ial Mem~ b e Cor

Saran Lee
Assistant General Counsel
Bank of America
Legal Deplartment

WHY WAS THERE A NEED FOR A PROTOCOL?

A Novation would typically occur as follows:

- Remaining Party and Transferor enter into a CDS (the "Original
Trade'?
- Later, Transferor decides to novate the Original Trade to a third
party, the Transferee (the "New Trade")
- Price agreed between Transferor and Transferee
- Transferor cancels Original Trade and Transferee books New Trade
with Remaining Party as its counterparty

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 SO WHAT WAS THE PROBLEM?

Typically all 3 parties have committed "crimes":

.The Transferor: failed to get RP's prior written consent & fails to inform
RP of its new c/p (the Transferee)

*The Transferee: books the New Trade with the RP as its c/p without
agreeing this with the RP at the time of Novation

.The Remaining Party: back-dates its books to the Novation date and
merely changes its c/p name

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SO WHAT DOES THE PROTOCOL DO?

What is a Protocol?
5 things to remember about the 2005 Novation Protocol:
It applies to Credit Derivative Products & Interest Rate Products
 SO WHAT DOES THE PROTOCOL DO (cont.)?

Consent is obtained by an exchange of electronic messages

(Bloomberg or e-mail) and the Transferee is cc'ed in. Form of request
for consent attached to Protocol.
I f the Remaining Party has not given its consent, for any reason, by
6p.m. that day, a new trade is booked between the Transferor and
Transferee (effectively a hedge for the Transferor)
And tinally.
Parties agree to enter into a Novation Confirmation as soon as
practicable after consent to transfer received
I f only two parties adhered to Protocol- Adhering Parties agree to
follow Protocol process to extent practicable
Implementation Date: 24th October 2005

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