Reference Translation*: Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts”（Draft）
June 2021
Tokyo Financial Exchange Inc.
Items
Ⅰ．Purpose

OutlineRemarks

・TFX will revise the current loss compensation framework for Interest Rate Futurescontracts (“Contracts”) to deal with losses incurred by TFX, arising from default of a TFXInterest Rate Futures clearing member (“Clearing Member”). Subject to approval of therevision, TFX may be compensated for such above losses (“losses incurred by TFX”) bymeans of ad-hoc contributions for the Contracts from Clearing Members excluding thedefaulting Clearing Member (“Surviving Clearing Members”): a contribution with a cap(c.f. Ⅱ.3 First Additional Clearing Contribution) and the other contribution capped at theamount equal to Cumulative Variation Margin gains from Surviving Clearing Members(c.f. Ⅱ.4 Second Additional Clearing Contribution).

・Under the current Framework, If prefunded financial resources are exhausted,
TFX may make extraordinary cash call from
Surviving Clearing Members until TFX isfully compensated for losses ex-post facto.
・The revision of the Framework will enhancemeasurability of ex-post facto contribution
requirement for each Surviving Clearing
Member.

・In addition, under the revised Framework, TFX will introduce new scheme to liquidate adefaulting Clearing Member’s unsettled positions by means of i) auction (“Default
Auction”) and ii) early termination of the unsettled positions (“Partial Tear-up”) if
deemed absolutely necessary.
Ⅱ. Loss Compensation
Financial Resources
1. Priority in use of
Financial Resources

・With respect to losses incurred by TFX, compensation shall be made using financial
・The 1st priority financial resources deposit
resources of the following priority:
includes deposits with TFX made by a
【1st Priority】 The Exchange Margin, the market entry deposit, the clearing deposit anddefaulting Clearing Member in the capacity
other deposit or guarantee, all of which are deposited with TFX by theof trading/clearing membership of otherdefaulting Clearing Member.
TFX Market Derivatives.
【2nd Priority】 The Default Compensation Reserve for Interest Rate Futures set aside by TFX. ・If the Default Compensation Reserve (2nd
【3rd Priority】 The Interest Rate Futures Clearing Deposits deposited with TFX by Surviving
Priority) is consumed during a Cooling-off
Clearing Members
Period, TFX shall not replenish it during the【4th Priority】 First Additional Clearing Contribution by Surviving Clearing Members
same period.
(c.f. Ⅱ.3.)【5th Priority】 Second Additional Clearing Contribution by Surviving Clearing Members
having Variation Margin gains (c.f. Ⅱ.4.)

2. Loss compensation
using clearing deposit*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

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ItemsOutlineRemarks(1) Maximum Amount・With respect to losses incurred by TFX during a Cooling-off Period, the maximum amountof loss compensation in the 3rd Priority shall be, for a Surviving Clearing Member, therequirement of clearing deposit as of the day immediately preceding the commencement
date of the Cooling-off Period (“Initial Requirement of clearing deposit)”.
・During a Cooling-off Period, a Surviving Clearing Member shall deposit an amount equal
to Initial Requirement of clearing deposit.

(2) Priority to use
Clearing Deposits

・When TFX conducts Default Auction, TFX shall determine priority to consume the Interest
Rate Futures Clearing Deposits of Surviving Clearing Members depending upon Default
Auction results as follows: first, consume clearing deposits of non-bidders, secondly
clearing deposits of bidders excluding auction winners and finally the clearing deposits ofauction winners.

(3) Replenishment ofclearing deposit

・A Surviving Clearing Member shall have replenished the shortfall, if all or part of thedeposit is consumed during a Cooling-off Period, to meet the updated requirement ofclearing deposit for the member at the end of the period.

3. First Additional
Clearing Contribution(1) Allocation to
Surviving Clearing
Members・If it becomes apparent that financial resources of 1st to 3rd priorities will not be sufficient
to cover all the losses incurred by TFX, TFX shall use via cash call ad-hoc clearing
contributions for the Contract from Surviving Clearing Members, to compensate for theremaining losses (“First Additional Clearing Contribution”).
・The requirement of First Additional Clearing Contribution (4th Priority) for a Surviving
Clearing Member shall be obtained by prorating the amount of the above remaining
losses based on the amount of its Initial Requirement of clearing deposit for the member.
・The maximum required amount of First Additional clearing contribution for a Surviving
Clearing Member with respect to a Cooling-off Period shall be an amount equal to Initial
Requirement of clearing deposit for the member during the same period.

・Upon incurring losses, arising from default
of a Clearing Member, TFX shall set a
Cooling-off Period for disposal of thelosses: a period commencing on a day on
which there arises obligation of thedefaulting Clearing Member with respect tothe loss and ending on a day
corresponding to the 22nd banking
business day (c.f. Ⅲ.2).
・For Default Auction with respect todefaulting Clearing Member’s unsettled
positions, please refer to Ⅲ.1.
・To establish the practical guideline, TFX willdevelop further details with respect toincentives for Surviving Clearing Members
to win Default Auction (including sequencein favor of auction winner), etc.
・ Even if a Surviving Clearing Member’s
clearing deposit falls short of Initial
Requirement of clearing deposit upon TFX’s
use of the deposit (i.e. the 3rd Priority), themember is not obliged to replenish theshortfall during the same period.
・TFX will examine administrative process indetail with respect to First Additional
Clearing Contribution, including notification
to the Clearing Members of the deposit,
deposit from the members, etc.

(2) Maximum Amount・TFX sets such maximum amount (c.f.3(2))
as it deems appropriate in view of; i)Clearing Members’ operational capability
to measure and control exposure, and ii)*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

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ItemsOutlineRemarks
mitigation of systemic risk and liquidity
crisis risk upon additional contribution.
・ A similar cap will become applicable to FX
Clearing contracts: First Additional Clearing
Contribution with a cap set at an amountequal to Initial Requirement of clearing
deposit.

4. Second Additional
Clearing Contribution(1) Allocation to
Surviving Clearing
Members(2) Maximum Amount・If it becomes apparent that financial resources of 1st to 4th priorities will not be sufficient
to fully cover the losses incurred by TFX, TFX shall use the other ad-hoc clearing
contributions for the Contract from Surviving Clearing Members, to compensate for theremaining losses (“Second Additional Clearing Contribution”) as follows.
・The amount of Second Additional Clearing Contribution (5th Priority) with respect to a
Surviving Clearing Member shall be obtained by prorating the above remaining losses
based on the following value:“Variation Margin gains from the Surviving Clearing Member’s account” / “total Variation
Margin gains from all the Surviving Clearing Members accounts”
during a period from occurrence of the default event until the settlement of thedefaulting Clearing Member’s positions (“Disposal Period”).

・For options contracts, TFX will determine
the amount equivalent to Variation Margin
as necessary.
・All house and customer accounts of each
Clearing Member shall be subject tocalculation of the member’s Variation
Margin.
・TFX will examine administrative process indetail with respect to Second Additional
Clearing Contribution, including notification
to the Clearing Members of the deposit,
deposit from the members, etc.

・Maximum amount of Second Additional Clearing Contribution to be made by a Surviving
Clearing Member shall be, with respect to a Disposal Period, equal to cumulative Variation
Margin gains from the Surviving Clearing Member’s account during the same period.

Ⅲ. Liquidation Scheme
１．Liquidation of thedefaulting Clearing
Member’s Unsettled
Positions・In general, the unsettled positions of the defaulting Clearing Member are liquidated basedon the following priority:①The defaulting Clearing Member executes transactions for resale/repurchase for offset and to transfer;② If there exist unsettled positions after ①, a Surviving Clearing Member accepts theunsettled positions for resale/repurchase for off-set, or otherwise liquidate in themanner that TFX deems necessary;・Under the revised Framework, TFX may
conduct Default Auction to liquidate theunsettled positions of the defaulting
Clearing Member.
・Ⅲ.1 provides a general example of how thescheme will work. TFX may practically
apply adjustment to the procedures and*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

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ItemsOutlineRemarks③ If there exist unsettled positions after ②, TFX starts discussion with other Surviving
Clearing Members for liquidation;④ If there exist unsettled positions after ③, TFX conducts Default Auction;⑤ If it becomes apparent that a) Default Auction will fail or b) successful Default
Auction will result in loss remainder after compensation by 1st Clearing Contribution,
TFX may determine that all or part of Default Auction has failed and proceed withearly termination of unsettled positions (“Partial Tear-up”).
・If TFX considers necessary, TFX may consult Surviving Clearing Members with respect toprocedures to liquidate defaulting Clearing Member’s unsettled positions.

tools, etc. based on the default size andmarket conditions.
・TFX may conduct Partial Tear-up only in theleast likely event; as requirement ofclearing deposit ,etc. is calculated to cover
the largest aggregate credit exposure
under extremely stressed market conditions
incurred by TFX (“Probable Maximum
Loss”).
・TFX will consult with Surviving Clearing
Members for Liquidation of the unsettled
positions in order to avoid Partial Tear-up.
・TFX will establish practical guideline for
Default Auction, taking into account thedevelopment of global discussions.
・Procedures to liquidate defaulting Clearing
Member’s unsettled positions shall be, in
principle, within 24 hours.
・Under Loss Compensation Framework for
FX Clearing contracts, “Cooling-off Period
from Initial Loss-incurred Date to the 22ndbanking business day” will also become
applicable.

２．Cooling-off Period

・Upon incurring losses arising from default of a Clearing Member, TFX shall set a “Coolingoff Period” commencing on a day on which there arises obligations of the defaulting
Clearing Member with regard to the loss (“Loss-incurred Date”) ending on a day
corresponding to the 22nd banking business day, and notify Surviving Clearing Membersof the period.
・Upon incurring additional losses arising from defaulting of another Clearing Member
during a Cooling-off Period, TFX shall extend the original end of the Cooling-off Period to
the 22nd banking business day from the day the further losses incurred.

３．Unsuccessful
Auction・If it becomes apparent that Default Auction will fail or successful auction may cause loss
remainder after appropriating compensation by First Additional Clearing Contribution,
TFX may determine that all or part of Default Auction has failed and proceed with Partial
Tear-up.
・Current market price shall be applied for the purpose of Partial Tear-up.

・TFX will further examine such details asapplicability of current market price to the
Allocated Position for Partial Tear-up(including applicability of daily settlement
price of the day, etc.).

*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

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Items４．Partial Tear-up

Ⅳ．Deposit of Special
Purpose Collateralduring Cooling-off
Period
１．Deposit of Special
Purpose Collateralobligated for Surviving
Clearing members

OutlineRemarks

・Prior to early termination of the defaulting Clearing Member’s unsettled positions subject
to Partial Tear-up (“Positions to Partial Tear-up”), TFX shall have allocated positions inaccordance with ①-③ (“Allocated Position for Partial Tear-up”) to Surviving Clearing
Members having net open positions against Positions to Partial Tear-up. Positions toPartial Tear-up and Allocated Position for Partial Tear-up shall be simultaneously
terminated.
① Firstly, only with respect to contract month in which there exists Positions to Partial
Tear-up, TFX shall a) calculate Surviving Clearing Member’s net positions for eachhouse/customer account, b) identify accounts in which there exists net positions of
the side against Positions to Partial Tear-up, and c) extract the net position volume ofsuch identified account (“Net Positions for Each Account in the Month”)② Secondly, TFX shall obtain Allocated Position for Partial Tear-up to a Surviving
Clearing Member by prorating Positions to Partial Tear-up based on the Clearing
Member’s total sum of Net Positions for Each Account in the Month (i.e. allhouse/customer accounts).
③ Eventually, TFX shall obtain Allocated Position for Partial Tear-up for eachhouse/customer account of the Clearing Member; by prorating Positions to Partial
Tear-up to the Surviving Clearing Member【c.f. ②】 based on Net Positions for Each
Account in the Month 【c.f. ①】 for each house/customer account.

・In case of effecting Partial Tear-up, TFX
shall use financial resources to compensate
for Variation Margin losses arising from thedefaulting Clearing Member’s unsettled
positions, incurred until then.
・Both house and customer accounts shall be
subject to calculation of Allocated Position
for Partial Tear-up; TFX may effect earlytermination of positions for customer
accounts as well as house accounts.
・For example, if Positions to Partial Tear-up
is “long”, TFX shall identify accounts inwhich there exists net “short” positions;
Net Positions for Each Account in the Monthmeans the net position volume in suchaccounts.
・ In Ⅲ.4.①, if no accounts (in which there
exists net positions of the side against
Positions to Partial Tear-up) are identified,Positions for Each Account in the Months
shall be deemed as “0”.
・TFX will further examine administrative
process of Partial Tear-up, including
calculation and notification of AllocatedPosition for Partial Tear-up.
・IV. is designed similar to FX Clearing
contracts.

・During Cooling-off Period, a Surviving Clearing Member shall deposit, as Special Purpose
Collateral, total sum of the following in Japanese Yen:a) Variation Equivalent; the calculated amount based on the daily changes in therequirement of a clearing deposit for the member, and・Special Purpose Collateral shall be “aClearing Deposit” defined in article 156.11
of the Act.

*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

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ItemsOutlineRemarksb) Additional Clearing Contributions Equivalent (the amount may be used in theevent of loss sharing among Surviving Clearing Members); calculated
requirement for the member with respect to First and Second Additional Clearing
Contribution (“Additional Clearing Contributions”) .
・When the amount of losses incurred by TFX during a Cooling-off Period exceeds the sumof financial resources of 1st, 2nd, and 3rd priorities, and such excess causes TFX toproceed with cash call for Additional Clearing Contributions (i.e. 4th or 4th and 5thpriorities), TFX shall appropriate Special Purpose Collateral deposited by each Surviving
Clearing Member; by which the member shall perform its obligations for its Additional
Clearing Contributions.
２．Calculation method
for Requirement ofSpecial Purpose
Collateral・The requirement of Special Purpose Collateral for a Surviving Clearing Member shall be
the following sum; the Variation Equivalent and Additional Clearing Contributions
Equivalent, with each equivalent amount calculated respectively on every business day
during a Cooling-off Period.

（１）Variation
Equivalent・To obtain Variation Equivalent for a Surviving Clearing Member, firstly, TFX shall calculate
an amount equivalent to the requirement of clearing deposit (“Requirement Amount
Equivalent”) for each business day as base calculation date during a Cooling-off Period.
・Secondly, TFX shall determine an amount to base calculation of Variation Equivalent(“Base Amount”) for each business day in accordance with the category of basecalculation date in ① and ② as below.
<Base Amount>① Base calculation date：the first day of a Cooling-off Period
If the Requirement Amount Equivalent of the first day in a Cooling-off Period
exceeds the Initial Requirement of clearing deposit, the amount of Requirement
Amount Equivalent shall be used as the Base Amount. If not, the amount of
Initial Requirement of clearing deposit shall be used as the Base Amount.

・The requirement of Variation Equivalent
shall be set as zero at the end of theCooling-off Period.

② Base calculation date：days other than ①
If the Requirement Amount Equivalent of the business day exceeds the BaseAmount of the preceding business day, the amount of Requirement Amount
Equivalent shall be used as the Base Amount of the day. If not, the precedingbusiness day’s Base Amount shall be used as the Base Amount of the day.
*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

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ItemsOutlineRemarks

・Finally, TFX shall derive the Variation Equivalent by deducting Initial Requirement ofclearing deposit from the Base Amount for every business day during the Period.
（２）Additional
Clearing Contributions
Equivalent・The sum of the following ①and ② shall make Additional Clearing Contributions
Equivalent for a Surviving Clearing Member as of a business day:
① First Additional Clearing Contribution equivalent:
If the losses incurred by TFX during a Cooling-off Period, exceeds the financial
resources of 1st and 2nd priorities, such loss amount shall be shared and borne
among Surviving Clearing Members. The share amount for a Surviving Clearing
Member shall be obtained by prorating the excess based on its Initial Requirement ofclearing deposit, subject to cap at the amount of the member’s Initial Requirementof clearing deposit.
② Second Additional Clearing Contribution equivalent:
If the losses incurred by TFX during a Cooling-off Period, exceeds the financial
resources of 1st, 2nd, 3rd, and 4th priority, such loss amount shall be shared andborne among Surviving Clearing Members having cumulative Variation Margin gains(“Surviving Clearing Members making Second Additional Clearing Contribution”). The
share amount for a Surviving Clearing Member making Second Additional Clearing
Contribution shall be obtained by prorating the Variation Margin losses arising fromthe defaulting Clearing Member based on the member’s Variation Margin gains.

・The calculated requirement of Additional
Clearing Contributions Equivalent shall be
zero as of either date whichever comes
later in timing: ① on a day when a
Cooling-off Period ends or ②on a day when
TFX is fully compensated for the loss
arising from the defaulting Clearing
Member.

３．Deposit of Special
Purpose Collateral・For each business day during Cooling-off Period, TFX shall calculate and notify to each
Surviving Clearing Member the required amount of Special Purpose Collateral to bedeposited by the member.

・TFX will further examine such details as
notification on the required amount ofSpecial Purpose Collateral and its deposit
dead line, etc.

・If an applicant for Clearing Membership deregistration and TFX agrees on a deregistration
date, the deregistration of a clearing membership shall come into effect on such agreed
date or in the absence of such agreement, either ① or ② whichever comes later intiming shall make the effective deregistration date:① On the 12th bank business day from the following day on which TFX receives thederegistration application from the applicant.

・Under current Framework, TFX approves
each of the deregistration application by
designating deregistration time and date.
・Upon revision of the Framework, TFX willallow deregistration of Clearing Membershipwithout approval by TFX.

Ⅴ．Deregistration ofClearing Membership
１．Deregistration datein normal times*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

7

ItemsOutlineRemarks② On the 8th bank business day from the following day on which all the unsettled
positions are liquidated via resale/repurchase transactions or transfer, with all
obligations to TFX performed.

２．Deregistration datethat falls on Coolingoff Period

・If an applicant for Clearing Membership deregistration and TFX agrees on a deregistration
date, the deregistration of a clearing membership shall come into effect on such agreed
date, or in the absence of such agreement, either ①, ② or ③ whichever comes later intiming shall make the effective deregistration date.
① On the 12th bank business day from the following day on which TFX receives thederegistration application from the applicant.
② On the 8th bank business day from the following day on which all the unsettled
positions are liquidated via resale/repurchase transactions or transfer, with all
obligation to TFX resolved.
③ On the final day of the Cooling-off Period.

３．Obligation of
Deregistration
Applicant tocompensate losses

・An applicant for deregistration of Clearing Membership shall remain liable for losses
incurred by TFX prior to deregistration; the applicant shall perform obligations as
Surviving Clearing member by making clearing deposits, First Additional Clearing
Contribution and Second Additional Clearing Contribution.
・If an applicant for deregistration of Clearing Membership has rights and obligations
caused prior to deregistration, Rules and Regulations of TFX shall remain applicable tothem.

Ⅵ．Implementation
Timing・The proposed revision will be implemented in the first half of the fiscal year of 2021.

・The obligation to TFX referred in ② does
not include costs related to disqualification
and unbilled costs and expenses related totransactions, which the applicant has tobear separately.

*Disclaimer: This is an English translation of Outline of “Revision of Loss Compensation Framework for Interest Rate Futures Contracts (Draft)”, the original of which has been prepared in the Japanese language
only. The Japanese language text hereof shall govern for all purposes and in all respects. Accordingly, all questions that may arise within or without courts of law in regard to the meaning of the words, provisions
and stipulations of this Outline shall be decided in accordance with the Japanese language text. TFX assume no responsibility for accuracy, correctness, or contents of this English text. This Outline may not be
reproduced nor used for any unauthorized purposes, either in whole or in part, without the consent of TFX.

8