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Invested in America

DISCUSSION DOCUMENTS
FEBRUARY 20, 2015

The Securities Industry and Financial Markets Association (SIFMA) prepared this material for discussion
purposes only.



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Scenario 2: Moving Away from Inter-Affiliate Transactions as Risk
Management Tool

US Swap Entity sells €200M notional CDS on EU company to US customer (Transaction “A”). US Swap
Entity hedges by buying €200M notional CDS on the same EU company from a 3" party dealer
(Transaction “B”). UK affiliate is already long €100M notional CDS on that company due to a trade with
an EU customer, and to hedge the UK affiliate sells €100M notional CDS on that company to a 3 party
dealer (Transaction “C”). Assuming IM requirements for transactions = 4% of notional, this results in the

posting of €24M in segregated IM by the US Swap Entity and its UK Affiliate, and €600M notional in
group-wide credit exposure to 3" parties.

€200M (B) e100m (C)
ee
d
€8M (IM*) US Swap Entity nies . iilag
<_—_—. ccmaateas ealer
3 c——
_e €4M (IM*)

on | emt €4M ty €4M 4 €100M

(IM*) (IM*) | (existing)

EU Customer

sifma *Held at 3 Party Custodian/No Rehypothecation