General overview KELER Functions & Services Mr. Tamás Madlena director Marketing and Customer Relationship Budapest, 22 May 2003

2 1990:Re-opening of Exchanges 1993:KELER foundation Ownership structure: Introduction

3 Growth of Shareholders’ Equity In Million EUR, 1993 – 2002

4 Organizational structure Internal Audit Independent Auditor Risk ManagementTreasury Business Development Foreign Relations Legal Counsel Supervisory BoardShareholders' Meeting Board of Directors Chief Executive Officer ITAccounting Marketing and Customer Relations Operations DepositoryShare Registry

5 Participants Basic distinction -Safekeeping and settlement of OTC („administrative” requirements by KELER) -Clearing (capital and collateral obligations) Eligible entities -Investment service providers (broker/ dealer) -Credit institutions (custodian bank) -Issuers -Foreign CSDs, ICSDs -National Bank of Hungary -State Debt Management Agency, State Treasury -Other

6 Central Securities Depository, custody Clearing and settlement for both Exchanges (spot and derivatives markets) CCP RTGS for the OTC market Cash and securities account management Cross-border settlements Share registrar Fields of Core Services

7 National depository Central securities registration, ISIN allocation Collective safe custody and fungibility for physical securities Custody services, handling of corporate actions Growing immobilization Dematerialization through KELER (deadline for public companies: end of 2004) 17f-7 eligibility Depository

8 Net Clearing and Settlement BIS model 3, net securities/net cash Multilateral netting BSE trading Settlement cycles: –T+2 for bonds –T+3 for equities Settlement between a.m. SD Dedicated own/client securities settlement accounts

9 Derivatives Clearing and Settlement Procedures Matched trades received from exchanges (real time/EOD batch), settlement price EOD (per product/expiration) Allocation (at trading level/after trading), Give-up, Option exercise Clearing & comfirmation on T+0 Settlement on T a.m. – variation margin settlement in cash, initial margin settlement in gov’t securities/cash

10 OTC - Gross Clearing and Settlement Trade-by-trade BIS model 1 settlement SFI DVP Real-time processing between Markets served: –off-exchange trading and post-trading settlement (broker/custodian) –Budapest Stock Exchange block trading –BSE auctions trading

11 Cross-Border Settlements Outbound –Foreign currency DVP –Clearstream account / forwarded services –Automation (KID + SWIFT) –25-30 % market share Inbound –Standard custody –Clearstream, OeKB, JP Morgan (ADR)

12 No central registry in Hungary KELER as market leader Not a continuous recording - updates for corporate actions STP with CSD Value added services – Dividend payments – General Meetings – Administrative support Share Registrar

13 Lending and Borrowing Automatic –Supporting Stock Exchange Settlements –Pool based Tri-party –KELER managing collateral KELER as principal –Lending desk –Flexibility

14 Repo Transactions Two types –Hold-in-custody –Delivery Mainly government securities Real time processing

15 FoP Securities Transfers Two types –Without matching, delivery instruction only –With matching Widely used –Segregation –Securities leg of against payment transactions (not DVP, a separate GIRO cash transfer needed) RTGS and batch processing

16 Collateral Management Linked to several services Marked to market daily Special arrangements for the Central Bank as beneficiary (handling commercial bank limits) New module in May 2003 –Eligible instruments added –„Collateral for third parties”