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									Service Description for Central Counterparty
(CCP) Pool Netting for Mortgage-Backed
Securities




February 21, 2008



This Service Description (hereinafter, the "Document") is provided as a convenience to participants
and is for information only. Further, anything described in this Document is subject to change. The
specific processes and services referenced in this Document are subject to approval by the
Securities and Exchange Commission.




                                                                                          Page 1 of 64
1 EXECUTIVE SUMMARY ..............................................................................................3
2 INPUT SUMMARY........................................................................................................9
3 POOL INSTRUCT SUBMISSION FOR BILATERAL MATCHING AND
  COMPARISON ...........................................................................................................11
4 DK (DON’T KNOW) ....................................................................................................18
5 MODIFY ......................................................................................................................19
6 CANCEL .....................................................................................................................21
7 CUSTOMER DELIVERY REQUESTS (“CDRS”) AND CDR RELEASES .................23
8 SUBSTITUTIONS PRIOR TO POOL NETTING .........................................................27
9 RTTM WEB.................................................................................................................28
10 REPRICING OF POOL INSTRUCTS..........................................................................31
11 POOL NETTING AND GENERATION OF DELIVERY OBLIGATIONS .....................32
12 SUBSTITUTION OF NET POOL DELIVER OBLIGATIONS ......................................37
13 FUNDS-ONLY SETTLEMENT....................................................................................40
14 NOTIFICATION OF SETTLEMENT (NOS) PROCESSING........................................42
15 FAIL TRACKING ........................................................................................................45
16 RISK MANAGEMENT ................................................................................................46
17 MEMBERSHIP AND LIQUIDATION...........................................................................48
18 GLOSSARY OF INTERACTIVE MESSAGING ..........................................................49
19 GLOSSARY OF MEMBER REPORTS.......................................................................55
20 NEXT STEPS..............................................................................................................59




                                                                                                                     Page 2 of 64
1 Executive Summary
In December, 2007, FICC issued Interactive Messaging Specifications for CCP Pool Netting.
Concomitant with the release of the specifications, a Service Description to support testing of
Interactive Messaging for CCP Pool Netting was issued. That Service Description focused only on
those processes that will be supported by Interactive Messaging, starting with the submission of
pool data into Pool Netting by members (in the form of Pool Instructs), and ending when the system
determines whether the Pool Instructs will be netted for settlement versus FICC as CCP or settled
directly between members outside the clearing corporation. This new Service Description provides
more comprehensive service information, including descriptions of processes that occur after the
last interactive message is sent. These include Pool Netting, Settlement, Pool Substitution, Risk
Management, Fail Tracking, Member Reporting (MRO Batch Output) and RTTM Web services.
While the primary purpose of the messaging Service Description was to help members prepare for
interactive message testing in Q1 2008, the purpose of this document is to provide members with a
more complete understanding of the full scope of Pool Netting services, and to apprise members of
what they can expect next.


Service Overview
With the implementation of CCP Pool Netting, the existing To Be Announced (TBA) process
supported by the MBSD Clearing System will remain largely unchanged. 1 Compared settlement
balance order destined (SBOD) trades will be netted, just as they are today, and FICC will continue
to establish obligations for all TBA activity, both netted and trade-for-trade. Obligations for
Specified Pool Trades will also continue to be established, but these will not be eligible for Pool
Netting services.

While members will continue to allocate pools to their TBA obligations via EPN, members will also
be required to submit pool details (in the form of Pool Instructs) into the Pool Netting System for
bilateral comparison versus their counterparty submissions. As Pool Netting is an extension of
FICC Clearing services, participation in the service is mandatory for all members.

Upon comparison, Pool Netting will ensure that there is an associated TBA position in the system
with matching trade terms and sufficient open position. If such TBA position is found, the Pool
Instruct will be “assigned” to the TBA position, and the available TBA open position will be
decremented by the amount of the Pool Instruct. The comparison and assignment of Pool Instructs
to valid TBA positions are prerequisites for the inclusion of Pool Instructs in the Pool Netting
processes.

The MBS CCP Pool Netting service has been designed with extensive input from the MBSD
membership to maximize overall savings by reducing the number of pool settlements (and the

1
  The exceptions to the current TBA process are: 1) FICC will provide its settlement guaranty for all TBA and Specified
Pool Trades at the point they are compared within FICC’s Real-Time Trade Comparison (RTTM) system; 2) TBA
settlement balance orders will be aggregated within the Clearing System to facilitate pool matching/assignment and
Notification of Settlement (NOS) processing; and 3) NOS processing will be standardized for buyers and sellers for all
trade types (TFTD, SBOO and SBON). These exceptions are delineated in the body of this document.


                                                                                                           Page 3 of 64
associated risks and costs) while simultaneously reducing members’ development efforts. To that
end, the service has been structured so that only the most actively traded pools will be netted and
settled versus FICC as CCP, while less active pools will continue to be settled as they are today,
directly between members outside the clearing corporation. This provides a “best of all possible
worlds” solution that specifically targets pools that will benefit most from the Pool Netting service
while avoiding the imposition of additional settlement costs to members for thinly traded pools.

Using the service, MBS clearing members will have the ability to net pools stemming from TBA
Netting (SBON and SBOO) and TBA Trade-for-Trade (TFTD) activity to arrive at a single net
position in a particular Pool Number (for those pools that meet certain trading velocity and netting
criteria). It will also provide a multilateral pair-off capability based on exact, offsetting original face
for pools that are not eligible for single net position netting (i.e., will pair off a member’s buy and
sell transactions having exact original face across all of its counterparties).

A “smart” delivery algorithm will be developed to minimize the number of deliveries clearing
members are required to make in satisfaction of their net obligations, reducing the overall number
of pool settlements and their associated costs and operational risk. The delivery algorithm will also
seek to reduce members’ settlement costs by maximizing receive and deliver activity within FICC’s
clearing banks for members that settle at one of FICC’s clearing banks (prior to establishing
interbank settlement obligations).

All pool settlements stemming from Pool Netting (including pair offs) will occur versus FICC as
CCP. The net pool receive and deliver obligations will be satisfied by delivering securities to, or
receiving securities from, FICC at the appointed clearing bank. All Pool Instructs that are not
included in Pool Netting will be settled directly between members outside the clearing corporation.

For activity settling outside the clearing corporation, members would continue to send Notifications
of Settlement (NOS) to FICC for bilateral comparison in order to report that an obligation has
settled. Settled obligations are no longer subject to FICC’s mark and margin calculation processes
once the mandatory details on the NOS submitted by both members match. For activity settling
versus FICC as CCP, members need not submit NOS; as soon as these obligations are settled, FICC
will automatically exclude them from its risk management processes. 2

Specified Pool Trades (SPTs) will not be eligible for Pool Netting services. As such, SPTs will
continue to be submitted and compared via RTTM, and all compared SPTs will settle directly
between the trading parties outside the clearing corporation. The implementation of Pool Netting
services will have no impact on Options contract processing. In addition, inter-dealer broker
accounts acting exclusively in a give-up capacity will not be impacted by the implementation of
Pool Netting.

The overall processing flow for TBA trades, from TBA execution to pool settlement, is summarized
in the chart entitled “Typical Lifecycle of a TBA Trade” at the end of this Executive Summary.



2 It should be noted that changes have been made to NOS processing in conjunction with the Pool Netting service. Please refer to
Section 14, “Notification of Settlement (NOS) Processing” for complete details.




                                                                                                                        Page 4 of 64
Service Benefits

•    Guaranteed Settlement – Provision of a performance guaranty to members upon comparison of
     their TBA Trades, Specified Pool Trades and Options contracts.
•    Fewer Securities Movements – Elimination of redundant securities movements while
     facilitating existing MBS trading strategies whereby firms need to see collateral flow. The
     “smart” netting algorithm will minimize the number of securities movements required to effect
     settlement and will limit the cost of carry associated with building up position to make large
     deliveries.
•    Reduced NOS Submission – Because Pool Netting will decrease the number of
     receives/delivers members must make outside the clearing corporation, the number of NOS
     members will be required to submit will be correspondingly reduced.
•    Expedited Settlement Feedback–Members may submit NOS as soon as obligations have
     settled outside of the clearing corporation. In addition, members no longer need to submit NOS
     for net pool obligations that settle through the clearing corporation. As a result of both of these
     changes, settled obligations will be excluded from FICC’s mark and margin calculations more
     quickly.
•    Cost Savings to Members – The implementation of the new Pool Netting services will result in
     cost savings for members stemming from eliminated transaction processing fees and operational
     costs. Further savings will be derived from reductions in fail costs and collateral costs (due to
     common-margining, potential for expedited return of margin, etc.).
•    Timely Error Detection – Members will detect allocation differences on a more timely basis
     through the matching of their Pool Instructs in Pool Netting.

Service Rollout Timeline
As noted previously, member testing of Interactive Messaging with FICC is scheduled to begin later
this quarter. During this preliminary testing phase, members may submit pool data to the clearing
corporation (in the form of Pool Instructs) for bilateral matching and comparison. Members may
also use Interactive Messaging to take subsequent action targeting previously submitted Pool
Instructs, such as modifying, canceling, DKing or precluding selected Pool Instructs from
operational netting 3 (via Customer Delivery Request – “CDR” – functionality). Members will also
receive Interactive Messaging output, which will provide members with relevant status information
pertaining to their Pool Instructs, as well as activity submitted against them by their counterparties.

The second phase of member testing will allow members to receive and process Pool Netting batch
MRO, including netting and clearance output and fail reporting. This testing will begin in Q2 2008.


3
  Operational netting refers to the aggregation of all buy and sell activity to arrive at a single net position per member in each Pool
Number having the same trade terms and Delivery Date. If a member uses a CDR on a short Pool Instruct to preclude it from
operational netting, the Instruct will not be offset against long activity in that pool. The Instruct in CDR state will, however, be aggregated
with other short Pool Instructs in the same Pool Number that are also in CDR state. An obligation will be generated for the member for
settlement versus FICC as CCP for the amount of the aggregated short Pool Instructs in CDR state.


                                                                                                                                 Page 5 of 64
While this document lists the reports that will be generated to support Pool Netting and settlement,
MRO specifications will be distributed as a separate document later this quarter.

FICC will implement a Pool Netting pilot in Q4 2008. During this pilot, a select group of members
will use the production Pool Netting system to conduct end-to-end processing for a limited group of
securities. Full service implementation will occur in Q1 2009.

The timeline below includes the member testing schedule and the schedule for the publication of
supporting documentation.


                  MBS CCP Pool Netting – Member Testing
Interactive Messaging                                       Q1 2008

Member Batch Output (MRO) to Support Pool                   Q2 2008
Netting

Member Pilot                                                Q4 2008

Implementation                                              Q1 2009



            MBS CCP Pool Netting – Supporting Documentation
Interactive Messaging Specifications                       December, 2007

Business Document to Support Interactive                    December, 2007
Messaging

Service Description for Central Counterparty (CCP)          Q1 2008
Pool Netting for Mortgage-Backed Securities

Member Batch Output (MRO) Specifications                    Q1 2008

Notification of Settlement (NOS) Specifications             Q1 2008

Member Training Materials (RTTM Web)                        Q2 2008

Future CCP Services Description                            Q2 2008

Other User Guides (Source Book, Action Guides)              Q3 2008




                                                                                           Page 6 of 64
Contacts:
Please do not hesitate to contact the following individuals regarding any questions you may have on
this document specifically, or about the CCP Pool Netting project in general. In addition, FICC has
established the following email address that will be used exclusively to answer your questions
regarding the CCP Pool Netting Project: mbsdccphelp@dtcc.com.

Business Issues                                   Technical Issues
Kate Connelly at (212) 855-7611                   Bill Murphy at (212) 855-1963
Michele Hillery at (212) 855-7475                 Eric Mazariegos at (212) 855-7520


Message Specifications                            Relationship Management Group
Jie Xie at (212) 855-7532                         Jim Ferraro at (212) 855-7593
Christina Swords at (212) 855-7463                Joe Quagliariello at (212) 855-7597


Member Testing
Aileen Rose at (212) 855-7565
Thomas Choi at (212) 855-7598




                                                                                         Page 7 of 64
            TYPICAL LIFE CYCLE OF A TBA TRADE

  T                       seller             buyer         seller               buyer
            TRADE
          EXECUTION     SBOD sell           SBOD buy      TFTD sell            TFTD buy
             AND
          MATCHING      FICC matches SBOD trades        FICC matches TFTD trades


CSD - 3      TBA         FICC runs TBA netting on
                         matched SBOD trades and
           NETTING     generates net TBA obligations


CSD - 2                             open TBA obligations to be allocated
                            (resulting from both SBOD trades and TFTD trades)

                                   seller                             buyer
             POOL
          ALLOCATION           Pool Instruct                        Pool Instruct

                       FICC matches Pool Instructs, assigns matched instructs to open
                       TBA obligations and decrements open TBA obligation counter


CSD - 1                       FICC runs Pool Netting and generates (1) and (2)

            POOL
                          (1) pool net settlement            (2) pool settlement
           NETTING        obligations to be settled       obligations to be settled
                                  vs. FICC               directly between members


 CSD                               seller                             seller

                          pools             cash       pools                  NOS

                       FICC receives from seller                          FICC
              DVP       and redelivers to buyer                        matches NOS
          SETTLEMENT      pools             cash               cash           NOS
             OVER
            FEDWIRE                buyer                              buyer
                                                                                    Page 8 of 64
                       FICC excludes settled positions from risk management system
2 Input Summary

Input Types
Members will have the ability to submit the following Input Types into the Pool Netting System
(Note: Input Media are defined immediately after Input Types):

RTTM Input Types:

   1. Instruct – Used by both the buyer and the seller to submit pool data into the Pool Netting
      System for validation, comparison, Pool Netting and ultimately settlement (if the submitted
      pool meets the netting criteria for inclusion in the current netting cycle).
   2. DK (Don’t Know) – Used by either the buyer or the seller to inform its counterparty that it
      does not know (or that it disagrees with the terms) of the Instruct being submitted against it.
   3. Cancel – Used by the buyer and/or the seller to cancel its uncompared Pool Instruct. The
      seller will also have the ability to unilaterally cancel its compared Instruct. (Note: When the
      seller unilaterally cancels its compared Pool Instruct, the buyer’s Pool Instruct is reverted to
      an uncompared state and an associated advisory condition is applied to the seller’s account.)
   4. Customer Delivery Request (CDR) – Used by the seller and/or the buyer to preclude Pool
      Instructs from being operationally netted. As noted in the Executive Summary, operational
      netting refers to the aggregation of all buy and sell activity having the same trade terms and
      Delivery Date to arrive at a single net position. Instructs in CDR state (with the same trade
      terms and Delivery Date) will not be offset by Instructs that are not in CDR state; however,
      Instructs in CDR state that are on the same side of the market will be summed to arrive at an
      aggregate long or short CDR position, as appropriate. These CDR positions would result in
      the generation of a settlement obligation versus FICC as CCP provided the Pool Number
      meets netting selection criteria. (Note: Pool Instructs subject to CDRs are not eligible for
      Pair Off Netting.) CDRs may be applied at the individual Pool Instruct level, at the Pool
      Number level (meaning that all Pool Instructs with the submitted Pool Number will be
      precluded from operational netting) or at the TBA level (meaning that all Pool Instructs with
      Pool Numbers associated with the submitted TBA CUSIP number will be precluded from
      operational netting.)
   5. CDR Release – Used by the seller and/or buyer to “release” a previously submitted CDR.
      This will allow the targeted Pool Instruct(s) to be netted on the evening prior to the
      scheduled delivery date. Members will have the ability to release the CDR on any individual
      Pool Instruct regardless of level at which the CDR was applied. That is, if the CDR was
      applied at the TBA CUSIP level, the member may release a single Pool Instruct that falls
      under the TBA CUSIP. Global CDRs must be released at the same level at which they were
      set (i.e., if the CDR was set at the TBA CUSIP level, the Global CDR Release must be
      performed at the TBA CUSIP level).
   6. Modify – Used by the seller and/or buyer to modify any of the data on a previously
      submitted Pool Instruct prior to comparison. Post comparison, the only data members may
      modify is their X-REF field.


                                                                                            Page 9 of 64
   7. Affirm – Used by the seller and/or the buyer to acknowledge a Pool Instruct submitted
      against it by its counterparty. Affirmation constitutes comparison, and results in the
      generation of a Compared Pool Instruct for the submitter with the same trade terms as the
      Instruct submitted against it by the counterparty.

EPN Input Type:
The sole Input Type into Pool Netting via EPN is the Substitution of a Pool Net Settlement
Obligation.

   1. Substitution – Used by the seller to substitute a pool net settlement obligation. The
      substitution must be submitted via EPN versus FICC as the counterparty. If the substitution
      passes EPN validation, it will then be passed to the Pool Netting system for additional
      validation and processing. If both the pool being substituted and the replacement pool(s)
      pass all validations, the targeted pool obligation will be canceled and the replacement
      pool(s) will constitute new net settlement obligation(s). Replacement pool(s) will not be
      eligible for Pool Netting.



Input Media
Member Pool Inputs can be submitted via four input media:
   • Interactive (MQ) SWIFT message format
   • Batch or multi-batch files in SWIFT message format
   • RTTM Web
   • MBS EPN for seller substitution of net pool settlement obligations

The Pool Netting System processes the Pool Inputs immediately upon receipt. Below is a grid
delineating the allowable Input media for each Input type:

Pool Input Type           Interactive          RTTM Web              Batch SWIFT             EPN
                          SWIFT
INSTRUCT                  X                    X                     X
CANCEL                    X                    X                     X
CDR                       X (Instruct level    X (all levels)        X (Instruct level
                          only)                                      only)
CDR RELEASE               X (Instruct level    X (all levels)        X (Instruct level
                          only)                                      only)
MODIFY                    X                    X                     X
SUBSTITUTION                                                                                 X
DK                        X                    X                     X
AFFIRM                                         X




                                                                                         Page 10 of 64
3 Pool Instruct Submission for Bilateral Matching and
  Comparison
High-Level Overview

Members will have the ability to submit pool data into the Pool Netting system (in the form of Pool
Instructs) using the SWIFT-based MT515 Instruct message. This message format may be used to
submit Pool Instructs into Pool Netting either interactively or in batch mode. Pool Instructs may
also be submitted via RTTM Web.

Members’ required submission of Pool Instructs to FICC for Pool Netting will be in addition to
their requirement to submit pool allocations into the Electronic Pool Notification (EPN) system.

Pool data on Instructs must be bilaterally compared (i.e., the mandatory comparison pool data
submitted by the seller must match the mandatory comparison pool data submitted by the buyer) in
order for the Pool Instructs to be eligible for Pool Netting. Pool Instructs must further be “assigned”
by the clearing corporation to a valid TBA position, meaning that the trade terms submitted on the
Pool Instruct must match the trade terms of a TBA CUSIP that has sufficient open position. Only
compared and assigned Pool Instructs will be evaluated for inclusion in Pool Netting.

Pool Instruct Submission for Pool Matching and Comparison

Pool Instructs submitted using the SWIFT-based MT515 Instruct message (either interactively or in
batch) must satisfy message formatting and validation rules delineated in the Interactive Messaging
Specifications. Pool Instructs submitted via RTTM Web must pass all screen validations. If these
validations are not passed, the Pool Instruct will be rejected. For Instructs submitted via RTTM
Web, an on-screen reject will occur and reject reasons will be highlighted. For Instructs submitted
via messaging, a reject advice will be sent to the submitter with the reject reason. (Please refer to
the Interactive Messaging Specifications for additional details. Refer to Attachment A for common
validation rules for all input types.)

     1. Prerequisites to Pool Netting

         In order for a Pool Instruct to be evaluated for inclusion in Pool Netting, the following
         conditions must be met:

             •   The Pool Instruct must be compared. This means that seller and buyer must submit
                 their Pool Instructs into Pool Netting, and all mandatory comparison fields must
                 match in order for the Pool Instruct to be placed in a compared status. Refer to the
                 next section, “Submission of Pool Instructs for Bilateral Comparison.”

             •   FICC must be able to assign the matched Pool Instruct to a valid TBA position.
                 This means that the trade terms submitted on the Pool Instruct must match the trade
                 terms of a TBA CUSIP with sufficient open position in order for the Pool Instruct
                 to be assigned. When a Pool Instruct is assigned to an open TBA position, the
                 remaining open position is decremented by the current face amount of the Pool
                 Instruct.

                                                                                            Page 11 of 64
       •   The pool must be deemed eligible by FICC for Pool Netting.

2. Submission of Pool Instructs for Bilateral Comparison

   As noted above, sellers and buyers must submit Pool Instructs into Pool Netting, and all
   mandatory comparison fields submitted by buyers and sellers on their Pool Instructs must
   match in order for the Pool Instructs to be placed in a compared status.

   Below is a chart showing the mandatory, optional and comparison fields for Pool Instructs.
   A member must submit all mandatory fields, and these fields must pass all edits, or the
   Pool Instruct will be rejected.

 Field Name       Mandatory/     Comparison Field      Comment
                  Optional
 Participant      Mandatory      Yes                   Must be a valid and active clearing
                                                       dealer account of the participant
                                                       submitter.
 Contra           Mandatory      Yes                   Must be a valid and active clearing
                                                       dealer account of the participant
                                                       submitter’s counterparty.
 Trade Type       Mandatory      Yes                   Indicates whether the submitter’s
 Indicator                                             Pool Instruct is a buy or a sell.
 (Buy/Sell)
 Processing       Mandatory      Yes                   Indicates the record type being
 Indicator                                             submitted (i.e., Instruct for pool
                                                       submissions).
 TBA CUSIP        Mandatory      Yes                   Indicates the TBA CUSIP number
                                                       against which the submitted Pool
                                                       Instruct is to be allocated against
                                                       (“assigned”).

 CDR Indicator    Optional       No                    This is a NEW FIELD.
                                                       If the CDR indicator is submitted
                                                       by the buyer or seller on its Pool
                                                       Instruct, it will preclude the Pool
                                                       Instruct from being operationally
                                                       netted.
 Price (Deal      Mandatory      Yes                   The price submitted on the Pool
 Price –                                               Instruct must match the price of
 Percentage)                                           the targeted TBA position out to
                                                       and including the sixth decimal
                                                       place with no rounding.
 Trade Date       Mandatory      No                    This is a mandatory field for
                                                       SWIFT input. Submitters should
                                                       enter a valid business date in this
                                                       field. (This is not applicable for
                                                       RTTM Web submission.)
 Settlement Date Mandatory       Yes                   Must be a valid settlement date

                                                                                   Page 12 of 64
      Field Name         Mandatory/     Comparison Field      Comment
                         Optional
                                                              equal to the contractual settlement
                                                              date of the targeted TBA position.
      Delivery Date      Mandatory      Yes                   This is a NEW FIELD.
                                                              This must be a valid business date
                                                              for Fedwire delivery (and must be
                                                              greater than or equal to the
                                                              Settlement Date).
      X-Reference        Mandatory      No                    Members must submit a unique
      (“X-REF”)                                               identifier for each Pool Instruct
                                                              submitted.
      Pool Number        Mandatory      Yes                   Members must submit a Pool
                                                              Number on each of their Pool
                                                              Instructs.
      Quantity as        Mandatory      Yes                   Members must submit the Original
      Original Face                                           Face on the Pool Instruct.
      Amount (Par)
      Net Money          Optional       No                    Members may submit the final
      (Settlement                                             money on their Pool Instructs
      Amount)                                                 based on the factor and accrued
                                                              interest calculated by their
                                                              systems.
                                                              If the member submission does
                                                              not equal the FICC-calculated
                                                              value, Pool Netting will override
                                                              the submitted value and send the
                                                              member a Default Applied
                                                              message. (Refer to the “Default
                                                              Values Applied for Price and Final
                                                              Money” section of the document.)




    3. Affirmation of Pool Instruct Submitted by Member’s Counterparty

Members will have the ability to acknowledge a Pool Instruct submitted against it by affirming the
“advisory” via RTTM Web. Affirmation constitutes comparison. By affirming its counterparty’s
submission, the member agrees to all trade terms submitted by its counterparty. This results in the
generation of a Compared Pool Instruct for the submitter of the Affirm having the same trade terms
as those submitted by its counterparty.


    4. Pool Instructs Must Target TBA with Sufficient Open Position

Pool Instructs must have trade terms that match an existing TBA CUSIP with sufficient open
position in order for the Pool Instruct to be accepted for processing.

                                                                                         Page 13 of 64
The trade terms submitted on the Pool Instruct that must match the trade terms of the targeted TBA
position include the following: 1) Trade Type (Buy/Sell) Indicator; 2) Participant (Submitter); 3)
Contra; 4) TBA CUSIP; 5) TBA Price (out to the sixth decimal place); 6) Settlement Date; and 7)
the value of the Instruct can not exceed the open par value of the TBA position (within variance). If
a matching TBA with sufficient open position is not found, the Pool Instruct will be rejected.

Increase in TBA Obligation Size
Currently the TBA netting process generates settlement balance orders (“SBOs”) in $1 million
increments and assigns an obligation ID (‘OID’) to each one (also referred to as the trade ID in
MBSD Clearing today). All netting output reports balance orders in $1 million increments, and
when members settle their trades outside the clearing corporation, they must submit a Notification
of Settlement (“NOS”) with a trade ID targeting each $1 million balance order to close out the trade
on FICC’s books and exclude it from FICC’s risk management processes.
To facilitate Pool Instruct submission, member reporting and NOS processing, FICC will no longer
generate balance orders in $1 million increments. FICC will instead establish one or more larger
obligations when specific trade terms on the underlying transactions are identical. The trade terms
that must be identical (in addition to TBA CUSIP) are: 1) Settlement Counterparty; 2) Buy/Sell
indicator; 3) Price; 4) Contractual Settlement Date; and 5) balance order type (SBOO vs. SBON).
TFTD obligations will not be aggregated. They will continue to be reported individually.
While FICC will continue to assign an OID to each obligation it generates, members will not be
required to submit an OID on either their Pool Instruct input or their NOS to target a specific
obligation. FICC will use an algorithm to automatically apply Pool Instructs and NOS to open
obligations.
Because not all members can handle balance orders of unlimited size, FICC will establish a
maximum par value for TBA obligations. FICC’s plans are to initially cap the maximum value of
each obligation at $500 million.

TBA Position Tracking
FICC will monitor and track the status of every TBA position (regardless of the number of TBA
trades comprising that position) to preclude the TBA from being over-allocated in Pool Netting. For
example, using the new balance order logic described above, a member may have two balance
orders stemming from TBA netting – one for $500 million and another for $150 million – in
addition to a TFTD for $50 million in the same TBA CUSIP with identical trade terms. In this
instance, the TBA counter (reflecting the total TBA position) would be set to $700 million. As Pool
Instructs are compared, FICC will apply the current face of each Pool Instruct to the corresponding
TBA counter and decrement it accordingly. Conversely, if a Pool Instruct is subsequently canceled
or deleted, the TBA position counter would be increased by the current face amount of the Pool
Instruct being canceled or deleted.
Once a TBA position has been fully assigned, meaning there is no remaining available position, any
new Pool Instructs targeting that TBA position will be rejected. In addition, any compared Pool




                                                                                           Page 14 of 64
Instructs active in the Pool Netting system targeting the fully assigned TBA position, such as
uncompared Instructs or Instructs in Pending Pool Add 4 status, will be deleted.
At the start of business each day, the TBA position counters will be incremented to reflect any Pool
Instructs that had been assigned to a TBA position, but that did not meet the criteria for inclusion in
Pool Netting. (The position is made available for participant-submitted NOS or a new Pool Instruct
activity.) TBA position counters will also be decremented to reflect any member-submitted NOS
received in the previous day’s NOS batch input.


Variance Calculated at the Aggregated TBA Obligation Level
In determining whether a Pool Instruct may be assigned to the targeted TBA obligation, SIFMA
variance rules will be enforced at the aggregated TBA obligation level. That is, the variance
permitted will be set at 0.01% (plus or minus) of the TBA obligation current face (it will not be
applied at the $1 million increments level nor at the overall TBA position level).

For Trade-for-Trade (TFTD) TBA obligations whose current face is not necessarily in multiples of
$1MM, the variance will be enforced as 0.01% (plus or minus) of the TFTD TBA’s current face. 5
For example:

    •     if the TFTD TBA current face is $0.75 MM, then the variance allowed will be $0.75MM *
          0.01% = $75; and
    •     if the TFTD TBA current face is $1.75 MM, then the variance allowed will be $1.75MM *
          0.01% = $175.


        5. Pool Instruct Comparison

If a buyer or seller submits a Pool Instruct and there is sufficient open TBA position, the Pool
Instruct will be accepted for further processing. The TBA position counter will not, however, be
decremented until the Pool Instruct is compared to its counterparty’s matching Pool Instruct. Upon
acceptance of a Pool Instruct for processing, the Pool Netting system will assign a unique Pool
Identifier (PID) to the Instruct. Members may use the PID when targeting Pool Instructs for
subsequent actions (such as Modify or Cancel). (Members may also use their own unique X-REF
number submitted on the Pool Instruct to target the Instruct for subsequent actions.)

Upon comparison, if sufficient available TBA position exists, the Pool Instruct will be assigned to
the TBA position (i.e., the TBA position counter will be decremented by the current face value of
the submitted Pool Instruct – meaning that the available, open TBA position counter will be reduced
by the current face amount of the Pool Instruct).



4
  A Pool Instruct is placed in Pending Pool Add status if requisite information for the pool, such as the factor
for the contractual settlement date, is not on FICC’s masterfiles. If a Pool Instruct remains in Pending Pool
Add status at a designated cutoff prior to Pool Netting, it will be deleted.
5
  Enforcement of variance applied to TFTD TBA current face will be an enhancement to the MBSD process.


                                                                                                     Page 15 of 64
As noted above, once a TBA position is fully assigned (i.e., the counter has been fully decremented
within variance), no additional Pool Instructs may be assigned to that TBA position (unless Pool
Instructs are subsequently canceled by the seller or new TFTD activity is submitted, for example).
In addition, any active, unassigned Pool Instructs in the system that target the fully assigned TBA
position will be deleted.

       6. Default Values Applied for Price and Final Money

If the price the seller submits on its Pool Instruct matches the targeted TBA price out to the 6th
decimal place, but does not match the full TBA price (which is carried out to 9 decimal places),
Pool Netting will use the full TBA price to calculate final money and will override the seller’s final
money, if submitted, and send appropriate notification. If the seller does not submit final money, the
system will calculate it using the full TBA price.

If the buyer’s Pool Instruct is not immediately matched upon submission, the buyer’s price will be
applied and used to calculate final money until the point of trade comparison. If, at the point of
comparison, the buyer’s price does not match the full TBA price beyond the 6th decimal place, the
full TBA price will be used to calculate the final money and the buyer will receive appropriate
notification.

(It should be noted that if a Pool Instruct is in “Pending Pool Add” status, default values for price
and final money will not be applied until the status is lifted.)

       7. Submission of CDR Indicator on Pool Instruct

If a member (buyer or seller) does not want an individual Pool Instruct to be operationally netted,
the member may place a CDR indicator on its Pool Instruct. (Members may also submit a CDR
targeting a specific Pool Instruct subsequent to initial submission using an MT515 “CDR” message
or via RTTM Web, covered in the CDR section of this document.)

Members will also have the ability to set a CDR globally using an RTTM Web command. A global
CDR may be set at either the Pool Number level (so that all Pool Instructs submitted with the
stipulated Pool Number are precluded from operational netting) or at the TBA CUSIP level (so that
all Pool Instructs in any Pool Number that is associated with the stipulated TBA CUSIP are
precluded from operational netting).

Refer to Section 6, “Customer Deliver Requests – CDRs – and CDR Releases” for detailed
information on CDR processing.


       8. Pending Pool Add Status Applied to Pool Instructs

If one or more of the following conditions is met, the Pool Instruct will be placed in Pending Pool
Add status:

   •     The pool record is not on FICC’s masterfiles;



                                                                                             Page 16 of 64
   •     The factor for the contractual settlement date is not on masterfiles;

   •     Any other requisite pool information is not on masterfiles; or

   •     The Pool Number is in Pool Netting Ineligible status.

Appropriate messages will be generated to the submitter and its counterparty. The system will then
attempt to find a matching submission by the counterparty. If a match is found (either at point of
submission or at a point in time after submission), the Instruct will be placed in Pending Pool
Add/Compared (but unassigned) status. When pool information is updated on masterfiles, the
system will attempt to assign any Pending Pool Add/Compared Instructs to an open TBA position
having matching terms. If a match is found, the pending status would be lifted.

Price and final money on a compared Pool Instruct may be changed at the time the Pending Pool
Add status is lifted to reflect the full TBA price beyond the sixth decimal place.

If a Pool Instruct remains in Pending Pool Add status (whether compared or uncompared) at a
designated cutoff prior to Pool Netting, it will be deleted and appropriate messaging will be
generated.

       9. Submission Cutoff for Pool Instructs (and other Pool Inputs)

Once Pool Netting has commenced for the current day’s netting cycle, Pool Inputs (Instructs, DKs,
Cancels, Modifies, CDRs, CDR Releases and Affirms) will continue to be accepted and processed
for future netting cycles (i.e., the Delivery Date on the Pool Input must be greater than the next
business date). Pool Netting will continue to accept submissions for future netting cycles until the
Pool Netting End-of-Day (EODC) event. After the EODC event, all the Pool Inputs will be queued
up for the next business date’s processing.

Pool Inputs having a Delivery Date equal to the next business date will be rejected once Pool
Netting has begun for that Delivery Date.




                                                                                          Page 17 of 64
4 DK (Don’t Know)
High Level Description
DKs may be submitted via the MT515 message format (interactively and via batch) by both sellers
and buyers to inform their counterparties that they do not know (or disagree with) the trade terms of
Pool Instructs submitted against them. DKs may also be submitted via RTTM Web. DKs may be
submitted into Pool Netting at any time prior to comparison. If the DK passes all validations, Pool
Netting will amend the status of the corresponding Pool Instruct targeted by the DK.

DK Processing Details
Both buyers and sellers have the ability to submit DKs against their counterparty Pool Instruct
submissions using the MT515 “DK” message type (interactively or batch) or via RTTM Web. The
DK must be submitted in valid format and must contain all mandatory fields or it will be rejected.
The DK must further match the trade terms of the targeted Pool Instruct or it will be rejected. DKs
submitted via RTTM Web must pass all screen validations. If these validations are not passed, the
DK will be rejected. For DKs submitted via RTTM Web, an on-screen reject will occur and reject
reasons will be highlighted. For DKs submitted via messaging, a reject advice will be sent to the
submitter. (Please refer to the Interactive Messaging Specifications for additional details. Refer to
Attachment A for common validation rules for all input types.)

The member submitting the DK must include the Pool ID (PID) to target an existing Pool Instruct or
it will be rejected. (The PID is sent to the Pool Instruct counterparty on the “Comparison Request”
message.)
If a DK is submitted into Pool Netting versus a Pool Instruct that is not available (e.g., a Pool
Instruct that has already been DKed, canceled, etc.), the DK will be rejected. The DK may be
applied against Pool Instructs in any uncompared status (including Pending Pool Add status).
A valid DK reason code must also be submitted on the DK or it will be rejected.
If a DK is rejected for any reason, an advice will be sent to the submitter. (Or, as noted above, if the
DK is submitted via RTTM Web, an on-screen reject will occur with the reject reason(s)
highlighted.)
If the DK passes all validations, the targeted Pool Instruct will be placed in a DK state but will
remain eligible for comparison. An advice that the DK has been processed will be sent to the
submitter and its counterparty.
If the member has submitted the DK in error, it may submit a new Pool Instruct for bilateral
matching against the counterparty’s DKed Pool Instruct, or it can affirm the advisory.
It should be noted that, while DKs will be supported by RTTM Web, no MT518 “Screen Input
Replay” is generated for these DKs.




                                                                                             Page 18 of 64
5 Modify
High-Level Overview
With the implementation of Pool Netting services, all members will have the ability to modify any
field on a previously submitted Pool Instruct prior to comparison using the MT515 Modify
message format (interactive or batch) or via RTTM Web. 6 Post-comparison, members may only
modify their X-REF of Pool Instructs at any time prior to Pool Netting.

Modify Processing Details
Prior to Pool Comparison
Both buyers and sellers will have the ability to modify any field on a previously submitted Pool
Instruct prior to comparison (with the exception of the CDR field, as noted above). Modifies
submitted using the SWIFT-based MT515 Instruct message (either interactively or in batch) must
satisfy message formatting and validation rules delineated in the Interactive Messaging
Specifications. Modifies submitted via RTTM Web must pass all screen validations. If these
validations are not passed, the Modify will be rejected. For Modifies submitted via RTTM Web, an
on-screen reject will occur and reject reasons will be highlighted. For Modifies submitted via
messaging, a reject advice will be sent to the submitter. (Please refer to the Interactive Messaging
Specifications for additional details. Refer to Attachment A for common validation rules for all
input types.)
The member submitting the Modify must include the Pool ID (PID) or its own unique X-REF of the
Pool Instruct to target an existing, active Pool Instruct in any uncompared status (including Pending
Pool Add status) or it will be rejected.
If a Modify is submitted into Pool Netting versus a Pool Instruct that is not active (e.g., a Pool
Instruct that has already been canceled, deleted, etc.), the Modify will be rejected.
If a Modify is rejected for any reason, appropriate messaging with a reason code will be sent to the
submitter.
If the Modify passes all validations, the targeted Pool Instruct trade details will be updated
accordingly. If an economic change (other than contra) has been made to the Pool Instruct, an
advice will be sent to the submitter’s counterparty containing all valid Pool Instruct details as
amended by the submitter’s Modify.
If the submitter modifies its contra, the original contra’s advisory will be canceled (Comparison
Request Canceled message) and the new contra will receive an advisory (Comparison Request
message).
Post Pool Comparison
The only eligible data a member may modify subsequent to pool comparison is its X-REF. The new
X-REF must be unique or the Modify will be rejected and the submitter will receive appropriate
messaging. If the X-REF submitted passes validation for uniqueness, the Pool Instruct will be

6
 The single exception to this rule is that members will not have the ability to modify the CDR field. Members
electing to add or release a CDR on a previously submitted Pool Instruct must do so using the MT515 CDR
or CDR Release message, or must take these actions using RTTM Web.


                                                                                                  Page 19 of 64
updated accordingly and the submitter will receive appropriate messaging. The counterparty is not
notified when a submitter modifies its X-REF.
If a Modify is submitted either post Pool Netting or once Pool Netting processing has begun, and
the targeted Pool Instruct has been evaluated for the current netting cycle, the Modify will be
rejected. (Note: While Pool Netting is running, the system will continue to accept Modify messages
targeting Pool Instructs with future Delivery Dates until the time of the submission cutoff.)




                                                                                        Page 20 of 64
6 Cancel
High-Level Description
Buyers and sellers may cancel their uncompared Pool Instructs in Pool Netting at any time prior to
comparison via the MT515 “Cancel” message type (interactive or batch) or via RTTM Web. Sellers
will also have the ability to unilaterally cancel compared Pool Instructs at any time prior to Pool
Netting. This feature is being implemented by FICC in recognition of the seller’s unilateral right to
cancel and/or substitute allocated pools at any time prior to settlement without the approval of the
buyer.

Cancel Processing Details
Prior to Pool Comparison
Both buyers and sellers have the ability to submit Cancels against their previously submitted Pool
Instruct submissions prior to comparison. Cancels submitted using the SWIFT-based MT515
Instruct message (either interactively or in batch) must satisfy message formatting and validation
rules delineated in the Interactive Messaging Specifications. Cancels submitted via RTTM Web
must pass all screen validations. If these validations are not passed, the Cancel will be rejected. For
Cancels submitted via RTTM Web, an on-screen reject will occur and reject reasons will be
highlighted. For Cancels submitted via messaging, a reject advice will be sent to the submitter.
(Please refer to the Interactive Messaging Specifications for additional details. Refer to Attachment
A for common validation rules for all input types.)

The member submitting the Cancel must include the Pool ID (PID) or its own unique X-REF of the
Pool Instruct to target an existing, active Pool Instruct in any uncompared status (including Pending
Pool Add status) or it will be rejected.
If a Cancel is submitted into Pool Netting versus a Pool Instruct that is not active (e.g., a Pool
Instruct that has already been canceled, deleted, etc.), the Cancel will be rejected.
If a Cancel is rejected for any reason, appropriate messaging with a reason code will be sent to the
submitter.
If the Cancel passes all validations, the targeted Pool Instruct will be placed in Canceled status and
will no longer be available for comparison. Notification of the Cancel will be sent to the submitter
and its counterparty.
Post Pool Comparison
Post Pool Comparison, sellers may unilaterally cancel compared Pool Instructs prior to Pool
Netting. This will result in the buyer’s submission being reverted to an Uncompared state and an
associated advisory being generated for the seller. This is a new process being introduced by the
Pool Netting service.
If all edits are passed, the Pool Instruct of the seller will be canceled. If the targeted Pool Instruct
was assigned to a TBA position, the TBA position counter will be incremented by the current face
amount of the Pool Instruct being canceled.
The seller will receive notification of its Cancel. The buyer counterparty will receive an MT509
“Unmatched Due to Contra’s Cancellation” message (which is a new record type). (While


                                                                                               Page 21 of 64
messaging is covered fully in the Interactive Messaging Specifications and is not the focus of this
paper, because this is a new record type, it is being noted here.)
The buyer’s Pool Instruct will remain available for comparison if the seller submits a new Pool
Instruct with matching pool details into the Pool Netting system (for example, if the seller submitted
the Cancel in error).
If a Cancel is submitted either post Pool Netting or once Pool Netting processing has begun, and the
targeted Pool Instruct has been evaluated for inclusion in the current netting cycle, the Cancel will
be rejected. (Note: While Pool Netting is running, the system will continue to accept Cancel
messages targeting Pool Instructs with future Delivery Dates until the time of the submission
cutoff.)

Cancel of a TBA TFTD Trade
If a member cancels a TBA TFTD Trade in RTTM, this information will be passed to the Pool
Netting system. If Pool Instructs had been assigned to the TBA TFTD Trade, those Pool Instructs
will be canceled if there is no other position in that TBA CUSIP to which the Pool Instructs may be
assigned. Buyers and sellers will both receive notification that their Pool Instructs have been
canceled with an appropriate reason.




                                                                                           Page 22 of 64
7 Customer Delivery Requests (“CDRs”) and CDR Releases

High-Level Description
Prior to Pool Netting, both buyers and sellers will have the ability to apply a CDR to a previously
submitted Pool Instruct to preclude the Pool Instruct from being operationally netted by submitting
an MT515 “CDR” message type (interactive or batch) or via RTTM Web. The CDR feature has
been developed by FICC to enable members to “see collateral flow” to support their trading and
delivery strategies.
Both the buyer and seller will also have the ability to release a CDR they have previously submitted
prior to Pool Netting by submitting an MT515 “CDR Release” message type (interactive or batch)
or via RTTM Web. In addition to having the ability to set or release a CDR at the Pool Instruct
level, members will also have the ability to set or release CDRs at two global levels – at the Pool
Number level and at the TBA CUSIP level. When a global CDR is set or released, all Pool Instructs
meeting the criteria for the Pool Number or TBA CUSIP associated with the global action will be
placed in, or released from, the CDR state. It is important to note that, while a buyer may submit a
CDR to preclude a Pool Instruct from being operationally netted, the seller retains the right to
unilaterally cancel the Pool Instruct prior to Pool Netting, or may substitute the resulting net
pool obligation after netting ( if the pool is included in the selection criteria for the corresponding
Pool Netting cycle). In either case, the buyer will not receive its requested pool.
While the CDR indicator will preclude the Pool Instruct from being operationally netted, a
settlement obligation will still be generated for settlement versus FICC as CCP if the underlying
Pool Number meets the selection criteria for inclusion in Pool Netting. For example, if a member
places a CDR on its “sell” Pool Instruct for $2MM in Pool Number XYZ, and Pool Number XYZ
meets Pool Netting eligibility criteria, FICC will establish deliver obligations from the member to
FICC for $2MM in Pool Number XYZ. If, conversely, Pool Number XYZ does not meet the
selection criteria for inclusion in Pool Netting, the member will be required to settle the $2MM
directly with its allocation counterparty outside the clearing corporation.

CDR Processing Details
A CDR indicator may be submitted on the Pool Instruct, as noted previously, or it may be applied to
a Pool Instruct post-submission at any time prior to Pool Netting using the MT515 “CDR” message
type (interactive or batch) or via RTTM Web.
Members will also have the ability to submit CDRs globally at either the Pool Number level (to
preclude all Pool Instructs in that Pool Number from being operationally netted) or at the TBA
CUSIP level (to preclude Pool Instructs for all Pool Numbers associated with that TBA CUSIP from
being operationally netted). Global CDR functionality will only be supported using an RTTM Web
command and will not be supported by interactive messaging. However, the application of a global
CDR or CDR Release will result in the generation of Interactive Messages, as noted below. (Refer
to the following section entitled “Messaging Resulting from the Global Application of a CDR or
CDR Release.”)
CDRs submitted using the SWIFT-based MT515 Instruct message (either interactively or in batch)
must satisfy message formatting and validation rules delineated in the Interactive Messaging
Specifications. CDRs submitted via RTTM Web must pass all screen validations. If these


                                                                                            Page 23 of 64
validations are not passed, the CDR will be rejected. For CDRs submitted via RTTM Web, an on-
screen reject will occur and reject reasons will be highlighted. For CDRs submitted via messaging, a
reject advice will be sent to the submitter. (Please refer to the Interactive Messaging Specifications
for additional details.)

The CDR must contain all mandatory fields and must match the trade terms of the targeted Pool
Instruct or it will be rejected. (Refer to Attachment A for common validation rules for all input
types.) The member submitting the CDR must include the Pool ID (PID) or its own unique X-REF
to target an existing, active Pool Instruct in Pool Netting or it will be rejected. CDRs may be applied
against Pool Instructs in any status, including: 1) uncompared; 2) compared; 3) Pending Pool Add
(either compared or uncompared); and 4) DKed. The application of a CDR to a Pool Instruct does
not affect the status of the Pool Instruct.
If a CDR is submitted into Pool Netting versus a Pool Instruct that is not active (e.g., a Pool Instruct
that has already been canceled, deleted, etc.), the CDR will be rejected. If a CDR is submitted into
Pool Netting versus a Pool Instruct that is already in a CDR state, the CDR will be rejected.
If a CDR is submitted either post Pool Netting or once Pool Netting processing has begun and the
targeted Pool Instruct has been evaluated for inclusion in the current netting cycle, the CDR will be
rejected. (It should be noted that if Pool Netting is in progress, CDRs may still be applied to Pool
Instructs having a Delivery Date greater than the next business date up until the time of the
Comparison Submission Cutoff.) Global CDRs may not be submitted once Pool Netting
processing has begun, regardless of the Delivery Date of the targeted Pool Instructs.
If a CDR is rejected for any of the above reasons, an advice of the reject will be sent to the
submitter with an appropriate reason code.
If the CDR passes all validations, the targeted Pool Instruct will be precluded from operational
netting. An advice that the CDR has been accepted will be sent to the submitter. Operational netting
refers to the aggregation of all buy and sell activity to arrive at a single net position per member in
each Pool Number having the same contractual settlement date and Delivery Date. If a member uses
a CDR on a short Pool Instruct to preclude it from operational netting, the Instruct will not be offset
against long activity in that pool. The Instruct in CDR state will, however, be aggregated with other
short Pool Instructs in the same Pool Number that are also in CDR state. Obligations will be
generated for the member for settlement versus FICC as CCP for the amount of the aggregated short
Pool Instructs in CDR state (if the Pool Number meets single net position netting criteria).
CDRs are always unilateral actions taken by the submitter. As such, messaging is only generated
for the submitter of the CDR. The counterparty is not notified of a CDR being applied to the
submitter’s Pool Instruct. The application of a CDR precludes only the submitter’s Pool Instruct
from being operationally netted. It does not affect the Pool Instruct of its counterparty (i.e., the Pool
Instruct of its counterparty will remain available for operational netting).
It should also be noted that a CDR may be reapplied to a single Pool Instruct when a global CDR
Release has been performed via RTTM Web. That is, if a member submitted a CDR Release at the
Pool Number level, the CDR status of all of the Pool Instructs in that Pool Number would be
released. The member could then reapply the CDR to a single Pool Instruct using the MT515 CDR
message or via RTTM Web.




                                                                                              Page 24 of 64
CDR Release Processing Details
A CDR Release may be entered to remove a previously applied CDR from a Pool Instruct at any
time prior to Pool Netting using the MT515 CDR Release message type (interactive or batch) or via
RTTM Web. Taking this action will make the targeted Pool Instruct available for operational
netting. Members should review their CDR positions prior to Pool Netting and release as many
Pool Instructs as possible to maximize their netting benefits.
Members will also have the ability to submit CDR Releases globally at either the Pool Number
level (to release all Pool Instructs in that Pool Number from CDR state) or at the TBA CUSIP level
(to release all Pool Instructs for all Pool Numbers associated with that TBA CUSIP from CDR
state). Global CDR Release functionality will only be supported using an RTTM Web command
and will not be supported by interactive messaging. However, the application of a global CDR
Release will result in the generation of Interactive Messages, as noted below. (Refer to the
following section entitled “Messaging Resulting from the Global Application of a CDR or CDR
Release.”)
CDR Releases submitted using the SWIFT-based MT515 Instruct message (either interactively or in
batch) must satisfy message formatting and validation rules delineated in the Interactive Messaging
Specifications. They must further contain all mandatory fields and must match the trade terms of the
targeted Pool Instructs or they will be rejected. (Please refer to the Interactive Messaging
Specifications for additional details. Refer to Attachment A for common validation rules for all
input types.)
CDR Releases submitted via RTTM Web must pass all screen validations. If these validations are
not passed, the CDR will be rejected. For CDR Releases submitted via RTTM Web, an on-screen
reject will occur and reject reasons will be highlighted. For CDR Releases submitted via messaging,
a reject advice will be sent to the submitter. (Please refer to the Interactive Messaging
Specifications for mandatory fields, validation and messaging details.)
The member submitting the CDR Release must include the Pool ID (PID) or its own unique X-REF
to target an existing, active Pool Instruct to which a CDR has previously been applied or it will be
rejected.
If a CDR Release is submitted into Pool Netting versus a Pool Instruct that is not active (e.g., a Pool
Instruct that has already been canceled, deleted, etc.), the CDR Release will be rejected. CDR
Releases may be applied against Pool Instructs in any pre-netting status, including: 1) uncompared;
2) compared; 3) Pending Pool Add (compared or uncompared); and 4) DKed status. The application
of a CDR Release to a Pool Instruct does not affect the status of the Pool Instruct.
If a CDR Release is submitted once Pool Netting processing has begun, and the targeted Pool
Instruct has been evaluated for inclusion in the current netting cycle, the CDR Release will be
rejected. (It should be noted that if Pool Netting is in progress, CDR Releases may still be applied to
Pool Instructs having a Delivery Date greater than the next business date up until the time of the
Comparison Submission Cutoff, with the exception of Global CDR Releases.)
If a CDR Release is rejected for any of the above reasons, an advice of the rejection with an
appropriate reason code will be sent to the submitter.
If the CDR Release passes all validations, the CDR will be released from the targeted Pool Instruct
and the Pool Instruct will be available for operational netting on the evening prior to Delivery Date.
An advice that the CDR Release has been accepted for processing will be sent to the submitter.


                                                                                            Page 25 of 64
CDR Releases are always unilateral actions taken by the submitter. As such, messaging is only
generated for the submitter of the CDR Release. The counterparty is not notified of a CDR Release
being applied to the submitter’s Pool Instruct.
It should further be noted that a global CDR Release can only be performed according to the
manner in which the CDR was originally set. This means that if a CDR has been set globally at the
Pool Number level, it must be released at the Pool Number level, and if a CDR has been set globally
at the TBA CUSIP level, it must be released at the TBA CUSIP Number level. A member may not
use a global CDR Release at the Pool Number level to release specific Pool Numbers when the
CDR was set at the TBA CUSIP level. Members will always have the ability to release a CDR for
any individual Pool Instruct using either messaging or RTTM Web.


Messaging Resulting from the Global Application of a CDR or CDR Release
While messaging is fully covered in the Interactive Messaging Specifications and is not the focus of
this document, the messaging resulting from the global application of a CDR or CDR Release is
entirely new and is therefore included in this document.
Performing a global CDR or CDR Release will trigger the generation of interactive messaging
for ALL of the affected underlying Pool Instructs. That is, if a CDR is applied at the global level,
interactive messages will be generated to inform the submitter of all Pool Instructs affected by the
application of the CDR (i.e., an MT518 “Screen Input Replay CDR” message will be sent to the
submitter for each Pool Instruct active in the Pool Netting system to which the global CDR is being
applied). Once the CDR is applied globally, all subsequent Pool Instructs submitted by the member
that meet the criteria of the global CDR will be checked to ensure the CDR field on the Instruct has
been set to ‘y’es. If the CDR field has not been set, the system will automatically apply the CDR to
the Instruct and the member will receive an MT518 “Notification of Default Values Applied”
message.
Conversely, if a CDR Release is applied at the global level, interactive messages will be generated
to inform the submitter of all Pool Instructs affected by the application of the CDR Release (i.e., an
MT518 “Screen Input Replay CDR Release” message will be sent to the submitter for each Pool
Instruct to which the global CDR Release is being applied). A CDR Release that is set globally will
not affect new Pool Instructs. That is, if a Pool Instruct is submitted with the CDR field set to ‘y’es,
the CDR will remain in effect for the Pool Instruct, even if it meets the criteria of the global CDR
Release. (The assumption is that the member is taking positive action to place a CDR on the
individual Instruct.)


Lifecycle of the CDR
Global CDRs (applied at the Pool Number or TBA CUSIP level) will remain effective until the last
business date of the month in which they were submitted, at which time the global CDRs will
expire. The expiration of the global CDRs at month’s end will not affect existing Pool Instructs in
CDR state in the Pool Netting system; however, new Instructs submitted into Pool Netting will no
longer have their CDR status automatically set to yes unless the member submits a new global
CDR. Global CDRs may only be set for the current month (i.e., they can not be set for past or future
months).



                                                                                             Page 26 of 64
8 Substitutions Prior to Pool Netting
FICC will not provide a separate service to substitute a Pool Instruct prior to Pool Netting using a
single message. Rather, members will be able to effect these substitutions by submitting a Cancel of
the existing Pool Instruct, and then submitting a new Pool Instruct with the replacement pool
details. All rules and validations associated with the Cancel of a Pool Instruct and the submission of
a new Pool Instruct delineated in this document will apply.
Post Pool Netting, members will have the ability to substitute a net pool obligation that has been
established versus FICC as CCP using EPN. This is described in Section 12 of this document.




                                                                                           Page 27 of 64
9 RTTM Web
High-Level Description

Since its implementation in 2005, FICC has been steadily enhancing its RTTM Web product to
provide MBSD members with a single point of entry for all their MBSD Clearing service input and
reconciliation needs. RTTM Web will be further expanded to support input and reconciliation tools
for Pool Netting. Enhancements to RTTM Web will offer Pool Input capabilities, sophisticated
search and query functionality, and statistical reporting. It will also enable members to more readily
identify exception items.

RTTM Web for Pool Inputs

Members will have the ability to submit all Input types (with the exception of substitutions of net
pool deliver obligations) into RTTM Web, including:

   •   Pool Instructs
   •   Affirms (Web-Only Input)
   •   Cancels
   •   Modifies
   •   DKs
   •   CDR for a single Pool Instruct
   •   CDR Release for a single Pool Instruct
   •   NOS (this is a new service)
   •   Global CDR for Pool Numbers/TBA CUSIPs (Web-Only Input)
   •   Global CDR Release for Pool Numbers/TBA CUSIPs (Web-Only Input)

As noted above, some Input types may only be submitted via RTTM Web: 1) Affirms; 2) Global
CDRs at the Pool Number or the TBA CUSIP number level; and 3) Global CDR Releases at the
Pool Number or the TBA CUSIP number level.

Once data is submitted, Inputs will be subject to on-screen validations according to record type. An
Entry Confirmation screen will be displayed indicating whether the Input has been accepted or
rejected for Pool Netting. (For Pool Instructs, the Confirmation screen also enables members to
submit another Pool Instruct with all data from the previously submitted Instruct – with the
exception of the X-REF – pre-filled on the screen.)

Statistics Pages
Statistics pages on RTTM Web are designed to provide members with a central point of access for
viewing key statistical information regarding their Mortgage-Backed Securities (MBS) TBA trades
and obligations and will be expanded to include statistics pages to show Pool data.

There will be two Statistics Pages for Pool Data – Obligations and Submissions. The Obligations
Statistics page gives members a quick view of their open TBA positions that have not yet settled –
either fails or settlements for the current date. This will assist members in determining what course


                                                                                           Page 28 of 64
of action they need to take to close out the TBA positions: submit NOS; submit Pool Instructs; or
wait for the netting results.

The Submission Statistics page gives members the status of their Pool Instructs scheduled to settle
up to three business days in the future. A member can use this page to see the number of Instructs
that are Compared/Assigned (and ready for inclusion in the selection criteria for Pool Netting) as
well as Uncompared Instructs, Advisories and Pending Pool Add Instruct for which further action is
required (among other status details). The Submission Statistic page also alerts members when the
Pool Netting Cycle for the next day’s Delivery Date is running (so that Pool Input for the next
Delivery Date will not be accepted). (NOTE: The alert banner that Pool Netting is running is
shown on all pages of the RTTM Web application for MBS.)

Queries
Members will be provided with robust query capabilities to support tracking the status of Pool
Instructs from the time they are submitted until they are settled.

For each query screen, members will have the ability to submit desired search elements which will
result in the display of a Summary Screen listing all the items meeting the specified search criteria.
Members will then have the ability to “drill down” on any listed item to view the underlying details.
For example, if a member wants to see how many of its submitted Pool Instructs are in a DKed state
within a specific Pool Number and a price range, the member would enter the Pool Number and the
price range on the Pool Instruct query, and then select the trade status of “DK Received.” From the
list returned, the member would be able to view, modify, cancel or see potential matches for the
selected Pool Instruct.

Queries available via RTTM Web will include:

   •   Pool Instruct Query – This allows members to locate a specific Pool Instruct based on the
       unique identifier for the pool, or to review a series of Pool Instructs containing the same
       attributes (such as compared, canceled, DK, CDR, contractual settlement date, price, etc.).
   •   TBA Submission Query – This allows members to query and view their Pool Netting
       submissions from the perspective of the TBA CUSIP to which they are associated.
   •   CDR Query – This allows members to search for global CDRs set at the TBA CUSIP level
       and the Pool Number level.
   •   Reject Query – This allows members to view Pool Inputs that have been rejected by the
       system (interactively for the current day only).
   •   Potential Match Query – This allows members to view the unmatched Pool Instructs and
       advisories that have similar but not exact matching terms (in order to identify potential
       matches).
   •   Exception Recap by Contra – This provides members with a summary view of all the
       exception items that are pending action for a given member account, displayed according to
       the member’s counterparties.
   •   Advisory Split View – This provides a summary of Pool Instructs that are either the
       member’s uncompared submissions or advisories (submissions by the contraparty).

As noted above, members have the ability to drill down to obtain addition details when queries are
performed at a summary level.

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Connectivity
All members who currently have access to RTTM Web and are privileged for trade input will
automatically obtain access to the enhanced features of the release upon production implementation
of Pool Netting using their existing User Id and Password. Additions and/or changes to personnel
within member organizations which may require access to the new version should be managed by
the Access Coordinator at each firm.

Member Training and Support
To ensure members are fully prepared for implementation of these enhancements, FICC will
publish a revised MBS RTTM Web User Guide and an enhanced online MBS RTTM Web
Assistant training tool (i.e., an interactive on line self-paced training program). The web assistant is
anticipated to be available to members in Q2 2008. All other documentation will follow in Q3 2008.




                                                                                             Page 30 of 64
10 Repricing of Pool Instructs
High-Level Description
When a pool factor update is applied to a Pool Number on FICC’s security masterfiles, all Pool
Instructs in the affected Pool Number that are active in the Pool Netting system will be recalculated,
or “repriced.” It should be noted that repricing will only affect Pool Instructs; Pool Obligations
stemming from Pool Netting will not be affected. To the extent any pools are repriced, it may be
necessary for members to substitute the Pool Instruct to remain in compliance with SIFMA good
delivery guidelines.

Recalculation Processing Details
Pool Instruct repricing is performed real-time as factor updates are made to FICC’s security
masterfiles. Upon the acceptance of a pool factor change, the Pool Netting system will identify all
Pool Instructs in the affected Pool Number that are active in the Pool Netting system and recalculate
those Pool Instructs accordingly.
When a Pool Instruct is repriced, the current face and final money on the Pool Instruct will be
updated to reflect the factor change. (Note: Repricing is not performed on Pool Instructs in
Pending Pool Add status until that status is lifted.) Upon the repricing of a Pool Instruct, the
submitters of the Pool Instruct will receive interactive messages containing a new value in the final
money field. If the Pool Instruct has not been compared, the counterparty will receive an advice that
the Comparison Request has been modified (due to system action).
Repricing may also affect the status of a Pool Instruct. For example, if the Pool Instruct was in
“Pending Pool Add” status because the Pool Number or pool factor was not available on masterfiles
at the time of submission, repricing may result in the Pending Pool Status Add status being removed
since the Pool Number and factor information are now known. In this case, the submitter (and its
counterparty, if the Pool Instruct has been compared) would receive a message that the pending
status has been lifted in addition to the repricing message. If the Pool Instruct has not been
compared, the counterparty will receive an advice that the Comparison Request has been modified
(due to system action).
If a pool is fully paid down as a result of a factor change, all Pool Instructs in the affected Pool
Number that are active in the Pool Netting system will be deleted and appropriate messaging will be
sent to members.
If a failed net pool obligation is fully paid down as a result of a factor change, the obligation will be
canceled and the difference between the final money as contractually agreed upon and the sum of
all appropriate P&I payments will be processed for the buyer and seller (for inclusion in Funds-
Only Settlement).




                                                                                              Page 31 of 64
11 Pool Netting and Generation of Delivery Obligations
High-Level Description
Pool Netting, and the resultant generation of Deliver and Receive Obligations, are designed to
achieve a number of objectives: 1) to encompass only the most actively-traded pools with
significant netting potential in single net position netting; 2) to further extend netting benefits by
performing bilateral and multilateral pair-off netting; 3) to reduce the number of clearances a
member must make to settle its pool obligations; 4) to minimize the amount of par for which a
delivery must be made (so that the member does not have to “build a box”); and 5) to maximize the
number of a member’s deliveries that will occur within a single clearing bank (internalization).

As noted previously, the Pool Netting service has been structured so that only the most actively
traded pools will be netted and settled versus FICC as CCP, while less active pools will continue to
be settled as they are today, directly between members outside the clearing corporation. In order to
encompass only the most actively-traded pools with significant netting potential in single net
position netting, FICC will establish eligibility criteria for single net position netting. These criteria
include: 1) the total par (current face) of all Pool Instructs across all members in a given pool must
meet a minimum (configurable) requirement; and 2) the percentage of sides that would be
eliminated via single net position netting must meet a minimum (configurable) requirement. FICC
will also perform Pair-Off Netting to further reduce the number of pool delivers/receives members
must make in satisfaction of their TBA obligations.

Pair-Off Netting will allow for the elimination of delivers/receives in pools that do not meet single
net position netting eligibility criteria. Pair-Off Netting will be performed at the bilateral (same
counterparty) and multilateral (across all counterparties) levels. In order to pair-off a member’s buy
and sell Pool Instructs, the Instructs must have the same Pool Number, original face, contractual
settlement date and Delivery Date.

On the evening of Delivery Date minus 1, Pool Instructs meeting netting-eligible criteria will be
novated for settlement versus FICC as CCP. A “smart” delivery algorithm will be employed to
apportion each members’ net pool positions into deliver/receive net pool obligations.

Evaluation of Pool Instructs for Inclusion in Pool Netting

At the start of each Netting Cycle (which will be run daily) all Pool Instructs active in the system
will be evaluated for potential inclusion in Pool Netting. In order to be included in this selection
process, the following criteria must be met:

   •   The Pool Instructs have the same contractual settlement date;
   •   The Pool Instructs have a Delivery Date equal to the next business date;
   •   The Pool Instructs are compared; and
   •   The Pool Instructs have been correlated and assigned to a TBA position when Pool Netting
       is invoked.

For each Pool Instruct that is included in the selection criteria for Pool Netting, the submitter will
receive a “Pool Bound to Net” message. Receipt of this message does not mean that the Pool

                                                                                               Page 32 of 64
Instruct will be netted and settled versus FICC as CCP. It simply means that the Pool Instruct
will be used in the calculations performed by the system to determine which pools will most
benefit from Pool Netting (i.e., the total par (current face) and netting factor calculations) or that
the Pool Instruct might potentially be paired-off).

Any Pool Instruct not included in the selection process for Pool Netting, such as uncompared Pool
Instructs or Pool Instructs in Pending Pool Add status, will be deleted from the system. These
transactions must be settled directly between allocation counterparties outside the clearing
corporation (or Pool Instructs with a later Delivery Date must be submitted).

Evaluation of Pool Instructs for Inclusion in Single Net Position Netting
All Pool Instructs included in the selection process for Pool Netting will be used to perform two
evaluations: 1) to ensure there is sufficient total par (current face) in the pool; and 2) to ensure there
will be an acceptable netting factor if the pool is netted. Each of these evaluations is summarized
below.

   •   Minimum Pool Par (Current Face): To determine if a pool meets the Minimum Pool Par
       criteria, the current face amounts for all Pool Instructs in each Pool Number are summed (as
       absolute values). The total absolute current face amount is then compared to the system’s
       Minimum Pool Par requirement. This requirement is a configurable amount that can be
       adjusted as FICC evaluates production volume and results. Initial testing indicated that a
       starting Minimum Pool Par might be set at $20 million. If the total absolute current face
       amount does not equal or exceed the Minimum Pool Par requirement, Pool Instructs in that
       Pool Number will not be eligible for single net position netting. (It should be noted that,
       although Pool Instructs in a CDR state are precluded from being operationally netted, they
       are included in the calculation to determine the system-wide Minimum Pool Par).

   •   Minimum Netted Percentage (Sides): To determine if a pool meets the Minimum Netted
       Percentage (Sides) criteria, the gross number of sides (buys and sells) in a particular Pool
       Number that will go into the net is compared to the absolute number of net receive and
       deliver obligations coming out of the net. This is expressed as a percentage, or netting
       factor. This percentage is compared to the Minimum Netted Percentage established at the
       system level. If the minimum is not met, Pool Instructs in that Pool Number will not be
       eligible for single net position netting. This requirement is a configurable percentage that
       can be adjusted as FICC evaluates production volume and results. Initial testing indicated
       that a starting Minimum Netted Percentage might be set at 50%. (Same as noted above, Pool
       Instructs in a CDR state will be included in calculations to determine the Minimum Netted
       Percentage.)


Single Net Position Netting
For each member’s account, all Pool Instructs selected for single net position netting will be
aggregated to arrive at a single net position in each Pool Number that the member must either
deliver or receive from FICC as CCP. Net positions are then converted into receive and deliver
obligation using a “smart” delivery algorithm. (Refer to the section “Delivery Algorithm” for
additional details.)


                                                                                               Page 33 of 64
Instructs in a CDR state are precluded from operational netting; however, the current face of all
long CDR Pool Instructs are summed to establish a net long CDR amount, and the current face of
all short CDR Pool Instructs are summed to establish a net short CDR amount. Because Pool
Instructs may be in a CDR state, a member might have two conflicting net positions in a single
pool. For example, the member could have a net short position in the pool as a result of single net
position netting, but may have a net long CDR position.

Pair-Off Netting
All Pool Instructs that meet the criteria for Pool Netting, but do not meet the criteria for single net
position netting, will be evaluated for potential Pair-Off Netting. Pair-Off Netting will be performed
at both the bilateral and multilateral levels. A bilateral pair-off is one in which all pair-off criteria
are met (i.e., the Pool Instruct has the same Pool Number, original face, contractual settlement date
and Delivery Date) and the member’s buy and sell activity is with the same contra-side. A
multilateral pair-off is one in which all pair-off criteria are met, but the member’s buy and sell
activity are with different contra-sides. A cash settlement will be made for the cash differences
between the buy and the sell. (Refer to the “Funds-Only Settlement” section of this document.)

If an Instruct on either the buy or the sell side of the pair-off is in a CDR state, no pair off will
occur. The member will settle these transactions between original allocation counterparties outside
the clearing corporation.

Netting Notification to Members
Once the Pool Netting system has determined which Pool Instructs will most benefit from Pool
Netting (either as a result of single net position netting or Pair-Off Netting), members will be
informed if their Pool Instruct has been included or excluded from Pool Netting. If a Pool Instruct
has gone into Pool Netting for net settlement versus FICC as CCP, the submitter will receive a
“Pool in Net” message. If a Pool Instruct has been excluded from Pool Netting and should be settled
directly between allocation counterparties outside the clearing corporation, the submitter will
receive a “Pool Not in Net” message. These netting status messages are the last messages
members will receive regarding their Pool Instructs.

Members will also receive machine-readable output (MRO) reports of their net pool obligations as
well as reports listing all Pool Instructs that were not eligible for Pool Netting, and that therefore
must settle directly between members outside FICC. (Refer to the “Glossary of Member Reports for
Pool Netting.”)


Establishment of Deliver and Receive Obligations from Net Pool Positions

In an effort to streamline settlement and reduce the associated costs members incur, FICC will
employ a "Smart Delivery Algorithm" when converting net pool positions into receive and deliver
obligations members must settle versus FICC as CCP. The delivery algorithm will determine the
optimal Delivery Obligations (DO’s) required to satisfy the net settlement positions established via
Pool Netting using the following logic:
   •   Pool DOs will conform to Fedwire delivery maximums (50MM).


                                                                                              Page 34 of 64
   •     Pool DO’s will conform to minimum and multiples as established by each Agency.
   •     For members using one of FICC’s clearing banks as its settlement bank, the delivery
         algorithm will seek to establish DO’s between the member’s account and FICC’s account
         within that bank (as opposed to generating external bank deliveries over Fedwire). This
         processed is called “Clearing Bank Internalization.”
   •     The system will take into account the amount of the net seller’s Pool Instruct submissions
         when establishing DO’s so that DO’s are consistent with the amounts allocated. In order to
         reduce the number of DOs, this methodology will seek to generate the largest possible DO’s
         based upon how the member allocated its pools. For example, if a member had a net short
         pool position of $20 million and a Pool Instruct was submitted for $9 million and another
         Pool Instruct was submitted for $11 million, the system would attempt to create, on a best
         efforts basis, two deliver obligations of $9 million and $11 million respectively.
   •     A one-to-many concept will be deployed when creating the receive obligations for the
         seller’s counterparty. Following this approach, when the system establishes a “large” DO
         corresponding to one of the seller’s Pool Instruct submissions, FICC will bind this DO to
         one or many buyers in the system, thereby minimizing the receiver’s number of DO’s as
         well.
   •     After the above processes have been completed for larger allocations, FICC will seek to
         generate DOs in the amounts of $1 MM and $2 MM out of smaller allocations. (These
         amounts are based on a study of historical data to ensure the fewest numbers of DO’s are
         generated without requiring the member to build a box in order to make delivery.) First, two
         $1MM delivery tickets will be generated for any remaining net pool position. After that, for
         any remaining net pool position, as many $2 MM obligations as possible will be generated
         (plus a tail, if necessary) until DOs have been generated for the entire net pool position. This
         approach minimizes cost of carry concerns for net sellers.
The figure below illustrates the basic tenets of the delivery algorithm:


        Instructs                   Delivery Obligations
       1 at 10 MM                             1 at 10MM    Large allocations minimize
       1 at 10 MM                             1 at 10MM    a sellers deliveries.
       1 at 300,000
       1 at 700,000
       1 at 600,000
       1 at 400,000
       1 at 500,000                            1 at 1MM    FICC will generate DO's in
       1 at 500,000                            1 at 1MM    1MM & 2MM pieces, based
       1 at 200,000                            1 at 2MM    on historical analysis, to
       1 at 800,000                            1 at 2MM    minimize the risk of fails.
       1 at 100,000
       1 at 900,000
       1 at 100,000
       1 at 200,000
       1 at 700,000




                                                                                              Page 35 of 64
As net delivery obligations (DO’s) are established versus FICC as CCP, the associated TBA
Obligations are extinguished. They are no longer available in the Clearing System for further
action.

Settlement versus FICC as CCP

On Delivery Date, members will be required to deliver securities to, or receive securities from, one
of FICC’s designated accounts at its clearing banks in satisfaction of their net pool deliver or net
pool receive obligations as established and reported by FICC. These deliveries will occur versus
simultaneous payment over Fedwire. Settlements will occur at a settlement value (the pool net
settlement value) determined by FICC. Members will receive the difference between the final
money as calculated on the Pool Instructs and the settlement value at which net pool obligations
were created as part of their Funds-Only Settlement obligation in the form of a Pool Transaction
Adjustment Payment, or Pool TAP. (Refer to the “Funds-Only Settlement” section of this
document.)

Net Pool Obligation Delivery Fails

A member may fail to deliver pools to FICC in satisfaction of its net pool deliver obligation. If this
were to happen, FICC would subsequently fail to deliver to the corresponding buyer counterparty.
These fails would remain on FICC’s books until the seller either delivered the pools to FICC in
satisfaction of its net pool deliver obligation, or substituted the net pool deliver obligation with new
pool collateral. Fails will not be re-netted (that is, they will not be included as part of the next
Delivery Date’s Pool Netting cycle).

Settlement Directly Between Members

Members will settle all Pool Instructs not included in Pool Netting directly with their allocation
contra-sides outside the clearing corporation. For Pool Instructs that were in Matched/Assigned
status, but did not meet the selection criteria for inclusion in Pool Netting, FICC will increment the
associated TBA position counters (effectively “unassigning” Pool Instructs that will not settle
versus FICC). Members will still be required to submit Notifications of Settlement (NOS) to FICC
to report that settlement of pools in satisfaction of a TBA obligation has been completed (but they
will not be required to submit trade numbers on their NOS). Associated mark and margin
calculations will no longer be performed once the NOS have been processed. (Refer to the
“Notifications of Settlement” section of this document.)




                                                                                             Page 36 of 64
12 Substitution of Net Pool Deliver Obligations
High-Level Description

As noted in Section 8, prior to Pool Netting, EPN Cancel and Correct (“CC”) messages will
continue to be used to inform the contra of the substitution of a previously submitted allocation. In
addition, if the member has submitted the corresponding Pool Instruct into Pool Netting, the
member must further: 1) submit a Cancel message to cancel the original Pool Instruct; and 2)
submit a new Pool Instruct for the replacement collateral. The Cancel and Instruct messages will
not be linked, and both will be subject to the rules delineated for their respective message types.

Post-Pool Netting, net sellers will have the ability to perform substitutions of net pool deliver
obligations via EPN. The pool substitution will identify FICC as the settlement counterparty of the
net deliver obligation being targeted for substitution. The message does not need to contain a pool
obligation reference of any kind, but it must contain valid trade details that match an outstanding net
pool delivery obligation. FICC will validate both the cancel and the replacement pool details
contained in the message. It will then send notification of a valid pool substitution to the buyer that
is bound to the seller’s canceled obligation or, if invalid, FICC will DK the message back (via EPN)
to the submitter.

It should be noted that no interactive or SWIFT-batch messaging will be generated in
conjunction with Substitutions of Net Pool Deliver Obligations. Messaging will occur via EPN
only, and substitution details will be included in the member’s end-of-day reports and MRO.

Substitution Details

Sellers will submit substitutions of pool net deliver obligations via EPN, identifying FICC as the
settlement counterparty. (Substitutions submitted by buyers will be rejected.) EPN will perform its
regular substitution validations (as specified in EPN Substitution Specifications, available on the
corporate internet at dtcc.com.) Any substitutions failing these validations will be rejected, and
notification will be sent to the submitter via EPN.

If a substitution passes EPN validations, it will be forwarded to the Pool Netting system (where the
obligations are stored) for additional validation and processing. While sellers do not need to submit
any type of identifier to target the net pool deliver obligation being substituted, the message must
contain the economic trade terms of the net pool deliver obligation being cancelled. Pool Netting
will identify the target obligation to be canceled based upon the economic trade terms submitted in
the EPN message. If a net pool deliver obligation can not be identified by Pool Netting based on the
submitted terms, the substitution will be rejected, and a DK will be sent to the submitter via EPN
with an appropriate reason code.

If the Pool Netting system is able to identify the net pool deliver obligation being substituted, it will
perform validations for both the cancel and replacement pool details contained in the message.
The submitted Delivery Date will be compared to the T2 timestamp on the EPN substitution
message. It must be a valid Delivery Date according to SIFMA guidelines. For example, if the
substitution is processed by EPN prior to 12:15 p.m., the Delivery Date on the replacement pools

                                                                                              Page 37 of 64
must be greater than or equal to the current business date plus 2. If the substitution is processed by
EPN on or after 12:15 p.m., the Delivery Date on the replacement pools must be greater than or
equal to the current business date plus 3 on the buyer(s) record(s). Pool Netting will automatically
reset the Delivery Date to one day farther out than the seller-submitted date when a substitution is
received by EPN prior to 12:15 p.m., but Pool Netting fails to turn it around to the buyer(s) prior to
that time.

If the Delivery Date is not valid, the substitution will be rejected, and a DK will be sent to the
submitter via EPN with an appropriate reason code.

The substitution must equal the full value of the net pool deliver obligation (no partial substitutions
will be permitted). For example, if the obligation is for 1 Good Delivery Million, the net pool
deliver obligation to be substituted must be for 1 Good Delivery Million and the replacement pools
must also be for 1 Good Delivery Million.

Members will be able to submit substitutions versus FICC on a one-to-many basis. That is, a single
pool net deliver obligation may be replaced with multiple pools. However, substitutions may not be
submitted on a many-to-many basis or on a many-to-one basis. (That is, each substitution must
target a single pool net deliver obligation.)

As noted above, partial substitutions will not be accepted for substitution processing and will be
rejected. A partial substitution is one in which the value of the cancel and/or replacement pools is
less than the value of the net pool deliver obligation. When a substitution is rejected by Pool
Netting, the submitter will receive a DK via EPN with an appropriate reason code.

Replacement pools will be validated for the net pool deliver obligation being substituted. The
replacement pools must be valid for the net pool settlement obligation (e.g., the Pool Numbers must
be valid for the corresponding TBA CUSIP). If any of the replacement pools are rejected because
they are not valid for the net pool deliver obligation, the obligation will remain in tact (i.e., the
cancellation will not be processed if the replacement pools fail validation). The submitter will
receive a DK message via EPN with an appropriate DK reason code.

The replacement pools’ original face must be greater than the minimum delivery par for the
Agency. If the original face is less than the minimum delivery par for the Agency, the substitution
will be rejected and the submitter will receive a DK message via EPN with an appropriate DK
reason code.

If the Pool Number of the replacement pool is not on FICC’s masterfiles with complete data
including the factor for the contractual settlement date, or if the Pool Number is in a “netting
ineligible state,” the substitution will be rejected, and the submitter will receive a DK message via
EPN with an appropriate reason code.

Upon validation of both the canceled net pool deliver obligation and the replacement pool(s), FICC
will send a substitution message, via EPN, to the offsetting buyer(s). The buyer(s) will also receive
the net pool deliver obligation ID(s) established for the replacement pools. The delivery instructions
for the new net pool deliver obligation(s) will be sent to FICC’s clearing bank on the new Delivery
Date. It should be noted that replacement pools are not eligible for Pool Netting.


                                                                                             Page 38 of 64
As noted previously, EPN will support all messaging associated with substitutions of net pool
deliver obligations. (Interactive messaging via RTTM will not be provided.) Members may also
track their pool substitutions via end-of-day reporting and MRO output. (Refer to the “Glossary of
Member Reports for Pool Netting.”)




                                                                                         Page 39 of 64
13 Funds-Only Settlement
High-Level Description

With the introduction of Pool Netting, Funds-Only Settlement will become a daily process of
settling cash credit and debit amounts between members and FICC. The Funds-Only Settlement
process will also be expanded to include Pool Transaction Adjustment Payments (“Pool TAP”),
clearance differences, P&I payments and paydowns. These new items will be added to the Funds-
Only Settlement process together with the existing Settlement Balance Order Market Differentials
(SBOMDs), Cash Adjustments and other Cash Obligation Items (COIs).

The Funds-Only Settlement process will continue to generate a single net credit or debit cash
amount at the aggregate account level. Cash debits and credits will now be paid out simultaneously
via NSS Autodebit.

Pool TAP

Net settlement obligations resulting from Pool Netting must be settled at the pool net price, which
will be assigned by FICC during Pool Netting. The difference between the newly-assigned pool net
price and the settlement price of the TBA Obligation will be calculated as the Pool Transaction
Adjustment Payment or Pool TAP. (Note that failed pool obligations will settle at the originally
established pool net price, given that they are not re-netted.)

If the pool net price exceeds the settlement price, the Pool TAP will be a cash credit for members
with net long positions and a cash debit for members with net short positions. Inversely, if the
settlement price exceeds the pool net price, the Pool TAP will be a cash debit for members with net
long positions and a cash credit for members with net short positions.

The sum of all Pool TAP amounts that are calculated during a given Pool Netting cycle is a net cash
credit or debit amount to be processed during the next day’s Funds-Only Settlement. Since Pool
Netting and the generation of Pool TAP is a daily process, Funds-Only Settlement is conducted
daily as well.


Clearance Differences

In order to maximize settlement efficiency, FICC will utilize a dollar tolerance for the receipt of
pools from members with net short positions. This means that FICC may accept receipt of pools
versus payment of a dollar amount that is slightly different from the anticipated cash amount,
provided the clearance difference is within a certain tolerance range. These clearance differences
will be included as cash debit or credit amounts in the affected members’ Funds-Only Settlement
obligations.




                                                                                           Page 40 of 64
Principal and Interest Payments

As described in Section 15 (“Fail Tracking”), FICC will automatically process any P&I payments
that are not handled by the Fedwire Securities Service Automated Claims Adjustment Process
(ACAP) for failing net pool settlement obligations. P&I payments processed by FICC will be posted
on the first business day following the pool obligation’s clearance as cash debit and credit amounts
that are included in Funds-Only Settlement.

FICC will also process all P&I payments on pools that pay down before they are delivered to FICC.
For these pools, a single net payment will be processed on payment date, representing the difference
between the final money as contractually agreed to and the sum of all P&I payments that are due on
the trade.

SBOMD Payments

While the calculation of SBOMD will remain unchanged, SBOMD credits and debits will both be
paid on Contractual Settlement Date. This is different from the current practice of processing
SBOMD credits and debits on Contractual Settlement Date and Contractual Settlement Date minus
one, respectively.

The calculation and the payment of Cash Adjustments, representing adjustments to earlier SBOMD
amounts resulting from variance, will remain unchanged. Cash Adjustments relating to clearances
in a given month will continue to be aggregated into a single net amount and processed on the Class
B payable date of the next month.




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14 Notification of Settlement (NOS) Processing

High-Level Description

For pools settling in satisfaction of TBA obligations outside of FICC (i.e. those pools not included
in Pool Netting – neither single net position netting nor Pair-Off Netting), members will, post
clearance, continue to submit Notifications of Settlement (NOS) to FICC to effectively close out the
TBA obligations in the Clearing system and remove them from FICC’s mark and margin
calculations. NOS may be submitted via RTTM Web or using the MBSD Proprietary File
Transmission Service.

A few changes to current NOS processing will be implemented to standardize and simplify NOS
submission by members:

   •   Required data to be submitted by members on NOS will be the same in all circumstances.
       That is, buyers and sellers will submit the same data to FICC for their Trade-for-Trade
       (TFTD) Trades and Settlement Balance Orders (SBOO or SBON).
   •   Members will no longer be required to submit TBA Trade IDs on their NOS. FICC will
       identify the appropriate TBA obligation to close out based upon the trade terms submitted
       by members on NOS.
   •   Members will have the ability to submit NOS via RTTM Web.
   •   Members will have the ability to submit NOS on the day the obligations are settled.
       (Currently members may only submit NOS on Settlement Date +1.) This will allow the
       settled obligation to be excluded from FICC’s risk management processes more quickly.
It should further be emphasized that, with the implementation of Pool Netting, the number of NOS
members are required to submit should be significantly decreased.

Required Data for NOS Submission

The required data that must be submitted by all members (both buyers and sellers) on their NOS
will now include:
   •   Submitting Member’s Account ID
   •   BUY/SELL indicator
   •   Contra Account ID
   •   TBA CUSIP
   •   Contractual Settlement Date
   •   TBA Trade Price
   •   Pool Number
   •   Current Face

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   •   Control Number (remains as an optional field)
(Note: New NOS specifications will be published under separate cover in Q1 2008.)

If a NOS is submitted by a member and there is no associated TBA Position (for example, the TBA
Position has been fully decremented or the remaining TBA position is less than the current face
submitted on the NOS), the NOS will be rejected.


NOS Matching

Seller and buyer submitted NOS will continue to be matched as they are today. Members will retain
the option to either submit NOS to the clearing corporation for matching against the counterparties’
submissions, or members may alternatively use RTTM Web to affirm NOS advisories submitted
against them by their counterparties. Members may begin submitting NOS on Settlement Date.
(This is a change from the current process whereby members may only begin submitting NOS on
Settlement Date plus one.) In either case, once NOS is matched, the corresponding TBA position
will be decremented accordingly.

(Note: Members will also retain the ability to DK NOS advisories submitted by their counterparties
if the trades are not known, or to delete their unmatched NOS. These two functions are available via
RTTM Web.)

Decrementing TBA Position and Risk Management

As noted previously, members will no longer be required to submit TBA Trade IDs on their NOS to
advise FICC how to apply the NOS to an open TBA obligation. FICC will target an appropriate
open TBA obligation based upon the trade details submitted on the matched NOS. FICC will
automatically close out an open TBA obligation once the NOS current face submitted against the
obligation comes within variance.

In the case where a member-submitted NOS can be mapped to multiple TBA obligations, NOS may
be split across obligations. In this case, each “piece” of the split NOS will retain the same NOS
control number (or FICC will assign a linking control number if a number is not submitted by the
member). A new report, the “MBSD CCP PID/NOS Assignment” report, will assist members in
balancing their NOS to their TBA positions/trades where there is not a one to one correspondence
between the two. All other reporting of NOS activity will continue to be generated by the MBS
Clearing System.

Once a TBA obligation is decremented, FICC will no longer perform the associated mark and
margin calculations. This means that members’ Clearing Fund requirements may subsequently
decrease on Settlement Date plus 1 (where currently, this can not happen before Settlement Date
plus 2).

NOS Compliance

With the implementation of Pool Netting, FICC will be providing its settlement guarantee at the
point of TBA comparison. This means that FICC will guarantee the settlement of pools submitted in

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satisfaction of TBA obligations regardless of whether they settle versus FICC as CCP, or outside of
the clearing corporation directly between members. As FICC will be guaranteeing obligations that
are outside of its view and control, the timely submission of NOS will become increasingly more
important. For this reason, FICC will be introducing additional controls and more demanding
member compliance levels with the implementation of Pool Netting. For example, as members will
have the ability to submit NOS as early as settlement date, the two day grace period during which
members are not charged late fees will be eliminated.

FICC will also seek to encourage members’ proactive submission of NOS (rather than simply
affirming their counterparties’ submissions). To this end, FICC will track the percentage of NOS
that members submit via the “NOS Create” function. Each month FICC will ensure that the
member’s submitted NOS percentage meets FICC’s minimum requirement (which remains to be
determined). NOS compliance rules and a schedule of associated fees will be published to all
members prior to the implementation of Pool Netting.




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15 Fail Tracking

With the introduction of Pool Netting, FICC will guarantee all P&I payments due for buyers’ pool
obligations that fail past record date, regardless of whether the associated trades are novated by
FICC. This means that if a member with a net short position becomes insolvent, FICC will not only
guarantee delivery of the securities to the member with a corresponding long position, but it will
also make the appropriate P&I payments on any trade that settles past record date. FICC will
include an appropriate charge in members’ Clearing Fund calculations to cover its exposure in this
regard.

The actual processing of P&I payments on obligations that fail past record date between solvent
members will be handled by the Fedwire Securities Service Automated Claims Adjustment Process
(‘ACAP’), as is the case today. However, FICC will complement this service, which is limited to
the most recent six P&I payments on a failed obligation, by automatically processing any P&I
payments beyond this limit for obligations established for settlement versus FICC as CCP. P&I
payments processed by FICC will be posted on the first business day following the obligation’s
clearance as cash debits and credits that are included in the daily Funds-Only Settlement process.
As a result, members will no longer need to submit claims in order to process P&I payments that are
not handled by ACAP for obligations settling versus FICC.

As mentioned in Section 13 (“Funds-Only Settlement”), if a pool pays down and one or more
obligations in this pool remain unsettled, FICC will process the appropriate cash credits and debits
on payment date as part of Funds-Only Settlement to ensure that all members with net short or net
long positions in this pool are made whole. In addition, FICC will automatically cancel such
obligations.




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16 Risk Management

High-Level Description

The introduction of Pool Netting will require a few enhancements to the VaR-based risk
management methodology that will be introduced later this year. VaR will simplify the current
mark-to-market calculations and will allow members to freely use mark-to-market credits to offset
any mark-to-market debits. In addition to these enhancements, FICC will launch a new Common
Margining service at the same time Pool Netting is implemented. Common Margining will allow
members to lower their Clearing Fund requirement by combining positions both within and across
FICC’s divisions into portfolios for margining purposes.

VaR Update

MBSD’s current risk management system will be fundamentally overhauled with the introduction
of a VaR-based methodology, to be implemented at the end of April 2008. While Pool Netting itself
will not require that any fundamental changes be made to the VaR model, some calculations will be
further enhanced to accommodate Pool Netting processes. To this end, certain Clearing Fund
components will be changed to reflect FICC’s Principal and/or Interest exposure related to
obligations that fail past record date. In addition, specific membership categories may be subject to
risk calculations that take a higher confidence level into account.

Common Margining

In addition to the risk management changes described above, a more fundamental refinement of the
VaR-based methodology, known as Common Margining, will also be implemented in tandem with
Pool Netting. Common Margining will enable members to combine their MBSD and GSD positions
into a single portfolio for risk management purposes. This will allow joint members of both
divisions to benefit from cross-divisional offsets, enabling them to reduce their total FICC Clearing
Fund requirement. In addition, Common Margining will also provide members with the added
flexibility to combine positions they hold in several accounts into a single portfolio for risk
management purposes. As this flexibility will be offered for accounts both within and across
divisions, it will also benefit members with multiple accounts that belong to only one division.

Mark-to-Market Calculations

The daily mark-to-market process will continue to compare the most recently available market
prices against the settlement price. MBSD’s current mark-to-market process provides conditional
offsets between short and long positions, meaning that mark-to-market credits can only be used to
offset mark-to-market debits under strict conditions.

The introduction of a VaR-based risk management methodology allows the MBSD to safely remove
these conditions from its daily mark-to-market calculations. This provides members free and
unrestricted use of all mark-to-market credits to offset any mark-to-market debits. As a result, the
new mark-to-market process will more closely resemble a trader’s view of a net unrealized profit or


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loss across all unsettled positions, regardless of whether these unsettled positions are the result of
forward trades or failed trades. If a member’s mark-to-market is a net debit amount, representing an
unrealized loss, it will increase its Clearing Fund requirement. Inversely, if a member’s mark-to-
market is a net credit amount, representing an unrealized profit, it can be used to decrease its
Clearing Fund requirement.




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17 Membership and Liquidation

High-Level Description
With the introduction of Pool Netting, FICC will guarantee all member trades, both novated and
non-novated, at the time they are compared in the TBA Clearing system. To this end, a new
liquidation loss allocation model has been developed, which adopts characteristics of both the
MBSD and the GSD models. This hybrid model is based on a new membership structure that
includes Tier One and Tier Two members.

Membership
A number of MBSD membership categories and admission criteria will be revised, reflecting
FICC’s continuing efforts to enhance the integration between its two divisions, as well as its
commitment to continually refine and improve risk management practices.

In addition, a two-tiered membership structure will be introduced, enabling FICC to allocate
liquidation losses between members that are allowed to mutualize losses (i.e. Tier One members), as
is the case with the current GSD liquidation model, and members that are not allowed to mutualize
losses (i.e. Tier Two members), as is the case with the current MBSD liquidation model. Registered
Investment Companies will be classified as Tier Two members, while all other members will be
classified as Tier One members. While this two-tiered membership structure is being introduced for
the MBSD first, FICC intends to adopt it for GSD as well at a later stage.

Member Insolvency
Current MBSD Rules stipulate that if a member becomes insolvent, its counterparties must liquidate
any unsettled trades themselves and report possible liquidation losses to FICC. FICC will then use
the collateral available in the insolvent member’s Clearing Fund to reimburse these liquidation
losses. In the unlikely event that collateral is insufficient to cover all losses in full, the shortfall will
be applied to the original contra-sides of the insolvent member.

With the introduction of Pool Netting, FICC will liquidate an insolvent member’s unsettled trades
itself as soon as practicable. In order for FICC to act upon the latest available information in case of
an insolvency, solvent counterparties will be given the opportunity to send Notifications of
Settlement to report the settlement status of non-novated trades that were due to be settled directly
with the insolvent member. Based on this information, FICC will close out any open positions and
ensure that all solvent counterparties are made whole.

FICC will use the collateral available in the insolvent member’s Clearing Fund to cover any
liquidation losses it incurred in this process. In the unlikely event that the insolvent member’s
Clearing Fund would be insufficient to cover all losses, solvent members would be assessed based
on a new loss allocation model. Under this model, the remaining losses to be allocated are first split
into a portion to be allocated to Tier One members and another portion to be allocated to Tier Two
members. Once these two portions have been determined, solvent counterparties within each
membership tier are individually assessed according to a newly developed set of rules that is based
on the GSD loss allocation model for Tier One members, and on the current MBSD loss allocation
model for Tier Two members.


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18 Glossary of Interactive Messaging

A Glossary of all Pool Netting Inputs (via the MT515 message format) and all Pool Netting Outputs
(via the MT509, MT518 and MT599 message formats) is provided below.

   •   Input to Pool Netting using the MT515 message format:
       •   Pool Instruct – Pool Instruct messages will be used by both buyers and sellers to submit
           required pool data into Pool Netting for bilateral comparison against corresponding pool
           data submitted by the counterparty.
           Cancel – Cancel messages will be submitted into Pool Netting by both buyers and sellers
           to cancel uncompared Pool Instructs (i.e., those Pool Instructs that have not been
           bilaterally matched to Pool Instructs submitted by the member’s counterparty or that
           have not been affirmed by the member’s counterparty). In addition, sellers will also
           have the ability to submit Cancel messages into Pool Netting to unilaterally cancel
           compared (matched) Pool Instructs. If the seller cancels a compared Pool Instruct, this
           will revert the buyer’s Pool Instruct to Uncompared status and an associated advisory
           would be generated for the seller. Reverting a member’s previously compared Pool
           Instruct to an uncompared state (with an associated advisory being generated for the
           seller) is new functionality being introduced with Pool Netting. (Note: If a buyer submits
           a Cancel against a compared Pool Instruct, the Cancel will be rejected.)
       •   CDR (Customer Delivery Request) – This new message type will be submitted into Pool
           Netting by both sellers and buyers to preclude previously submitted Pool Instructs
           from being operationally netted. Pool Instructs subject to CDRs will settle versus FICC
           as CCP if the associated Pool Number met the selection criteria for single position net
           settlement. CDRs submitted via messaging may only target individual Pool Instructs (to
           preclude a single Pool Instruct from operational netting).
       •   CDR Release – This new message type will be submitted into Pool Netting by sellers
           and buyers to “release” CDRs from targeted Pool Instructs that were previously
           placed in a CDR state. A CDR Release will allow the targeted Pool Instructs to become
           available for operational netting on the evening prior to their Delivery Date. CDR
           Releases submitted via messaging may only target individual Pool Instructs (regardless
           of how the CDRs were initially applied – at the Pool Instruct level or globally at the Pool
           Number or TBA CUSIP level).
       •   Modify – Modify messages may be submitted into Pool Netting by both buyer and
           sellers pre-comparison to perform a “full ticket” modify (allowing them to change any
           trade terms submitted on the original Pool Instruct – with the exception of modifying the
           CDR indicator). The ability to perform a full ticket modify is a new feature being
           implemented in conjunction with Pool Netting. Post-comparison, buyers and sellers
           may use the Modify message to change their previously submitted X-REF.
       •   Don’t Know “DK” – DK messages will be submitted into Pool Netting by both buyers
           and sellers to inform their counterparties that they do not know (or that they disagree
           with the trade terms of) Pool Instructs being submitted against them (also called


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           Advisories).


   •   Output from Pool Netting using the MT509 Message Format (Status Messages)
MT509 Status messages will be sent to members to inform them when the system has accepted,
processed or rejected their submissions (such as Pool Instructs, DKs, Cancels, CDRs, CDR Releases
or Modifies). These messages will also be generated when a previously submitted Pool Instruct has
undergone a status change (such as when a Pool Instruct has been matched, pended for further
action or deleted). Netting status messages are also communicated via this message type. MT509
messages include:
       •   Pool Instruct Accepted – This message type is used to inform the submitter that its Pool
           Instruct message has passed validations and has been accepted for processing by Pool
           Netting.
       •   Pool Instruct Rejected – This message type is used to inform the submitter that its Pool
           Instruct message has not passed validations and has been rejected for processing by Pool
           Netting.
       •   Modify Accepted – This message type is used to inform the submitter that its Modify of
           a previously submitted Pool Instruct has passed validations and has been accepted for
           processing by Pool Netting.
       •   Modify Processed – This message type is used to inform the submitter that its Modify of
           a previously submitted Pool Instruct has been processed by Pool Netting (i.e., the
           targeted Pool Instruct has been modified according to data submitted on the Modify
           message).
       •   Modify Rejected – This message type is used to inform the submitter that its Modify of a
           previously submitted Pool Instruct has not passed validations and has been rejected for
           processing by Pool Netting.
       •   DK Accepted – This message type is used to inform the submitter that its DK of a Pool
           Instruct submitted against it by its counterparty has passed validations and has been
           accepted for processing by Pool Netting.
       •   DK Processed – This message type is used to inform the submitter that its DK of a Pool
           Instruct submitted against it by its counterparty has been processed by Pool Netting (i.e.,
           the targeted Pool Instruct has been placed in a DK status).
       •   DK Rejected – This message type is used to inform the submitter that its DK of a Pool
           Instruct submitted against it by its counterparty has not passed validations and has been
           rejected for processing by Pool Netting.
       •   Cancel Accepted – This message type is used to inform the submitter that its Cancel of a
           previously submitted Pool Instruct has passed validations and has been accepted for
           processing by Pool Netting.
       •   Cancel Processed – This message type is used to inform the submitter that its Cancel of a
           previously submitted Pool Instruct has been processed by Pool Netting (i.e., the targeted
           Pool Instruct has been canceled and is no longer available for subsequent action).
       •   Cancel Rejected – This message type is used to inform the submitter that its Cancel of a

                                                                                           Page 50 of 64
    previously submitted Pool Instruct has not passed validations and has been rejected for
    processing by Pool Netting.
•   CDR Accepted – This new message type is used to inform the submitter that the CDR it
    has submitted targeting one of its existing Pool Instructs has passed validations and has
    been processed by Pool Netting.
•   CDR Rejected – This new message type is used to inform the submitter that the CDR it
    has submitted targeting one of its existing Pool Instructs has not passed validations and
    has been rejected for processing by Pool Netting.
•   CDR Release Accepted – This new message type is used to inform the submitter that the
    CDR Release it has submitted targeting one of its existing Pool Instructs in CDR status
    has passed validations and has been processed by Pool Netting (i.e., the Pool Instruct has
    been released from CDR status and is now available for operational netting).
•   CDR Release Rejected – This new message type is used to inform the submitter that the
    CDR Release it has submitted targeting one of its existing Pool Instructs in CDR status
    has not passed validations and has been rejected for processing by Pool Netting (i.e., the
    Pool Instruct remains in CDR status and will be precluded from operational netting).
•   Pool Instruct Matched – This message type is used to inform both buyer and seller
    submitters of matching Pool Instructs that they have bilaterally matched on all
    mandatory fields and that their Pool Instructs have been placed in Compared status.
•   Pool Instruct Unmatched (Due to Contra’s Cancellation) – This new message type is
    used to inform buyers that a previously submitted and matched Pool Instruct has been
    reverted to Unmatched/Uncompared status due to the seller’s unilateral cancel of its Pool
    Instruct.
•   Pending Pool Add Status Applied – This new message type is used to inform submitters
    that a previously submitted Pool Instruct has been placed in Pending Pool Add status.
    This status is applied to a Pool Instruct when any of the following conditions are met: 1)
    the pool record is not on FICC masterfiles; 2) the factor for the contractual settlement
    date for the Pool Number is not on FICC masterfiles; 3) the Pool Number has been
    marked “ineligible” for Pool Netting on masterfiles; and/or 4) any other requisite pool
    information is not available for the Pool Number.
•   Pool Instruct Pending Pool Add Removed – This new message type is sent when a
    Pending Pool Add status is removed from a Pool Instruct (for example, if the factor for
    the contractual settlement date became available).
•   Pool Bound to Net – This new message type is sent when Pool Netting is invoked for the
    next Delivery Date and a Pool Instruct is eligible for inclusion in the Pool Netting
    selection criteria (i.e., the Pool Instruct is compared and has been assigned to a TBA
    position). (NOTE: This message means that the Pool Instruct will be considered for
    inclusion in Pool Netting. It does not mean the Pool Instruct will be netted. Once the
    Pool Instruct has been evaluated for inclusion in, or exclusion from, Pool Netting, the
    member will receive either the “Pool in Net” message or the “Pool Not in Net” message,
    described below.)
•   Pool in Net – This new message type is sent to the submitter when a Pool Instruct has


                                                                                    Page 51 of 64
           been included in Pool Netting for settlement versus FICC as CCP. This netting status
           message is the last message the member will receive regarding the Pool Instruct.
       •   Pool Not in Net – This new message type is sent when a Pool Instruct has not been
           included in Pool Netting for settlement versus FICC as CCP (i.e., the pool has not met
           the selection criteria to be included in single net position netting nor has it been paired
           off). If the Pool Instruct is not netted, it must be settled directly between allocation
           counterparties outside of the clearing corporation, and members must submit matching
           Notifications of Settlement (NOS) to mark the corresponding TBA Obligation as settled
           and to exclude it from FICC’s risk management processes. This netting status message is
           the last message the member will receive regarding the Pool Instruct.
       •   Pool Instruct Deleted Due to Unmatched – This message type is sent when a Pool
           Instruct has been deleted because it remains unmatched (uncompared) at the time the
           Pool Netting cutoff is reached.
       •   Pool Instruct Deleted Due to Pending Status – This new message type is sent when a
           Pool Instruct has been deleted because it remains in Pending Pool Add status at the time
           the Pool Netting cutoff is reached.
       •   Pool Instruct Deleted Due to Insufficient TBA Position – This new message type is sent
           when a Pool Instruct has been deleted because there is insufficient TBA position to
           apply the Pool Instruct.
       •   Pool Instruct Deleted Due to Fully Paid Down Security – This new message type is sent
           when a Pool Instruct has been deleted because the underlying pool has been fully paid
           down.
       •   Pool Instruct Deleted Due to System Action – This message type is sent when a Pool
           Instruct has been deleted as the result of system action (for example, if data in the
           security masterfile is added/modified and a Pool Instruct in Pending Pool Add status is
           detected as not eligible for the TBA CUSIP).


   •   Output from Pool Netting using the MT518 Message Format
The MT518 message format is used for a variety of reasons: 1) to notify members when Pool
Instructs or subsequent actions targeting previously submitted Pool Instructs are submitted against
them (e.g., Comparison Requests, also called Advisories); 2) to notify members when a Comparison
Request has been modified (either as the result of Comparison, system or counterparty action); 3) to
notify members of repricing that affects their Pool Instructs; 4) to “replay” their submissions
entered via the RTTM Web; and 5) to notify the submitter of a Pool Instruct that it has been
matched with modification. MT518 Messages include:
       •   DK Advice – This message type is sent to a member when its counterparty has submitted
           a DK against the member’s previously submitted Pool Instruct.
       •   DK Removed Advice – This message type is sent to a member when its counterparty
           submits a new Pool Instruct that matches a member’s previously DKed Pool Instruct.
       •   Comparison Request – This message type is sent to a member when its counterparty has
           submitted a Pool Instruct against it, as well as when the seller unilaterally cancels its
           compared Pool Instruct and the buyer’s Pool Instruct is reverted to an uncompared state.

                                                                                           Page 52 of 64
       •   Comparison Request Modify – This message type is sent to notify a member that a
           previously sent Comparison Request has been modified due to one of the following
           actions: 1) DK; 2) System Action; and 3) Contra Action.
       •   Comparison Request Cancel – This message type is sent to notify a member that a
           previously sent Comparison Request message is no longer active due to a variety of
           reasons (e.g., the Pool Instruct has been matched, the Pool Instruct has been canceled,
           etc.).
       •   Repricing – This message type is sent to a member when its Pool Instruct has been
           repriced as the result of a factor change application to the underlying Pool Number.
       •   Notification of Default Value Applied – This message type is sent to a member when the
           Pool Netting system applies a default value to a Pool Instruct at the time of submission
           (e.g., for price).
       •   Screen Input Replay – This message type is sent to a member when it submits a Pool
           Instruct via the RTTM Web or takes subsequent action against a previously submitted
           Pool Instruct via the RTTM Web. These messages are sent to the submitter when the
           following actions are submitted via the RTTM Web: 1) Pool Instruct; 2) Modify; 3)
           Cancel; 4) CDR; and 5) CDR Release.
       •   Pool Instruct Matched with Modification – This message type is sent to a member when
           its previously submitted Pool Instruct is matched to its counterparty submission, but a
           modification has been made to the originally submitted Pool Instruct. This message
           would be generated to buyers if all mandatory matching pool data are compared with the
           corresponding data submitted by the counterparty, but the buyer’s Pool Instruct is
           modified to reflect the full TBA price (as reflected on the Seller’s Pool Instruct).
       •   Post Match Modify Due to System Action – This message type is sent to the submitter
           when the Pending Pool Add status is lifted from its Pool Instruct, and the system
           modifies the price and final money to reflect the full TBA price.


   •   Output from Pool Netting using the MT599 Message Format
This message format is used to communicate administrative information to members, such as start
of day, process cut-offs, end of day submission cut-offs and end of day output completed messages.
MT599 messages include:
       •   Pool Netting Start-of-Day Notification – This message informs members that the system
           is available to receive and process Pool Netting Input.
       •   Start of Pool Netting – This new message type informs members that the Pool Netting
           process has begun to net pools for the next valid Delivery Date. Pool Input for the next
           Delivery Date will no longer be accepted, but the system will remain open for Pool Input
           for subsequent Delivery Dates. This is a new process whereby the Pool Netting system
           will continue to accept Pool Instructs for bilateral comparison provided the Pool
           Instruct has a valid future Delivery Date. The system will further accept for processing
           subsequent actions taken on any Pool Instruct having a future Delivery Date (such as




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                Cancel, Modify, CDR, CDR Release and DK). 7
           •    End of Pool Netting – This new message type informs members that the Pool Netting
                process for the next Delivery Date has been completed. Members should have received
                all of their netting messages for the current processing day by the time this message is
                received.
           •    Comparison Submission Cutoff End-of-Day – This message informs members that they
                may no longer submit Pool Input into the Pool Netting system for future Delivery Dates.
                Any Pool Inputs received after this cutoff will be queued for processing on the following
                business date. (No output will be generated for this Input until after the system is opened
                for processing on the following business date.)
           •    End-of-Day Cycle – This message informs members that all messaging output has been
                generated for the current business date and that members may begin to run their internal
                batch processes.

      •    Message Groupings

Some members have indicated that they do not wish to receive Interactive Messaging output for all
Pool Netting processing events. FICC has therefore established a series of message groupings that
will allow members to select the types of messages they would like to receive. At a minimum, all
members participating in Interactive Messaging for Pool Netting will be required to receive the core
message grouping, which includes responses to any MT515 input messages submitted by the
member (i.e., input accepted or input rejected). Members will then have the ability to select
additional message groupings, expanding upon the types of messages they would like to receive.
For example, members may elect to receive any or all of the following non-mandatory message
groupings: 1) Processed messages; 2) Match messages; 3) System-Generated End-of-Life
Messages; 4) Pending messages; 5) Advice Messages (including Screen Input Replay messages); 6)
Advisories; 7) CDR and CDR Release Screen Input Replay messages; and 8) Administrative
messages.

Message Groupings are delineated in Appendix D of the Interactive Messaging Specifications
(available on the corporate website at www.dtcc.com). While members may elect whether or not to
receive non-mandatory messages, they are encouraged to carefully evaluate the message types
included in each grouping prior to making their selection.




7
    It should be noted that the global application of CDR and CDR Releases will not be permitted while the Pool Netting cycle is running.




                                                                                                                           Page 54 of 64
19 Glossary of Member Reports
1.     MBSD CCP Uncompared Report:
(Note: This report is similar to the existing Clearing Transaction Summary Report.)

This report will reflect a member’s uncompared Pool Instructs (i.e., the Instructs the member
submitted to Pool Netting) as well as its advisories (i.e., the Instructs that were submitted against the
member by its counterparties).

This report will also reflect instances where an uncompared Pool Instruct or an advisory is
systematically canceled due to the execution of the Pool Netting cycle to which the transactions
correspond. (That is, the Pool Instruct remains uncompared at the time Pool Netting is invoked and
is therefore canceled by the system.)

In the case where a seller unilaterally cancels a compared Pool Instruct, the buyer’s Pool Instruct
will be reverted to uncompared status and included on this report. (The establishment of an
uncompared Instruct for the buyer will result in a corresponding advisory being generated for the
seller and included on this report.)

2.     MBSD CCP Modify Report:
(Note: This is a new report and has no equivalent in the existing Clearing system.)

This report will reflect modifications to any terms of an uncompared Pool Instruct that remains in
an uncompared state at close of business. This report will show a before and after snapshot of the
data submitted on the uncompared Pool Instruct.

Prior to comparison, members will now have the ability to modify any field on their previously
submitted Pool Instruct. In the case where a member modifies its counterparty, an advisory will be
sent to the new counterparty and the initial Pool Instruct Advisory will be canceled.

Post-comparison, members may only modify their own X-REF. X-REF changes made to compared
Pool Instructs will not be reflected on this report. The modified X-REF for compared Pool Instructs
will appear on the MBSD CCP Pool Instruct Activity Report (which is consistent with how X-REF
modifications are reported to members in the current Clearing system).

3.     MBSD CCP Compared Pending Pool Add Report:
(Note: This is a new report and has no equivalent in the existing Clearing system.)

This report will reflect compared Pool Instructs in Pending Pool Add status. As noted previously, an
Instruct is placed in Pending Pool Add status when there is insufficient information on the clearing
corporation’s masterfiles to effectively process the trade (e.g., the current factor is not available).

If a compared Pool Instruct status is lifted but there is insufficient TBA position for the Instruct to
be assigned to the TBA, the Instruct will be deleted by the system and will appear on this report.




                                                                                              Page 55 of 64
If a compared Pool Instruct remains in Pending Pool Add status at the time the corresponding Pool
Netting cycle for the Instruct has begun, the Instruct will be canceled by the system, and the Cancel
will appear on this report.

4.     MBSD CCP Pool Instruct Activity Report:
(Note: This report is similar to the existing Purchase and Sale Report.)

This report will reflect the initial Pool Instruct comparison and all updates that have been made to
compared Pool Instructs for the current processing day. Updates include the application of
subsequent actions, such as: 1) Modifies; 2) CDRs; 3) CDR Releases; 4) Cancels (either by the
member or the system); and 5) Instruct Recalculation (Repricing) due to factor change. This report
also includes the application of new statuses to Pool Instructs, such as, but not limited to, Compared
status, Pending Pool Add status, Netting status, etc.

As noted above, this report shows only actions and status updates for the current processing day. It
is not cumulative.

5.     MBSD CCP Pool Obligation Activity Report:
(Note: This report is similar to the existing Purchase and Sale Report, but at the net pool obligation
(“POID”) level.)

This report will reflect the establishment of net pool obligations (or “POIDs”), and subsequent
updates that can be made to POIDs. Updates include Substitutions and Cancels. This report also
includes the application of new statuses to POIDs, such as, but not limited to, Pending Settlement,
Settlement Executed, etc.

As noted above, this report shows only actions and status updates for the current processing day. It
is not cumulative.

6.     MBSD CCP Pool Instruct Status Report:
(Note: This report is similar to the existing Compressed Open Commitment Report.)

This report will reflect all open Pool Instructs, their current state and position totals by Pool
Number/CUSIP. As this report shows all open activity, it shows Pool Instructs submitted over
multiple days (i.e., it is cumulative).

7.     MBSD CCP Pool Netting Ineligible Report:
(Note: This is a new report and has no equivalent in the existing Clearing system.)

This report will reflect Pool Instructs that did not meet the selection criteria for inclusion in the
current Pool Netting cycle as well as Pool Instructs that were not paired off. If a Pool
Number/CUSIP does not meet the selection criteria for inclusion in the current Pool Netting cycle
(i.e., it does not meet applicable trading velocity and netting factor criteria), all Pool Instructs in the
associated Pool Number/CUSIP will be canceled in the Pool Netting system. This means that they
will not be netted, nor will they be eligible for settlement versus FICC as CCP. All Pool Instructs
that appear on this report must be settled directly between members outside the Clearing



                                                                                                Page 56 of 64
Corporation. Members must subsequently submit Notifications of Settlement (NOS) to FICC to
exclude these settled obligations from FICC’s risk management processes.

8.     MBSD CCP Pool Netting Detail Report:
(Note: This report is similar to the existing Settlement Balance Order (SBO) Summary Report.)

This report reflects the results of current day’s Pool Netting cycle. Pool Instructs that have been
included in the current Pool Netting cycle are listed on this report, together with the TBA
Obligation ID to which the Instruct was assigned. Net Pool Obligations (POIDs) representing the
members receive and deliver obligations established as the result of Pool Netting are also provided
on this report. Each POID provides all the information the member needs in order to conduct
settlement versus FICC as CCP. This includes the clearing bank that the member must either deliver
securities to, or receive securities from, to effect settlement. Pool Transaction Adjustment Payments
(“Pool TAPs”) are also provided on this report. Provisions for Fail Mark have been made to this
report but will be implemented as part of future CCP enhancements.

9.     MBSD CCP Pool Netting Summary Report:
(Note: This is a new report and has no equivalent in the existing Clearing system.)

This report reflects the results of current day’s Pool Netting cycle, summarized at the Pool
Number/CUSIP level. Members may use this report to balance their long, short and net pool
positions to their books, along with the associated Pool TAP. Provisions for Fail Mark have been
made to this report but will be implemented as part of future CCP enhancements.

10.    MBSD CCP Pool Obligation Status Report:
(Note: This report is similar to the current Compressed Open Commitment Report.)

This report reflects all open net Pool Obligations (POIDs). This includes POIDs established for the
current day’s Pool Netting cycle, as well as failed POIDs from previous netting cycles. This report
gives members a complete picture of all of their open obligations with FICC.

11.    MBSD CCP Fail Report:
(Note: This is a new report and has no equivalent in the existing Clearing system.)

This report reflects all failing POIDs versus FICC (i.e., all POIDs in which the Delivery Date is less
than the report’s current date). This report is essentially an extract of the failed POIDs reported on
the MBSD CCP Pool Obligation Status Report defined above.

12.    MBSD CCP Pool Netting Cash Obligation Report:
(Note: This report is similar to the current Cash Settlement Report.)

This report reflects cash obligations derived from Pool Netting and clearance differences. Included
on this report are Pool TAP, P&I Adjustments and Clearance Differences.

13.    MBSD CCP P&I Report:
(Note: This is a new report and has no equivalent in the existing Clearing system.)



                                                                                           Page 57 of 64
This report reflects all ongoing FICC P&I calculations for failed POIDs. As a POID passes over
each record date for its underlying pool, this report shows the calculated P&I that is accruing.
Members may use this report to balance against their own P&I calculations. Collection and
disbursement of P&I by FICC will be limited to instances where the length of time the settled POID
had been failing exceeds the Fedwire Securities Service Automated Claims Adjustment Process
(‘ACAP’) tracking limits (currently six months).

14.    MBSD CCP PID/NOS Assignment:
(Note: This report is similar to the existing “Trades Involved in Split/Splice” Report.

This report lists all instances where a Pool Instruct or a NOS was applied to multiple TBA
Obligations. This will assist members in balancing their Pool Instructs and NOS versus their TBA
positions/trades where there is not a one to one correspondence between the two.


Report Media
The table below lists each report type and indicates the media in which the report is available: 1)
print image; 2) MRO; and 3) Intraday RTTM Web. Several Print Image reports will include
subtotals (e.g., Pool Number totals) and grand totals. MRO output will not include totals.



                                                              Print Image         MRO         Intraday WFE
       MBSD CCP Participant Report Name                         Eligible         Eligible          View
      MBSD CCP Uncompared
      MBSD CCP Modify
      MBSD CCP Compared Pending Pool Add
      MBSD CCP Pool Instruct Activity
      MBSD CCP Pool Obligation Activity
      MBSD CCP Pool Instruct Status
      MBSD CCP Pool Netting Ineligible
      MBSD CCP Pool Netting Detail
      MBSD CCP Pool Netting Summary
      MBSD CCP Pool Obligation Status
      MBSD CCP Fail
      MBSD CCP Pool Netting Cash Obligations
      MBSD CCP P&I
      MBSD CCP PID/NOS Assignments




                                                                                            Page 58 of 64
20 Next Steps
FICC is planning the further expansion of MBS CCP services once Pool Netting services are
implemented. The ultimate goal of the MBS CCP initiative is for FICC to become CCP for TBA
Netting. Under this model, TBA trades destined for netting would enter FICC’s TBA Netting
process, and FICC would be the CCP for all resultant, novated trade obligations. The allocation
process would also be integrated into the clearing corporation, allowing members to allocate their
trades to a single counterparty – FICC. While this is the ultimate goal of the CCP initiative, there
are a number of associated projects that could be implemented before, during or after TBA CCP
services are implemented. These include, but may not be limited to:


• Re-pricing services for Specified Pool Trades.
• The addition of new MBS products as FICC-eligible.
• The introduction of Comparison-Only membership.
•   A fail netting service may be added to reduce the number of fail problems, such as round robins,
    by allowing fails to net with new trades.
•   Blind brokering services could be introduced in conjunction with the full MBS CCP model.
•   The provision of Repo services for mortgage-backed securities may be introduced, potentially
    using the GSD Repo platform.




                                                                                           Page 59 of 64
Attachment A

Common Validation Rules for All Pool Input Types
(Except for Substitution of a Net Pool Deliver Obligation)

Field Name       Mandatory/     Pool         Comment
                 Optional       Matching
                                field
Submitter        Mandatory      Yes          Must be the valid and active
                                             clearing member account of the
                                             submitter.
Contra           Mandatory      Yes          • Must be the valid and active
                                                 clearing member account of
                                                 the contra.
                                             • For Give-up TFTD TBAs,
                                                 Pool Netting will match Pool
                                                 Inputs between the dealers
                                                 (bypassing the broker). If the
                                                 broker is being submitted as
                                                 the contraparty, Pool Netting
                                                 will reject the input due to bad
                                                 buy/sell party.
Trade Type       Mandatory      Yes          Indicates whether the Submitter’s
Indicator                                    trade is a buy or a sell.
Processing       Mandatory      Yes          Indicates that the record type
Indicator                                    being submitted is: Instruct |DK
                                             |Modify |Cancel |CDR |CDR
                                             Release.

TBA CUSIP        Mandatory      Yes          •   Must be in valid CUSIP format
                                                 with an accurate check digit
                                                 for the settlement month.
                                                 (Note: If submitted via the
                                                 Web, the check digit will be
                                                 system-calculated.)
                                             •   Must be on the security master
                                                 file.
                                             •   A 9 alphanumeric format
                                                 should be used (7 characters if
                                                 submitted via RTTM Web).
CDR Indicator    Optional       No           •   When set on a Pool Instruct,
                                                 this indicator applies the CDR
                                                 status to the Pool Instruct.
                                             •   When blank on a Pool Instruct,
                                                 the CDR status will NOT be
                                                 set on for the Pool Instruct


                                                                                    Page 60 of 64
Field Name    Mandatory/   Pool       Comment
              Optional     Matching
                           field
                                          unless a global CDR exists.
                                      •   This indicator can only be set
                                          on a Pool Instruct (not on any
                                          other input type).
Price (Deal   Mandatory    Yes        •   Must match the price of the
Price –                                   targeted TBA Position out to
Percentage)                               and including the sixth decimal
                                          place (with no rounding).
                                      •   Upon submission: If the Pool
                                          Instruct is not in Pending Pool
                                          Add status, the seller’s price
                                          will be overridden with the
                                          TBA Position Counter’s price.
                                      •   The buyer’s price remains as
                                          submitted until comparison
                                          occurs. If the Pool Instruct is
                                          not in Pending Pool Add
                                          status, and the buyer’s price
                                          differs beyond the 6th decimal
                                          point from the TBA Position
                                          Counter’s price, the buyer’s
                                          price will be overridden with
                                          the TBA Positions Counter’s
                                          price.
                                      •   Upon submission, if the Pool
                                          Instruct is in Pending Pool Add
                                          status, the Pool Instruct’s price
                                          will remain as submitted until
                                          the pending status is lifted.
                                      •   For sellers, once the pending
                                          status is lifted, the seller’s Pool
                                          Instruct will be overridden
                                          with the TBA Position
                                          Counter’s price (if the seller’s
                                          price differs from beyond the
                                          6th decimal point).
                                      •   For buyers, once the pending
                                          status is lifted, the buyer’s
                                          price on the Pool Instruct will
                                          remain the same if the Instruct
                                          has not been compared. If the
                                          Pool Instruct has been
                                          compared, the buyer’s Pool
                                          Instruct will be overridden

                                                                                Page 61 of 64
Field Name      Mandatory/   Pool       Comment
                Optional     Matching
                             field
                                            with the TBA Position
                                            Counter’s price (if the buyer’s
                                            price differs from beyond the
                                            6th decimal point).

Trade Date      Mandatory    No         •   Must be a valid date for
                                            SWIFT compliance purposes
                                            only. Pool Netting does not
                                            need to track the submitter’s
                                            trade date value. (Note: This
                                            field is not applicable to
                                            submissions via RTTM Web.)
Settlement Date Mandatory    Yes        •   Must be a valid settlement date
                                            equal to the settlement date of
                                            the targeted TBA position.
                                        •   Must NOT be greater than the
                                            current settlement month.
                                        •   Must be greater than the Pool
                                            Netting system’s “live” date,
                                            which is a configurable field.
Delivery Date   Mandatory    Yes        •   Must be a valid business date
                                            for the banks.
                                        •   Must be >= the settlement
                                            date.
                                        •   Must be >= the next business
                                            date if received prior to Pool
                                            Netting start time.
                                        •   Must be > the next business
                                            date if received after the Pool
                                            Netting start time but before
                                            the EODC event.
X-Reference     Mandatory    No         •   The Member’s X-REF
                                            number, which must be unique
                                            for that Member’s account-
                                            level Pool Netting Instructs.
                                        •   Must be in uppercase,
                                            alphanumeric with no symbols
                                            or hyphens. Note that if input
                                            is via RTTM Web, lowercase
                                            input will be converted into
                                            uppercase.
Pool Number     Mandatory    Yes        •   Must be a valid Pool Number
                                            for the TBA CUSIP or the


                                                                              Page 62 of 64
Field Name      Mandatory/   Pool       Comment
                Optional     Matching
                             field
                                            Instruct will be rejected.
                                        •   If the Pool Number’s factor for
                                            the CSD is 0, the input will be
                                            rejected due to ‘fully paid-
                                            down security’.
                                        •   If Pool Netting does not have
                                            the full security record for the
                                            Pool Number (e.g, the system
                                            is missing the factor for the
                                            CSD, pool CUSIP data or
                                            information to derive the
                                            corresponding TBA CUSIP), a
                                            Pool Instruct will be given a
                                            ‘Pending Pool Add’ status.
                                            (This does not apply to Inputs
                                            other than Pool Instructs.)

Original Face   Mandatory    Yes        •   Must be less than or equal to
                                            the maximum delivery on
                                            Fedwire.
                                        •   Must be greater than or equal
                                            to the minimum delivery for
                                            the Agency on the issuer’s
                                            master file.
                                        •   Must NOT contain any cents,
                                            otherwise it will be rejected
                                            due to bad quantity.
                                        •   Must be in the multiple of the
                                            “multiple” defined for the
                                            Agency on the issuer’s master
                                            file.
Final Money     Optional     No         •   Members may submit final
(Settlement                                 money on trades based on the
Amount)                                     factor available in their
                                            systems and the accrued
                                            interest.
                                        •   When final money is not
                                            included in the members’
                                            inputs, Pool Netting will apply
                                            its calculated final money on
                                            the Pool Instructs and notify
                                            both parties of the calculated
                                            amount (unless the Pool
                                            Instruct is in Pending Pool Add

                                                                               Page 63 of 64
Field Name   Mandatory/    Pool       Comment
             Optional      Matching
                           field
                                          status).
                                      •   If the member submission does
                                          not equal the system-calculated
                                          value, FICC will change the
                                          submitted value to the system-
                                          calculated value and send the
                                          member the real-time message
                                          (or an online response for
                                          RTTM Web submissions).

Payment      Mandatory     No         The payment indicator field is
Indicator                             mandatory for the MT515
                                      message. The following qualifier
                                      should be submitted in this field:
                                      PAYM//APMT.
                                      This indicates that the trade will
                                      settle versus payment.
                                      (Note: This field is not applicable
                                      for RTTM Web submissions.)
DK Reason    Mandatory     No         If Pool Netting can not recognize
             only for DK              the DK reason code submitted, the
             input types              input will be rejected.




                                                                            Page 64 of 64

								
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