27 April 2010

Markit PrimeX Indices

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Markit PrimeX presented by

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Table of contents

Markit Overview

Introduction to Markit PrimeX Indices

Trading PrimeX

PrimeX Operations/Settlement

Dealer Contacts

Markit Overview

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About Markit

Markit is a leading global financial information services company with over 1,500 employees

We provide independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency

Our client base includes the most significant institutional participants in the financial marketplace

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Index operating model

Index Design Index Administration Pricing/Production Publication

IT Development and Administration

Index rulesMarket researchDocumentationIndex calculation methodologyData procurementPrototyping / TestingProject management

Manage rebalancing processIndex research (previews)Custom index developmentDaily control of constituent listsControl index and analyticsClient servicesReference database control

Receive daily price dataPrice cleaning and controlPrice consolidation

Quality reportingIndex and analytics calculation

Index and data publicationFeedsVendor management

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Markit public indices

Agency RMBSMarkit IOS

Non-Agency RMBSMarkit PrimeXMarkit ABX.HEMarkit TABX.HE

CMBSMarkit CMBXMarkit TRX.NA

Propery DerivativesNCREIF

Structured FinanceThematic indicesETF constituent filesBespoke Indices

Equities

Real-timeMarkit iBoxx €Markit iBoxx £

End of dayMarkit iBoxx GlobalInflation-linkedMarkit iBoxx $Markit iBoxx AsiaMarkit iBoxx € HYMarkit iBoxx GEMXMarkit iBoxx GlobalSovereign

Liquid Indices

Custom Indices

Bonds

CreditMarkit iTraxx EuropeMarkit iTraxx CrossoverMarkit iTraxx Total ReturnindexMarkit iTraxx, Asia ex-JP,Japan, AustraliaMarkit iTraxx SovXMarkit CDX.IGMarkit CDX.HYMarkit CDX.XOMarkit CDX.EMMarkit MCDX

LoansMarkit iTraxx LevXMarkit LCDX

Bespoke Indices

Credit and Loans

Markit iBoxx US PensionLiabilitiesMarkit iBoxx FXMarkit iBoxx Overnight RateBespoke Indices

Other

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Markit Structured Finance expertise

ABX.HE, CMBX, TRX.NA, and IOS have brought new levels of transparency to the structured finance markets

– Widely followed indicators of sentiment on market pricing and performance – TRX.NA brought standardization to synthetic TRS contracts referencing amortizing assets– IOS has seen large trading volumes post-launch and has provided an efficient market tool

for hedging prepayment and interest rate risk– Publicly available index closes and analytics

Markit is a leading presence in structured finance– Established leader in European ABS and US CDS of ABS markets– Developing US RMBS Evaluated Pricing Service– Broad suite of offerings to address needs of structured finance market participants

Full Value Proposition– The complete product suite provides a comprehensive spectrum of services for any point in

the pre-trade, trade, and post-trade cycleReference and Performance DataRisk and PricingDeal Structure and AnalysisTrade Support

Detailed analysis and support is provided for both US and European ABS deals at the single security, index and portfolio level

Introduction to PrimeX

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PrimeX.FRM & PrimeX.ARM

The PrimeX indices allow investors to synthetically gain exposure to non-Agency Prime RMBS collateral

Each index will serve as a standardized, diverse, and liquid tool referencing securitized non-Agency fixed-rate or hybrid ARM loans

Markit will initially launch series of the index referencing the 2005, 2006, & 2007 vintages.

– 20 deals in each sub-index, satisfying a series of concentration and collateral tests

Vintages will be separated by a cutoff date of July 1st, 2006, creating 4 different sub indices.

– PrimeX.FRM.1 (issued between 1/1/2005 & 6/30/2006)– PrimeX.ARM.1 (issued between 1/1/2005 & 6/30/2006)– PrimeX.FRM.2 (issued between 7/1/2006 & 12/31/2007)– PrimeX.ARM.2 (issued between 7/1/2006 & 12/31/2007)

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PrimeX construction

Additional selection criteria applied to universe defined by deal collateral– Must contain at least one tranche that has been rated AAA by at least two major ratings

agencies (i.e. Fitch, Moody’s or S&P)– At least one of the AAA tranches in the deal must be registered pursuant to the U.S.

Securities Act of 1933– None of the tranches included in the index shall benefit from a financial guarantee from a

third party (though loan-level mortgage insurance is acceptable)

Specific deal and tranche selection process– Markit compiled the list of the largest (by original principal balance) 20 qualifying deals

issued during a designated period– List of selected bonds for each deal that represented a pass-through interest in the largest

loan group of the deal– Deal and tranche list was circulated to dealers for final approval

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Deal universe selection

Deals are separated into fixed and hybrids– Collateral filters are different between hybrid and

fixed-rate paper– Fixed deals must be 100% backed by fixed-rate

collateral– Hybrid deals must be 100% backed by hybrid ARMs

Deals are selected with data compiled from prospectuses as a function of their average or aggregate characteristics

– Issued within the designated period of the sub-index– Minimum deal size at issuance of $250mm– Deals must pay on the 25th of the month– The deal’s collateral must be loans. Re-Remics and

NIMs are therefore excluded, as well as synthetic deals

– The average loan characteristics of each deal must fall within the filters shown in the table

NoneNoneShort ARMs(Reset < 30 mo)

NoneNoneNeg-Am

NoneNoneSeconds

> 330 months> 330 monthsWA Original Term

> 40%> 25%Full/Alt Doc

< 10%< 15%Non owner

If Available < 85%If Available < 85%CLTV

< 73%< 73%WAvg LTV

> 735> 730WAvg FICO

PrimeX.FRMPrimeX.ARM

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Individual security selection

Appropriate bonds are selected from each qualifying deal– Markit will select originally AAA rated certificates that reference the largest loan group(s) in

the dealLargest loan group is determined by the original principal balance of loans

– Aggregated certificates will represent a “Pass-Through Interest” in selected loan group

For both the PrimeX.FRM and PrimeX.ARM– Each deal will be equally weighted with other deals in the index– Within each deal, each bond selected will be weighted according to its original principal

balance relative to the aggregate of the certificates selected from that deal– The bonds selected will consist of the fewest number of certificates possible in order to

create the pass-through tranche

Once the reference obligations are in the index, they do not drop out, but amortize as a function of prepayments and write-downs

Trading Markit PrimeX

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Markit PrimeX: indicative terms and conditions

T+5 from the Period End Date. T+5 only applies only to the exchange of payments.Payment Dates

25th day of each month using a following business day conventionPeriod End Date

No Cap ApplicableInterest Short-Fall

Writedowns, Principal ShortFalls, Interest ShortFallsFloating Amounts

Reimbursements associated with Writedowns, Principal ShortFalls, Interest ShortFallsAdditional Fixed Amounts

Premium paid by Fixed-Rate PayerFixed Rate

Long position on the Index. Seller of Protection.Floating Rate Payer

Short position on the Index. Buyer of Protection.Fixed Rate Payer

Original Principal Amount * Factor * Applicable PercentageReference Obligation Notional Amount (RONA)

Indices

September 25th, 20377B57AKAB9PrimeX.FRM.2

July 25th, 20367B57AKAA1PrimeX.FRM.1

December 25th, 20377B579YAB1PrimeX.ARM.2

June 25th, 20367B579YAA3PrimeX.ARM.1

TERMINATION DATEREDIDINDEX ID

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PrimeX - CDS indices

PrimeX.FRM and PrimeX.ARM– Each index references component bonds from 20 deals based on collateral characteristics

(different criteria for each index)– FRM deals reference only fixed-rate prime collateral– ARM deals reference only hybrid ARM prime collateral

CDS trading convention:– Long position pays applicable percentage of Interest & Principal Shortfalls as well as

writedowns on swap notional– Running fixed coupon paid by short position:

Set by the dealers during the roll process prior to launch date

– Upfront PV exchange of the observed market value of risk

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Payment structure

PrimeX Indices

Fixed Coupon & Additional Fixed Payments

Principal & Interest Shortfalls / Principal Writedowns

Protection Buyer Protection Seller

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PrimeX counterparties

“Buyer” of the Index

If price is above par, pays the Present Value of the contract upfront–Index Buyer receives a fixed coupon throughout the life of the contract

Pays Fixed Rate Payer in the following events:–Interest Shortfall (Not Capped)–Principal Shortfall–Principal Writedown

Receives payment from Fixed Rate Payer in the event of the following:

–Interest Shortfall Reimbursement–Principal Shortfall Reimbursement–Writedown Reimbursement

“Seller” of the Index

If price is below par, pays the Present Value of the contract upfront–PV of implied risk over the fixed coupon will be paid upfront–PV of index contract incorporates buyer’s assumption of amortization via voluntary & involuntary prepayments–Index Seller pays a fixed coupon throughout the life of the contract

Receives payment from Floating Rate Payer in the following events:

–Interest Shortfall (Not Capped)–Principal Shortfall–Principal Writedown

–Pays Floating Rate Payer in the event of the following:–Principal Shortfall Reimbursement–Interest Shortfall Reimbursement–Writedown Reimbursement

Floating Rate Payer (Protection Seller)Fixed Rate Payer (Protection Buyer)

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PrimeX.FRM.1 trade examples

Clean PV + accrued interest=[Notional * ((Price/100) - 1) * Factor] + [Coupon * Notional *Daycount * Factor]=(10,000,000 * ((96.5/100) – 1) * 0.656700725)+(0.0442 * 10,000,000 * (7/360) * 0.656700725)=$(-229,845)+$5,643.98=$(-224,201.02)

There is a negative PV using a positive notional, meaningthe short position needs to compensate the long positionfor the added risk implied by the price below par. Accrued interest is positive with positive notional.

Notional Amount: $10,000,000Trade Date: May 5th, 2010Initial Payment Date: May 10th, 2010 (T+3 exchange

for upfront)Traded Price: 96.5Index Factor: 0.656700725

(Published on Apr 27th)Coupon: 442 bpsDays Accrued: 7 (since April 28th launch)

Initial (Upfront) PaymentExample 1 Trade Details (“Index Buyer”Perspective)

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PrimeX.FRM.1 trade examples

Clean PV + accrued interest=[Notional * ((Price/100) - 1) * Factor] + [Coupon * Notional * Daycount * Factor]=((-10,000,000) * ((88.75/100) – 1) * 0.656700725)+(0.0442 * (-10,000,000) * (21/360) * 0.656700725)=$738,788.32 + $(-16,931.93)=$721,856.39

There is a positive PV using a negative notional, so again the short position needs to compensate the long position for the added risk implied by the price below par. Accrued interest is negative because of the negative notional.

Notional Amount: $(10,000,000) – Negative NotionalTrade Date: May 19th, 2010Initial Payment Date: May 24th, 2010

(T+3 exchange for upfront)Traded Price: 88.75Index Factor: 0.656700725

(Published on Apr 27th)Coupon: 442 bpsDays Accrued 21 (since April 28th launch)

Initial (Upfront) PaymentExample 2 Trade Details (“Index Seller”Perspective)

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PrimeX.FRM.1 trade examples

Clean PV + accrued interest=[Notional * ((Price/100) - 1) * Factor] + [Coupon * Notional *Daycount * Factor]=((-10,000,000) * ((102.45/100) – 1) * 0.656700725)+(0.0442 * (-10,000,000) * (21/360) * 0.656700725)=$(-160,891.68) + $(-16,931.93)=$(-177,823.61)

There is a negative PV using a negative notional, meaning the long position needs to compensate the short position for the decreased risk implied by the price above par. Accrued Interest is negative with negative notional.

Notional Amount: $(10,000,000) – Negative NotionalTrade Date: May 19th, 2010Initial Payment Date: May 24th, 2010

(T+3 exchange for upfront)Traded Price: 102.45Index Factor: 0.656700725

(Published on Apr 27th)Coupon: 442 bpsDays Accrued: 21 (since April 28th launch)

Initial (Upfront) PaymentExample 3 Trade Details (“Index Seller”Perspective)

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PrimeX.FRM.1 monthly settlement example

On June 2nd, 2010, the Index Buyer (long position) will have to pay the Index Seller (short position) the following on behalf of the constituentISF: $211.75Writedown: $20,977.25

The Index Seller (short position) will have to pay the Index Buyer (long position) the following Fixed Payment on behalf of the constituent=Notional * Factor * Daycount * Coupon=$329,009.22 * 0.537015168 * (27/360) * .0442=$585.70

Period End Date May 25th (adjusted for business days)Payment Date: June 2nd (T+5 from Period End Date)Coupon: 442 bpsIndex Notional: $10,000,000

First Settlement PaymentMonthly Settlement

Index Weighting: 3.29%Index Notional Represented: (Initial Face) $329,009.22Actual $ Exposure $176,682.94Applicable Percentage 0.104886228%

Interest Short-Fall (ISF)=(Expected Interest – Paid Interest) * Applicable Percentage=(701,833.30 – 500,000) * 0.00104886228=$211.75

Writedown=Bond Writedown * Applicable Percentage=20,000,000 * 0.00104886228=$20,977.25

Constituent: Bond XPass-Through Rate: 5%Original Principal Balance: $313,682,000April Factor: 0.537015168May Factor: 0.473256329May Writedown Amount: $20,000,000May Expected Interest: $678,487.19May Paid Interest: $500,000.00

Constituent Index CalculationsConstituent Performance

Settlement timeline & operations

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Sample PrimeX trade settlement & payment timeline

Upfront Value Agreed on.Trade effective on this date.

Next Accrual Period Starts, New factor becomes

effective. End date is adjusted by US business/holiday convention

Counterparties tear up or novate trade.Termination or assignment fees

exchanged between counterparties.

Occurs T+3 from Trade Date. Counterparties exchange PV net of

Accrued interest

Monthly payment occurs T+5 fromPeriod End Date. Counterparties exchangeFixed and Floating payments from recent

accrual period

Trade Date

Initial Payment Date

First Period End Date Counterparties exit trade

First Payment Date

5/5/2010 5/10/2010 5/25/2010 6/2/2010 6/6/2010

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Licensed dealer contributions

Dealers will contribute prices every business day for each available index– Contributions are made between 3pm and 4pm each day

Per the Index Rules, if a dealer fails to comply with minimum submission threshold, that firm will lose index voting privileges

Markit uses top & tail process, which eliminates top and bottom quartiles of submissions and calculates average to generate composite

Markit will publish aggregate composites daily at www.markit.com no later than 5pm

Expect 12 dealers contributing to the index at inception

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Markit PrimeX analytic

Markit will provide a tool for market participants to calculate PV, price, and spread based on defined prepayment & default scenarios

Analytic will utilize in-house Markit cashflows, which allows users to specify– Prepayment scenarios (CPR, PSA, vector)– Default scenarios (CDR, vector)– Delinquencies (60+, vector)– Loss severity

Calculator will utilize model which generates PV directly from projected swap cashflow assumptions

Markit calculator will provide participants with the ability to calculate upfront payment amounts

PrimeX Calculator can be requested by visiting: http://www.markit.com/en/products/data/indices/calculators/primex-calculator.page

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Markit PrimeX – Usage & Licenses

PrimeX standard terms require one counterparty to each trade to be a licensed dealer of the index

– Licensed dealers as of the launch date may be found in this presentation and on www.markit.com

– PrimeX licenses may be obtained by contacting sfsales@markit.com

PrimeX Trademark and Data Usage– Usage of the PrimeX index trademark or published prices require either written consent or

license agreement from Markit – PrimeX data available on Markit’s public website may be available for limited purposes

subject to the terms of use at www.markit.com

PrimeX data feeds are available each US business day– Markit provides a daily feed to clients that includes composite prices for each index and an

updated list of constituents– Subscription including the licensing of the full historical PrimeX dataset may be obtained by

contacting sfsales@markit.com

Dealer Contacts

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Dealer trading contacts

UBS

John Fernandez212-713-4002

Royal Bank of ScotlandDavid Dietche203-897-6160

Nomura

James Whitticom212-667-2408

Morgan Stanley

Michael DePietro212-761-1988

J.P. Morgan

Raphael Gonzalez212-834-4622

Goldman Sachs

Eric Siegel212-902-5090

Deutsche Bank

Jashin Patel212-250-7730

Credit Suisse

Ted Moran212-325-2747

Citibank

Taylor Leahy212-723-6325

Barclays Capital

Will Zak212-412-2449

Bank of America

Mark Michael646-855-6404

Amherst Securities

Joe Vaccaro212-593-6030

Markit

Administrators: Samir Bhatt212-205-1741

Ned Lipes212-863-9490

Press: Mike Gormley212-205-1310

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DisclaimerOpinions, estimates and projections in this report constitute the current judgment of the author(s) at the timeof writing. They do not necessarily reflect the opinions of Markit Group Limited. Markit Group Limited has noobligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that anymatter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequentlybecomes inaccurate.

The content, information and any materials (“data”) provided by Markit in this presentation is on an “as is”basis. Markit Group makes no warranty, expressed or implied, as to its accuracy, completeness or timeliness, or as to the results to be obtained by recipients, and shall not in any way be liable to any recipient for any inaccuracies, errors or omissions herein. Without limiting the foregoing, Markit Group shall have no liability whatsoever to a recipient of this report, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by such recipient as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by it or any third party, whether or not based on the content, information or materials contained herein.

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