CC&G

Your global partner in post-trade excellence

Contents
Overview Continuously expanding clearing offering Comprehensive approach to Risk Management CC&G & settlement Real time, effortless post-trading management 1 2 3 8 9

CC&G prides itself in the robustness of its clearing platform, enabling our clients to conduct their business safely, securely and with confidence in our full service-offering
P. Cittadini, CEO of CC&G

II

Overview
CC&G (Cassa di Compensazione e Garanzia) is part of the London Stock Exchange Group. CC&G provides Central Counterparty services to multiple trading venues for a broad range of asset classes including equities, ETFs, equity and energy derivatives, closed-end funds, investment companies, government, corporate and convertible bonds. Government bonds are cleared through interoperability by virtue of an innovative dual counterparty agreement, the first of its kind. CC&G also provides a guarantee service on the NewMic Interbank collateralised market.
Sections

Equities

Equity Derivatives

Energy Derivatives

Bonds

Interbank Deposits

Markets
IDEM Equity

Euro MTS

Products guaranteed by CC&G

Shares Warrants Convertible

Closed-end

bonds

funds Investment companies REIC

ETF ETC

Index futures Index options Single stock

Energy futures

Government and corporate bonds

futures

NewMIC interbank collateralised deposits

Single stock

options

Settlement

Clearing system provider, not Legal CCP

Compulsory CC&G Membership Optional CC&G Membership

Continuously expanding clearing offering

Recently, CC&G broadened service range to new products and venues:

NewMIC

Domestic MOT

In October 2010 CC&G launched a guarantee service on NewMIC, the Interbank collateralised deposit market run by e-MID.

In November 2010, CC&G extended the CCP service on fixed income products to include government, corporate, eurobonds and ABS listed on MOT market. CC&G Members trading on Domestic MOT will benefit from risk reduction, anonymity and lower costs.

Turquoise Derivatives

EuroTLX

CC&G has strengthened its derivatives coverage becoming the clearing system provider of Turquoise Derivatives with a strong benefit for members of both Turquoise Derivatives and IDEM who can access post-trading services using the same IT infrastructure.

In June 2011, CC&G began providing CCP services to bonds traded on EuroTLX and settled in Monte Titoli. CC&G clients trading bonds on Domestic MOT, EuroTLX, MTS, EuroMTS and ICAP benefit from significant savings due to settlement netting in addition to margin offsetting across all trading venues.

Comprehensive approach to Risk Management

In order to effectively manage counterparty and market risks, CC&G adopts an optimal financial safeguarding system based on multiple levels of protection: 1. Clearing Membership screening 2. Margin system 3. Additional resources.

1. Clearing Membership screening

CC&G carries out the central counterparty function by taking on the counterparty risk from the execution of the contracts, acting as buyer towards each seller and as seller towards each buyer, and becoming the guarantor of the final settlement of the contracts, ensuring delivery/ receipt of securities versus cash, also in case of default of the trading counterparty.

CC&G n ovat i o n

Trading

Trading Member A

Trading Member B

CC&G assumes the counterparty risk

Trading Member A

Trading Member B

Trading Member A (NCM)

GCM of A

Trading Member B (ICM)

ion ect vent t o e Pr the efault in of d

C Memlear b in Scre enershg in

ip g

Settlem Nettin ent g

Advantages
1. Trading anonymity 2. CC&G assumes the counterparty risk from trade execution 3. Lower tied-up capital required by the regulatory authority
No v

Trade Capture

und lt f rding u fa gua em e yst

4. Reduction of systemic risk.

ion at

Marging system

sa De f s

Clients may subscribe to CC&G as General Clearing Member: GCMs become counterparties to CC&G for proprietary and client transactions; they can also clear contracts on behalf of their Non-Clearing Members. Individual Clearing Member: ICMs become counterparties of CC&G for proprietary and client transactions. Non-Clearing Member: NCMs are not counterparties to CC&G. They must be market members and must sign an agreement with a General Clearing Member for the provision of GCM services.

Who can become a Member Banks and Investment Firms authorized to provide Investment Services in Italy; Those authorized to provide such Services subject to mutual recognition; Other Members of the markets guaranteed by CC&G who have signed the agreement with a GCM to become an NCM.

How to become a Member The entire membership process to CC&G, Borsa Italiana and Monte Titoli is managed on line via the BIt Club website, a simple, fast and efficient communication tool.

Membership requirements CC&G Members meet supervisory capital, organisational and technical requirements.
Member

General Clearing
Supervisory Capital () 25 m 30 m 35 m 40 m N. of Non Clearing Members Up to 1 From 2 to 5 From 6 to 10 Above 10

Individual Clearing
Supervisory Capital () 3m 10 m 10 m 10 m Market Equities Derivates Bonds More than 1 market

Non Clearing

Supervisory Capital

Requirements

If the Supervisory Capital is lower, but at least equals 15 m, CC&G accepts a guarantee issued by a bank for the difference between the Supervisory Capital requirement and the Supervisory Capital held.

If the Supervisory Capital is lower, but at least equals 3 m, CC&G accepts a guarantee issued by a bank for the difference between the Supervisory Capital requirement and the Supervisory Capital held.

Technical & Organisational Requirements

Organisational structure, technological and information technology systems Two referents for each section Hold a central cash account in Target 2 Join the central depository service (CSD) Join the Settlement Services

Directly or through a Settlement Agent

Members of both the cash equity and equity derivatives sections of CC&G benefit from a significant decrease in initial margin requirements thanks to CC&Gs unique cross-margining function.

Rome

Advantages
1. Full flexibility in the choice of membership type per market cleared 2. CC&G has an international client base of more than 170 clearing members 3. Over 70 direct members, including major international players as GCMs
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2. Margin system
The margining system is CC&Gs fundamental risk management tool. CC&Gs risk management approach is fully compliant with international recommendations (CPSS-IOSCO) and ESCBCESR and is in line with the current draft of the new EU Regulation on CCPs with reference to risk management. Margins are calculated using sophisticated, proven systems: a methodology based on TIMS (Theoretical Intermarket Margins System) for equity derivatives products, the ERM methodology (Equity Risk Management) for cash equity products, the MMeL methodology (Margins for Electric Market) for energy derivatives and the MVP methodology (Method for Portfolio Valuation) for Italian government bonds. Equity Derivatives and Cash Equity Margin Calculation The metodologies used for equities and equity derivatives are integrated and correlated, therefore capable of recognising the overall risk in a portfolio. This allows for the offsetting of risk between closely correlated products, as well as cross-margining between derivatives and equity cash products in the portfolio. The overall risk exposure for integrated portfolios with significant price correlation is determined by: Product Group: integrated portfolio of underlying assets with statistically significant price trend correlation; Class Group: integrated portfolio of cash and derivatives instruments related to the same underlying stock. Energy Derivatives Margin Calculation Derivatives contracts traded on IDEX form an integrated portfolio considered as a whole for the purpose of Initial Margins calculation. The MMeL margining methodology has a structure of classes which recognises contracts tradable on the market. Each class includes all the contracts of the same type (futures or options),

Advantages
1. Cross margining between cash equity and equity derivatives significantly reduces margins, with optional separate calculation reporting to satisfy customers cost allocation needs 2. One collateral pool: guarantees in place cover the cash call on all asset classes 3. Members trading the same asset classes on multiple trading venues cleared by CC&G take advantage of full netting for settlement and margining purposes 4. Customer choice over number of accounts/ sub-accounts on Derivatives and net/gross margining between main and sub-accounts.

with the same underlying security (PUN) and the same characteristics (Delivery Period and type of supply: Baseload, Peakload or Off Peak). Bonds Margin Calculation MVP determines the overall risk exposure for integrated portfolios by grouping classes of bonds with statistically significant correlation in their sensitivity to interest rates variations, measured by the duration. A single net position is calculated independently from the market origin of the contracts - MTS, EuroMTS, BrokerTec, MOT and EuroTLX - and risk management is accordingly performed on the net positions. Initial margin Initial margin is called on a daily basis to cover the theoretical costs of liquidation, which CC&G would incur in the event of a members default, in order to close the open positions in the worst possible market scenario, within a maximum price variation range called Margin Interval. The Margin Interval, specific for each financial instrument, is periodically reviewed as a result of statistical analysis.

Intraday margin Intraday margins are called by CC&G in case of sudden sharp price variations or an increase of a members excessive overall risk exposure. Intraday margin is calculated with the same methodologies as the initial margin. Collateral Initial margin can be placed in cash (Euro) or in Euro denominated securities: Italian, French and German Government Bonds traded on MTS and EuroMTS. Government bonds are marked to market daily at the weighted average price recorded on the MTS market. The Bonds deposited as collateral are grouped in classes of haircut based on their duration, for Italian Government bonds, and on their time to maturity, for French and German Government Bonds. Intraday Margins must be deposited in cash (Euro).

Multilevel Financial Safeguarding System CC&G protects market integrity in case of default by a clearing member by using a set of financial resources which are allocated by using the following set of financial resources: initial margin of the defaulting member contribution to the relevant default fund of the defaulting member CC&G shareholders equity of up to 5 million remaining default fund, on the basis of a loss sharing principle remaining CC&G shareholders equity.

ing CC&Gs own as tand set s t s Ou

ding default fu tstan nd Ou

3. Lines of Defence
CC&G manages three separate default funds: one for equity and equity derivatives, one for energy derivatives and one for fixed income. These default funds are essential as additional protections to cover any risks associated with sharp price/ interest rate movements. Initial default fund contributions are calculated based on the results of periodic stress tests. Default fund contributions are re-calculated on a monthly basis based on previous months activity.
CC

ssets up to wn a 5m so ill &G i

embers de fau gm n i lt t ul

on

De fa

nd fu

Defaulting members initial margin

In case of default of a participant, market integrity is preserved by a multi tiered financial safeguard system.

Advantages
1. Optimal protection for members in times of stressed markets 2. In case of default by a clearing member, the maximum exposure of each clearing member is limited to his contribution to the relevant default fund

CC&G & settlement

CC&G has a direct account in the Express II settlement system, managed by Monte Titoli. All trades cleared by CC&G settle on a net basis. Net balances against CC&G can be split into partials in the net settlement cycles and are subject to being shaped into smaller lots prior to being submitted to the gross settlement cycle.

CC&G automatically manages buy-ins and sell-outs according to published rules. CC&G has introduced additional reporting to highlight the separate margining of fails and partials and to report the buy-in and sell-out process.

Advantages 1. Settlement of net balances against CC&G is prioritised over non-CCP guaranteed and off-exchange trades 2. For settlement purposes, one single balance per security and account is created for Italian Government Bonds independently from the trading venue: MTS, EuroMTS, BrokerTec, MOT and EuroTLX.

Real time, effortless post-trading management

CC&G offers a range of flexible connectivity solutions for accessing the clearing system to suit the needs of all clearing members.

1. Derivatives Clearing BCS, the user interface, integrates all derivatives clearing functionalities such as early exercise, international give-up combined with the splitting facility, position transfer and related enquires into a single technical infrastructure. BCS also allows for the download of clearing reports and data files used to support clearing on the derivatives market. BCS, fully integrated with the IDEM market infrastructure, is available in the following versions: BCS-WS: stand-alone windows workstation; BCS-API: Application Program Interface to automate the end-to-end processing of transactions; BCS PLUS, both WS and API, allows the automation of the International give-up. International give-up business model Contracts executed on the IDEM market can be transferred on trade date at the execution price. This functionality, combined with the trade splitting facility, fully complies with the international uniform give-up agreement and allows STP into the middle and back office systems.

2. Reporting A wide range of reports and data files is available to allow for quick reconciliation of transactions, positions and margins. ICWS allows for the download of clearing reports, fails reporting and data files to support clearing on all markets. FTP, FTPS and SFTP are available for all markets to download batch files, with different levels of security.

Advantages 1. General Clearing Members benefit from a complete Non-Clearing Member post trading report for reconciliation purposes 2. BCS PLUS automates international give-up management 3. General Clearing Members can monitor the trading activity of their NCMs throughout the business day.

Give-up functionality combined with trade splitting available as a complete STP model.
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Contacts Italy cbelloni@londonstockexchange.com - Tel. +39 02 72426 504 gcostantini@londonstockexchange.com - Tel. +39 02 33635 283 International tmorris@londonstockexchange.com - Tel. +44 0207 797 3052 CC&G - Cassa di Compensazione e Garanzia Via Tomacelli, 146 00186 Roma - Italy Tel +39 06 32395202 Piazza degli Affari, 6 20123 Milano - Italy Tel +39 02 336351

www.ccg.it www.londonstockexchangegroup.com

September 2011 CC&G - London Stock Exchange Group All rights reserved. The publication of this document does not represent solicitation, by Borsa Italiana S.p.A., of public saving and is not to be considered as a recommendation by Borsa Italiana as to the suitability of the investment, if any, herein described. This document has not to be considered complete and it is meant for information and discussion purposes only. Borsa Italiana accepts no liability, arising, without limitation to the generality of the foregoing, from inaccuracies and/or mistakes, for decisions and/or actions taken by any party based on this documents. Trademarks Monte Titoli, X-TRM and MT-X are owned by Monte Titoli S.p.A. London Stock Exchange, the coat of arms device and AIM are a registered trade mark of London Stock Exchange plc. The above trademarks and any other trademark owned by the London Stock Exchange Group cannot be used without express written consent by the Company having the ownership of the same. Borsa Italiana S.p.A. and its subsidiaries are subject to direction and coordination of London Stock Exchange Group Holdings (Italy) Ltd Italian branch. The Group promotes and offers the post-trading services of Cassa di Compensazione e Garanzia S.p.A. and Monte Titoli S.p.A. in an equitable, transparent and non-discriminatory manner and on the basis of criteria and procedure aimed at assuring interoperability, security and equal treatment among market infrastructures, to all subjects who so request and are qualified in accordance with national and community legislation, applicable rules and decisions of the competent Authorities.