RBC Europe Limited
100 Bishopsgate
London EC2N 4AA
Switchboard: 020 7653 4000
General Facsimile: 020 7029 7900

Dear Client
As a provider of clearing services to you, and in accordance with our obligations under the EU
CCP Recovery and Resolution Regulation (“CCPR”) 1, we, RBC Europe Limited, are writing
to you to inform you (i) about how measures in a CCP’s recovery plan may affect you (Article
9(23) CCPR), and (ii) of the potential losses or other costs that you may bear as a result of theapplication of the default management procedures and loss and position allocation
arrangements under the CCP’s operating rules (Article 38(8) of the European Market
Infrastructure Regulation (EMIR), which is introduced by Article 87(7) CCPR).
I. CCPR
CCPR establishes a harmonised framework for the recovery and resolution of EU CCPs. CCPR
is intended to ensure that both CCPs and their regulators will act decisively in a crisis scenario
to keep CCPs providing their critical functions and to limit the impact on the financial systemand on public funds.
CCPR comprises the following three pillars:
1.

Preparation(a)

Recovery plans

CCPs are required to prepare recovery plans setting out measures they would take incrisis scenarios to restore their financial soundness and continue providing their critical
functions. Recovery plans are not standardised and will likely differ from CCP to CCP.
CCP Recovery plans are required to include a comprehensive range of:1(i)capital actions;(ii)

loss allocation actions (including recovery cash calls and a reduction in
the value of gains payable by the CCP to non-defaulting clearing
members);

Link here1

(iii)

position allocation actions; and(iv)

liquidity actions,

to maintain or restore the viability and financial soundness of the CCP.
(b)

Resolution plans

Resolution authorities are required to prepare resolution plans setting out the resolution
actions they would take if the CCP were likely to fail, in order to keep the CCP
providing its critical functions and to limit the impact on the financial system and on
public funds.
(c)

Resolvability

Where a resolution authority identifies obstacles to the resolvability of a CCP in thecourse of the planning process, it can also require the CCP to take appropriate measures.
These measures may include changes to the CCP's operational or legal structure or toits pre-funded loss-absorbing resources.
2.

Early intervention

Where a CCP is about to breach its prudential requirements, CCPR gives regulators powers tointervene before the problems become critical and the financial situation deteriorates
irreparably. These powers may include requiring a CCP to undertake specific actions envisaged
in its recovery plan or to make changes to its business strategy or legal or operational structure.
3.

Resolution

CCPR gives resolution authorities resolution tools to manage the failure of a CCP in an orderly
way and to ensure that essential clearing functions and services are preserved.
Specifically, CCPR envisages the following resolution tools:(a)the position and loss allocation tools, including:(i)the tear-up tool: This resolution tool allows the resolution authority toterminate specific clearing contracts to balance the books of the CCP. In
practice, this tool would be used by a resolution authority if a clearing
member defaults and its positions cannot be auctioned off. In thesecircumstances, the resolution authority would terminate corresponding
opposing positions to re-balance the CCP's books.

(ii)

the variation margin gain haircut (VMGH) tool: This resolution tool
allows the resolution authority to reduce the amount the CCP owes a2

clearing member in respect of post-resolution variation margin gains duein accordance with the CCP's process for paying variation margin.
(b)

the write-down and conversion tool: This resolution tool allows the resolution
authority to write down or convert instruments of ownership, debt instruments
or other unsecured liabilities of the CCP.

(c)the sale of business tool: This resolution tool allows the resolution authority tosell all or part of the failing CCP to another entity.

(d)the bridge CCP tool: This resolution tool allows the resolution authority toseparate out essential functions of a CCP and transfer them to a new CCP (thebridge CCP), which is controlled by the resolution authority.

To apply the resolution tools, resolution authorities are given wide resolution powers,
including the power to:(a)close out and terminate financial contracts;(b)

reduce the amount of variation margin due to a clearing member;(c)cancel or modify the terms of a contract with the CCP;(d)suspend payment and delivery obligations;(e)restrict security interest enforcement; and(f)suspend termination rights.

The application of the resolution tools and powers under CCPR is subject to certain safeguards(such as the 'no creditor worse off' principle). CCPR does not apply these safeguards to therecovery plans or default management procedures discussed in Section II below.
II. Impact on you
Provisions introduced under CCPR require us to inform you:(a)

if and in what way measures in the CCP’s recovery plan may affect you; and(b)of the potential losses or other costs that you may bear as a result of theapplication of the default management procedures and loss and position
allocation arrangements under a CCP's operating rules.

The measures described below may affect transactions we are clearing for ourselves as well astransactions we are clearing for you. The clearing agreement between us provides that we are
only required to perform and pay our obligations to you to the extent a relevant CCP performs

3and pays its corresponding obligations to us. Therefore, if the measures below are exercised,
what we pay or deliver to you may be correspondingly reduced.
In addition to the specific costs and losses set out below, you may incur further costs and losses
as a result of any market disruptions ensuing from the financial difficulties of the relevant CCP
or its other clearing members (such as increased margin requirements or stressed market
circumstances which may adversely impact the value of your transactions).
1.

CCP recovery plan measures

As CCPs are not required to make their recovery plans public, we cannot confirm with certainty
which measures will be included in each CCP’s recovery plan.
However, we expect each CCP’s recovery plan to comprise one or more of the following
measures, each of which may impact you in the ways outlined in the table below. The
appendices to this letter set out details of which of the below measures have been provided forin the rulebook of each CCP we clear at on your behalf. If a measure is provided for in a CCP’s
rulebook, we would also expect that measure to be included in that CCP’s recovery plan.
MeasureDescription

Impact on you

Tear up

A process by which a CCP may terminate a class of contracts
in order to rebalance its book. This tool is normally available
to CCPs if a clearing member defaults and its positions cannot
be auctioned off. The CCP can terminate corresponding
positions in whole or part to re-balance the CCP's books. It
may also be available following a non-default loss, a force
majeure or other emergency.

If the CCP implements tear-up
measures in respect of a contract weare clearing for you, the CCP willterminate the relevant contract (or aportion of it), perform a close-out
calculation and pay any positive
resulting sum to us or require us to
pay any resulting amount to it. In thiscontext, you may incur incidental
costs in the process of the closing outof your contracts and you may incur
additional costs if you decide to enter
into a replacement contract. You may
also suffer a loss if the close-out value
is different to the value of the closedout contract recorded in your books.

Normally a tear-up will be in the form of a partial tear-up, in
which only a portion of each contract of a particular class ofcontracts will be subject to the tear-up. Generally, this portion
will be sized at the minimum level to permit the CCP torebalance the contracts of that class following the default orother event leading to the tear-up.
A partial tear-up may lead to the tear-up of only portions ofcontracts that have an opposing directional position tocontracts in the defaulting clearing member’s portfolio or it
may lead to the tear-up of portions of contracts that have bothan opposing directional position and the same directional
position.
A tear-up may also be in respect of the entirety of thecontracts in a particular class. Such a tear-up will lead to thetear-up of all contracts in the class, regardless of the directionof the position.

If you decide not to enter into a
replacement contract, you will be
exposed to the risk of adverse market
movements that were previously
hedged by the contract.

Typically, a CCP will have broad discretion to determine what
constitutes a class of contracts for these purposes.
Partial tear-up is to be contrasted with an invoicing back(described below) because it will apply to all the contracts of aparticular class of contracts cleared by a CCP (as opposed toonly certain contracts identified to offset the defaulted
contracts) and so its impact will fall evenly across all4

equivalent contracts forming part of the same class, although
the impact may fall upon only those contracts having an
opposing directional position to the defaulted contracts.
Invoicing
Back

A process by which a CCP may terminate specific contracts inorder to rebalance its book. This tool is normally available to
CCPs if a clearing member defaults and its positions cannot be
auctioned off. The CCP can terminate contracts that have an
opposing directional position to re-balance the CCP's books. It
may also be available following a non-default loss, a force
majeure or other emergency.
Invoicing back is to be contrasted with a partial tear-up(described above) because it will apply to some, but not all thecontracts of a particular class of contracts cleared by a CCP(as opposed to portions of all those contracts in the same classas the defaulted contracts) and so its impact may not fall
evenly across all clearing members holding equivalent
contracts forming part of the same class. Unlike partial tearup, which may apply to contracts having different directional
positions, invoicing back will only apply to contracts having acorresponding opposing directional position to the defaulted
contracts.

If the CCP implements invoicing backmeasures in respect of a contract weare clearing for you, the CCP willterminate the relevant contract,
perform a close-out calculation andpay any positive resulting sum to us or
require us to pay any resulting amountto it (although a requirement to pay
the CCP is significantly less likely in
an invoicing back). In this context,
you may incur incidental costs in theprocess of the closing out of yourcontracts and you may incur
additional costs if you decide to enter
into a replacement contract.
You may also suffer a loss if theclose-out value is different to thevalue of the closed-out contract
recorded in your books.
If you decide not to enter into a
replacement contract, you will be
exposed to the risk of adverse market
movements that were previously
hedged by the contract.

Forcedallocation

A process by which a CCP may require a clearing member toenter into a contract at a price and on terms specified by the
CCP in order to rebalance its book.
Similar to invoicing back, this tool is normally available to
CCPs if a clearing member defaults and its positions cannot be
auctioned off.
In the case of forced allocation, the CCP will divide up theunsold portfolio of the defaulted clearing member and allocate
portions of such portfolio to the remaining non‐defaulting
clearing members. In most cases, the CCP has ultimate
discretion to determine which clearing members are allocatedsuch trades and the price at which the portfolio is allocated.
This tool may also be available following a non-default loss, aforce majeure or other emergency.

Variation
Margin Gains
Haircutting(VMGH)
measures

VMGH is used to reduce the amount of variation margin a
CCP is required to transfer to non-defaulting clearing
members where such obligation arises from a move in themark-to-market value of a contract in favour of the clearing
member after the CCP triggers a default process.
Different drafting may be used to achieve this effect, forexample, there may be a permanent reduction in the variation
margin obligation that affects the value of the affected
contract or an additional payment obligation may arise infavour of the CCP under the affected contract that has theeffect of reducing the CCP’s variation margin obligation.

If the CCP implements forced
allocation measures in respect of acategory of contracts we clear on yourbehalf, we may allocate certain of thecontracts we are required to enter into
to your client account. Following theallocation of such contracts to yourclient account, related back-to-backcontracts will automatically arise
between you and us and you will be
required to perform payment andmargining obligations in respect ofsuch related back-to-back contracts.

If the CCP implements VMGH
measures in respect of any variation
margin to be transferred in respect ofyour contracts, we will pass theimpact of any reduction in suchvariation margin on to you. This may
result in you not receiving any
variation margin in respect of any
increase in the mark-to-market valueof such contracts in your favour. Thismay mean that you do not obtain thefull value that would otherwise accrue
to your affected contracts that would
have arisen from market movements
after the default and, to the extent thatyou hold an opposite position in
relation to any asset or liability thatwas hedged by the affected contract,
you may face a loss on that position.

5

Assessments

Assessments are additional contributions to the default fund,which the CCP may call upon a non-defaulting clearing
member to make during the default management process inorder to ensure that it has sufficient resources to enable the
CCP to manage the default of one or more clearing members.
Assessments are amounts called for in addition to default fundcontributions already made by clearing members. They will
only be called for during a default management process andshould be differentiated from replenishments, which the CCP
will call to restore the default fund to its steady state following
the end of the default management process.

If the CCP calls us for an assessment
as part of a default management
process, we may call for an amountequal to a portion of such assessment
from you. The amount we will call for
shall represent the portion of theportfolio of contracts we clear at the
CCP which comprises contracts weclear on your behalf.

Changes to
MarginCriteria

A CCP may have discretion under its rulebook to amend thecriteria used to determine the quantum of margin calls(whether variation margin or initial margin), the timing ofsuch margin calls and the assets it will accept as eligible
collateral.

If the CCP amends its margin criteriasuch that the type or amount ofvariation margin or initial margin weare required to transfer in respect ofyour contracts, or the timing on which
we are required to make such transfer,changes, we will pass the impact ofsuch changes onto you.
This may result in you having to post
additional margin in respect of yourcontracts, no longer being able totransfer certain assets as eligible
collateral or us changing the deadlineby which you must transfer margin to
us on each business day.

Contingent
Variation
MarginIn certain situations (e.g. following the default of a clearing
member), in order to preserve its cashflow, the CCP may
credit a clearing member with an entitlement to variation
margin (e.g. by way of a credit to their account) whilst, at thesame time, restricting payment of such variation margin to theclearing member or withdrawal of amounts credited to its
account by the clearing member. In the future, the clearing
member may be able to use this contingent variation margin
credit in settlement of an obligation to post variation margin(and so the clearing member will not need to transfer variation
margin to satisfy such obligation).

We will only transfer an amount ofvariation margin to you equal to theamount of variation margin we
receive from the CCP in respect of thecontracts we clear on your behalf.
Therefore, if the CCP implements
contingent variation margin measuresin respect of any variation margin to
be transferred in respect of yourcontracts, you may not receive the fullamount of variation margin due inrespect of those contracts at the timesuch transfer is due.
However, you will be credited with anentitlement to such variation marginwhich you may use against yourvariation margin obligations in the
future (rather than transferring
additional variation margin).

Emergency
PowersIn emergency conditions (such as market disruption, war,
force majeure or following governmental or regulatory
action), a CCP may have additional powers to amend its
rulebook or require clearing members to take certain actions
with regard to the performance of each clearing member’s
contracts. Such emergency powers may include Tear ups,
Invoicing Back, Contingent Variation Margin and Forced
Allocation (each as described above). The CCP may also electto close one or more of its services and terminate all
outstanding contracts cleared at that service.

See further above as to the impact ofTear ups, Invoicing Back, Contingent
Variation Margin and Forced
Allocation and below as to the impactof a service closure.
In addition, if the CCP’s exercise of
emergency powers impacts the termsof any contracts we clear on yourbehalf or the amount of margin we are
required to transfer to the CCP on
your behalf or the CCP is required totransfer to us in respect of yourcontracts, we will pass the impact ofsuch changes onto you. This may
result in an amendment to the terms ofyour contracts, the close-out ofcontracts to which you are party, an
increase in the amount of margin you

6are required to transfer or a decreasein the amount of margin you may
receive.
If a contract to which you are party isclosed out, you may incur incidental
costs in the process of the closing out
of such contract and you may incur
additional costs if you decide to enter
into a replacement contract at another
CCP. You may also suffer a loss if theclose-out value is different to thevalue of the closed-out contract
recorded in your books. If you decide
not to enter into a replacement
contract, you will be exposed to therisk of adverse market movementsthat were previously hedged by thecontract.
If you receive less margin in respectof a contract we clear on your behalf,
this may mean that you do not obtainthe full value that would otherwise
accrue to such contract as a result ofmarket movements and, to the extent
that you hold an opposite position in
relation to any asset or liability thatwas hedged by the affected contract,
you may face a loss on that position.
Service
ClosureThe CCP may elect to close one or more of its services andterminate all outstanding contracts cleared at that service.

If the CCP closes a service at which
we are clearing contracts for you, the
CCP will terminate the relevant
contracts, perform a close-out
calculation and pay any positive
resulting sum to us or require us to
pay any resulting amount to it. In thiscontext, you may incur incidental
costs in the process of the closing outof your contracts and you may incur
additional costs if you decide to enter
into a replacement contract at another
CCP.
You may also suffer a loss if theclose-out value is different to thevalue of the closed-out contract
recorded in your books.
If you decide not to enter into a
replacement contract, you will be
exposed to the risk of adverse market
movements that were previously
hedged by the contract.
Due to the closure of the relevant
service, it also may not be possible toenter into replacement contracts.

Please see further the Appendices to this letter for details as to which of these measures areincluded in the rulebook of the relevant CCPs at which we clear on your behalf.

7

2.

Default management procedures

In summary, if a clearing member is declared to be in default under a CCP's default
management procedures, the CCP will usually try to transfer (port) transactions and assets
related to the clients of that clearing member to another clearing member. If porting cannot be
achieved, the CCP will terminate the transactions related to the clients of that clearing member
and perform a close-out calculation in respect of them. If there is an amount owed by the CCP,
the CCP may pay such amount directly to such clients subject to certain conditions, including
if it knows their identity. If the CCP does not pay directly to such clients, it will pay suchamount to the defaulting clearing member (or its insolvency practitioner) for the account of theclearing member's clients.
If we are declared to be in default, you may incur costs and losses, the most relevant of which
we expect to be the following:(a)

If your transactions and assets are ported, you may incur incidental costs fortransferring your positions and assets to another clearing broker.

(b)

If your transactions are terminated and the resulting sum is paid directly to you,
you may incur incidental costs in the process of the closing out of your contracts .
You may also suffer a loss if the close-out value is different to the value of theclosed-out contract recorded in your books. Further, you may incur additionalcosts if you decide to enter into replacement transactions and if you decide notto (or cannot) enter into a replacement contract, you will be exposed to the riskof adverse market movements that were previously hedged by the contract.

(c)

If your transactions are terminated and the resulting sum is paid to us, you may
incur the costs and losses described in the paragraph above and additional losses
resulting from our insolvency (which are explained in more detail in Part One
C of the FIA Clearing Member Disclosure Document).

If another clearing member is declared to be in default, the CCP will terminate any outstandingtransactions of that clearing member. Any losses suffered by the CCP in respect of thosetransactions will be allocated amongst the CCP and its members in accordance with its loss andposition allocation tools. The CCP may also seek to reduce those losses through the applicationof certain other measures provided for in its rulebook.
Such loss allocation and reduction tools may also include the following, each of which will
impact you in the manner described under “CCP recovery plan measures” above:(a)assessments;(b)tear up;8

(c)invoicing back;(d)forced allocation;(e)variation margin gains haircutting (VMGH) measures;(f)changes to margin criteria;(g)service closure;(h)contingent variation margin; and(i)use of emergency powers.

Please see further the Appendices to this letter for details as to which of these measures areincluded in the rulebook of the relevant CCPs at which we clear on your behalf.
Please also refer to Part One B of the FIA Clearing Member Disclosure Document, "Will you
get back the same type of asset as you originally provided to us as margin for a Client
Transaction?" for a description of the type of compensation you may receive under a CCP's
default management procedures.
III. Disclaimer
Recovery plans are not public and clearing members have to rely on voluntary disclosures by
CCPs and the provisions of CCPs’ rulebooks. Additionally, CCPs may take actions which are
not reflected in the information they have provided. Therefore, there may be other ways inwhich a CCP's recovery plan may impact you which are not reflected in this notification.
The information in this notification is based on the general provisions of CCPR and EMIR, as
well as the information publicly available on CCPs’ websites (including in the rulebooks ofthose CCPs).
This notification may be updated from time to time to reflect regulatory guidance and theappendices hereto may be updated as CCPs update their rulebooks or disclose information
about their recovery plans. However, we are under no obligation to keep the disclosure
contained in this notification up to date at all times and there may therefore be some delay
between a CCP updating its rulebook, or disclosure relating thereto, and consequential updates
being made to the disclosure in this notification. Clients are therefore advised to consult thelatest version of the relevant CCP’s rulebook, in addition to the latest version of this notificationand the appendices.
This notification does not constitute legal or any other form of advice and must not be reliedon as such. This notification provides a high-level overview of a complex and new area of law,
the effect of which will vary depending on the specific facts of any particular case. You and,9

where applicable, your clients may wish to appoint independent professional advisors to advise
you on this.
This notification is not an exhaustive information document, please also refer to otherdisclosure documents on other aspects of CCPR and EMIR.
If you have questions in the meantime, please get in touch with your usual relationship contact.
RBC Europe Limited

10Appendix 1 – Eurex Clearing AG
This Appendix sets out the recovery and default tools available to, or that may be applied to,Eurex Clearing AG (“Eurex) in a recovery and resolution scenario as set out in the Clearing
Conditions of Eurex Clearing AG as published on 12 February 2023 (the “Rulebook”) andcertain other documentation published by Eurex referred to in this Appendix.

MeasureContemplated in
Rulebook

Additional Comments✓

Eurex or the resolution authority may terminatetransactions with opposite directional positions tothose of the defaulting clearing member. Eurex or the
resolution authority may also terminate alltransactions within a liquidation group on theoccurrence of a clearing member default where theresources available to Eurex are not sufficient tocover its losses.

Invoicing
Back✓

Eurex may establish opposite correspondingtransactions with respect to transactions affected bya force majeure event, market disorder event or an
impossibility event.

ForcedAllocationx*

Variation
MarginGains
Haircutting(VMGH)✓-

Assessments✓

There is a cap on the amount of assessments that
may be called

ChangesMarginCriteria✓

Tear-up

to-11

Contingent
Variation
MarginEmergency
Powersx*n/aEurex has broad powers to take any action or amend
the rulebook following a market disorder event,impossibility event or force majeure event and topass emergency resolutions in the event of
extraordinary market conditions.
This means that Eurex could in practice adopt any ofthe measures outlined above which are notspecifically provided for explicitly in the Rulebook.

Service
Closure✓Eurex may suspend clearing services following amarket disruption event, force majeure event or
impossibility event.

* indicates that while this measure is not specifically contemplated in the Rulebook, it islikely to be available to Eurex in certain circumstances by virtue of its general powers.

12Appendix 2 – LCH SA
This Appendix sets out the recovery and default tools available to, or that may be applied to,
LCH SA (“LCH”) in a recovery and resolution scenario as set out in the LCH SA Clearing
Rulebook published on 10 February 2023 (the “Rulebook”), the LCH SA CDS Clearing
Rulebook dated 11 May 2022 (the “CDS Rulebook”) and certain other documentation
published by LCH referred to in this Appendix.

MeasureContemplated in
Rulebook

Additional Comments

x*

n/a

Invoicing
Back

x*

n/a

ForcedAllocation

x*

n/a

Variation
Margin Gains
Haircutting(VMGH)CDS Rulebook
only*

-

Assessments✓

There is a cap on the amount, and number, ofassessments that may be called.

✓

LCH has broad powers to amend its margin
criteria, including the amount of margin it calls
for, what constitutes eligible margin andhaircuts applicable to margin.

x*

n/a

✓

In.an emergency situation, LCH may takevarious measures (including amending its rules)
on little or no notice. This means that LCH couldin practice adopt any of the measures outlined

Tear-up

ChangesMarginCriteria
Contingent
Variation
MarginEmergency
Powersto13

above which are not specifically provided for
explicitly in the Rulebook.
Service
Closure✓-* indicates that while this measure is not specifically contemplated in the Rulebook and/or
the CDS Rulebook, subject to anything in the below table to the contrary, it is likely to beavailable to LCH by virtue of its general powers.

14