1 Introduction of Trading, Clearing and Settlement of Futures Contracts in Mauritius Steve Leung Sock Ping Chairman Central Depository & Settlement Co. Ltd (CDS) Mauritius

2 Why Introduce Futures? Diversify the range of products that are traded in Mauritius Improve liquidity in the underlying instruments Enhance the price discovery process Enable investors to manage their investment portfolios in a more dynamic manner, better manage investment risks and enhance portfolio returns over time Allow investors to hedge their portfolio or benefit from directional trading with lower initial investment Pave the way for the introduction of futures on foreign underlyings Futures will traded on the Stock Exchange of Mauritius and will be cleared and settle by CDS Mauritius

3 Risk Management Model CDS has developed a specific risk management model for derivatives that includes margining, marking to market, online monitoring of exposures and a guarantee fund mechanism Implementation of automated risk controls that build on our already solid risk management framework to better manage the risks associated with derivatives The exposures of participants and their clients will be updated in real-time, each time that an order is executed in the trading system When a participant places an order, the trading system will automatically check whether the participant and its client has deposited sufficient margin before accepting the order If the maximum allowable exposure of the participant or its client has been reached, the participant or the client will need to provide additional margin to be able to place new orders

4 Guarantee Fund Mechanism If a participant does not make payment on any day, CDS will use the margin of the participant to make good its settlement obligation If margin deposited by the participant is not sufficient, CDS will use the Guarantee Fund to make good the obligations of the broker The guarantee fund mechanism has been designed in such a way that a default in the futures market will not contaminate the cash market and will also not affect the financial soundness of CDS. The cash obligations of participants in the futures market will not be netted with their positions in the cash market. The settlement mechanism (including settlement instructions etc.) for futures will be separate and distinct from that for the cash market. The Guarantee Fund Mechanism for the derivatives market will be different from that for the cash market

5 Implementation Plan Changes made to the CDS system and the interface to the trading system (all changes were made by the IT team of CDS) Cash management tool developed to facilitate the management of the margin and profit/losses of clients by the participants New trading and clearing/settlement rules for futures drafted Training of participants and mock runs Public information and awareness campaign Rules have been approved by the regulator We expect to go live by Feb 2010 when the market players are ready

6 Thank You