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DTCC Asset Services UpdateDan ThiekeManaging Director October 23rd, 20121[Classification] DTCC22Executive SummaryContinued focus on enhancing DTCCs core systems and controls to ensure a high level of risk management for both DTCC and our customers.Over 70% of the 2012 IT budget is on the upgrade of the core corporate actions platform as well as improving the internal control environment (similar % for 2013).Rationalization of fee structure to provide customers with a simplified and transparent fee model that is aligned with the underlying costs.Demonstration of thought leadership by driving market practice, such as the adoption of ISO 20022 messaging for corporate actions, and leading a multiyear effort to fully dematerialize the U.S. financial markets.Upgrading of the core platforms will allow Settlement & Asset Services to harmonize the user interface across all of DTC and eliminate the aging legacy applications used for messaging and communicating with clients. Collaboration with clients and industry stakeholders to identify additional opportunities to improve transparency, reduce risk and lower costs.

DTCC Confidential (Yellow)Confidential Treatment Requested by DTCC/DTC/NSCC/FICC Pursuant to the Freedom of Information Act

DTCC33Environmental Assessment - TrendsIndustry TrendsContinued push for standardization to increase straight-thru-processingHarmonization of global market practices Outsourcing of processes continues, expanding into areas considered core competencies, as pressures increase to reduce expenses.Industry collaboration to devise cost effective solutions to challengesAsset Services trends to note:Increased complexity of Corporate Action events and their taxabilityNew issuances down from historical levels, however overall outstanding amounts issued have increased from the prior yearP & I payment volumes have been lower due to a decline in issuances of structured securities Increased pressure on service providers to reduce costsCompliance with new and changing regulations (i.e. FATCA)

Regulatory and Risk TrendsAs security instruments become more complex, DTCCs risk exposure is increased by the caliber of suppliers that we are dependent on for services (e.g. microcap issuers, transfer and paying agents)Further need for transparency across the value chain, to both end investors and other key stakeholders including regulators The need to monitor risk exposure to TAs that participate in the FAST ProgramP & I payment finalityDTCC Confidential (Yellow) DTCC44Strategic Plan - ThemesStrengthen the core Drive standardization and upgrade legacy technologyContinue the process of modernizing DTCs core systems by upgrading the underlying technology and aligning with current standards and market practicesReduce risk by minimizing exposure to key staff by combining multiple platforms to achieve standardization across support areasDrive the standardized use of ISO 20022 messaging for Corporate Action processingContinue to introduce XBRL technologyIdentify opportunities to reduce costs and minimize risk (enterprise) across the business unitDetermine specific functions that could be reassigned to support high risk functions or areas of growth Evaluate optional services to determine strategic fit and profitability Execute multiyear dematerialization plan to eliminate the costs and risks associated with physical certificates still outstanding Pursue implementation of DRS for restricted securities, i.e., Networking for Equities (NFE) Expansion of servicesTax Relief expansion into new markets, new investor and security types. Allowing greater transparency on proxy and tax services (i.e. Stock loans)Continue to work with participants to enhance the services provided by DTCC GCA Offering Inclusion of DR servicing Fees and Additional exchanges added for the Derivatives ServiceImprove the Client ExperienceExpand on implementation of CA browser and settlement webDTCC Confidential (Yellow) DTCCCorporate Actions Reengineering Infrastructure & Networks

* DTCC SMART NETWORK

SWIFT NETWORKCustomizableSubscription Options

Flexible End of Day / Intraday Option (April, May 2012)

New Message Protocols (June 2012)

Adopt & Support Market Practice

Maintenance of a Global StandardEnhanced Data ElementsSchema ValidationPublished updated ISO 20022 Adoption Guides (Feb 2012)Published SR 2012 Schemas & Documentation(Feb 2012)Present at Industry ForumsISITCXSP ConferenceSIFMA Corporate Action ForumsXBRL Technology

Pilot Issuers (Citi, BNY Mellon)

Complete Build of Interface (March 2012)

Deploy XBRL Technology (July 2012)Enhanced Delivery of Corporate Action Data to Clients

Implement ISO 20022 Messaging (Nov 2011)Implement New Data Model (Nov 2011)Unique Corporate Action ID for Each EventRequirements for Lifecycle Messages (Feb 2012)New Browser

Web Based (Corporate Action Announcements Deployed Nov 2011)

Replace aged PTS/PBS Corporate Action Applications (Starting Q2 2014)

One tool to manage all Corporate Actions from start to finish (Starting Q2 2014)

Eliminate aged processing methodsDTCC Confidential (Yellow) DTCCPatrick narrate, team explain5Client Facing Improvements ISO 20022 BenefitsFlexibility both in terms of its content and tailoring of output. As new corporate actions are developed, the messaging standard can change to meet the demands of the business, not the other way around. XML Syntax due to its widespread support, XML allows for easier processing and more efficient yearly maintenance. Schema Validation used to confirm that each data element is populated with a valid value.Greater Straight-Through-Processing (STP) corporate action events will be announced using a data model that conforms to market practice, which also contains less narrative or free text and more fielded and tagged data.Unique Corporate Action ID for Each Event can be tracked through the life cycle of the event from announcement, to entitlement, to election, through to payment. Enhanced Data Elements a more comprehensive and granular number of data elements, which allows for greater accuracy and, ultimately, less processing risk on the part of the customers.Maintenance of a Global Standard In defining a data new model for U.S. and global corporate actions, DTCC worked closely with SWIFT, (ISO 20022's registration authority), the Securities Markets Processing Group (SMPG) and the International Securities Association for Institutional Trade Communication (ISITC. These were reviewed and approved by the Securities Standards Evaluation Group (CA SEG), a group of international industry experts who accept or reject changes to the ISO 20022 standards repository. The yearly standards process requires DTCC to constantly review, scrutinize and maintain its standard to ensure compliance with market practice. This in turn will lead to less ad hoc maintenance and instead institute a systematic approach to the business rules driving the file formats, not the other way around.

One User InterfaceProvide a unified browser based client interface that allows clients to manage their entire corporate action (CA) lifecycle, from announcements through instructions to payments. Provide easier submission of WINS inquiries by providing a link that auto-populates the CA Details on the WINS inquiry.

DTCC Confidential (Yellow) DTCCProgress to DateISO 20022New Data ModelNew BrowserImplemented ISO 20022 Corporate Action AnnouncementsImplemented New Data ModelImplemented New BrowserImplemented Message Delivery over SWIFT NetworkNov 2011Client AdoptionAdditional Clients adopting to ISO 20022 throughout 2012Jan 2012 -OngoingPilotPilot Firms Receiving ISO 20022 messages from DTCC Production SystemThree (3) Pilot Firms have gone live with ISO 20022 messages in 2012 Nov 2011 -OngoingUpdated Message Client DocumentationPublished Updated ISO 20022 Message Specifications, Schemas and Deltas to Support Annual SR 2012 ChangesPublished Updated Client ISO 20022 Summary GuideFeb 2012Client Subscription OptionsFlexible End of Day / Intraday OptionNew Batch Message Protocols: SMART (FTP/NDM) and SWIFT (FileAct)Apr/May/June 2012Market Practice EnhancementsMandatory / Voluntary Indicator ProjectAugust 2012XBRLImplemented XBRL Functionality into ProductionJuly 2012Infrastructure UpgradesUpgraded DTCCs SWIFT-related network infrastructure and hardwareJune - August 2012DTCC Confidential (Yellow) DTCC201420132012Phase III Distributions Timeline 2012 - 2014Webinars, Documentation, & Training for BrowserISO 20022 Pilot for Distributions Full Lifecycle ( Testing )SeptDecParticipant Registration Process for new browser Participants adoption of new browserDeploy ISO 20022 Messages for Distributions ElectionJan - MarJan - MarJuly - DecApril 2014Deploy New User Interface for Distribution ProcessingEntitlements & Processing - Sample ISO 20022 MessagesPhase III Distributions Pilot TestingPhase III Distributions Parallel Production Testing2014 Full DeploymentDistributions Elections - Sample ISO 20022 MessagesPilot Parallel ProductionTesting of ISO20022 Entitlements & PaymentsDeploy ISO 20022 Distributions Entitlements & Payments (Q1)Browser Available for Distributions Client Testing ISO 20022 testing begins for inbound Distribution elections (test environment)Q3DTCC Confidential (Yellow) DTCC8Documentation & Mapping

For inquiries: careengineering@dtcc.comDTCC Confidential (Yellow) DTCCPost Payable Adjustments - BackgroundStructured Securities PPAs decreased significantly from 2008- 2010 Decreases during this period were closely tied to DTC Working Group Recommendations from 2006 and 2007:Changed the deadline for receiving rates to PD-1 from PD-2Categorized structured securities into two classes: Conforming & Non-ConformingEstablished non-conforming exception processing fee for underwriters at closing of new issuance rebate fees to holdersDistributed Paying Agent Report Card evaluating timeliness & accuracy of rate submissions

1010DTCC Confidential (Yellow) DTCCHistorical ExperienceAll Active Eligible Issues at DTC by Issuance YearPost Payable Adjustment* Breakdown First Quarter 2012Number of All Active Eligible Issues at DTC Year of Issuance2012 Q1 PPAs by Issuance YearIssuance YearApx # of IssuesIssuance Year# of PPAs*2005 and Prior55K2005 and Prior3,560200625K20061,192200720K20072,5782008 to Current9.5K2008 to Current648Total109.5KTotal7,978* Post-Payable Adjustments are calculated at CUSIP level by payment date11DTCC Confidential (Yellow) DTCCCurrent Experience All Structured Products Post Payable Adjustments During June 2012Total PPAs: 783Less Than 90 DaysBetween 90 and 120 DaysBetween 121 and 180 DaysGreater Than 180 DaysTotal PPAs26059107357Percentages33.21%7.54%13.67%45.59%* Post-Payable Adjustments are calculated at CUSIP level by payment date12DTCC Confidential (Yellow) DTCCDTC Response to Increase in PPAs2011 Industry group convened to review proposal to pass principal PPAs on to the next payable date. Proposal deemed too complex.DTC submitted SEC rule filing in April 2012 limiting PPAs to 60 calendar days after the payment date from the current one year threshold Benefits of shorter timeframe:Reduces the inherent risk with payment reversals/promote payment finalityCompels all parties in the chain to evaluate and minimize the challenges associated with principal and income adjustments Drives focus on the root cause(s) of the post-payable adjustmentsDTC convened a Post-Payable Adjustments Task Force comprising agents, participants, the ABA , the Association of Global Custodians, SIFMA Corporate Actions Committee, and the CREFC (Commercial Real Estate Finance Council) to:Identify root causes of structured-securities PPAsOffer potential solutions to prevalent causesIncrease level of transparency in the processing chainAmended filing in August based on Task Force recommendations DTCC Confidential (Yellow) DTCCAmended FilingKey Points and Implementation Dates:Effective Jan 1, 2013: All new issues submitted for DTC eligibility to include servicer and calculating agent details. All PPA requests must also include PPA reason code, issuance date, instrument, issuer, servicer and calculating agent.Effective July 1, 2013: DTC will begin tracking and making publicly available report cards on Issuer PPA performance.Effective Jan 1, 2014: DTC will no longer process PPA requests through the settlement system beyond 180 calendar days after the initial payment date.Effective July 1, 2014: DTC will no longer process PPA requests through the settlement system beyond 120 calendar days after the initial payment date.Effective Jan 1, 2015: DTC will no longer process PPA requests through the settlement system beyond 90 calendar days after the initial payment date.DTC agreed to work with the industry to investigate the development and potential operation of an industry proposed adjustment claims repository.

14DTCC Confidential (Yellow) DTCCPPA Task Force Next StepsFurther refine identification of adjustment causesIdentify non-controllable adjustmentse.g., Court orderedDeepen understanding of sources of document ambiguityCompare different types of structured securitiesPrepare background for dialogue with ASFContinue monthly review of adjustment causes and sourcesOngoing beginning with July Notify all issuers of upcoming notification requirements at time of eligibility Important NoticeDevelop concept of Claims Adjustment RepositoryIncrease processing transparency - at time of request for adjustments

15DTCC Confidential (Yellow) DTCCFATCAFATCA stands for the Foreign Account Tax Compliance Act which became law on March 18, 2010. The goal is to reduce U.S. tax evasion by improving the information available to the IRS about the offshore accounts of U.S. persons

It requires foreign financial institutions (FFIs) to provide information to the IRS identifying U.S. persons invested in non-U.S. banks and securities accounts and non-financial foreign entities (NFFEs) to report substantial U.S. owners

16DTCC Confidential (Yellow) DTCCFATCAs TeethNEW 30% punitive withholding tax levied on withholdable payments made to non-participating FFIs and NFFEs

Withholdable payments include all U.S. source income and gross proceeds from the sale or disposition of any property of a type that can produce interest or dividends from U.S. sources

17DTCC Confidential (Yellow) DTCCHow will FATCA impact DTC?Withholding on Gross ProceedsDTC would have to withhold 30% on gross proceeds (sale of U.S. securities, maturities, redemptions etc.) paid to non-participating foreign participants Will require massive system enhancements to perform withholding and information reporting on gross proceedsCurrent system can only handle withholding on income payments (i.e., interest/dividends)

18DTCC Confidential (Yellow) DTCC18FATCA PlanThe overwhelmingly majority of our non-U.S. participants are Qualified Intermediaries (QIs)QIs must become FATCA compliantDTC anticipates that most, if not all of its non-U.S. participants will become FATCA compliantDTC is looking into the possibility of changing its membership requirements to require all non-U.S. participants to be FATCA compliant19DTCC Confidential (Yellow) DTCC19Canadian Declaration Forms Effective 1/1/2013Current EDS Process:Does not require participants to collect any specific tax documentation from beneficial owners in order to receive a reduced rate of withholding tax To elect a reduced rate, participants can generally rely on the address rule (country of residence of the beneficial owner)New EDS Process on 1/1/2013:Require participants to collect a beneficial owner declaration form or the equivalent information from customers prior to electing a reduced rate of Canadian withholding tax on income paid through DTCRefer to Important Notices B# 0680-1, B# 0719-12 and B#1182-12 for additional information20DTCC Confidential (Yellow) DTCCStock Loan Income Tracking ProjectProject will provide transparency to Lenders and BorrowersDTC currently takes on the U.S. tax withholding obligation of the Borrower by ensuring the appropriate tax gets withheld on U.S. substitute dividend paid to a non- U.S. Lender DTC participants (Lenders and Borrowers) generally do not know the status of each other for U.S. tax purposesProvide transparency between Lenders and Borrowers by disclosing the tax status of each other for withholding purposes

*the proposed initiative does not cover the borrow fees and the rebate on the cash collateral as these are settled directly between Borrowers and Lenders

21DTCC Confidential (Yellow) DTCCStock Loan Income Tracking ProjectProvide Borrowers with reports that showWithholding tax rate applied on each substitute dividend paid to the LenderThe amount of tax withheld, if anyYear-end summary report by Lender that shows the total amount of substitute dividend paid along with the amount withheld and remitted to the IRSSubstitute dividends paid to U.S. Lenders for 1099 MISC reporting purposesProject will start in mid 201322DTCC Confidential (Yellow) DTCCFrench Financial Transaction TaxMarch 14, 2012, the French Parliament adopted a Finance Bill n2012-354 which introduced a transfer tax on transactions with shares of listed French companies (the "FTT") with a market cap of more than 1 billion euros

A further Finance Bill was adopted on July 31, 2012 which increased the rate of FTT to 0.2% and made specific reference to American Depositary Receipts (ADRs)

The implementation date of the FTT is August 1, 2012, except for ADRs, for which the implementation date is December 1, 2012. DTCC Confidential (Yellow) DTCCFrench Financial Transaction TaxTax is generally assessed on the basis of the net buying position with regards to intra day transactions and certain corporate action events

DTCC participants (or their clients) that believe that they are subject to the FTT will either pay directly to the French tax authorities, or they can select a member of Euroclear France. This latter option would probably be the preferred option of some participants that have already implemented the FTT in their European branch

24DTCC Confidential (Yellow) DTCCInitial Feedback on Dematerialization White PaperDTCC has received written feedback from fifteen stakeholders:Two Trade OrganizationsTwelve ClientsOne Transfer Agent

A number of additional stakeholders have contacted DTCC and will be providing feedback in the near term

Feedback has been supportive with varying degrees of concern based on each respective constituency:Clients are reinforcing their dependence and appreciation for DTCCs centralized role, while indicating which services they rely onTrade Organizations are supportive but voice concern over ensuring cross stakeholder representation and DTCC acting unilaterally

25DTCC Confidential (Yellow) DTCCInitial Feedback on Dematerialization White PaperDTCC has received written feedback from fifteen stakeholders:Two Trade OrganizationsTwelve ClientsOne Transfer Agent

A number of additional stakeholders have contacted DTCC and will be providing feedback in the near term

Feedback has been supportive with varying degrees of concern based on each respective constituency:Clients are reinforcing their dependence and appreciation for DTCCs centralized role, while indicating which services they rely onTrade Organizations are supportive but voice concern over ensuring cross stakeholder representation and DTCC acting unilaterally

26DTCC Confidential (Yellow) DTCCNext StepsSolicit feedback from all industry stakeholders by 10/30/2012Conducted client outreach survey with top 20 usersReview and analyze stakeholder feedback:Commence in depth industry dialogue with cross representation from all industry stakeholders by 12/2012Identify initiatives to pursue by Q4 2012Leverage industry forums and identify work streams by Q4 2012Continue discussions with the Transfer Agent community through the DTCC Transfer Agent Broker Working Group (Ongoing)Publish results of feedback from stakeholders by end of Nov 2012Prioritize deposit options at DTCC

27DTCC Confidential (Yellow) DTCC