PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013

Major changes from proposed to final rule Proposed rule Final rule Outcome Overall approach • Transaction-based, “one size fits all” framework • Required controls at trading unit level • Risk-based, “safety and soundness” approach that relies on banks to design, implement, and administer controls • Requires more granular control focus at the trading desk level Hedging • Distinguished between market making, hedging, and risk mitigating hedging with different criteria • Focuses primarily on risk mitigating hedging • No longer considered a distinct and separately identifiable activity with market making • More focus on demonstrating hedging effectiveness Trading activities of a foreign banking entity • Defined US nexus broadly as activity: conducted in US-based legal entities, conducted or supported by US personnel, generating revenue from US clients, or executed on US exchanges • Consistent with CFTC’s cross border guidance on US personnel involvement • Permits foreign banking entities to purchase from or sell to the foreign operations of a US entity Trading in government obligations • Allowed proprietary trading only on US obligations and municipalities • Permits a US branch or agency of a foreign bank to proprietary trade in home country’s sovereign debt • Permits non-US affiliates of a US bank to proprietary trade the sovereign debt of the affiliate’s host country Liquidity management • Permitted bona fide liquidity management activity • Required documented liquidity management plan • Clarifies that liquidity management does not include ALM activity or ALM hedging activity Quantitative measurements • 17 metrics across five categories reported at trading unit level across all desks/trading units • 7 metrics across 3 categories +

PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013 | Page 17