J.P. Morgan – ACSDA General Assembly 2011 Panel 5 – The evolution of settlement cycles in Europe Theodore Rothschild Executive Director, Global Market Infrastructures March 25, 2011 S T R I C T L Y   P R I V A T E   A N D   C O N F I D E N T I A L

How do Global Custodians and Investors deal with the The Harmonization of Settlement cycles in the EU; and the opportunity for longer term Global Harmonization How do Global Custodians and Investors deal with the current complexity? What is our client base saying about developments in the EU? Who is very excited about this? 4

Trade Settlement Cycle Trade Settlement Cycle Settlement cycles vary widely by market and instrument class Market Trade Settlement Cycle Argentina TD+3 (Equities) TD+1 (Govt Debt) Belgium T+3 (Govt bonds, Corp Bonds & Equity) T+2 (T-bills, but is fully negotiable) Brazil TD+3 (Equities) TD+1 (Corp & Govt Debt although negotiable) Bulgaria T+2 (Equity & Corp Debt) Govt Debt has no standard settlement cycle Egypt TD+2 (Equity Purchase) TD+1 (Equity Sale) TD+2 (Treasury Bills) TD+1 (Treasury Bond Purchase) TD+0 (Treasury Bond Sale) Germany TD+2 (On Exchange) TD+2 to TD+5 (Off Exchange) Greece TD+3 (Equities On-Exchange & OTC) TD+3 (Govt Debt although negotiable) Hungary TD+3 (Equities) TD+2 (Govt Debt) India TD+2 (Equities) TD+1 (Govt Debt) Negotiable (Corp Debt) Lithuania Market Trade Settlement Cycle Malaysia TD+3 (Equities) TD+2/TD+3 (Corp Bonds) TD+2 negotiable (Govt Bonds) Mauritius TD+3 (Equities) TD+1 (Govt Debt) Peru TD+3 (Equities) TD+2 (Fixed Income) Poland TD+3 (Equities) TD+2 (Govt Bonds) Saudi Arabia TD+0 (Equities) TD+2 (Mutual Funds & Treasury Bills) South Africa TD+5 (Equities) TD+3 (Fixed Income) Spain TD+3 (Equities) TD+1 (Standard for Corp Debt but negotiable between TD+1 & TD+5) TD+3 (Govt Debt but negotiable between TD+0 & TD+5) Taiwan TD+2 (TDCC) TD+0 (Physical) TD+2 (Fixed Income) Thailand

A closer look at a few markets with different settlement cycles – the tip of the iceberg Trade Settlement Cycle Agent vs treasury & 3rd Party FX comments FOP permitted in the market Settlement Method Pre-matching Buy-In's Egypt TD+2 (Equity Purchase) TD+1 (Equity Sale) TD+2 (Treasury Bills) TD+1 (Treasury Bond Purchase) TD+0 (Treasury Bond Sale) Agent FX market. 3rd Party FX's are not allowed in this market. Yes, in practice free of payment transactions are possible, however where no audit trail exists to prove the incoming flow of foreign currency for the purchases, clients may experience further problems and delays when seeking to repatriate sale proceeds. Equity No Mandatory   Treasury Bills Not Applicable   Treasury Bond Malaysia TD+3 (Equities) TD+2/TD+3 (Corp Bonds) TD+2 negotiable (Govt Bonds) Agent FX market. There are restrictions on transfers of MYR between External Accounts which makes 3rd Party FX difficult to support. No. On-exchange trades cannot be settled free of payment. FoP transfers are only permitted if the reason falls within those prescribed by Bursa Depository, such as NCBO, or transfer between family members etc. Equity & Corporate Debt Yes , but not mandatory - Informal matching by Subcustodian   Government Yes , mandatory - Formal, automated matching after Trade Date   Discretionary   South Africa TD+5 (Equities) TD+3 (Fixed Income) Treasury FX market. 3rd Party FX's are allowed in this market. Yes Equities Yes, mandatory - Informal Matching by Subcustodian   Government & Corporate Debt India TD+2 (Equities) TD+1 (Govt Debt) Negotiable (Corp Debt) Agent FX market. 3rd Party FX's are difficult to support due to the requirement that the tax liability must be calculated prior to FX repatriation for sales proceeds / dividends. No, free of payment deliveries are only permitted in case of a change of sub-custodian, which is subject to approval from SEBI. In the case of free of payment security settlement, evidence must show the cash has settled separately. Government Debt

Closer look at 3 markets with different Settlement cycles - What really matters Egypt TD+2 (Equity Purchase) TD+1 (Equity Sale) TD+2 (Treasury Bills) TD+1 (Treasury Bond Purchase) TD+0 (Treasury Bond Sale) Trades settle in the market with batches that run three times a day 10:00am, 12:00pm and 4:00pm CLT. It is J.P. Morgan's practice to receive title prior to releasing funds. On SD, the selling brokers custodian bank transfers title to the buying counterparts custodian bank via on-line instruction to the MCDR system (a Free Delivery Order (FDO)). Once the buying counterparts custodian bank confirms receipt of title via the MCDR system, usually on the morning of settlement date, payment is made by inter-account transfer to the broker account with the buying counterparts custodian. Note: It is market practice for brokers to maintain cash accounts with each of the custodian banks in order to facilitate settlement with the counterparts custodian bank. Malaysia TD+3 (Equities) TD+2/TD+3 (Corp Bonds) TD+2 negotiable (Govt Bonds) For listed equity/bonds traded on the Bursa Malaysia Securities exchange Trade settlements in the Malaysian market in on a 'Fixed Delivery Settlement System' on a T+3 cycle. Settlement of the securities takes effect at 8.30am with cash settlement at 10.30am. For bonds traded on the Scripless Securities Trading System (SSTS ) operated by Bank Negara Malaysia (Central Bank), there is no fixed settlement cycle. The settlement date is by mutual agreement between the contracting parties which can range as early as T+0 to T+14, on a real time basis. The settlement cycle is fully negotiable, but the market practice is usually T+2. The dealer inputs details of the delivery transaction into the SSTS system by 5pm. In practice this is completed by early afternoon. South Africa TD+5 (Equities) TD+3 (Fixed Income) By 5:00pm on T+3 (SD-2), CSDP's input commit instructions to SAFIRES, Strate's Southern African Financial Instruments Real-Time Electronic Settlement System. From 6.00am to 16:00pm on settlement date, SAFIRES instructs the central bank (SARB) to effect net payments through the South Africa Multiple Options System (SAMOS), which is a real-time gross payment system. Upon completion of each net funds movement in the three settlement windows that run from 9:00am to 11am, 1:00pm to 2:00pm and 3:00pm to 4:00pm, SAMOS sends an electronic confirmation of payment to SAFIRES on a real-time basis. Upon receipt of the electronic message from SAMOS, SAFIRES moves title within a matter of minutes. (The transfer of funds and shares are linked; in a contractual transaction that is considered to be both final and irrevocable.) This process results in minimal intra-day exposure to the central depository, as payment is made prior to receipt of good title.

What is our client base saying about developments in the EU? The Harmonization of Settlement cycles in the EU; and the opportunity for longer term Global Harmonization What is our client base saying about developments in the EU? Its still only a consultation, so, actually not much! Who is very excited about this? In specific cases - People who don’t understand it! 4

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