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In performing its role in the financial markets, DTCC undertakes a number of crucial oversight activities, including the assessment of new applicants and the performance of ongoing client and market surveillance. Participation in the Clearing Agency Subsidiaries provides Participants with access to the services the Clearing Agency Subsidiaries offer but also exposes the Clearing Agency Subsidiaries to counterparty exposure. The Clearing Agency Subsidiaries maintain strict membership standards, including minimum financial requirements and Participants are subject to ongoing review following admission. When a new applicant seeks to become a Participant of one of the Clearing Agency Subsidiaries, FRM performs a detailed assessment of the applicant, which includes a review of its organizational structure, management, regulatory oversight, business plan, risk controls and financial position. Based on this review, a recommendation is made as to whether the applicant should be accepted as a Participant. The assessment may be presented to the Management Risk Committee and, in certain circumstances, to the Board Risk Committee, for a final decision. In general, Participants are regulated financial institutions, including broker-dealers, banks, mutual fund companies, investment banks, commercial banks, exchanges and other market participants.

DTCC monitors its credit exposures with respect to the risk that a client defaults through the ongoing surveillance of its financial strength and default risk. On an ongoing basis, clients are required to provide financial and other information to DTCC to ensure that they meet our standards on an ongoing basis. In addition, FRM reviews publicly available information such as earnings releases, equity prices and news as part of its surveillance.

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