Where are we in the Target2Securities project?The European Target2Securities (T2S) project is progressing well.

Brexit Position Paper Brexit is likely to have profound consequences for the European financial markets.

News from the financial & securities industry

October 2016

What’s next?ABN AMRO Clearing Newsletter for clients | No. 42

2

Table of contents

03 General

Intro 3

Save the Date AIF 15

FOW Int Awards 16

Events Overview 22

04 Market | Product updates

The T2S program: almost there 4

Products Update - SGX 6

Nasdaq Futures Update 8

ABN AMRO Clearing keeps on investing 9

Market Infrastructures update: September 2016 11

Hong Kong Market Update 13

19 Regulations

Brexit Position Paper 17

US regulatory updates 20

Contents GeneralM

arket | Product updatesRegulations

RegulationsM

arket | Product updates

3

I joined ABN AMRO Clearing in July as Global Chief Operations Officer. My adagio is that Clearing

should provide you with excellent service and excellent execution of your trades. Excellent is defined

by the needs of the customer, our communication with you, the efficiency of our processes, the

compliance to regulation and the ability to adapt quickly. At the end of the day, Operations serves you.

We also need to be smart in how we set up our services and, in times of scarcity of resources, need

to continually prioritize our efforts. This newsletter is a good tool to communicate to you, what we are

working on and how we are responding to requests, guidelines and directives.

In this issue you can read about new products & services, as well as exchange connections we are

planning. We will give you an update on regulatory influences and announce the date for our 6th

edition of the annual Amsterdam Investor Forum. We need to do all this while constantly looking

for improvements in our daily business. I am aware that things do not always go smoothly and the

two-way dialogue we have between our Operations departments and yours has proven to be very

constructive and has improved mutual understanding. I invite you to contact us for a dialogue when

you feel we need to hear your ideas or concerns.

Change brings opportunity! I look forward to navigating these changes and to continuously strengthen

our service to you,

Kind Regards

Intro

Pauline Engelberts,Chief Operations Officer ABN AMRO Clearing

Dear client,

It is an honor to be able to introduce myself to you via this newsletter. It is also daunting when I realize how many people will be reading this, spread out around the world.

General

4

The road to deliveryWave 3 of the T2S migration was a massive undertaking.

After 18 months of hard work, ABN AMRO Clearing has

now become a Directly Connected Participant (DCP) on

these 3 core markets. This took a lot of preparation:

New functionality was developed, tested and

implemented;

Migration software was developed, tested and

implemented;

A detailed run book, consisting of 280 tasks, was

prepared;

All was practiced in 3 Dress Rehearsals followed by

community tests and the official authorisation tests.

Those preparations paid out in the actual migration

weekend. The migration team worked from Friday after

business hours until completion on Sunday evening at

7.00 pm. Only two unexpected issues had to be

resolved during the weekend.

The European Target2Securities (T2S) project is progressing well. It requires European Central

Securities Depositories (CSD’s) to move settlements processing to the T2S settlement engine

in multiple waves. Wave 1 and 2 have been completed successfully, and now the ESES CSDs

migrated to T2S in Wave 3 over the weekend of 10-11 September. ABN AMRO Clearing completed

the migration successfully, aligned with ESES.

Where are we in the Target2Securities project?

ESES = EBE + EFR + ENL

Settlements

Swift 15022

Asset Servicing

Swift 15022

EBE EFR ENL

EBE EFR EBNL

CSD CSD CSD

As is

Settlements

Swift 20022

Asset Servicing

Swift 15022

To be

Client Client

SettlementsAsset Servicing SettlementsAsset Servicing

1:3Migration

Market | Product updates

GeneralRegulations

5

Where are we in the Target2Securities project?

Planning T2S, migration of CSDs in Waves

Wave 1 (22 June 2015)

Wave 2 (28 March 2016)

Wave 3 (12 Sept 2016)

Wave 4 (6 Feb 2017)

Wave 5 (18 Sept 2017)

Monte Titoli

SIX SIS Ltd

Malta S

tock Exch

ange

Depozitaru

l Centra

l

BOGS

NBB SSS

Interb

olsa

ESES BE, FR, N

L

VP Securiti

esVP Lux

CBF

O

eKB

Keler

LuxC

SD

EVK, C

VPD

CDCP, K

DD

E

uroclear F

I

Iberclear

Successful migrationIn fact, the real work started on Monday 12 September.

Together with ESES many market participants migrated.

We had anticipated that this combination of changes

could result in more operational and IT-related issues.

We set up a ‘Rescue Team’ to react quickly in case of

unexpected events. Already at 7.30 am on Monday

morning the team was on duty, which proved to be a

smart move. All problems that came up at the opening

of the business day could be handled without severe

impact for our clients. Only ESES problems related to

their Cross Border settlement system, made it hard for

our operations team to meet the regular service levels

on Depot Switches.

Why is this move important?The T2S Wave 3 migration was a great success for

ABN AMRO Clearing. Becoming DCP for the ESES

CDS’s is an important step, as these are core markets

to our business. We are now ready to share with our

clients the advantages of the changes that come with

T2S. It illustrates our ongoing commitment to deliver

our clients with the best solutions for connecting to

critical market infrastructures.

More waves to comeAfter a successful migration track in the previous waves,

we look forward to Wave 4. In February 2017 we

will face another big challenge with the migration of

Clearstream Banking Frankfurt and the Austrian OeKB.

We will be ready.

Luuk Godefrooij

Program Manager

ABN AMRO Clearing

In bold the CSD’s with whom ABN AMRO Clearing deals the most.

Market | Product updates

GeneralRegulations

6

SGX Warrants Turnover Continues To RiseFrom $15mil average daily traded value in 2015, SGX

Warrants turnover has rebounded strongly in 2016 with

an average daily traded value of approximately $35-40 mil

in August and September. SGX Warrants now represent 3-4%

of SGX overall securities market turnover compared to

1.4% in 2015. In addition, peak trading days in 2016 have

registered highs of $80-90+mil traded value or 8-10% of

total market turnover. The growth in warrants turnover is

a result of positive feedback from renewed participation

from proprietary trading desks, trading representatives

and retail clients, creating a more vibrant ecosystem for

every participant trading in our structured warrants market.

SGX launched various initiatives such as training retail

investors and brokers (trading representatives), new

structured warrant tools and the dissemination of real

time prices of underlying indices. These efforts have

collectively contributed to the growth of the segment

and broadening of the investor base.

Based on the rising appetite for leverage products SGX sees

renewed interest from issuers for both leveraged (and

inverse) ETFs as well as constant leverage products within

our warrants segment. The difference vs normal warrants

would be the fact that leverage is reset on a daily basis to

remain constant over the lifetime of the product where the

effective gearing of warrants is different every day pending

the movement of the underlying. These constant leverage

products are not impacted by typical optionality features

like volatility and time decay and for that reason are

deemed less complex and suitable for wider audience.

SGX ETF Market ActivitiesETFs listed on SGX have had a boost in 1H2016 with 18%

increase in AUM (US $507m) in the last 6 months. SPDR

Gold ETF (GLD SP Equity) continues to shine as bullion prices

gained by 25% in the first half of 2016 with month-to-date

turnover up nearly four-fold from the year-ago period.

As SGX waived clearing fees for reporting of ETF block

trades, the amount of block trades reported to SGX

increased 1.7x over an 18 months period compared to

same period before the waiver.

One of the key benefits of trading Singapore-domiciled

funds for institutional clients is tax-efficiency. Investors

purchasing US listed funds are subject to 30% U.S.

Products Update - SGXAs a key focus area for SGX, we continue our efforts to build the listed products space and

offer better tradability and widen the overall offering.

0

20

40

60

80

100SW Turnover (SM)

Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016

Daily Monthly

Market | Product updates

GeneralRegulations

7

withholding tax on ETF’s dividends for non U.S. residents,

citizens or non-U.S. entities. The advantage for trading SGX

domiciled funds versus US domiciled is the 30% withholding

taxes as mentioned. Impact would be noticeable for any

ETF that pays dividends. The yield would be significantly

higher. Example: Singapore ETF pays 6% dividend,

investor receives 6%, exactly the same ETF domiciled in

the US would pay 6% as well, investor only receives 4%.

MAS published FAQs on Leverage and Inverse ProductsLeverage and Inverse Products structured as listed funds

are gaining popularity in various markets, including Asia.

In line with other markets MAS has published guidance

on the regulatory requirements to list in Singapore.

The document also contains FAQs on other topics, see

page 12-14 for Leverage and inverse products in specific.

SGX is working with interested ETF issuers and aims to

list first products Q1 2017.

New Market Maker Cash Incentive Scheme for ETFsWith the aim to improve orderbook quality and liquidity,

SGX will sponsor a new cash incentive scheme for

certain baskets of ETFs on SGX. This programme will

offer cash stipends within the Commercial Market

Maker (CMM) scheme, in addition to the current clearing

fee rebates for meeting quotation obligations. Please

reach out to SGX if you are interested to discuss.

Launch of REITS and ASEAN Dividend ETFSGX continues to expand our product shelf with new

and innovative ETFs to cater to investors’ needs. We

look forward to the launch of an ASEAN Dividend and an

APAC REITs1 ETF in 4Q2016. These new ETFs will offer

investors a convenient instrument to access some of

Asia’s highest yield plays in a low yield environment.

Launch of MSCI China Futures & Options - Exposure to ‘New China’ industries SGX launched MSCI China Index futures and options in

May 2016 to meet growing global institutional investors’

demand for broader access to China, and offer an effective

and holistic risk management tool for managing exposure

to ‘New China’ industries. The contract also builds on

the strong FTSE China A50 Index franchise that SGX

has built.

The MSCI China contracts track the MSCI China Free

IndexSM which reflects a comprehensive investment

opportunity for a set of Chinese companies available to

international investors, including the Hong Kong-listed

China H-shares, Red Chips, P Chips and ADRs such as

Baidu and Alibaba.

With a broad representation of sectors including financial,

IT and consumer companies, the contracts offer an

effective risk management tool for managing exposure

to the new industries that are seen to be driving China’s

next stage of economic growth. This timely launch aligns

with China’s plan to embark on its journey to pivot its

economic development towards a consumption led

model, diversifying from its traditionally industrial-heavy

economy. Given that Chinese companies are now listed

across time zones, SGX’s extended trading session also

offers investors more than 16 hours to manage their

exposure to the Chinese market.

While still at the nascent stage, the MSCI China futures

contract has attracted participation from international

investors including banks, asset managers and proprietary

trading firms. SGX offers up to 60% margin offsets (i.e.

reduced margins) for participants who hold opposite

positions in the FTSE China A50 and MSCI China derivatives,

allowing them to capture material capital efficiencies

through margin reductions.

On the securities market, SGX hosts a corresponding

DB X-trackers MSCI China UCITS ETF (LG9 SP Equity),

a direct replication ETF.

For further information please contact

1 REIT = Real Estate Investment Trust

Products Update - SGX

Market | Product updates

GeneralRegulations

8

Nasdaq Futures in 2016*

* All numbers are gathered from end of day volume reports available from the exchanges.

Key Milestones in Year One Record market share of 5% on July 25th

WTI: 6% on July 26th

BRENT: 7.5% on May 31st

GASOIL: 28% on June 13th

NAT GAS OPTIONS: 37% on July 7th

Record open interest of 1.1M on July 15th

Launched over 110 new products with 100 different

firms participating in our first year

Total daily volume record of 188,000 contracts on

July 12th

Nasdaq Futures Introduces Asia-Pacific IncentivesWe have introduced a new Energy Asia-Pacific

Incentive Program to encourage Futures Commission

Merchants (FCMs) in the Asia Pacific region to trade

NFX energy futures and options-on-futures products as

well as motivate NFX Clearing futures participants who

clear this business.

Any FCM located in the Asia-Pacific region who is NOT

already a NFX Futures Participant OR a NFX Clearing

Futures Participant, BUT who does have a relationship

with a NFX Clearing Futures Participant, is eligible to

apply for the incentive program.

Have a question? Looking for more information? To learn more about our products and growth, please

contact a member of our dedicated

Account Management Team.

Bookmark our daily volume and block trades data

or visit us at business.nasdaq.com/futures.

Nasdaq Futures updateNasdaq Futures (NFX) brings a competitive benchmark of energy products, fees, innovative

technology, and clearing services designed to meet the needs of ambitious traders. An expansion

of our global commodities business, NFX offers key energy benchmarks that allow market

participants to further diversify their portfolios while providing a valuable hedging tool.

0 0

50,000200,000400,000600,000800,0001,000,0001,200,0001,400,000

100,000

150,000

200,000

ADV Open Interest

Jan Feb Mar Apr May June July August

Market | Product updates

GeneralRegulations

9

What new products went live in Q2 and Q3 2016? Below you

find an overview of all exchanges/products across the globe

that are added to the ABN AMRO Clearing (AAC) service

offering and can be cleared in your account with us.

ABN AMRO Clearing keeps on investing

Asia Pacific

HKEX

First Listings of Leveraged and Inverse Products: Leveraged & inverse ETF’s on TOPIX Leveraged & inverse ETF’s on KOSPI 200 Leveraged & inverse ETF’s on NIFTY 50 CNH vs EUR future (settled in CNH) CNH vs JPY future (settled in CNH) CNH vs AUD future (settled in CNH) CNH vs USD (settled in USD) RXY- currency index (TR/HKEX RMB currency)

SGX Titan-OTC

SGX listed FX Block Futures on EBS BrokerTec’s FX central limit order book (CLOB) Enables trading of SGX FX futures as per normal on EBS screen. Once orders are matched, they will be automatically piped through to SGX Titan OTC for clearing. The initial offering will include SGX block futures in INR, KRW, CNH, SGD and CNY.

SGX Titan-DT (OMX Nasdaq Genium) Self-trade prevention Mass quote protection Extended trading hours (from 2am to 4.45am for liquid contracts; FX start at 7am; NK start at 7.30am; T/T+1 gap from 45min to 25min) Increased throttle capacity 4 to 20TPS and 20 to 50TPS at same price ITCH and OUCH

New ETF Market Maker Scheme with cash incentives (+issuer top-up model) pro-rated by volume, + free API

ASEAN Dividend ETF

Europe

New markets: ICE Endex Gas spot

As of February 2016, AAC supports UK OCM, Dutch TTF and Belgian ZTP gas spot markets at ICE Endex. Dubai Gold and Commodities Exchange (DGCX) (Special Clearing Member) APX Energy spot

In March this year APX moved from a self-clearing party to clearing by the ECC. APX is a power exchange for Dutch, Belgian and British power contracts. SEEPEX

AAC started to offer clearing and settlement of Serbian Power spot contracts on South Eastern European Power Exchange (SEEPEX) as of February this year. This is cleared by European Commodity Clearing (ECC), which already clears exchanges such as CEGH, EEX, EPEX Spot, HUPX, Gaspoint Nordic, Powernext, PXE and Norexeco. Poland

As of June 2016 AAC is a GCM on KDPW_CCP. Clients can trade Polish securities and futures on the Warsaw Stock Exchange. Turquoise Poland equities

The Turqoise platform is offering trading in Polish securities. AAC supports clearing for these products via EuroCCP.

Market | Product updates

GeneralRegulations

10

Market | Product updates

GeneralRegulations

Europe (continued)

New products: HUPX:

Intraday market ICE Endex:

Belgian, Dutch, French, German, Italian, Nordic and Spanish Base and Peak Future contracts ICE Clear Europe:

New energy and commodity contracts (Oil, Freight, financial NGL, Coal, Financial Gas and Sugar) Nasdaq OMX:

Monthly DS power and gas contracts LSE Derivate Market:

Weekly index options CME Europe:

Physical Natural Italian Gas contracts EEX:

German locational and hourly products Freight, Iron ore and coal contracts Short term power futures

Euronext: AtomX flex contracts V2

US

IEX (The Investor Exchange)

ABN AMRO Clearing keeps on investing

11

News from the financial & securities industry

Market Infrastructures update: September 2016Trading venues Euronext (EN)

20% stake in EuroCCP

Euronext announced it has signed a definitive agreement

to acquire a 20% stake in EuroCCP, the leading CCP for

pan-European equity markets, providing clearing and

settlement services, for an amount of circa €14m. This

follows the announcement of May 12th confirming Euronext

was in exclusive talks to acquire 20% of EuroCCP.

Euronext website.

Deutsche Börse (DB)/ London Stock Exchange Group (LSEG)Merger of Deutsche Börse Group and London Stock

Exchange Group: Final acceptance ratio: 89.04 per cent

of all Deutsche Börse shares tendered.

Following analysis of all shares tendered for exchange,

Deutsche Börse AG has determined a final acceptance ratio

for the Exchange Offer of 89.04 per cent. The transaction

is still subject to a number of closing conditions, including

merger control clearance by the EU Commission as well

as approval by financial, securities and other regulatory

authorities.

Deutsche Borse website.

BATSCBOE Holdings, Inc. (NASDAQ: CBOE) and Bats Global

Markets, Inc. (Bats: BATS) announced that they have

entered into a definitive agreement, which has been

approved by the Board of Directors of each company

by unanimous votes of the members of the boards

present, under which CBOE Holdings has agreed to

acquire Bats in a cash and stock transaction valued at

approximately $32.50 per Bats share.

Find the press release here.

Dubai Gold and Commodities Exchange (DGCX)Since September 2016 AAC offers clearing services as

a Special Clearing Member on the Dubai Commodities

Clearing Corporation(DCCC) for trades done at the

Dubai Gold and Commodities Exchange (DGCX).

ICE (Intercontinental Exchange)ICE Clear Europe Received EMIR Authorization on

19 September.

In order to be authorized, ICE Clear Europe has

demonstrated that the clearing house’s governance,

operations, risk management, treasury and banking

infrastructure is EMIR compliant.

Intercontinental exchange statement on Trayport acquisition Intercontinental Exchange (NYSE:ICE) provided

further information to investors on its acquisition of

Trayport following the UK’s Competition and Markets

Authority’s (CMA) announcement The CMA’s provisional

findings identified areas of concern. ICE does not agree

with the findings which do not align with ICE’s vision

for continuing to operate Trayport as an open and

autonomous software provider. This was ICE’s original

statement of intention and reflects how the business

has operated since the acquisition was completed in

December 2015.

Market | Product updates

GeneralRegulations

12

News from the financial & securities industry

Central counterparties The list with central counterparties (CCPs) authorised

to offer services and perform activities in the European

Union in accordance with the European Market

Infrastructure Regulation (EMIR) is available here.

List of Central Counterparties authorised to offer services

and activities in the Union.

List of third-country central counterparties recognized

to offer services and activities in the Union.

List of applicants CCPs.

Central securities depositories (CSDs)Euroclear (ESES CSDs)Euroclear Bank has been selected by ICBC Credit

Suisse Asset Management International (ICBCCS),

the international arm of one of the largest managers

in China and the asset management joint venture

between ICBC and Credit Suisse, for clearing and

settlement of its first internationally listed China equity

ETF: ICBC CS WisdomTree S&P China 500 UCITS ETF.

The ETF, using the international issuance structure will

be domiciled under Luxembourg law. It will be listed and

traded in USD, GBP and RMB on the London Stock Exchange,

and settle directly in the ICSD – Euroclear Bank.

Euroclear website.

Clearstream

Clearstream successfully concludes T2S migration

test and starts T2S Community Testing

A fourth Migration Weekend Dress Rehearsal (MWDR)

involving Clearstream’s CSDs in Germany and Luxembourg

was completed between 7 and 11 July 2016.

Next relevant dates:

Weekend of 1st October 2016: Second Dress Rehearsal

migration Wave 4

Final Dress Rehearsal migration Wave 4, weekend of

17 December 2016

Go-Live migration Wave 4, weekend of 4 February 2017

Clearstream website.

Market | Product updates

GeneralRegulations

Closing Auction Session (CAS)On the 25th July The Stock Exchange of Hong Kong

(SEHK) launched the CAS, bringing it in line with other

major exchanges around the world. The closing time of

the SEHK has changed from 16:00 to a random closing

time between 16:08-16:10. The derivative markets have

amended their closing times to reflect the change in

the SEHK closing times. The market will now close at

16:30 rather than 16:15 with the after-hours session

starting at 17:15 rather than the previous 17:00. More

details on the mechanics of the CAS can be found at.

Volatility Control Mechanism (VCM)HKEx is launched the VCM for the securities markets

on the 22nd August. The VCM is designed to prevent

extreme price volatility from trading incidents. If the

price deviates more than a predefined percentage

within a specific time frame it will trigger a cooling off

period for five minutes. The product will still continue

to trade but within a pre-defined price band. There will

be no more price limits after the cooling off period in

the same trading session. A tentative launch for the

derivatives market is planned for the 4th quarter of

2016. More details can be found at.

HKEx New ProductsSEHK have recently got approval to list leveraged and

inverse (L&I) ETF’s. Currently there are 6 L&I products

trading, covering NIFTY 50, TOPIX & KOSPI 200 indices.

We are awaiting the first HSI (Hang Seng Index) & HHI

listings with interest.

More CNH currency pairs have been listed on the

derivatives market; CNH vs EUR, JPY and AUD have

been launched to trade alongside the established CNH

vs USD future. These products are all margined and settled

in CNH. Alongside these launches the exchange listed

a USD vs CNH future which is margined and settled in

USD. RXY Currency Indices are also close to launching;

these products track a basket of 14 currencies against

the CNH.

We are ready to settle and clear these new products on

the HKEx.

Next Generation Post Trade SystemRecently the HKEx has consulted with its participants

requesting thoughts and ideas for their planned next

generation post trade systems. As one of the leading

clearing participants on the HKEx AAC has held

meetings with the HKEx and submitted an in depth

reply to the consultation suggesting enhancements

which we believe will benefit our clients and the

marketplace as a whole. Top of our priorities was the

merger of the three HK CCP’s.

Shenzhen – Hong Kong Connect It was announced on the 16th August that the Shenzhen

Stock Connect program was granted approval by the

State Council of The Peoples Republic of China. No firm

launch date has been announced but it is anticipated to

take approximately four months before going live.

Hong Kong Market Update

13

Market | Product updates

GeneralRegulations

Hong Kong Market Update

14

Main highlights in the announcement:

The aggregate quota of RMB 300 billion northbound/

250 billion southbound previously set under Shanghai-HK

connect will be abolished.

Daily quota of RMB 10.5 billion southbound/13 billion

northbound will apply to Shenzhen-HK connect (same

as existing quota for Shanghai connect)

ETF’s to be included and rolled out in 2017

Shenzhen-HK connect to be traded over same

infrastructure as Shanghai-HK connect.

Please see the attached link showing the presentation

given by HKEx CEO Charles Li given following the

announcement.

Market | Product updates

GeneralRegulations

15

RegulationsM

arket | Product updatesGeneral

ABN AMRO Clearing is pleased to announce that the annual Amsterdam Investor Forum 2017 will take place in

Amsterdam on the 7th afternoon and all day on the 8th of March 2017.

Now in its 6th year, the forum will welcome 250+ Institutional investors, fund managers and industry participants

to debate and discuss the most important challenges and opportunities facing our industry in 2017.

The agenda will include:

Key note speakers

Panel discussions covering a wide range of current industry topics such as: the new macro landscape, Brexit:

The new reality for investment managers, the future of asset management, artificial intelligence

Round table focus sessions for Alternative Managers and Investors

The “AIF Factor”

The forum promises to be an invaluable two days for investors and fund managers alike.

Do join our Amsterdam Investor Forum LinkedIn community and follow us on Twitter to keep track of the latest

updates.

We look forward to welcoming you at The Amsterdam Investor Forum 2017!

ABN AMRO Clearing

Gustav Mahlerlaan 10

1082 PP Amsterdam

The Netherlands

Follow us on Amsterdam Investor Forum LinkedIn or

Or visit our ABN AMRO Clearing website

ABN AMRO Headquarters

Save the date 7 & 8 March 2017The Amsterdam Investor Forum

16

RegulationsM

arket | Product updatesGeneral

FOW International AwardsWe kindly invite you to cast your vote in the FOW

International Awards. As you might know ABN AMRO

Clearing has won the Award ‘Proprietary Traders Clearing

Firm of the year’ for 3 years in a row and we are very

keen in defending this title. Your public recognition of

our service offering is a great motivator for our teams

who process your business throughout the year. We

now call on you to share your appreciation with the

outside world.

How can you vote?Below you will find a ‘vote here’ button that will guide

you to the FOW Awards website. Please navigate to

Question 3 ‘Which clearing provider/FCM do you

feel has excelled during the past 12 months’ and

complete this form, it takes 2 minutes. Please also

state what you felt that made us stand out in 2016.

Please copy the below link in your browser if above button is not working.

https://www.surveymonkey.co.uk/r/FOW2016survey

You can cast your vote till Friday 14 October.

Vote here

ABN AMRO Clearing (AAC)1 firmly believes in a solution

where the UK markets remain closely aligned with those

of the European Union (EU), recognising the role and

importance of the City of London for the financial markets

and clearing of financial instruments. The desired key

outcomes for AAC are as follows:

An orderly exit from the UK pursuant to a solid

and pragmatic negotiation process without the

demonstration of feelings of retribution or vengeance;

Continued access of the UK to the EU single market

and vice versa, maintaining the existing European

passporting arrangements; The focus should be at

passporting firms, both UK inbound and outbound

The location of trading and clearing of euro-

denominated contracts should be dictated by the

market based on experience and market knowledge,

and not artificially moved to mainland Europe from

the UK and from other non-Euro countries such as

the United States. Settlement of euro-denominated

instruments could take place on mainland Europe,

governed under ECB oversight.

Continued free movement of qualified, experienced

and talented people, services and capital.

General ConsiderationsThe size and strength of London as a global hub for

financial services is undisputed, holding the substantial

share of the global trading and clearing of financial

instruments. Based on analysis by think tank Bruegel,

the overwhelming majority of the activities in terms

of turnover are OTC derivatives, FX and US equities

transactions. The role of the UK equity and exchange

traded derivatives markets is much smaller.

Given the City of London’s current transaction volumes,

trade balance, existing infrastructure, as well as access

On the 23rd of June 2016, the UK voted to leave the European Union. Brexit is likely to have

profound consequences for the European financial markets, particularly for the trading and

clearing of financial instruments.

17

RegulationsM

arket | Product updatesGeneral

Brexit Position Paper

1 ABN AMRO Clearing covers the business conducted by ABN AMRO Clearing Bank NV, its branches, affiliates and subsidiaries.

to capital and funding, AAC believes that London will

remain a very important financial hub, particularly in the

OTC and FX markets. However, we are of the opinion

that part of London’s success is the fact that London

serves as a gateway to the rest of the European markets

based on the passporting arrangements under MiFID. This

is key for much of the trading community that are market

makers and liquidity providers on EU trading venues.

AAC has a London-based branch operating under its

Dutch banking licence. The branch serves a large

number of UK-based clients and offers access to the

main UK-based financial market infrastructure. The

branch operates on the basis of a European passport

(inbound). Clients and CCPs all contract with AAC in The

Netherlands. At this stage, it remains unclear what the

eventual arrangement between the EU and the UK

would look like. AAC firmly believes that it is eventually

up to the market to determine where the trading and

clearing of financial instruments takes place. Given the

importance of existing client relations, access to the UK-

based infrastructure and the size of the London markets,

we expect no significant changes in the current setup of

AAC in the short term. However, the key dependencies

of an eventual arrangement between the EU and UK are

based on regulatory uncertainty over:

Passporting arrangements and access to the single

market, and access to the UK market out of Europe;

Equivalence of the UK Regulators’ rulebooks through

the continued implementation of core European

financial regulation;

Continued euro denominated trading and clearing in

the UK and other non-euro countries such as the

United States. Settlement of euro denominated

instruments could take place on the European

mainland governed by the oversight of the ECB.

Any derogation of (or prolonged uncertainty on) the

criteria above will lead to market fragmentation,

limitations on the inflow and outflow of capital, as well

as constraints on access to capital, funding and liquidity.

Passporting arrangements/EEA

The preferred scenario with the least impact would be

the arrangement whereby the UK joins the European

Economic Area (EEA). This scenario would most closely

resemble the status quo, but the UK will lose its direct

influence on the rulemaking process. Continued

passporting arrangements would enable access to

and from the UK financial markets for both EU and UK

based market participants and their service providers.

However, given the political implications of continued

free movement of people as part of the EEA rules,

we feel this scenario is unlikely to be an outcome. In

general, it is of crucial importance for AAC that access to

the single market for financial services is retained.

Equivalence of the UK Regulators’ rulebooks

In a scenario where continued EEA membership or

access to the single markets is no longer possible,

equivalence determination for the UK as a third country

could be a likely solution. The majority of key financial

rules (e.g. MiFID2/MiFIR, CRDIV/CRR, EMIR) already

contain possibilities for equivalence determinations

with third countries. Furthermore, many of the rules

on financial market infrastructure are already based on

global standards set by the BCBS, FSB, CPMI-IOSCO.

The UK currently has the entire EU-rulebook on financial

services in place and has indicated it will continue the

implementation of e.g. MiFID2/MiFIR.

However, an equivalence process is notoriously difficult

as has been demonstrated in the process between the

EU and various third countries on CCP equivalence. The

scrutiny process involves a large number of stakeholders on

both ends and can be subject to political considerations.

Furthermore, it will also require the UK to maintain the

rulebook on a continuous basis given the frequent changes

in scope and timing.

Brexit Position Paper

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Brexit Position Paper

Should the UK become a third country in a post-Brexit

scenario, AAC would urge a clear, realistic and pragmatic

transition period where the UK-based CCPs retain their

QCCPs status under the CRR rules. We believe that

equivalence determinations will have to be treated as

a matter of priority given the repercussions and capital

impact this may have for exposure on UK-based CCPs.

In addition, AAC’s UK-based clients should be able to

continue to have access to the EEA markets in order to

provide liquidity. EU member states should continue to

offer undisrupted access and use their discretions under

the MiFID framework until EU-wide equivalence has

been determined. AAC would urge to have an ex-ante

equivalent status for the UK until equivalence of a new

UK rulebook is formally determined.

Euro-denominated clearing and settlement

As stated above, the Bruegel study demonstrates that

the UK has the largest OTC FX and IRS markets globally.

LCH Ltd., through its Swapclear franchise, has the largest

share of euro-denominated interest globally in interest

rate swap clearing, forward rate agreements and overnight

index swaps amounting to 479 billion euros daily. This

is by far the largest market share globally, making the

UK the main financial centre for euro-denominated

transactions. (followed by France and the United States)

The overall amount of euro-denominated transactions

out of London is nearly 1 trillion euros daily.

While euro-denominated clearing and settlement takes

places in trading hubs across the globe and outside

the Eurozone (most notably in the US), the sheer size

of the London based market has been a concern for the

European Central Bank (ECB). The ECB considers it a

systemic risk that the majority of euro-denominated

transactions are taking place outside of the Eurozone,

particularly related to appropriate supervision and liquidity

provision (in times of stress). The concerns were primarily

related to size and importance of the UK-based CCPs

that clear and settle in euro. The ECB took this up the

European Court of Justice, who ruled in March 2015.

Although the European Court of Justice ruled in favour

of the UK (largely on a legal technicality regarding ECB

competence and not on the merits of the case), the UK

leaving the EU may prove a better ground for the ECB to

address their concerns on clearing and settlement, as

well as question the liquidity provision framework if the

UK would no longer be part of the EU. The status quo

and the liquidity provision framework may be more

difficult for the UK to enforce if it were outside the EU,

as it would no longer enjoy the protection of the EU

treaty on regulatory competence.

The possible constraints on the clearing and settlement

of euro-denominated instruments will have a huge impact

for the UK-based CCPs. Combined with the loss of

‘passporting’ rights, regulatory uncertainties and delays

surrounding the re-negotiation agreements in financial

services, it is likely that CCPs will shift some of their

activities to the Eurozone to pre-empt unwanted outcomes.

AAC firmly believes that it is up to the market to

determine where trading, clearing and settlement takes

place. This means that the free inflow and outflow of

euros outside the Eurozone should remain possible to

avoid RMB-like scenarios. A possible alternative could

include physical settlement taking place in ECB regulated

areas, while trading and clearing remains in London

following the preference of market participants.

Overall, it is key for AAC that its clients can continue to

provide liquidity on the UK-markets and be able to settle

euro-denominated contracts in an appropriate manner.

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Notable deficiencies identified during a NYDFS examination

of the firm’s New York City branch included the bank’s

indifference toward the risks associated with Mega

Bank’s presence in Panama, a high-risk rated country

under AML jurisdiction, as well as a number of suspicious

transactions between Mega Bank’s New York and

Panama Branches. DFS Superintendent, Maria T. Vullo

noted that, “the compliance failures that DFS found at

the New York Branch of Mega Bank are serious, persistent

and affected the entire Mega banking enterprise and they

indicate a fundamental lack of understanding of the

need for a vigorous compliance infrastructure. DFS’s

recent examination uncovered that Mega Bank’s

compliance program was a hollow shell, and this consent

order is necessary to ensure future compliance.”

Some of the other findings of the examination included:

The New York branch Chief Compliance Officer and

the BSA/AML officer (who was actually based out of

the Taiwan headquarters) both lacked familiarity with

U.S. regulatory requirements;

Compliance staff in both the New York branch and the

Taiwan headquarters failed to periodically review

surveillance monitoring filters designed to detected

suspicious activity. Furthermore, examiners noted

that a large number of documents utilized in the

transaction process were not translated from Chinese

to English, which posed a problem for examiners to

effectively complete their review of the bank; and

Examiners found that the AML procedures of the

New York branch offered little or no guidance on the

reporting of patterns of suspicious activities; had

policies inconsistent with other compliance policies,

and they also failed to determine whether any foreign

Mega Bank affiliates had adequate AML controls and

procedures.

For additional information on the DFS action against

Mega Bank, please click here.

20

On August 19, 2016, the New York Department of Financial Services (“DFS”) announced that it

had fined Mega International Commercial Bank of Taiwan (“Mega Bank”) a total of $180 million

for serious deficiencies within the bank’s compliance program.

New York State Fines Taiwanese Bank $180 Million for Serious AML Violations

US regulatory updatesBelow follows a selection of key regulatory developments produced specially for the clients of ABN AMRO

Clearing in Chicago. We hope that you will find this a valuable tool for keeping track of the regulatory

and industry changes that may affect your business.

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US regulatory updates

DisclaimerThis brochure is provided for the general information of the customers of ABN AMRO Clearing Chicago LLC and contains information that may be proprietary to AACC or those entities whose links are provided herein. No part of this brochure may be duplicated or may be re-distributed without the prior consent of AACC. The material herein is gathered from and is based on information that AACC considers reliable, but AACC does not represent that it is accurate, complete or current and it should not be relied on as such. This document and any view or opinion expressed herein is for informational purposes only and is not, nor should it be construed as a recommendation, an offer or solicitation, either express or implied, to buy or sell any security or to participate in any trading strategy or to induce any other parties to buy or sell any security or to participate in any trading strategy. All images contained herein, including text, photos, illustrations, graphs, (trade) names, logos, trade and services brands are fully owned or under license and are protected by copyright, trademark rights and/or any other intellectual property rights. AACC is a broker/dealer and futures commission merchant primarily regulated by the SEC, CFTC, CBOE, FINRA (finra.org), NFA and the CME Group. AACC does not provide tax, accounting, or legal advice and all readers should consult their own regulatory or financial advisors before acting on any of the information contained herein. This is not a research report prepared by AACC or any affiliate. AACC is a member of SIPC, which protects securities customers up to $500,000 (including $250,000 for claims for cash). Futures and options products carry a high degree of risk and are not suitable for all investors. Visit our website for more information, including financial and other disclosures at: abnamroclearing.com/en/what-we-do/customer-disclosures/americas/index.html

SWIFT is a member-owned collective based in Brussels,

Belgium with 11,000 member institutions in over 200

countries that utilize the collectives’ interbank messaging

software and networks to move money around the global

financial system. The new offering will be composed of

two reports. The Activity report will allow financial

institutions to review “aggregate daily activity across

currencies, countries and counterparties” and review it

for unusual patterns. The Risk report will flag large and

unusual payment flows and new combinations of payment

parties to assist institutions in identifying unusual

submitting parties, destinations and patterns of activity.

SWIFT’s customer security program head, Stephen

Gilderdale, stated, “A key step in the modus operandi in

recent wire fraud cases at customer firms involves the

attackers concealing their fraudulent messaging activity

on customers’ locally systems.” With the introduction of

the new daily validation reports, Gilderdale noted, firms

will have a reliable and independent source of information

to assist customers in detecting fraud by either external

hackers or internal parties. Access to the new validation

reports is voluntary and SWIFT has yet to develop a

pricing schedule for the service, though SWIFT officials

stated that these reports were not meant to be a revenue

stream for the company.

The voluntary use of the new validation reports follows

similar efforts by the collective to encourage its member

financial institutions to implement new cybersecurity

measures following the February 2016 hack of the

Bangladesh central bank. SWIFT has called on its

members to implement further measures to authenticate

users of the system and to ensure that firms are completing

all the new software updates being pushed through the

SWIFT system. Because SWIFT lacks any type of

regulatory oversight over its members, the organization

cannot force member banks to implement these new

security measures. In June, SWIFT told member banks

that it might begin reporting them to the appropriate

regulatory bodies if they fail to meet the November 19,

2016 deadline to install the latest version of SWIFT

software with its many new cybersecurity controls.

For additional information on the new validation reports,

please click here.

As a follow up to last quarter’s article, “SWIFT Cybersecurity Attacks Raise Concern Amongst

U.S. Regulators and Elected Officials”, SWIFT officials have announced the introduction of daily

validation reports as part of its new “transaction pattern detection stream”.

Society for Worldwide Interbank Financial Telecommunication (SWIFT) Offers a Series of New Reports to Combat the Unauthorized Use of the SWIFT System to Fraudulently Move Money Out of the Financial System

22

Events overview

Events overview

EuropeDate Name of event + Location AAC Representatives

26-29 September

SIBOSGeneva

Gildas Le Treut, Reinier van Dam

5 October Open Day 2016 - Deutsche Börse IT conferenceEschborn

Peter Schnaus, Hansgerd Bramann

6-8 October European Commodities Exchange 2016Torino

Carig Matthews, Vicky Sins

8 November Derivatives World Central and Eastern EuropePoland

Reinier van Dam and Richard de Bruijn will participate in panel discussions

8-10 November

Global Grain 2016Geneva

Michelle Pinkster

30 November Opalesque rountable meeting (Invitation only)ABN AMRO HQ Amsterdam

Gildas Le Treut

Below an overview of events where ABN AMRO Clearing participated or will participate and has

representatives attending.

USDate Name of event + Location AAC Representatives

26 October Invest for kidsChicago

ABN AMRO Clearing Chicago is supporting Invest for kids

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Colophon

What’s Next?is a quarterly publication of ABN AMRO Clearing

Patrick Curran

Pauline Engelberts

Matthijs Geneste

Luuk Godefrooij

Laura de Haan

Greg Johnson

Willem Jolen

Philip Kraaijeveld

Eva Maria Molendijk

Paul Pealling

Pauline Schouten

Geert Vanderbeke

Colophon

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Market | Product updates

Regulations

abnamroclearing.com

DisclaimerThis document (the “Newsletter”) has been prepared by ABN AMRO Clearing Bank N.V. (“AACB”) and is solely intended to provide general information about the subject matter. The information in the Newsletter is strictly proprietary, unless otherwise stated and is being supplied to you solely for your information. The Newsletter is informative in nature and does not constitute legal, regulatory or other advice nor does it express any recommendations and may not be used for such purposes. Everyone using this Newsletter should acquaint themselves with and adhere to the applicable rules, regulations and legislation. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the Newsletter or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of AACB, or any of its directors, officers, affiliates or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. Nothing contained herein shall form the basis of any contract or commitment whatsoever. US Products are cleared by ABN AMRO Clearing Chicago LLC, Member: FINRA/NFA/SIPC.