1. KDPW_CCP – regulated market
Warsaw, 2012

2. KDPW_CCP – General Information
Part 1

3. Ownership structure KDPW & KDPW_CCP
integral part of the Warsaw Stock Exchange
present independent joint - stock company
Current shareholders (since 1999)
33,33%
33,33%
33,33%
100%

4. KDPW_CCP – General Information
Creation of KDPW_CCP clearing house equipped with a modern risk management system
2012/2013
Harmonisation of KDPW_CCP with changes to the WSE system
Further development of the risk management system
Processing of market securities lending & borrowing
Introduction of securities netting to the KDPW_CCP clearing process
Launch of OTC derivatives clearing

5. Market Infrastructure
WSE
BondSpot
OTC
Trade
KDPW_CCP
Clearing
Clearing
Risk Management System
KDPW
NBP
Settlement
Settlement
CSD

6. KDPW_CCP in the market

7. KDPW_CCP – international cooperation
– member of international organisations and working groups
EACH – European Association of Central Counterparties Clearing Houses
EACH Risk Management Committee
EACH Derivatives Working Group
CCP12 – Global Association of Central Counterparties
CCP12 Working Group 2 – Review of CPSS-IOSCO Standards and key recent regulatory publications
CCP12 Working Group 3 – Default Contact List and Information Sharing

8. KDPW_CCP –markets & products
Cash market Regulated derivatives market
Regulated:
Warsaw Stock Exchange (WSE) Warsaw Stock Exchange (WSE)
BondSpot S.A.
shares, bonds, subscription rights, allotment futures contracts, options,
certificates, investment & structured certificates, index participation units
mortgage bonds, warrants, ETFs
ATS (alternative trading system)
NewConnect
Catalyst
shares, allotment certificates, bonds, mortgage bonds

9. KDPW_CCP MEMBERS – eligible categories
The following legal entities may become participants:
Local & foreign financial institutions: investment firms, banks
Companies operating a clearing house
Others

10. KDPW_CCP Membership Types
KDPW_CCP MEMBERS – MEMBERSHIP TYPES
General Clearing Member (GCM) – representative of other entities on cash and/or derivatives market
Direct Clearing Member (DCM) – clearing only own (house or client) transactions concluded on cash and/or derivatives market

11. KDPW_CCP membership - Capital requirements
unification of requirements addressed to members operating on the cash and the derivatives market
capital requirement depending on the number of entities represented in clearing
General Clearing Member:
PLN 50 mn (ca. EUR 11.5 mn) plus PLN 5 mn (ca. EUR 1.15 mn) times the number of represented entities – for banks
PLN 15 mn (ca. EUR 3.5 mn) plus PLN 2 mn (ca. EUR 0.5 mn) times the number of represented entities – for brokers
PLN 15 mn (ca. EUR 3.5 mn) – for companies operating a clearing house
Direct Clearing Member:
PLN 25 mn (ca. EUR 5.8 mn) – for banks
PLN 4 mn (ca. EUR 0.9 mn) – for brokers

12. KDPW_CCP Settlement Risk Management System
Part 2

13. KDPW_CCP – New Settlement Risk Management System
Risk management system – a range of interconnected elements to assess, predict and actively manage settlement risk
Guarantee system methodology:
Two-tier system
margins + Settlement Guarantee Fund (SG Fund)
SPAN®

14. Settlement Guarantee System (SGS) - elements
MARGINS
Cash market:
risk calculation based on SPAN®Liquidation Risk methodology
Derivatives market:
SPAN® standard
SETTLEMENT GUARANTEE FUND – both markets
fund for a complex of markets
uncovered risk (UR) methodology
MARKING-TO-MARKET/CURRENT SETTLEMENTS
KDPW_CCP’s own capital as a guarantee:
PLN 200 mn (ca. EUR 46 mn) of share capital

15. KDPW_CCP Default Waterfall
Remaining KDPW_CCP assets
Remaining 50% of additional contributions
PLN 20 mn (ca. EUR 4.5 mn) from KDPW_CCP assets
50% max of additional contributions to the SG Fund (capped at 110% of basic contributions)
Basic contributions of remaining CMs to the SG Fund
Basic contributions of insolvent CM to the SG Fund
Margins (cash & derivatives)
Receivables of insolvent CM

16. SGS’s elements: Margins (M)
Function: to cover the risk of change of the portfolio value in a certain time horizon
Scope of application: open positions on the derivatives market and transactions in the settlement cycle on the cash market
Required by KDPW_CCP and released after closing a position /settling a transaction
Contributed individually by clearing members to cover their own risk
Risk parameters estimated under normal conditions at a significant confidence level
Glossary:
Positions not yet settled – open positions in derivatives and transactions in cash market instruments in the settlement cycle
Portfolio – all positions registered in an entity account

17. SGS’s elements: Marking-to-Market (MtM)/Current Settlements (CS)
Marking-to-Market /Current Settlements
Help to avoid concentration of settlements
Reduce risk down to a defined time horizon (1 day)
Calculated on a portfolio basis (entity account)
Marking-to-market/PREMIUM
Derivatives market instruments
Settled between participants through KDPW_CCP
Current Settlements
Cash market instruments
Required by KDPW_CCP and maintained until transaction is settled (part of the margin)

18. SGS’s elements: Settlement Guarantee Fund (SGF)
M Normal
M Normal
M Normal
M Stress
M Stress
M Stress
CM 1
CM 2
CM 3
UR 1
UR 2
UR 3
SGF=UR 2

19. SGS’s elements: Additional margins
Participants whose uncovered risk between payment dates exceeds the fund value must contribute additional margins due at T+1.
Additional message: colr.exm xml
M Stress
M Normal
SGF
CM „A”
CM „A”
additional margin

20. KDPW_CCP - Buy-in procedure
KDPW_CCP initialises securities buy-in procedure in case:
a participant does not carry out measures to ensure the elimination of suspension of transaction settlement caused by the shortage of securities, or
despite the measures undertaken by the participant, settlement suspension is maintained owing to a shortage of securities.
Fee for initiating the buy-in procedure for a participant who has not removed the suspension of transaction clearing owing to a shortage of securities – PLN 1,000 (ca. EUR 228)

21. KDPW_CCP - Buy-in procedure
KDPW_CCP aims at purchasing securities on the participant’s account on:
T+4
in the case of a market maker’s transaction
T+3
T- Due day of transaction settlement

22. Development of the settlement risk management system
Cross-margining between the cash market and the derivatives market, reduction of required margins for positions registered in one entity account
Introduction of aggregate accounts, accounts configurable by participants, used to calculate net margins
Processing securities lending, repos and reverse repos, using the SPAN® methodology
Extension of online monitoring for maintenance margins on the cash market

23. Settlement Agent – new functionality
Part 3

24. Settlement Agent (SA) – General provisions
Addressees of the new functionality:
Foreign clearing members (CM)
Beneficiaries:
Foreign CM and entities playing the role of Settlement Agents
Purpose:
To enable foreign investment firms to apply for KDPW_CCP CM status without having to open and maintain a KDPW account.
 separation of clearing and settlement

25. Main principles (1) Settlement Agent (SA)
KDPW direct participant (participation type: representative/settlement agent) authorised to operate a securities account, a derivative instruments account or a depository account
CM’s financial instruments are registered and CM’s transactions are settled in KDPW depository account operated by the settlement agent
Settlement agent performs the function of payment bank for CM or indicates to KDPW an entity which performs this function for CM – it performs cash settlement of CM’s transactions
Liable for tax issues – the final responsibility for covering tax costs to be defined in the bilateral agreement between SA and CM

26. Settlement Agent (KDPW) and Clearing Member (KDPW_CCP)
Settlement Agent and Clearing Member – market position
WSE
KDPW_CCP CM
KDPW SA
instructions
Bilateral communication

27. Foreign entity – Clearing member (CM)
SA - Main principles (2)
Foreign entity – Clearing member (CM)
KDPW_CCP participant with clearing member status
Not a KDPW participant – cannot operate securities accounts (need not open a branch in Poland)
Signs an agreement with one entity performing SA function in KDPW
Indicates SA account to KDPW_CCP and presents a declaration indicating the entity to perform this function and the entity’s declaration of consent
Is the only participant of the Settlement Guarantee System (contributes cash via the payment bank; securities contributed to the SGS are transferred to KDPW from CM account operated by SA)
CM ensures participation in the securities lending system via its SA

28. Settlement Agent and Clearing Member
CM in relation to KDPW_CCP and SA in relation to KDPW
KDPW_CCP
CM Y
CM Z
KDPW X
SA X for CM Y
SA X for CM Z
margins
positions, DvP

29. How to become a KDPW_CCP Clearing Member?
Part 4

30. How to become a Clearing Member? – in short (1)
Basic steps - documents
Submitting application for a participation agreement and clearing member status indicating the type of activity the applicant intends to perform (GCM or DCM, on cash and/or derivatives market)
Attaching to the application the following documents:
A copy of the company statute or articles of association and a valid copy or excerpts from the relevant company register
A copy of the brokerage licence or licence to conduct other activities related to trading or registration of finacial instruments; additionally, in the case of a foreign investment company – a declaration showing conditions that allow it to begin performing brokerage activities in Poland or a document from the Polish FSA (KNF) confirming that and when they received from the appropriate foreign FSA a notification on the company’s intention to begin performing brokerage activities in Poland
Cards with specimen signatures of the applicant’s authorised representatives

31. How to become a Clearing Member? – in short (2)
Basic steps – documents (continued)
A consent declaration to be subject to the KDPW’s Arbitration Court’s jurisdiction
An information card with an address for deliveries, a list of staff performing activities related to finacial instruments’ trading (incl. their positions, phone/fascimile numbers and addresses)
A declaration indicating either the applicant’s identifier in the relevant settlement institution or an entity (together with its identifier) which will perform the function of the applicant’s settlement agent (SA) in the settlement institution
A declaration indicating either the applicant’s bank account number in the relevant settlement bank in the currency in which the applicant will participate in the transactions’ clearing operated by KDPW_CCP or an entity which will perform the functions of the applicant’s payment agent
When relevant – declarations of the entities indicated by the applicant as the performers of the functions of the SA and/or the payment agent

32. How to become a Clearing Member? – in short (3)
Basic steps – documents (continued)
Attaching to the application a written statement indicating the types of financial reports and other financial information (as specified in the KDPW_CCP’s Clearing Rules, incl. i.a. annual financial statement and financial data on levels of precautionary standards) as well as their submission’s deadlines
KDPW_CCP verifies if the applicant fulfils the participation requirements and if the above mentioned documents meet the formal requirements.
If this is the case – the participation agreement is concluded within 2 weeks of the submission of the application.

33. How to become a Clearing Member? – in short (4)
Communication
SWIFT - the communication standard between KDPW_CCP and our foreign Clearing Members
Formal requirements:
Signing agreement
Providing KDPW_CCP with data identifying a person/people authorised to send and receive messages by means of XML/SWIFT
Registration in the Closed User Group created by SWIFT for KDPW
Technical requirements
Connection with SWIFTNet
Available SWIFT applications and modules

34. KDPW_CCP Clearing Member’s obligations
Part 5

35. Clearing Member’s obligations (1)
Financial obligations:
Providing initial contribution to the Clearing Fund (PLN 500,000, i.e. ca. EUR 116,000)
Providing initial contribution to the Fund Guaranteeing the Clearing of Transactions Concluded in the Alternative Trading System Organised by the Warsaw Stock Exchange and/or BondSpot S.A. (PLN 100,000, i.e. ca. EUR 23,000)
Providing initial margin contribution (PLN 100,000, i.e. ca. EUR 23,000) – concerns concluding transactions on the derivatives market
Providing regular contributions to both Funds and maintenance margins (on the derivatives and cash market) based on KDPW_CCP’s calculations

36. Clearing Member’s obligations (2)
Other formal and technical obligations:
Providing signed Power of Attorney for KDPW_CCP to close positions on the derivatives market
Providing signed Power of Attorney for KDPW_CCP to submit orders
Providing Declaration of joining the automatic securities lending system as borrower
Participating in tests of the System for Maintaining Business Continuity at least once a year
Regularly providing reports with financial information
Calculating on a daily basis the indicators related to precautionary standards according to the rules specified in the relevant regulations ; in the case of exceeding the acceptable levels of these standards, the CM is obliged to notify KDPW_CCP of this in writing within 2 days, giving the reasons for the situation and the steps taken to remedy it