1. GREENBERG TRAURIG, LLP ATTORNEYS AT LAW WWW.GTLAW.COM ©2011. All rights reserved. Dodd-Frank, Swaps and Hedge Funds What You Need to Know Presentation to 100 Women in Hedge Funds October 3, 2011 Sylvie Durham Greenberg Traurig, LLP 212-801-6923 DurhamS@gtlaw.com

2. Dodd-Frank Act  Imposes significant new requirements on hedge funds  Among new requirements are new swap rules  12 rules effective as of today  Over 55 rules pending

3. Dodd-Frank Swap Rules  What is a swap? □ Virtually everything unless expressly excluded □ FX, interest rate, credit default swaps, commodities and equities are swaps □ Options, repos, convertible debt, warrants, forwards are swaps □ Embedded derivatives are swaps  Exclusions □ Insurance □ Leases □ Employment contracts □ Loan Participations □ Consumer and Commercial Agreements

4. Who is impacted?  Swap dealers  Major swap participants  Hedge funds that are not swap dealers or major swap participants

5. Who regulates?  Securities Exchange Commission (SEC) □ Security-based swaps such as equity swaps and credit default swaps  Commodity Futures Trading Commission (CFTC) □ All other swaps

6. Who are swap dealers?  Market makers  Entity that determine pricing and terms  Entity that provide bid/offer spread  Entity that holds itself out as swap dealer  Only largest hedge funds need worry about this designation

7. How are swap categorizations made?  Four classes of derivatives □ Rate swaps (e.g., FX and interest rates) □ Credit swaps (e.g., credit default swaps) □ Equity swaps □ Commodity swaps (e.g., anything that is not a rate swap or credit swap)  Determination of swap regulations applicable to hedge fund made for each class of derivatives

8. FX Exemptions  Department of Treasury exercised option to exclude FX swaps from Dodd-Frank  Exclusion applies to “plain vanilla” FX swaps  Exclusion does not apply to FX options and non- deliverable forwards (i.e., forwards that do NOT provide for the exchange of 2 different currencies on a specific future date at a fixed rate agreed at the inception of the contract covering the exchange)

9. What is Major Swap Participant?  Entities with “substantial positions” in swap in EACH of four swap categories  Entities which maintain swap positions that create “substantial counterparty exposure” that could impact financial stability of U.S. banking system  Entities that are “highly leveraged”

10. What is “Substantial Position?”  Rate swaps □ $3 billion in “daily average aggregate uncollateralized outward exposure” OR □ $6 billion in “daily average aggregate uncollateralized outward exposure” PLUS “daily average aggregate potential outward exposure”  Credit swaps □ $1 billion in “daily average aggregate uncollateralized outward exposure” OR □ $2 billion in “daily average aggregate uncollateralized outward exposure” PLUS “daily average aggregate potential outward exposure”

11. What is “Substantial Position?”  Equity swaps □ $1 billion in “daily average aggregate uncollateralized outward exposure” OR □ $2 billion in “daily average aggregate uncollateralized outward exposure” PLUS “daily average aggregate potential outward exposure”  Commodity swaps □ $1 billion in “daily average aggregate uncollateralized outward exposure” OR □ $2 billion in “daily average aggregate uncollateralized outward exposure” PLUS “daily average aggregate potential outward exposure”

12. What is “Aggregate Potential Outward Exposure?”  Depends on whether swaps are cleared  Depends on whether daily mark-to-market  Multiply notional amount of swaps by various multipliers depending on type of swap and remaining term to maturity – □ see Conversion Multiplier Table below for multipliers

13. Conversion Multiplier Table Residual Maturity Interest Rate Foreign exchange rate and gold Precious metals (except gold) Other commodities One year or less 0.0000.010.070.10 Over one to five years 0.0050.050.070.12 Over five years 0.0150.0750.080.15 Residual maturity CreditEquity One year or less 0.100.06 Over one to five years 0.100.08 Over five years 0.10

14. What is “Substantial Counterparty Exposure?”  $5 billion in “daily average aggregate uncollateralized outward exposure” OR  $8 billion in “daily average aggregate uncollateralized outward exposure” PLUS “daily average aggregate potential outward exposure”

15. What if you are an MSP?  Will be regulated in similar manner as swap dealer  May have dual regulators in both CFTC and SEC  Additional margin, record-keeping, documentation requirements  Audits

16. What are other Dodd-Frank swap rule impact on hedge funds?  Margin  Clearing  New documentation requirements  Inclusion of swaps in CPO/CTA calculations  Counterparty risk exposure □ “Push out provisions”

17. Repeal of CPO/CTA Exemption  Hedge fund exemption repealed  Hedge fund and advisers will need to register as CPO/CTAs with CFTC  Trading activities that require registration are futures contracts (including Treasuries); options on futures contracts; and, under Dodd-Frank, swap transactions  Registered investment advisers subject to more regulation by CFTC due to repeal

18. What does registration as CPO/CTA mean?  Requires new disclosure obligations and filings re risks with CFTC and National Futures Association  Fingerprints on file  Required examinations of managers similar to Series 7 and 63 exams  Required background information filings for all associated persons with CFTC and NFA  Greater record-keeping requirements and audits  Audits by CFTC  New Form CPO-PQR and CTA-PR would need to be filed quarterly although same information as required in Form PF filings  Requirements of CPO/CTAregistration could increase under Dodd-Frank

19. When are the requirements effective?  Exact timing uncertain  Depends on type of swap entity that a hedge fund is  Category 1 entities □ Swap dealers, MSPs and hedge funds executing less than 20 swaps per month □ Trading documentation and margin requirements effective 90 days after final rules □ Clearing and trade execution requirements effective 90 days after final rules

20. When are the requirements effective?  Category 2 entities □ Hedge funds executing more than 20 swaps per month □ Trading documentation and margin requirements effective 180 days after final rules □ Clearing and trade execution requirements effective 180 days after final rules  Category 3 entities □ Category 2 entities which are sub-accounts □ Trading documentation and margin requirements effective 270 days after final rules  Category 4 entities □ Any entity that is not in Categories 1-3 □ Trading documentation and margin requirements effective 270 days after final rules

21. What can you do today?  Determine whether you are a “major swap participant” for each of four swap categories □ Examine thresholds in CSA for uncollateralized exposure □ Calculate total notional amount of swaps by Conversion Multiplier Table  Determine total swap exposure □ Repos □ Convertible bonds □ Warrants □ Other embedded derivatives  Identify viable alternatives to OTC derivatives  Comment, comment, and comment