KDPW_CCP – regulated market Warsaw, 2012

KDPW_CCP – General Information Part 1

Ownership structure KDPW & KDPW_CCP 1991 - 1994 integral part of the Warsaw Stock Exchange 1994 - present independent joint - stock company Current shareholders (since 1999) 33,33% 33,33% 33,33% 100% 2018-09-21

KDPW_CCP – General Information 01.07.2011 Creation of KDPW_CCP clearing house equipped with a modern risk management system 2012/2013 Harmonisation of KDPW_CCP with changes to the WSE system Further development of the risk management system Processing of market securities lending & borrowing Introduction of securities netting to the KDPW_CCP clearing process Launch of OTC derivatives clearing 2018-09-21

Market Infrastructure WSE BondSpot OTC Trade KDPW_CCP Clearing Clearing Risk Management System KDPW NBP Settlement Settlement CSD 2018-09-21

KDPW_CCP in the market 2018-09-21

KDPW_CCP – international cooperation – member of international organisations and working groups EACH – European Association of Central Counterparties Clearing Houses EACH Risk Management Committee EACH Derivatives Working Group CCP12 – Global Association of Central Counterparties CCP12 Working Group 2 – Review of CPSS-IOSCO Standards and key recent regulatory publications CCP12 Working Group 3 – Default Contact List and Information Sharing 2018-09-21

KDPW_CCP –markets & products Cash market Regulated derivatives market Regulated: Warsaw Stock Exchange (WSE) Warsaw Stock Exchange (WSE) BondSpot S.A. shares, bonds, subscription rights, allotment futures contracts, options, certificates, investment & structured certificates, index participation units mortgage bonds, warrants, ETFs ATS (alternative trading system) NewConnect Catalyst shares, allotment certificates, bonds, mortgage bonds 2018-09-21

KDPW_CCP MEMBERS – eligible categories The following legal entities may become participants: Local & foreign financial institutions: investment firms, banks Companies operating a clearing house Others 2018-09-21

KDPW_CCP Membership Types KDPW_CCP MEMBERS – MEMBERSHIP TYPES General Clearing Member (GCM) – representative of other entities on cash and/or derivatives market Direct Clearing Member (DCM) – clearing only own (house or client) transactions concluded on cash and/or derivatives market 2018-09-21

KDPW_CCP membership - Capital requirements unification of requirements addressed to members operating on the cash and the derivatives market capital requirement depending on the number of entities represented in clearing General Clearing Member: PLN 50 mn (ca. EUR 11.5 mn) plus PLN 5 mn (ca. EUR 1.15 mn) times the number of represented entities – for banks PLN 15 mn (ca. EUR 3.5 mn) plus PLN 2 mn (ca. EUR 0.5 mn) times the number of represented entities – for brokers PLN 15 mn (ca. EUR 3.5 mn) – for companies operating a clearing house Direct Clearing Member: PLN 25 mn (ca. EUR 5.8 mn) – for banks PLN 4 mn (ca. EUR 0.9 mn) – for brokers 2018-09-21

KDPW_CCP Settlement Risk Management System Part 2

KDPW_CCP – New Settlement Risk Management System Risk management system – a range of interconnected elements to assess, predict and actively manage settlement risk Guarantee system methodology: Two-tier system margins + Settlement Guarantee Fund (SG Fund) SPAN® 2018-09-21

Settlement Guarantee System (SGS) - elements MARGINS Cash market: risk calculation based on SPAN®Liquidation Risk methodology Derivatives market: SPAN® standard SETTLEMENT GUARANTEE FUND – both markets fund for a complex of markets uncovered risk (UR) methodology MARKING-TO-MARKET/CURRENT SETTLEMENTS KDPW_CCP’s own capital as a guarantee: PLN 200 mn (ca. EUR 46 mn) of share capital 2018-09-21

KDPW_CCP Default Waterfall Remaining KDPW_CCP assets Remaining 50% of additional contributions PLN 20 mn (ca. EUR 4.5 mn) from KDPW_CCP assets 50% max of additional contributions to the SG Fund (capped at 110% of basic contributions) Basic contributions of remaining CMs to the SG Fund Basic contributions of insolvent CM to the SG Fund Margins (cash & derivatives) Receivables of insolvent CM 2018-09-21

SGS’s elements: Margins (M) Function: to cover the risk of change of the portfolio value in a certain time horizon Scope of application: open positions on the derivatives market and transactions in the settlement cycle on the cash market Required by KDPW_CCP and released after closing a position /settling a transaction Contributed individually by clearing members to cover their own risk Risk parameters estimated under normal conditions at a significant confidence level Glossary: Positions not yet settled – open positions in derivatives and transactions in cash market instruments in the settlement cycle Portfolio – all positions registered in an entity account 2018-09-21

SGS’s elements: Marking-to-Market (MtM)/Current Settlements (CS) Marking-to-Market /Current Settlements Help to avoid concentration of settlements Reduce risk down to a defined time horizon (1 day) Calculated on a portfolio basis (entity account) Marking-to-market/PREMIUM Derivatives market instruments Settled between participants through KDPW_CCP Current Settlements Cash market instruments Required by KDPW_CCP and maintained until transaction is settled (part of the margin) 2018-09-21

SGS’s elements: Settlement Guarantee Fund (SGF) M Normal M Normal M Normal M Stress M Stress M Stress CM 1 CM 2 CM 3 UR 1 UR 2 UR 3 SGF=UR 2 2018-09-21

SGS’s elements: Additional margins Participants whose uncovered risk between payment dates exceeds the fund value must contribute additional margins due at T+1. Additional message: colr.exm.001.01.xml M Stress M Normal SGF CM „A” CM „A” additional margin 2018-09-21

KDPW_CCP - Buy-in procedure KDPW_CCP initialises securities buy-in procedure in case: a participant does not carry out measures to ensure the elimination of suspension of transaction settlement caused by the shortage of securities, or despite the measures undertaken by the participant, settlement suspension is maintained owing to a shortage of securities. Fee for initiating the buy-in procedure for a participant who has not removed the suspension of transaction clearing owing to a shortage of securities – PLN 1,000 (ca. EUR 228) 2018-09-21

KDPW_CCP - Buy-in procedure KDPW_CCP aims at purchasing securities on the participant’s account on: T+4 in the case of a market maker’s transaction T+3 T- Due day of transaction settlement 2018-09-21

Development of the settlement risk management system Cross-margining between the cash market and the derivatives market, reduction of required margins for positions registered in one entity account Introduction of aggregate accounts, accounts configurable by participants, used to calculate net margins Processing securities lending, repos and reverse repos, using the SPAN® methodology Extension of online monitoring for maintenance margins on the cash market 2018-09-21

Settlement Agent – new functionality Part 3

Settlement Agent (SA) – General provisions Addressees of the new functionality: Foreign clearing members (CM) Beneficiaries: Foreign CM and entities playing the role of Settlement Agents Purpose: To enable foreign investment firms to apply for KDPW_CCP CM status without having to open and maintain a KDPW account.  separation of clearing and settlement 2018-09-21

Main principles (1) Settlement Agent (SA) KDPW direct participant (participation type: representative/settlement agent) authorised to operate a securities account, a derivative instruments account or a depository account CM’s financial instruments are registered and CM’s transactions are settled in KDPW depository account operated by the settlement agent Settlement agent performs the function of payment bank for CM or indicates to KDPW an entity which performs this function for CM – it performs cash settlement of CM’s transactions Liable for tax issues – the final responsibility for covering tax costs to be defined in the bilateral agreement between SA and CM 2018-09-21

Settlement Agent (KDPW) and Clearing Member (KDPW_CCP) Settlement Agent and Clearing Member – market position WSE KDPW_CCP CM KDPW SA instructions Bilateral communication 2018-09-21

Foreign entity – Clearing member (CM) SA - Main principles (2) Foreign entity – Clearing member (CM) KDPW_CCP participant with clearing member status Not a KDPW participant – cannot operate securities accounts (need not open a branch in Poland) Signs an agreement with one entity performing SA function in KDPW Indicates SA account to KDPW_CCP and presents a declaration indicating the entity to perform this function and the entity’s declaration of consent Is the only participant of the Settlement Guarantee System (contributes cash via the payment bank; securities contributed to the SGS are transferred to KDPW from CM account operated by SA) CM ensures participation in the securities lending system via its SA 2018-09-21

Settlement Agent and Clearing Member CM in relation to KDPW_CCP and SA in relation to KDPW KDPW_CCP CM Y CM Z KDPW X SA X for CM Y SA X for CM Z margins positions, DvP 2018-09-21

How to become a KDPW_CCP Clearing Member? Part 4

How to become a Clearing Member? – in short (1) Basic steps - documents Submitting application for a participation agreement and clearing member status indicating the type of activity the applicant intends to perform (GCM or DCM, on cash and/or derivatives market) Attaching to the application the following documents: A copy of the company statute or articles of association and a valid copy or excerpts from the relevant company register A copy of the brokerage licence or licence to conduct other activities related to trading or registration of finacial instruments; additionally, in the case of a foreign investment company – a declaration showing conditions that allow it to begin performing brokerage activities in Poland or a document from the Polish FSA (KNF) confirming that and when they received from the appropriate foreign FSA a notification on the company’s intention to begin performing brokerage activities in Poland Cards with specimen signatures of the applicant’s authorised representatives 2018-09-21

How to become a Clearing Member? – in short (2) Basic steps – documents (continued) A consent declaration to be subject to the KDPW’s Arbitration Court’s jurisdiction An information card with an address for deliveries, a list of staff performing activities related to finacial instruments’ trading (incl. their positions, phone/fascimile numbers and e-mail addresses) A declaration indicating either the applicant’s identifier in the relevant settlement institution or an entity (together with its identifier) which will perform the function of the applicant’s settlement agent (SA) in the settlement institution A declaration indicating either the applicant’s bank account number in the relevant settlement bank in the currency in which the applicant will participate in the transactions’ clearing operated by KDPW_CCP or an entity which will perform the functions of the applicant’s payment agent When relevant – declarations of the entities indicated by the applicant as the performers of the functions of the SA and/or the payment agent 2018-09-21

How to become a Clearing Member? – in short (3) Basic steps – documents (continued) Attaching to the application a written statement indicating the types of financial reports and other financial information (as specified in the KDPW_CCP’s Clearing Rules, incl. i.a. annual financial statement and financial data on levels of precautionary standards) as well as their submission’s deadlines KDPW_CCP verifies if the applicant fulfils the participation requirements and if the above mentioned documents meet the formal requirements. If this is the case – the participation agreement is concluded within 2 weeks of the submission of the application. 2018-09-21

How to become a Clearing Member? – in short (4) Communication SWIFT - the communication standard between KDPW_CCP and our foreign Clearing Members Formal requirements: Signing agreement Providing KDPW_CCP with data identifying a person/people authorised to send and receive messages by means of XML/SWIFT Registration in the Closed User Group created by SWIFT for KDPW Technical requirements Connection with SWIFTNet Available SWIFT applications and modules 2018-09-21

KDPW_CCP Clearing Member’s obligations Part 5

Clearing Member’s obligations (1) Financial obligations: Providing initial contribution to the Clearing Fund (PLN 500,000, i.e. ca. EUR 116,000) Providing initial contribution to the Fund Guaranteeing the Clearing of Transactions Concluded in the Alternative Trading System Organised by the Warsaw Stock Exchange and/or BondSpot S.A. (PLN 100,000, i.e. ca. EUR 23,000) Providing initial margin contribution (PLN 100,000, i.e. ca. EUR 23,000) – concerns concluding transactions on the derivatives market Providing regular contributions to both Funds and maintenance margins (on the derivatives and cash market) based on KDPW_CCP’s calculations 2018-09-21

Clearing Member’s obligations (2) Other formal and technical obligations: Providing signed Power of Attorney for KDPW_CCP to close positions on the derivatives market Providing signed Power of Attorney for KDPW_CCP to submit orders Providing Declaration of joining the automatic securities lending system as borrower Participating in tests of the System for Maintaining Business Continuity at least once a year Regularly providing reports with financial information Calculating on a daily basis the indicators related to precautionary standards according to the rules specified in the relevant regulations ; in the case of exceeding the acceptable levels of these standards, the CM is obliged to notify KDPW_CCP of this in writing within 2 days, giving the reasons for the situation and the steps taken to remedy it 2018-09-21

www.kdpwccp.pl ccp@kdpw.pl 2018-09-21