You have
[tex]e^{-\frac{x^2+ y^2- 2\rho xy}{2\sigma(1-\rho)^2}}[/itex]<br />
They complete the square:<br />
[tex]x^2- 2\rho xy+ \rho^2y^2- \rho^2y^2+ y^2= (x- \rho y)^2+ (y^2- \rho^2 y^2)[/tex]<br />
so the exponential becomes<br />
[tex]e^{-\frac{(x-\rho y)^2- (y^2- \rho^2 y^2)}{2\sigma(1-\rho)^2}}[/itex]<br />
Then separate the exponentials:<br />
[tex]e^{-\frac{(x- \rho y)^2}{2\sigma(1-\rho)^2}}e^{-\frac{(y^2- \rho^2 y^2}{2\sigma(1-\rho)^2}}[/tex]<br />
and finally factor out y<sup>2</sup> in the last exponential<br />
[tex]e^{-\frac{(x- \rho y)^2}{2\sigma(1-\rho)^2}}e^{-\frac{y^2(1- \rho^2}{2\sigma(1-\rho)^2}}[/tex][/tex][/tex]