RFR Benchmark Methodology RepoFundsRate “RFR”

1 1 NEX Overnight Repo-Backed Benchmarks Methodology Document RepoFunds Rate RFR Sterling Repo Index Rate RIR JBOND NEX Repo Index Rate RIR 26th March 2019 2 Contents 1. Introduction 2. EU Benchmark Regulation 3. Methodology 4. Source of Input Data 5. Prioritisation of Input Data 6. Sufficiency of Input Data 7. Validation & Sufficiency of Input Data 8. Use of Expert Judgement 9. Recalculation Policy 10. Periodic Review and Changes to the Benchmark Methodology 11. Benchmark Cessation 12. Governance and Control Framework Appendix I Key Terms & Definitions 3 1.

2 Introduction This Methodology covers the suite of repo-backed one-day interest rate benchmarks NEX Overnight Repo-Backed Benchmarks Benchmark family. Calculated and administered by NEX Data Services Limited ( NEX ). The Benchmark Family consists of the RepoFunds Rate (RFR), Sterling Repo Index Rate ( RIR) and the JBOND NEX Repo Index Rate ( RIR). RepoFunds Rate ( RFR ) RepoFunds Rate ( RFR ) is a series of daily euro repo indices that have been created in response to market demand and consists of 7 index levels: 1. RepoFunds Rate Euro ( RFR Euro ) 2.

3 RepoFunds Rate Germany ( RFR Germany ) 3. RepoFunds Rate France ( RFR France ) 4. RepoFunds Rate Italy ( RFR Italy ) 5. RepoFunds Rate Spain ( RFR Spain ) 6. RepoFunds Rate Belgium ( RFR Belgium ) 7. RepoFunds Rate Netherlands ( RFR Netherlands ) The Benchmark Family represents the effective cost of funding for the majority of one-day repo trades in each of the relevant sovereign bond markets, and includes both general collateral and specific collateral trades. RFR is reported on an Act/360-day count convention and its publication follows the ECB TARGET Sterling Repo Index Rate ( RIR ) The Sterling Repo Index Rate is a daily, secured Sterling repo index.

4 The index is calculated from repo trades that use UK sovereign government bonds as the underlying collateral and executed on the BrokerTec electronic trading platform (Multilateral Trading Facility), these trades are all centrally cleared. RIR is reported on an ACT/360 day count convention and its publication follows the UK settlement calendar. JBOND NEX Repo Index Rate ( RIR ) JBOND NEX Repo Index Rate (" RIR ) is a secured one-day interest rate index backed by trades on JBOND, an electronic trading platform for Japanese government securities.

5 1 Long-term calendar for TARGET closing days ( ) 4 The index is calculated from trades executed on JBOND and all eligible repo trades are centrally cleared through the Japan Securities Clearing Corporation. RIR is reported on an ACT/365 day count convention and its publication follows the Japanese settlement calendar. NEX Data Services Limited ( NEX ), is the calculating agent and Benchmark administrator for all the above benchmarks and has developed this Methodology to help users understand how the Benchmark is determined in relation to its objectives as a one-day trade backed near risk-free rate.

6 2. EU Benchmark Regulation As of the 2nd February 2018 NEX Data Services Limited is registered with the FCA pursuant to the EU Benchmarks Regulation (Regulation (EU) 2016/10112) ( EU BMR ) 3. Methodology Algorithm The Methodology has been designed to accurately represent the overnight cost of funding for the given collateral. This includes considering the size and liquidity of the market as well as market dynamics and has been fully back-tested to ensure it represents the reality. Each daily index is the volume-weighted average rate of a defined set of eligible repo trades and is calculated as: = ( ) ( ) ( ) where ( )and ( ) are the repo rate and nominal size of repo trade , and the sum is the total of all repo trades in the defined set of eligible repo trades for that day s index.

7 Fixed repo rates only are used in the calculation. Where a repo trade uses a floating rate, the 2 'Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016' (OJ L171, ), , 5 corresponding fixed rate is derived on the settlement date before being included in the Benchmark calculation. Each Benchmark is published as a percentage ( is published as ) and to 3 decimal places. The corresponding total size of all trades used in the index calculation is also published.

8 Eligible Repo Transactions Eligible repo transactions for each daily overnight index calculation must meet the following criteria: Executed on either the BrokerTec or the MTS electronic markets for RFR. Executed on JBOND electronic markets for YRIR Executed on BrokerTec for RIR Prices available to all dealers on the relevant market prior to being executed (no bilaterally negotiated or otherwise off-platform trades) Centrally cleared following execution Repo term (from settlement date to maturity date) of one business day Trade settlement period (from trade date to settlement date) of zero (0) business days ( Overnight ) or one business day ( Tom-Next ) or two business days ( Spot-Next )

9 Settle on the day for which the Benchmark is being calculated ( Common Settlement ) Repo collateral to be any bill, bond, floating-rate note or inflation-linked bond issued by the sovereign government of the relevant country or, in the case of RFR Euro, by the sovereign government of any Eurozone country Repo trade to be either general collateral or specific collateral Specific collateral trades to be in the remaining 75% of trades after applying the Specific Collateral trade filtering algorithm to remove 25% of outlying trades. Specific Collateral Trade Filtering Algorithm Specific collateral trades specify precisely the bond to be used as collateral in the repo transaction prior to being executed.

10 Most Specific Collateral trades are priced at or around a typical market level which usually tend to be close to General Collateral rates. If there is a higher than normal demand for the specific bond being used as collateral, the repo rate will be below typical market levels, often significantly ( special trades ). A distribution of specific collateral repo trades is characteristically skewed towards lower repo rates. 6 As the benchmarks measure general secured interest rates, specific collateral repo trades that are trading away from typical market levels are removed from the defined set of eligible trades.