The Clearing House currently accepts Treasury Bond principal strips as performance collateral. Effective immediately, the Clearing House will accept ‘coupon strips’. However, ‘Inflation-indexed coupon and principal strips’ will not be accepted at this time as a secondary market for these particular strips has not yet developed.

Treasury principal and coupon strips (also known as zero-coupon bonds) are created when a Treasury fixed principal or inflation-indexed note or bond has its principal and interest rate component stripped apart. The interest payment stream and the principal payment at maturity, each become a separate security. Each component has its own identifying number, called a CUSIP and is held and traded, individually.

Credit Risk

Both Treasury coupon and principal strips are backed by the full faith and credit of the US Government and have the same credit profile as Treasury Bonds and Notes.

Haircuts

As with ‘principal strips’, the associated haircut will remain at 10%.

Custody Banks

The custody banks that will facilitate acceptance of coupon strips are, The Bank of New York, Brown Brothers Harriman, JP Morgan Chase and Harris Trust and Savings. The custody banks will be expanded to include Burling Bank and Lakeside Bank, beginning November 24, 2003.

Should you have any questions regarding strips or any other collateral management product or service, please call, Tim Golomb at 312.930.3194.