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National Depository for Securities (KDPW)

National Depository for Securities (KDPW). Warsaw , 25 October 2011. . Overview of the Polish Capital Market. Polish Financial Supervision Authority (KNF) . National Depository for Securities ( KDPW ) KDPW_CCP. Markets Warsaw Stock Exchange, Bondspot, Catalyst, New Connect, OTC.

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National Depository for Securities (KDPW)

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  1. National Depository for Securities (KDPW) Warsaw, 25 October 2011 .

  2. Overview of the Polish Capital Market Polish Financial Supervision Authority (KNF) National Depository for Securities (KDPW) KDPW_CCP Markets Warsaw Stock Exchange, Bondspot, Catalyst, New Connect, OTC National Bank of Poland(Clearing Bank) Financialinstitutions & Intermediaries Institutional investors Issuers Individual investors

  3. KDPW – Introduction • Responsibilities: • Central securities depository • Clearing house • Settlement • Custody • Risk management • Clients: • Issuers (foreign & domestic) • Intermediaries (custodian banks & brokers)

  4. KDPW – Ownership • 1991 - 1994 An integral part of the Warsaw Stock Exchange • 1994 - Present Independent joint - stock company • Current shareholders • KDPW (CSD) - (since 1999) • The State Treasury - 1/3 • The Warsaw Stock Exchange - 1/3 • The National Bank of Poland - 1/3 • KDPW_CCP - (from 1 July 2011 ) • KDPW- 100%

  5. Main KDPW Responsibilities KDPW_CCP • Clearing of transactions executed on: • Regulated markets: Warsaw Stock Exchange, BondSpot • Non-regulated markets: New Connect, Treasury BondSpot-Poland, OTC • Risk management –management of: • Settlement Guarantee Fund covering regulated markets & ATS • Margaining for cash and derivatives market • Collateralisation of security loans in automatic securities lending - borrowing system KDPW (CSD) • Safekeeping and custody of all securities admitted to trading following public issue • Reconciliation and monitoring • Asset management • Settlement of transactions executed on: • Regulated and non-regulated markets • OTC • Processing of corporate actions • Assigning ISIN codes for Polish issues (National Numbering Agency)

  6. Separation of functionality between KDPW CSD and KDPW_CCP KDPW (CSD) KDPW_CCP Clearing of guaranteed trades Safekeeping Settlement Risk Management Corporate Actions Asset Management Collateral Management Database Administration

  7. Securities registered in KDPW • All securities admitted to trading in the regulated market must be registered in KDPW • Currently, the following securities are recorded in the KDPW system: • Shares (foreign and domestic) • Bonds (Treasury, Central Bank, Corporate, Municipal, Convertible, EIB, with priorities rights, non-public bonds, mortgage bonds) • Exchange Traded Funds (ETFs) • Investment Fund Certificates • Derivatives • Futures Contracts (WIG20 index, currency, share) • Index Participation Units • Options (European style), (WIG20 index,share) • Exception:Treasury bills - custody, clearing and settlement inthe National Bank of Poland system

  8. Capitalisation of securities Capitalisation of shares, bonds and other securities registered in KDPW (bln. EUR)

  9. Regulated market trades turnover Regulated market cash and derivatives turnover(bln. EUR)

  10. OTC trades turnover

  11. Number of transactions settled

  12. Foreign investors in Polish market Foreign investors in Polish market (share of cash market turnover)– Stock Exchange (H1 2011) Source: Warsaw Stock Exchange Foreign investors in Polish market (ownership) – Treasury bonds (August 2011) • 36.3 billion EUR 121.5 billion EUR Source: Polish Ministry of Finance

  13. TheNational Depository for Securities (KDPW) Clearing & Settlement

  14. Clearing & Settlement (until Q1 2011) Trade execution Markets (regulated & OTC) Clearing KDPW_CLEARPOOL Guarantee system Clearing & Settlement Settlement Custody Central Bank system

  15. Clearing & Settlement (from July 2011) Trade execution Markets (regulated & OTC) Clearing KDPW_LEARPOOL Clearing Risk Management system Settlement Central Bank system Settlement Custody

  16. Basic principles • All securities cleared and settled in KDPW are dematerialised • All securities transfers are made by book-entry in KDPW depository, clearing & settlement system • Transfers are made between KDPW participant accounts - Mandatory asset segregation (own assets, client assets) • Change of ownership at the moment of book-entry • Clearing & Settlement service for transactions from: - WSE, BondSpot, New Connect (ATS), TreasuryBondSpot Poland • DvP Settlement model: - BIS model I, BIS model II • Settlement : - T+2, T+3 - for regulated - market trades – SE, BondSpot - T+0 to T+n - for non-regulated market transactions – OTC • Two settlement channels: - RTGS DVP 8.00-17.00, FOP 8.00-18.30 - multiple batch system 7.30-18.45

  17. Basic principles • Daily settlement schedule: multibatch and RTGS • 6 settlement sessions a day with intra-day finality after each session BATCHES RTGS 7.30 10.30 13.00 15.30 18.30 18.45 Technical 8.00 DVP FOP DVP FOP 17.00 18.30 FOP FOP Technical

  18. Cash leg settlement Central Bank Money - in the National Bank of Poland for PLN and Euro Commercial Bank Money for other currencies Settlement liquidity facilities securities L&B automatic and on-request repo buy-in, sell-out transactions from regulated market guaranteed by the Settlement Guarantee Fund, by the collateral system (for derivatives only) and KDPW_CCP transactions from ATS (unregulated market) guaranteed by special ATS guarantee fund Basic principles

  19. Cash settlement side (CBM) • Agreement between CentralBank (CB) and KDPW • Authorisation for KDPW to debit Payment Bank (PB) accounts • Cash Settlement on PB accountsin CB • Payment banks: banks having status of KDPW participant and holding cash account in CB PAYMENT SYSTEM • Payment bank responsible for settlement of: • its own and its clients transactions • transactions executed by Clearing Members (CMs) which arenot allowed to have a cash account in CB • KDPW informs PB about net cash positions to be paid on S • KDPW sends payment instructions to CB using CB interface

  20. KDPW in the Polish capital market Post-trading processing flow Seller Buyer Markets Trade Trade Trade execution Trade execution Trade feed = Already matched for settlement Securitiesaccounts of theSeller/ seller’s custodian Securities accounts of the Buyer / buyer’s custodian Cash accounts of theseller/ seller’s custodian cash clearer in NBP Cash accounts of the Buyer/ buyer’s custodian cash clearer in NBP

  21. Life cycle of settlement instruction S T T WSE BondSpot New Connect CLEARING (KDPW_CCP) POST- TRADE SETTLEMENT VALIDATION INPUT SETTLEMENT T+2 T+3 S Locked-in TRADES MATCHING Treasury BondSpotPoland INPUT VALIDATION MATCHING CLEARING SETTLEMENT T+2 T+n INSTRUCTIONS TRADES VALIDATION Bilateral cancellation Unilateral cancellation OTC CLEARING SETTLEMENT INPUT VALIDATION MATCHING INPUT T+n S INSTRUCTIONS INSTRUCTIONS

  22. Order that funds in the guarantee system are initiated in KDPW_CCP Guarantee Fund Total KDPW_CCP capital: PLN 100 million

  23. kdpw_stream – System architecture - August 2009 Clearing banks Participants Markets WWW SWIFT External communication Processing of cash market Processing of derivatives market Risk module Asset Management RTGS MB Data flow Transfer payments Collateral register Corporate actions Static data

  24. TheNational Depository for Securities (KDPW) Cross Border Settlement

  25. Links with foreign CSDs Linkscreated with foreign CSDs (FOP links) in connection with the dual listing of shares on the WSE. Currentlythereare 8 directlinks and 9 indirectlinksinto 20 foreign markets Euroclear Sweden EVK

  26. Principles of cross-border transfers • Transfer executed between investor’s account in one country and the same investor’s securities account in the second country before trading can take place – there is no change of ownership, • Shares need to be registered on KDPW account in foreign intermediary to be traded on the WSE, • Transfers are free of payment (FOP), • Foreign shares quoted on WSE in PLN, • Clearing and settlement in KDPW in PLN, • Dividends paid to Polish shareholders in foreign currencyor PLN following f/x conversion, • Transfer based on SWIFT (ISO 15022 messaging standards), • The transfer may be settled intra-day (RTGS in KDPW).

  27. Free of Payment cross-border links between KDPW and foreign CSD – Share transfer Transfer of sharesprior to a Warsaw Stock Exchange transaction executed between a Polish and foreign investor using a FOP link Foreign investor wishing to sell shares on the Warsaw Stock Exchange 2 Instruction to receive shares Transfer order Entity managing foreign investor’s securities account in Poland 1 Instruction to receive shares Instruction to deliver shares FOP 3 5 Matching of instructions (1&4) in Foreign CSD 4 Instruction to receive shares FOP (MT540) Foreign CSD Receive FoP Transfer confirmation (MT544) KDPW Account Investor’s Account 7 6 Transfer of shares to KDPW omnibus account following matching

  28. National Depository for Securities (KDPW) Strategy 2010 - 2013

  29. KDPW Group corporate values

  30. KDPW Group – Strategic Goals

  31. KDPW - New Strategy, New Services New services for foreign financial intermediaries: • Omnibus accounts • Separation of Clearing Member and Settlement Agent status • Hold-Release mechanism Otherfuture services: • KDPW_CCP • SPAN methodology • Nettingin securities • CCP for OTC • KDPW (CSD) • Partialsettlements • TARGET2 • TARGET2-Securities • Lending and borrowing system (in cooperationwithKDPW_CCP)

  32. www.kdpw.pl/en www.kdpwccp.pl/en

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