Paris, December 10th, 1998 -- Clearnet, the first European clearing house for over-the counter-traded products, has experienced a smooth start with FF 420 billion (GBP 42 billion) traded since launch date on November 6th 1998.

Clearnet is a new clearing service offered by the SBF Group-Paris Bourse that clears and guarantees all transactions on cash or futures interest rate products traded on OTC and regulated markets. In the first stage, this service encompasses trades done by primary dealers on French government securities via the inter-dealer broker Prominnofi.

The clearing house provides a guarantee on cleared transactions via daily margin calls and deposits, mechanisms which have proved their reliability on global regulated futures exchanges. Should a serious default problem arise, the clearing house has available FF1.6 billion worth of equity capital.

Clearnet lowers financial obligations for institutions dealing in government securities while ensuring a maximum security:

• clearing members' liabilities are assessed on a net account basis as opposed to a gross account basis, which allows them to maximize cash flows and operate efficiently commensurate with their net market risk.
• possibility of cross-margining with Matif exchange-traded interest rate derivatives.
• Clearnet provides a guarantee of cleared transactions, enabling financial institutions peace of mind with regard to counterparty credit risk.

From January 4th 1999, Clearnet will also be able to clear transactions on German government securities. In the long run, Clearnet aims at clearing operations on all Euroland government securities.

During 1999, Clearnet services will also be extended to direct transactions carried out between its members and operations done via other brokers than Prominnofi or other bourses. Furthermore, a wider number of clearing members including the main financial institutions active on Euroland government securities and repos are expected to participate.

Clearnet is the trademark for clearing services delivered by BBC - Banque Centrale de Compensation (Central Clearing House) - which is a wholly owned SBF subsidiary.

Press contacts:
Antoinette Bouvier-Darpy + 33 1 40 28 83 89
Nathalie Boschat + 44 171 332 59 20

The launch of Clearnet stems from three main reasons:

1. Because of the increasing cost of equity capital and of the growing necessity to control risks, financial institutions are even keener than before to benefit from the security guarantee that clearing houses can provide (i.e. single counterparty, clearing, marking-to-market margining).
2. The borderline between OTC and regulated markets are becoming increasingly blurred in so far as the clearing and the guarantee of positions are concerned. On the contrary, as the recent market turmoil and uncertainty regarding counterparty credit risk demonstrates it makes sense to bring OTC and exchange-traded procedures closer so as to ensure productivity gains as well as a clearer definition of risks.
3. With this in mind and with the emerging euro interest rate offering many new investment and trading opportunities a pan-European clearing and guarantee initiative seems to be relevant with the advent of EMU.

Clearnet aims at completing the range of services proposed by the SBF Group on interest rate products, which currently comprises:

• the listing of bonds and their distribution to private investors (CAC)
• the listing, trading and clearing of interest rate futures and options (Matif)
• inter-dealer brokerage (IDB) on French government securities (Prominnofi)
• market making price dissemination to professional clients (Scope).

Clearnet is the trademark for clearing services delivered by BCC - Banque Centrale de Compensation (Central Clearing Bank), which is a wholly owned SBF subsidiary. Since November 6th 1998, Clearnet clears and guarantees all the transactions of primary dealers on French government securities via Prominnofi (OATs, BTANs, BTFs, Strips and repos).

From January 4th 1999, Clearnet will also be able to clear and guarantee all operations on German government bonds, which will result in the coverage of Europe's two main bond and repo markets. Government securities of other European countries should follow suit. In the long run, Clearnet aims at clearing operations on all Euroland government securities.

During 1999, Clearnet services will also be extended to:

• direct transactions carried out between its members
• operations done via other brokers than Prominnofi or other bourses
• to a wider number of members. Clearnet's main target in that respect is to extend membership to the main financial institutions active on government securities. The membership should be extended from 20 to 50 members during 1999.

1. Multilateral clearing and guarantee of transaction security

   Clearnet is a clearing service offered by the SBF group. It also brings security to transactions on interest rate securities dealt on over-the counter markets.

   The backbone of the SBF group's structure is a clearing house which acts as a central counterparty for all member transactions.

   The clearing house provides a guarantee of cleared transactions, which means that it ensures that the settlement process actually occurs following a trade. Thus members of the clearing house are not adversely affected should one of them default.

   The clearing house provides a guarantee on cleared transactions via daily margin calls and deposits, mechanisms which have proved their reliability on global regulated futures exchanges. Should a serious default problem arise, the clearing house has available FF1.6 billion worth of equity capital.

   The closing of positions is done through the netting of transactions, which means that:
   • clearing members' liabilities are assessed on a net account basis as opposed to a gross account basis. This allows them to maximise cash flows and operate efficiently commensurate with their net market risk.
   • this allows for less clearing and settlement transactions as only net positions are actually settled

2. An asset for the Paris marketplace

   Clearnet's aim is to widen the range of services offered by the SBF Group in the field of interest rate products. By doing so, it gives the Paris marketplace a competitive advantage by creating synergies between OTC and exchange-traded euroland derivative products.

   These synergies are:
   • the possibility to have the whole range of cash and derivatives bond products managed by a single operational entity (the SBF Clearing Department).
   • the possibility to make a global assessment of deposits required for trades on both cash and derivative markets, which can lead to significant savings in the case where certain operations offset one another.
   • the centralisation and mutualisation of counterparty credit risk.

   The security provided by Clearnet comes as an additional safety net to the security brought by the RGV clearing and settlement system set up in 1998 by Sicovam, the French central depository. The finality of real-time settlement provided by RGV thus adds to the guarantee on cleared operations offered by Clearnet.

3. Clearnet's operational start

   Clearnet has been launched on November 6th 1998

   • Transactions cleared are trades on French governement securities as well as repurchase (REPO) agreements on these securities, from one day out to 18 months.
   • Clearing members are primary dealers on French government securities (SVTs).
   • Transactions cleared are executed by SVTs through Prominnofi. (the IDB)
   • These transactions are settled in Sicovam RGV's system.

   Clearnet has experienced a smooth start, after six weeks of testing with the whole community of SVTs. Clearnet is now in the process of stepping up its operations.

   The volume of transactions since launch date is FF 420 billion, which represents a daily average of 100 operations. As of December 4th, pending operations amounted for FF 100 billion.

Clearnet is a major asset for all Prominnofi clients in that it offers them the full guarantee of a clearing house instead of the guarantee Prominnofi could provide them as a single broker acting as direct counterparty. It is the long-awaited tool that will undoubtedly reinforce the security on OTC markets.

Clearnet is essential to the development of Prominnofi on a European scale. Acting on a European scale means widening the range of clients we deal with, and has led to a growing need for the security of transactions.

Prominnofi's provision of services to the emerging the European debt market is called "The Euro Debt Window" and combines two areas of expertise:

• Prominnofi's trading operation and culture (market share, electronic trading, acting as counterparty)
• the security provided by Clearnet, the first European clearing house for OTC products.

The launch of Clearnet on November 6th 1998 represents an important competitive development in the context of the switchover to the euro:

• an advantage for Prominnofi and Clearnet users
• an advantage for other market participants once they get familiar with the system.

Prominnofi supports Clearnet in becoming the standard in terms of clearing of OTC bond and REPO transactions in Europe thanks to the addition of other clients to Prominnofi.

Against this backdrop, Prominnofi's goal is to make the combination of "Euro Debt Window" and Clearnet the standard for dealing in European government securities in 1999. To this end, Prominnofi will rely on two main centers:

• one in Paris
• the other one in Frankfurt where Prominnofi has just opened a branch in order to gain a better coverage on the German government debt market.

Clearnet's main advantages is that the clearing house enables market participants to reduce the amount of capital which is allocated to the hedging of risk while guaranteeing maximum security to the market, thus improving its efficiency and reducing the cost of financing for Sovereign states.

1. Lowering financial obligations for members
   • saving equity capital: a lesser amount of equity capital needs to be used for the hedging of counterparty risk, especially for repos.
   • better management of collateralization. Maximum control of risks with a minimum collateral.
   • cross-margining with exchange traded derivative contracts and better management of cash via netting.
2. Market security
   • eliminating counterparty risk. Participants are able to execute their trades immediately without knowing their counterparty and bothering about the credit risk, which is most valuable in a European environment where financial institutions do not always know each other.
   • security of operations with the guarantee on cleared trades
   • reduced systemic risk, automation and centralisation of clearing services.
3. Market efficiency
   • being under no obligation to manage position limits, a growing number of participants are attracted to the market
   • more trading opportunities because of the increased fluidity of the market (no delay to confirm a trade)
   • increased liquidity to the benefit of all participants.