CLS Group: Magyar Nemzeti Bank Sarah Medlar Relationship Manager CLS Services 9 October 2003

2 Agenda CLS – structure CLS – how it works CLS – how it’s working CLS - next steps

3 Australia - Australia & New Zealand Banking Group * Commonwealth Bank of Australia * National Australia Bank * Westpac Banking Corporation * Belgium - Fortis Bank * KBC Bank * Canada - Bank of Montreal * The Bank of Nova Scotia * CIBC * Royal Bank of Canada * The Toronto-Dominion Bank * Denmark - Danske Bank * Nordea * France - BNP Paribas * Caisse Nationale De Credit Agricole * Credit Lyonnais * Société Générale * Germany - Bayerische Landesbank * Commerzbank * Deutsche Bank * DZ Bank * Dresdner Bank * Hypo Vereinsbank * Westdeutsche Landesbank * Italy – Banca Intesa * UniCredito * Japan - The Bank of Tokyo-Mitsubishi, Ltd * Mizuho Corporate Bank* Norinchukin Bank * Sumitomo Mitsui Banking Corporation * The Sumitomo Trust & Banking Co., Ltd. * UFJ Bank * Luxembourg – Dexia Banque Internationale a Luxembourg * Netherlands - ABN AMRO Bank * ING Bank * Rabobank Nederland * Norway - Den norske Bank * Singapore – DBS Bank * Oversea-Chinese Banking Corporation * United Overseas Bank * Spain - BBVA * Banco Popular Espanol * Banco Santander Central Hispano* Sweden - Skandinaviska Enskilda Banken * Svenska Handelsbanken * Switzerland - Credit Suisse * UBS * Zurcher Kantonalbank * United Kingdom - Barclays Bank * HSBC Holdings * Royal Bank of Scotland * Standard Chartered Bank * United States - American International Group * Bank of America * The Bank of New York * Bank One * Bear Stearns Securities * Citibank * The Goldman Sachs Group * JPMorgan Chase * Lehman Brothers * Mellon Bank * Merrill Lynch * Morgan Stanley & Co. * Northern Trust Corporation * State Street Bank and Trust Co. Australia - Australia & New Zealand Banking Group * Commonwealth Bank of Australia * National Australia Bank * Westpac Banking Corporation * Belgium - Fortis Bank * KBC Bank * Canada - Bank of Montreal * The Bank of Nova Scotia * CIBC * Royal Bank of Canada * The Toronto-Dominion Bank * Denmark - Danske Bank * Nordea * France - BNP Paribas * Caisse Nationale De Credit Agricole * Credit Lyonnais * Société Générale * Germany - Bayerische Landesbank * Commerzbank * Deutsche Bank * DZ Bank * Dresdner Bank * Hypo Vereinsbank * Westdeutsche Landesbank * Italy – Banca Intesa * UniCredito * Japan - The Bank of Tokyo-Mitsubishi, Ltd * Mizuho Corporate Bank * Norinchukin Bank * Sumitomo Mitsui Banking Corporation * The Sumitomo Trust & Banking Co., Ltd. * UFJ Bank * Luxembourg – Dexia Banque Internationale a Luxembourg * Netherlands - ABN AMRO Bank * ING Bank * Rabobank Nederland * Norway - Den norske Bank * Singapore – DBS Bank * Oversea-Chinese Banking Corporation * United Overseas Bank * Spain - BBVA * Banco Popular Espanol * Banco Santander Central Hispano* Sweden - Skandinaviska Enskilda Banken * Svenska Handelsbanken * Switzerland - Credit Suisse * UBS * Zurcher Kantonalbank * United Kingdom - Barclays Bank * HSBC Holdings * Royal Bank of Scotland * Standard Chartered Bank * United States - American International Group * Bank of America * The Bank of New York * Bank One * Bear Stearns Securities * Citibank * The Goldman Sachs Group * JPMorgan Chase * Lehman Brothers * Mellon Bank * Merrill Lynch * Morgan Stanley & Co. * Northern Trust Corporation * State Street Bank and Trust Co. CLS Shareholders

4 Structure CLS Group Holdings - parent company NY: CLS Bank International Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York London: CLS Services Ltd. Facilities Management/ Operations Tokyo: Representative office

5 EUR agent Bank 1 USD agent Bank 1 EUR agent Bank 2 USD agent Bank 2 MT 202 USD funds EUR funds MT300 FX-Deal USD EUR Payment/information flow pre CLS The Problem

6 How the world worked before CLS 2 days PLUS

7 Solving the Problem 1995 Allsopp report —Banks should review their internal control processes —Industry groups should take collective action —Central Bank measures to encourage risk reduction led to industry initiative Produced the CLS concept - Preferred Solution July 1997 New company CLS Services Ltd. Today 67 shareholders 2 September 2002 “GO LIVE”

8 Overlapping RTGS systems Asia/Pacific Europe North America Europe

CLS Settlement – How it Works

10 CLS Bank holds RTGS settlement accounts with Central Banks Holds a multi currency account for each Settlement Member CLS Bank is a Multicurrency Bank Reserve Bank of Australia European Central Bank Swiss National Bank US Federal Reserve Bank of Japan Bank of England Bank of Canada Monetary Authority of Singapore DanmarksNationalbank Norges Bank Sveriges Riksbank

11 How CLS Works 06:30 07:0009:0012:00 Submitting Instructions Funding & settlement Funding completion

12 Instructions submitted Instructions submitted

13 Settlement Commences at CET and is scheduled to complete at CET. Risk Management Tests applied to both Settlement Members. Real-time exchange of currencies i.e. CLS Bank will not settle the trade unless both parties have the required funds available. Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank.

14 Risk Management Tests CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds –Will both Settlement Members still be within the currency Short Position Limit? –Will both Settlement Members still be within their Aggregate Short Position Limit? –Will either Settlement Member’s account become negative after settlement? No instructions will settle if any of the six tests fail.

15 Funding CLS Central Bank Accounts

16 Pay-In Schedule Multilateral net amount of Settlement Member’s obligations on a given value date. Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at CET. Long position currencies to be paid out by CLS Bank. Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3rd Parties) that the Settlement Member is sponsoring.

17 Short position limit € 0.5 Billion 09:00 -10:00 -11:00 -08:00 -12:00 CET Pay-in € 1.0 Billion Total paid in € 250 m € 500 m € 166 m € 1000 m Responding to the Pay-in Schedule € 167m € 667 m € 834 m € 167m € 250 m

18 Algorithm seeks to make recycle liquidity throughout the process within risk parameters CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move. No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance. Pay-outs

19 C 12:00 CET Funding and Pay-out

20 FX-Deal USD EUR MT 300 information CLS Bank USD a/c Bank 1 Bank 2 EUR a/c Information Input input CLS Bank CLS Settlement Member B CLS Settlement Member A Payment & information flow under CLS

21 CLS has changed market practice 1 day funding Normal - 2 day risk Historical information Possible same day settlement Normal - 2 day contract CLS eliminates Settlement risk (temporal risk) Real-time information Timed payments - intraday requirement Extends domestic settlement finality globally

22 CLS Features – a summary Linked to CB (RTGS) Finality in PVP settlement Multilateral Netted Funding Real Time settlement and funds flow information Intra-day Capability Universal: Global Shareholders/Customers Independent (Utility) Not a Central Counterparty Provides Crisis Management Support

CLS – How it’s Working

24 CLS at September 2003 Settling over 80,000 sides and over $1 trillion a day 70 Third party customers of Member banks 54 banks settling live transactions in 11 currencies 25 Registered Vendors using CLS  brand Over 14 million sides settled in 1 year with a gross value of over $160 trillion

25 CLS Volumes

26 CLS Values

27 Net Funding

28 New products and services – short term 1.14 Application and infrastructure conversion - achieved 1.15 Currency expansion, NKR, DKR, SEK and SGD – now live 1.16 Matching field for Custody & CLS capacity up-grade 2003 Up-grades 2003/04 plan to add five and four new shareholders respectively. HK and New Zealand dollar, Korean won Further Currencies New Shareholders SSI Database

29 Planned medium term investments Additional Settlement Window (second session) and In/In swap Straight through processing initiatives (including E-trading connectivity) High value liquidity settlements Information Services

30 CLS Bank: a unique achievement First global banking settlement system Unprecedented co-operation across the industry Creates a global industry standard 67 shareholders, 25 vendors, 11 central banks Major business & technical achievement Extends finality of domestic RTGS settlement globally Growing number of providers of third party services Level playing field – target of one price for all

31 Other CLS shareholder benefits In / Out swaps Crisis management Information delivery / control Risk profile Future direction: Prioritisation of product development / market development plus Industry forum Involvement in CLS Group Governance

32 Other CLS shareholder benefits CLS Bank membership Gateway to the provision of third party services

33 CLS Benefits – what our members say Post-Settlement Reporting Pre-Settlement Information Eliminates Settlement Risk Reduces error rates Reduction or elimination of credit (settlement) limits Source: TowerGroup

34 CLS Market Potential (Sides per day) Intra-Shareholder Transactions 100 Financial Institutions as 3 rd Party 260 Other Currencies 290 Matching Field for Custody Other 3 rd Party - Future potential plans - Very early days - Good progress Planned CLS Market Share after 5 Years 20% 50% 90%

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