National Depository for Securities (KDPW)

Overview of the Polish Capital Market Polish Financial Supervision Authority (KNF) National Depository for Securities (KDPW) Markets National Bank of Poland (Clearing Bank) The Polish Financial Supervision Authority plays an important role in KDPW external relations. It carries out the regulatory supervision in the Polish capital market. National Bank of Poland performs the role of the settlement bank in the cash settlement, which is managed by KDPW. As far as the financial institutions and intermediaries are concerned, I have to mention Warsaw Stock Exchange which obviously facilitates the execution of transactions involving securities in organised market trading, which are the cleared and settled by KDPW. The Polish State Ministry in the Polish capital market is the institution which regulates the introduction of state-owned companies to public trading. Participants – brokerage houses & banks – these are KDPW participants for which KDPW manages omnibus account. At the same time, they manage cash & securities accounts for their clients. Issuers – these form the largest number of KDPW participants who entrust KDPW with the safekeeping of their securities. The largest issuer in terms of capitalisation is the Polish Ministry of Finance. Financial institutions & Intermediaries Institutional investors Issuers Individual investors

KDPW – history & ownership 1991 – 1994: An integral part of the Warsaw Stock Exchange 1994 – Present : Independent joint - stock company 1997 – Clearing of derivatives 1998 – Multilateral cash netting for exchange and non-exchange market 2002 – RTGS introduced 2003 – First foreign shares listed and settled 2009 – New Depository Clearing & Settlement System (NSDR) Current shareholders (since 1999) The State Treasury - 1/3 The Warsaw Stock Exchange - 1/3 The National Bank of Poland - 1/3 KDPW was founded in 1991 as an integral part of the Warsaw Stock Exchange. Since 1994 it has operated as an independent joint-stock company. It is worth mentioning that the founders of the Polish capital market decided at the time of its creation that securities trading would be fully dematerialsed (a system of accounts on which securities balances were registered for each trading member).

Main KDPW Responsibilities Custody of all securities admitted to trading following public issue Reconciliation and monitoring Clearing and settlement of transactions executed on regulated markets: the Warsaw Stock Exchange and BondSpot; and outside the regulated markets (New Connect, MTS-Poland) Processing of corporate actions Assigning ISIN codes for Polish issues (National Numbering Agency) Risk management –management of: Settlement Guarantee Fund covering regulated markets & ATS Collateral system for derivatives, Collateralisation of security loans in automatic securities lending - borrowing system  safekeeping of all securities admitted to trading on the regulated market  KDPW manages the depository accounts for participants of the depository-settlement system on which securities are registered (participants are entities entitled to keep securities in KDPW)  these entities in turn manage investor accounts for their clients); of course securities are registered in the form of electronic book entries (advantages: shorter settlement deadlines, safety, elimination of the risk of theft, forgery and fraud, there is also no requirement to manage a treasury vault); all securities have to be registered in KDPW apart from Treasury Bills which are registered national Bank of Poland;  reconciliation and monitoring  KDPW monitors the number of securities registered on all participant accounts to ensure it correspond with the number of securities issued by the issuer (registered on the so called issue account);  clearing and settlement of transactions executed on regulated markets: the Warsaw Stock Exchange and MTS-CeTO; and outside the regulated market (MTS-POLAND); From the technical point of view we are a CCP (let’s say de facto CCP), however from the legal point of view – not. *MTS-CeTO  Electronic Treasury Securities Market (ETSM) – licensed to organised and manage a regulated market; is also entitled to create platforms for electronic trading in securities and financial instruments also on a non-regulated market; - transaction execution results in the transfer of title in the securities; - each investor must hold a cash account and securities account with a licensed broker or bank; in the case of derivatives, the client applies to KDPW (via a broker)for a NIK – Client Identification Number  which allows the investor to register all derivatives operations on his account; KDPW participants (brokerage houses and banks) hold depository accounts in the KDPW system and a bank account in the National Bank of Poland; - A client order is sent to the broker’s computer system  then a sale order to the stock exchange trading system  then the transaction is executed and reported by the Stock Exchange to the broker  the following the confirmation of the transaction details by the parties to the trade is reported to KDPW  KDPW prepares payment calculation forecasts for transaction settlement day; They are sent to KDPW participants (parties to the trade) and to banks holding accounts in the payment system of National Bank of Poland /cash side of transaction/) - settlement of transactions in KDPW means transfer of securities between the depository accounts of participants of the depository-settlement system, with the simultaneous transfer of cash between accounts of the payment banks; transactions are settled in KDPW in a multibatch system (this will be more precisely explained by my colleague, later in his presentation)  processing of corporate actions  KDPW acts as an intermediary between issuers of securities and their owners for dividend payments and interest payments and carries out the following corporate events on behalf of issuers: assimilations, exchanges, conversions and share splits, pre-emptive right issues, and the conversion of convertible bonds into shares; assigning ISIN codes for Polish issues (National Numbering Agency)  securities are admitted to KDPW once the KDPW Management Board has adopted the appropriate resolution; on this basis securities are registered in the depository and assigned an ID code, in line with international standards (ISIN and CFI – International Securities Identification Numbers and Classification of Financial Instruments Standards);  risk management – management of: the settlement guarantee fund covering regulated markets  KDPW manages settlement guarantee fund made up from participant contributions which is used to secure transaction settlement in the event of a shortage of cash on the participant’s account necessary to settle the transaction; collateral system for derivatives ??? collateralisation of securities loans in automatic securities lending-borrowing system  in order to ensure transaction settlement liquidity, KDPW organises and manages an automatic securities lending and borrowing system whose purpose is to prevent or eliminate suspensions of a settlement for transactions secured by the Settlement Guarantee Fund. Moreover KDPW system offers on request securities loans for the purpose of ensuring the liquidity of settlement for transactions concluded on regulated market.

Other KDPW Responsibilities Additional Services: Management of the Investor Compensation Scheme For the Polish Social Security System: Transfer payments between open-end pension funds Management of the Pension Guarantee Fund Other: Membership of European and international associations and working groups Education, promotion, sponsorship  management of the Investor Compensation Scheme  was created in 2001 in order to guarantee the assets and securities registered in investment accounts following the bankruptcy of a brokerage house or bank managing securities accounts. Participants of the Investor Compensation Scheme pay the appropriate contribution each month, calculated by KDPW according to the provisions of the Law on Trading in Financial Instruments;  for the Polish Social Security System: KDPW is responsible for performing several significant functions relating to the state social security system: This include: the performance and processing of cash transfers between all the pension funds, following changes of membership in open-ended pension funds, known commonly as transfer payments, the management of the Pension Guarantee Fund  created for the purpose of guaranteeing the payment of any potential shortages of a pension fund , as well as compensating for any losses caused by the pension fund society;  education, promotion, sponsorship (co-operation with Polish universities, conferences relating to capital market issues etc.)

Securities registered in KDPW All securities admitted to trading in the regulated market must be registered in KDPW Currently, the following securities are recorded in the KDPW system: Shares (foreign and domestic) Bonds (Treasury, Central Bank, Corporate, Municipal, Convertible, EIB, with priorities rights, non-public bonds, mortgage bonds) Investment Fund Certificates Derivatives Futures Contracts (WIG20 index, currency, share) Index Participation Units Options (European style), (WIG20 index, share) Exception: Treasury bills - custody, clearing and settlement in the National Bank of Poland system

Basic principles of Clearing and Settlement All securities settled in KDPW are dematerialised and transfers are made by book-entry between KDPW participant accounts Mandatory asset segregation (own assets, client assets) Change of ownership at the moment of book-entry in securities account DvP Settlement model: BIS model I, BIS model II Settlement : T+2, T+3 - for regulated - market trades – SE, Bond Spot T+0 to T+n - for non-regulated market transactions – OTC Two settlement channels: RTGS DVP 8.00-17.00, FOP 8.00-18.00 Multiple batch system 7.30-19.00 Cash leg settlement CBM - in the National Bank of Poland for PLN and Euro CLB for other currencies Settlement liquidity facilities securities L&B automatic and on-request repo buy-in, sell-out

Number of investement accounts operated by KDPW Participants

KDPW in Figures - January 2010 Number of KDPW Participants, Including: 72 Resident participants 71 Brokerage houses 23 Bank 15 Other 33 Non –resident participants 1 Issuers 589 Foreign issuers 36 Domestic issuers 553

KDPW in Figures (2) January 2010 Capitalisation Securities 842 599 505 490 PLN Shares 399 664 970 568 PLN - Domestic issuers 388 452 691 981 PLN -Foreign issuers 112 122 785 87 PLN Investement certificates 910 014 353 PLN

Basic principles Daily settlement schedule : multibatch and RTGS - 6 settlement sessions a day with intra-day finality after each session RTGS BATCHES 7.30 10.30 13.00 15.30 18.30 19.00 Technical 8.00 DVP FOP DVP FOP 17.00 18.30 FOP FOP Technical

KDPW in the Polish capital market Post-trading processing flow Seller Buyer Markets Trade Trade Trade execution Trade execution Trade feed = Already matched for settlement Securities accounts of the Seller / seller’s custodian Securities accounts of the Buyer / buyer’s custodian - transaction execution results in the transfer of title in the securities; - each investor must hold a cash account and securities account with a licensed broker or bank; in the case of derivatives, the client applies to KDPW (via a broker)for a NIK – Client Identification Number  which allows the investor to register all derivatives operations on his account; KDPW participants (brokerage houses and banks) hold depository accounts in the KDPW system and a bank account in the National Bank of Poland; - A client order is sent to the broker’s computer system  then a sale order to the stock exchange trading system  then the transaction is executed and reported by the Stock Exchange to the broker  the following the confirmation of the transaction details by the parties to the trade is reported to KDPW  KDPW prepares payment calculation forecasts for transaction settlement day; They are sent to KDPW participants (parties to the trade) and to banks holding accounts in the payment system of National Bank of Poland /cash side of transaction/) - settlement of transactions in KDPW means transfer of securities between the depository accounts of participants of the depository-settlement system, with the simultaneous transfer of cash between accounts of the payment banks; transactions are settled in KDPW in a multibatch system (this will be more precisely explained by my colleague, later in his presentation) Cash accounts of the seller/ seller’s custodian cash clearer in NBP Cash accounts of the Buyer/ buyer’s custodian cash clearer in NBP

Links with foreign CSDs Links created with foreign CSDs (FOP links) in connection with the dual listing of shares on the WSE. More FOP and DVP links planned. Euroclear Sweden EVK

Basic principles of dual listing Foreign shares quoted on WSE in PLN Clearing and settlement in KDPW in PLN Dividends paid to Polish shareholders in foreign currency Transaction finality – entry on the participant’s KDPW account Shares need to be registered on KDPW account in foreign CSD to be traded on the WSE The transfer may be settled intra-day (RTGS in KDPW)

Principles of KDPW cross-border links Free of Payment transfers The links work on a Free of Payment (FOP) basis, which means that securities will be transferred without a corresponding transfer of cash. The links may in future be upgraded to a bilateral DVP link, once a relevant business case has been identified and the appropriate legal conditions have been met.

Links with foreign CSDs No CSD Country Type of link Company* Year of opening 1. KELER Hungary Indirect MOL 2004 2. EVK Estonia Direct Olimpic Entertainment Group Silvano Fashion Group 2007 3. OeKB Austria WARIMPEX Immoeast 2003 4. CDCP Slovakia Asseco Slovakia 5. Clearstream Frankfurt Germany Indirect– CBL** bmp 6 Monte Titoli Italy Indirect – CBL Unicredito Italiano 7. DTC USA Indirect– CBL CEDC 2006 8. SCP Czech Republic CEZ 9. Euroclear France France Indirect – EB *** ORCO Belvedere 2008 10. Euroclear UK & IR UK Indirect – EB Atlas Estates Plaza Centres 11. Euroclear Sweden Sweden Indirect - EB Reinhold * ** Clearstream Banking Luxembourg *** Euroclear Bank

Plans for the future Romania (Indirect) Canada (Indirect) 2010

KDPW Vision Build a robust capital group by 2013: Anticipate competitive challenges; Build a service portfolio based on state-of-the-art, innovative technologies and solutions creating value for capital market participants; Support the development of a regional centre in Warsaw in active co-operation with other Polish and foreign market participants with KDPW as the main depository-settlement institution in Central and Eastern Europe

KDPW Strategic Goals (1) Introduction of a new KDPW business model (2) Positioning KDPW as the leading CSD and clearing house in the CEE region (3)KDPW integration with European infrastructures (4) Introduction of new services to increase the value of the KDPW capital group (5) Raising the standard and scope of services currently provided (6) Optimisation of the KDPW capital group business processes (7) Improving the input and skills of KDPW capital group personnel in order to meet the strategic goals (8) Promoting the KDPW capital group corporate image and products and services through enhanced corporate communication

www.kdpw.pl