AECSD John Woodhouse Director Capital Markets, Thomas Murray The Impact of the Financial Crisis on CSD Risks

© 2009 Thomas Murray Ltd. Page 2 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks Financial Risk Impact

© 2009 Thomas Murray Ltd. Page 3 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks ‘ADVERSE’ CHANGES IN MARKET CAP. BY REGION (Period between 1 August 2008 and 30 June 2009)

© 2009 Thomas Murray Ltd. Page 4 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks FEE INCOME RESILIENCE AGAINST A FALL IN TRADE VOLUMES & SECURITY VALUES Fee TypeTransaction volumes down Security value down Overall Impact on revenue Membership Fee Transaction Fee Fixed Mainly Fixed & % of value Custody Fee Per line of Security % of security value held  Those CSDs with a fee structure that includes a mix of Membership fees and Custody fees based upon lines of security, will have a high degree of resilience when both trade volumes and security values are falling.  The higher the ad valorem component of a transaction fee, the higher the revenue exposure to both a fall in transaction volumes and security values.  The fee structure has a significant impact on a CSD’s exposure to revenue volatility and therefore financial risk. Impact on Fee Revenues No Impact Partial Impact - Moderate Partial Impact - High High Impact OBSERVATIONS

© 2009 Thomas Murray Ltd. Page 5 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks

© 2009 Thomas Murray Ltd. Page 6 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks

© 2009 Thomas Murray Ltd. Page 7 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks Counterparty Risk Impact

© 2009 Thomas Murray Ltd. Page 8 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks DEFAULT GUARANTEE FUNDS Factors that adversely impact the size of guarantee funds (GF)  Higher incidence of settlement default  Reduced transaction values and volumes  Most CCPs set a rate based on the ‘value of transactions’ which then determines the underlying size of the GF  A lack of stress testing exposes the size of the fund to be determined by transaction volumes/values (as a proxy for exposure to default), but does not necessarily reflect the underlying exposure.

© 2009 Thomas Murray Ltd. Page 9 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks OBSERVED IMPACTS OF RECENT EVENTS ON GUARANTEE FUNDS Lehmans default  JDCC (off-exchange transactions CCP) reported a claim on the GF of around 20% of its value  The GF was wholly covered by selling securities intended for delivery to LBJ, and JDCC did not request additional contributions from the participants  HKEX reported a loss of HKD 157 million (~USD 18 million)  The loss covered costs incurred by the Hong Kong Securities Clearing Company limited’s (HKSCC) on the close- out of outstanding Lehman positions. (HKSCC is a subsidiary of the Hong Kong Exchanges and Clearing Limited (HKEX)  HKEX may claim against HKSCC’s GF.  The GF value is being enhanced by a review and subsequent increase in some participant contribution rates Reduced Market Activity  A CSD experienced a fall in the value of the fund from around USD 330 million to around USD 250 million as a result of a fall in transaction volumes.

© 2009 Thomas Murray Ltd. Page 10 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks Set minimum levels consistent with underlying exposure  Conduct regular stress testing to assess exposure  Set contribution rates consistent with:  maintaining GF levels consistent with the assessed exposure and structure.  maintaining a credible strategy to restore the fund if losses have been made or the exposure is assessed to have increased. POSSIBLE ACTIONS TO MAINTAIN ADEQUATE GUARANTEE FUND LEVELS

© 2009 Thomas Murray Ltd. Page 11 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks Liquidity Risk Impact Short Selling & Failed Trades

© 2009 Thomas Murray Ltd. Page 12 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks BANS ON SHORT SELLING

© 2009 Thomas Murray Ltd. Page 13 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks RESPONSE TO SHORT SELLING

© 2009 Thomas Murray Ltd. Page 14 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks Americas  The SEC introduced requirements to report new short positions for specified securities (USA). Asia Pacific  The regulator introduced new disclosure and reporting requirements of short sales in the market. (Australia)  The regulator introduced a reporting of short selling positions of over 0.25% of outstanding company shares (Japan).  IDX introduced new rules to regulate the eligibility of the stocks available for short selling (Indonesia)  The regulator revised the volume controls on short selling for a period of 3 months (Taiwan)  KRX strengthened the reporting of short sales (Korea)  SGX proposed stronger measures on reporting and disclosure of short selling activities (Singapore).  The regulator proposed to strengthen the monitoring of short sales (Hong Kong) Europe  Market regulators introduced disclosure of the net economic short position excess of 0.25% of the capital (Belgium, France, Ireland, the Netherlands, Norway, Switzerland, UK)  The regulator further introduced mandatory disclosure if a net short position changes by a further 0.1% of issued share capital (i.e. at 0.35%, 0.45% etc) (UK)  The regulator introduced mandatory reporting of uncovered short selling in excess of 0.25% (Portugal)  The regulator introduced a disclosure of short position in excess of 0.01% of the total number of a company’s share (Hungary, Greece)  The regulator proposed to strengthen the short selling rules (Norway) Middle East  NASDAQ Dubai introduced reporting requirements for all short positions (UAE) RESPONSES TO MANAGE SHORT SELLING EQUITIES

© 2009 Thomas Murray Ltd. Page 15 PRIVATE AND CONFIDENTIAL The Impact of the Financial Crisis on CSD Risks OTHER MEASURES TO LIMIT FAILED TRADES Countries across the regions introduced various enhanced penalties for trade failure:  Apply, Increase penalty fees related to the value of trade  Change of buy-in mechanism