Performance Bonds
CDS Guaranty Fund Contribution
$50M

for CDS Guaranty Fund
2
CDS Guaranty Fund Contributions
Assessment Powers
3
rd
and 4
th
largest CM shortfalls
IRS Financial Safeguards Product Coverage
Interest Rate Swaps
Cross-margin eligible futures

$1.55 Billion $3.26 Billion $750 Million
Base Financial Safeguards Product Coverage
Futures and options
OTC FX
Other non-IRS or non-CDS OTC products
CDS Financial Safeguards Product Coverage
Credit Default Swaps
1
CME Rulebook Chapter 8, Rule 802.G
2
Equal to the greater of (x) $50 million and (y) 5% of the CDS Guaranty Fund, up to a maximum
of $100 million
*All Financial Safeguards numbers are as of 12/31/2013 and do not include Assessment
Powers
Initial Margin Methodology: CME OTC FX
10
5-Day 99% HVaR
Volatility scaling factors
Past 5 years data to generate historical return
matricies + extreme scenarios
Generated scenarios
Computation of discounted P&L of total portfolio
in each scenario
Rank scenarios: max loss to max gain
Take required percentile (99.7% of covered
scenarios) as margin
Apportion of margin to different currencies as
required
12 OTC FX Non-Deliverable Forwards*
26 OTC FX Cash-Settled Forwards
USD Settlement: EUR/USD, AUD/USD, GBP/USD, USD/CHF, USD/SEK,
USD/DKK, NZD/USD, USD/NOK, USD/HKD, USD/HUF, USD/ILS, USD/MXN,
USD/SGD, USD/PLN, USD/ZAR, USD/CZK, USD/TRY, USD/THB
Non USD, T+1 settlement currencies: USD/CAD
Non USD, T+2 settlement currencies: USD/J PY, AUD/J PY, EUR/J PY, CAD/J PY,
EUR/AUD, EUR/CHF, EUR/GBP

Cleared OTC FX Product Scope
*All settlements in USD
Brazilian
Real
Philippine
Peso
Malaysian
Ringgit
Indian Rupee Korean Won Chinese
Renminbi
Indonesian
Rupiah
Taiwan Dollar Chilean Peso Colombian
Peso
Peruvian
Nuevo Sol
Russian Ruble
11
CME Clearing Europe FX Products
12
Currency
Pair
Currency Pair
Settlement
Currency
Currency Benchmark
Reuters Code (for NDFs)
Fixing Date Settlement
EUR/CZK Euro / Czech Koruna EUR - Value 2 T+2
EUR/DKK Euro / Danish Kroner EUR - Value 1 T+2
EUR/HUF Euro / Hungarian Forint EUR - Value 2 T+2
EUR/NOK Euro / Norwegian Krone EUR - Value 2 T+2
EUR/CNH Euro / Chinese Offshore Renminbi EUR - Value 2 T+2
EUR/PLN Euro / Polish Zloty EUR - Value 2 T+2
EUR/SEK Euro / Swedish Krona EUR - Value 2 T+2
EUR/TRY Euro / Turkish Lira EUR - Value 2 T+2
EUR/CNY* Euro / Chinese Onshore Renminbi EUR EURCNY= Value 2 T+2
USD/UAH* U.S. Dollar / Ukrainian Hryvnia USD EMTAUAHFIX= Value 2 T+2
USD/CNH
U.S. Dollar / Chinese Offshore
Renminbi
USD - Value 2 T+2
Product coverage: 38 FX NDFs and CSFs (same as US) + 2 additional NDFs and 9 CSFs
* EUR/CNY and USD/UAH are NDFs
CME OTC FX Trade Flows
2014 CME Group. All rights reserved. 2014 CME Group. All rights reserved. 14
Clearing Workflows: On-SEF vs. Off-SEF
On-SEF: Firms will pre-approve credit on all trades executed on SEFs
Off-SEF: Clearing Firms will choose to set an account to one of the following options:

Trade workflows will differ depending on where the trade is executed:
CME Hosted Credit Limits in RAV Claim Workflow
CME will allow Firms to set limits on
accounts.
Firms will have the ability to
view and edit limits.
All trades that breach limits will be
rejected.
Clearing Member Firms must
explicitly accept or reject trades
after submission to CME Clearing.
CME will accept or reject trades
after either:
Both FCMs have accepted the
trade.
A single FCM has rejected the trade
On-SEF Workflow with Pre-Approval
Client ED
SEF
CME Clearing
House
Product
Account
Credit
Clearing Member
(Client)
Clearing Member
(ED)
*Pre-approved trades do not go through request consent workflow.
2 2
3
5
4
5 5
Trade receives credit pre-approval from
FCM (precedes this workflow) prior to
submission to CME
Client executes trade with Executing
Dealer (ED) on SEF
SEF sends trade to CME for Clearing
After validating product, account and
applying credit limits set by CME, CME
accepts swap for clearing
CME sends Cleared notification to SEF
which displays trade status to principals
CME sends a Clearing Confirmation to
FCMs
1
2
3
4
5
5
15
On-SEF Workflow without Pre-Approval
Client ED
SEF
CME Clearing
House
Product
Account
Credit
Clearing Member
(Client)
Clearing Member
(ED)
1
2
2
3
4
4
4 5 5
6
6
6
Client and ED execute voice trade
Trade is entered manually into SEF
SEF sends trade to CME for Clearing
CME sends Pending FCM Approval
notification to SEF
Clearing Consent notifications sent to
FCM (client) and FCM (ED)
Clearing Member of both parties accept
the swap
1
2
3
4
5
4
CME sends Cleared notification to SEF
which displays trade status to principals
6
CME sends a Clearing Confirmation to
FCMs
6
16
Off-SEF Workflow: CME Hosted Credit Limits in RAV
Client
CME ClearPort

CME Clearing
House
Product
Account
Credit
Clearing Member
(Client)
Clearing Member
(ED)
2
Bilaterally agreed trade is confirmed /
matched on Affirmation Platform and sent
to CME ClearPort
Product, account and RAV limits are
validated partial cleared
CME sends Cleared notification to
platform and Clearing Members
1
2
17
ED
Affirmation Platform
1
3
RAV
3 3
3
Off-SEF Workflow: Claim Workflow
Client
CME ClearPort

CME Clearing
House
Product
Account
Credit
Clearing Member
(Client)
Clearing Member
(ED)
2
4 4
Bilaterally agreed trade is confirmed /
matched on Affirmation
Product, account and CME limit on CMF
are validated successfully
Clearing Consent messages sent to both
Clearing Members
1
2
18
ED
1
3
4
Pending Clearing notification sent to
Clearing Members of both parties accept
the trade
CME sends Cleared Notification to
platform and Cleared Confirmations to
firms
5
6
6
6
5
6
3
Bunched Order Processing
Recent regulations require bunched orders to be sent for clearing immediately after execution
Bunched Order Overview
2
ED alleges the bunched order to the Client.
Client affirms the bunched order while
selecting the Holding Account at CME.
Platform A sends the matched deal to CME
Clearing.
CME Clearing validates the bunched order.
CME sends Cleared notice to Clearing
Member Firms.
CME sends Cleared notice back to the
platform.
1
2
3
4
5b
20
5
5a
Client ED
Platform A
1
3 5b
Clearing Member Firm
(Bunched Order Holding Account)
Clearing Member Firm
(ED)
CME Clearing
5a 5
Bunched Order
Holding Account
ED Account
(House)
Validate Product
Validate Account
Validate Limits
4
2
CME Groups Solution
Support clearing of bunched orders in a Holding Account
Allow submission of allocations to the end customer account while offsetting the bunched order in the holding account
4 allocation methods available:
Allocations entered on SEF
Allocations entered on Platforms
Clearing Firm performs allocations using Transfer workflow in DMS
Spreadsheet upload using Transfer workflow via CME Client Services Team
Contacts
21
Visit www.cmegroup.com/fxclearing or contact one of the below team members

Will Patrick will.patrick@cmegroup.com +44 20 3379 3721
Executive Director FX
Simon Burnham simon.burnham@cmegroup.com +1 312 930 3426
Senior Director FX
Nigel Manthorp nigel.manthorp@cmegroup.com +44 20 3379 3863
Director FX Products
Malcolm Baker malcolm.baker@cmegroup.com +65 6593 5573
Senior Director Interest Rate & FX Products
Jaki Walsh jaki.walsh@cmegroup.com +44 20 3379 3858
Senior Director OTC Products
Fateen Sharaby fateen.sharaby@cmegroup.com +1 212 299 2828
Director Clearing Solutions

CME Group, CME Europe and CME Clearing Europe are brands of CME Group Inc. and its subsidiaries, members of which include
Chicago Mercantile Exchange Inc, CME Europe Limited, CME Clearing Europe Limited and CME Marketing Europe Limited.
Futures and swaps trading is not suitable for all investors, and involves the risk of loss. Futures and swaps are leveraged
investments, and because only a percentage of a contracts value is required to trade, it is possible to lose more than the amount
of money initially deposited for a futures and a swap position. Therefore, traders should only use funds that they can afford to lose
without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect
to profit on every trade.
CME Group is the trademark of CME Group, Inc. The Globe logo, Globexand CMEare trademarks of Chicago Mercantile
Exchange, Inc. CBOTis the trademark of the Board of Trade of the City of Chicago Inc. NYMEX, New York Mercantile Exchange,
and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. All other
trademarks are the property of their respective owners.
The information within this presentation has been compiled by CME Europe for general purposes only. Although every attempt has
been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors or
omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes
only, and should not be considered investment advice or necessarily the results of actual market experience.
All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX and
CME Group rules. Current rules should be consulted in all cases concerning contract specifications.
This communication does not constitute a Prospectus, nor is it a recommendation to buy, sell or retain any specific investment or to
utilise or refrain from utilising any particular service. This communication is for the exclusive use of Eligible Counterparties and
Professional Clients only and must not be relied upon by Private Clients who should take independent financial advice. Circulation
should be restricted accordingly.
Issued by CME Marketing Europe Limited.
CME Marketing Europe Limited (FRN: 220523) is authorised and regulated by the Financial Services Authority.
Disclaimer
22

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