Page 1 Depository Risk Controls Jim Micklethwaite 21 April 2006

Page 2 Contents 1.Introduction to Thomas Murray 2.Capital Market Infrastructure ‘Classic Model’ 3.Depository Risks 4.Conclusion 5.AMEDA White Label Site Thomas Murray Contents

Page 3 Thomas Murray has four principal businesses surrounding its primary research, analysis and information group INVESTOR SERVICES Global custody reviews for institutions Private custody risk ratings and operational benchmarking NETWORK MANAGEMENT AND INFORMATION SERVICES Agent bank network management support/outsourcing Evaluation and risk rating of local markets Surveillance of network arrangements RATINGS AND ASSESSMENTS Global custody ratings Domestic custody ratings Market and CSD risk ratings PRIMARY RESEARCH, ANALYSIS AND INFORMATION Data management e-platform Data management e-platform ALTERNATIVE INVESTMENTS Private and public rating of service providers Evaluation, selection and monitoring of service providers Request for Proposal Tool Thomas Murray Introduction to Thomas Murray

Page 4 Stock Market CCP/ Clearing House Central Depository Payment System Thomas Murray CMI ‘Classic’ Model ‘Classic’ Capital Market Infrastructure Model ‘Exchange’ Risk and Reward ‘Centralise and Manage’ Risk ‘Minimise’ Risk

Page 5 m Asset Commitment Risk - Minimising processing times m Liquidity Risk - Managing ‘temporary’ fails m Counterparty Risk - Managing full defaults m Asset Servicing Risk - Managing corporate actions servicing m Financial Risk - CSD’s financial security m Operational Risk - Manage internal controls and systems Thomas Murray Depository Risks

Page 6 m Asset Commitment Risk - Real-time securities and cash transfers - Intraday finality in settlement system (with legal basis) m Liquidity Risk - Netting (with legal basis)/ optimisation - Multiple processing cycles - Stock lending - Credit facilities - Fails management (fines, buy-ins) - High levels of immobilisation/dematerialisation - Fast registration/ central registrar Thomas Murray Depository Risks Summary Risk Containment Strategies

Page 7 m Counterparty Risk - DVP (market AND client-side) - Central Bank funds - Settlement assurance (CCP, collateral, guarantee fund) - Strict participation criteria - Surveillance of participant volumes/ risk modelling m Asset Servicing Risk - Multiple sources (‘Official’ + verification) - Timely, accurate and comprehensive event notification - Timely, accurate and comprehensive event processing - Proactive client servicing - Straight-Through-Processing - Clear statement of liability Thomas Murray Depository Risks Summary Risk Containment Strategies

Page 8 m Financial Risk - ‘Adequate’ capital (FSA states GBP 5m+) - Operationally profitable - Comprehensive insurance - Any principal activity fully collateralised - Limited commercial activity m Operational Risk - Comprehensive controls and procedures - External operational audits - Limit manual processing - Asset segregation - Secure and efficient interfaces - DRP/BCP procedures Thomas Murray Depository Risks Summary Risk Containment Strategies

Page 9 CountryCSDOverall Assessment (AAA to C) EgyptMCSDA- JordanSDCA- KuwaitKCCN/R LebanonMidclearA MoroccoMaroclearA- MauritiusCDSA+ OmanMDSRCBBB TunisiaSTICODEVAMA- UAE (DIFC)DIFXN/R Thomas Murray Depository Risks AMEDA Member Risk Assessments

Page 10 m Does a risk-free CSD exist? Mitigating one risk may trigger another. Risk Counterbalances Depository Risks Risk Containment Mechanism +- RTGSAsset CommitmentLiquidity Credit FacilitiesLiquidityFinancial NettingLiquidityCounterparty Central CounterpartyCounterpartyFinancial Pre-fundingLiquidity/ CounterpartyAsset Commitment Thomas Murray

Page 11 Conclusions Thomas Murray Depository Risks m International standards (ISSA, G30, CPSS-IOSCO) set the ‘base-line’ for risk mitigation m No ‘one size fits all’ approach. Strategies must account for local realities. m Risk minimisation strategies require constant evolution. m Risk solutions may need to be tailored for negative ‘side-effects’. m Must communicate how risk is managed. Transparency is critical.

Page 12 AMEDA White Label Site Thomas Murray AMEDA WLS m Aim is to share information between AMEDA members m Access to current TM information - full Data, summary Reports and Newsflashes. m Requires each AMEDA member to sign an agreement to authorise the release of their information to other AMEDA members. m Private, secure zone established exclusively for AMEDA members to upload AMEDA specific information, notices and run data collection exercises. m Option to upload AMEDA specific documentation m Created and administered by TM for the benefit of AMEDA members.

Page 13 AMEDA White Label Site Thomas Murray AMEDA WLS