1. Warsaw, 10 February 2011 Creating the Clearing House KDPW_CCP

2. Meeting Agenda 14.00 – 14.10 Opening – Dr Iwona Sroka, CEO of KDPW S.A. 14.10 – 14.40 Presentation of general information on the clearing house project and amendments to regulations required by the creation of KDPW_CCP clearing house – Marcin Truchanowicz, Żaneta Skorupska-Świrska 14.40 – 15.10 Presentation of new functionalities available in the new clearing house - Marcin Truchanowicz 15.10 – 15.40 Presentation of the structure and amount of KDPW_CCP participants’ contributions to the new risk management system - Marcin Truchanowicz 15.40 – 17.00 Q&A / Discussion 17.00 Closing 2

3. Part 1 Clearing House Project – General Information

4.  KDPW_CCP project milestones  Why KDPW_CCP?  Market infrastructure – before and after the implementation of the project  KDPW_CCP clearing house participation  Liabilities generating techniques  New risk management system 4

5. KDPW_CCP Clearing House Project Milestones 31 May 2010 Entry into force of an agreement between KDPW SA and KDPW_CLEARPOOL SA introducing an additional element to the settlement guarantee system Q1/2011 Consultation of KDPW and KDPW_CCP regulations with PFSA (Polish Financial Services Authority) Q2/2011 Creation of KDPW_CCP clearing house equipped with a modern risk management system 2012 Harmonisation of KDPW_CCP with changes to the WSE system 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

6. 6 Current Actions Tests of the risk management system and of the transfer of ownership of securities submitted as collateral to KDPW_CCP Analysis of test simulation results Participant survey on test results Presentation of KDPW and KDPW_CCP rules and detailed rules of operation approved by competent authorities Next CM (Clearing Members) information meeting Publication of KDPW_CCP go-live date

7. Why KDPW_CCP? Reduced counterparty risk thanks to guarantees of cleared transactions CCP as a party to transactions in case one of the transaction counterparties is unable to meet their obligations, thus ensuring reduction of the impact of counterparty default More effective risk management New categories of entities eligible as clearing members Improved perception of the Polish capital market infrastructure by Polish and foreign financial institutions Chance of development of clearing and settlement functionalities under international standards Co-operation with foreign CCPs and CSDs Stronger interest in the Polish capital market 7

8. Market Infrastructure – Status Quo WSE BondSpot OTC Trade Clearing and Settlement KDPW KDPW_CLEARPOOL Settlement Clearing CSD Guarantee system NBP 8

9. Market Infrastructure – After the Project Implementation WSE BondSpot OTC Trade Settlement KDPW_CCP Settlement Clearing CSD Risk Management System NBP Clearing KDPW 9

10. Clearing House Project – General Information KDPW_CCP MEMBERS – eligible categories  Local financial institutions: investment firms, banks  Foreign financial institutions: investment firms, foreign entities performing clearing functions of transactions in financial instruments  Companies operating a clearing house 10

11. Clearing House Project – General Information Typically, a Central Counterparty becomes a party to a transaction under one of the two possible legal mechanisms: novation or open offer: NOVATION The original agreement concluded on the market between counterparties is replaced by two agreements with the CCP whereby the CCP becomes a buyer for the seller and a seller for the buyer. OPEN OFFER Each counterparty (buyer and seller) concludes a transaction agreement with the central counterparty (CCP) immediately after matching the transaction details on the trading platform. CCP GUARANTEE LIABILITY A transaction agreement indicates the technical counterparty; CCP’s liability is activated if a counterparty defaults on the transaction settlement date. 11

12. Clearing House Project – General Information Novation and Open Offer in European CCPs 12

13. New Settlement Risk Management System in KDPW_CCP 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) SPAN®  Proprietary software  SPAN® -RM-Clearing application  Technical infrastructure Clearing House Project – General Information 13

14. Changes to the Settlement Guarantee System (SGS): Comparison Status QuoTarget Cash market one-tier system based on a mutual guarantee fund non-standard risk calculation methodology two-tier system based on individual maintenance margins and a mutual guarantee fund for a complex of markets risk calculation based on SPAN®Liquidation Risk methodology Derivatives market two-tier system based on maintenance margins and a mutual guarantee fund non-standard risk calculation methodology two-tier system based on individual maintenance margins and a mutual guarantee fund for a complex of markets SPAN® standard Settlement Guarantee Fund separate fund for each market fund for a complex of markets uncovered risk (UR) methodology KDPW_CCP’s capital as a guarantee Clearing House Project – General Information 14

15. System 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 Clearing House Project – General Information 15

16. System 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 Current Settlements  Cash market instruments  Required by KDPW_CCP and maintained until transaction is settled (part of the margin) Ogólne informacje o projekcie utworzenia Izby Rozliczeniowej Clearing House Project – General Information 16

17. System elements: Settlement Guarantee Fund (SGF) M Stress M Normal CM 1 M Stress M Normal CM 2 M Stress M Normal CM 3 UR 1 UR 2 UR 3 SGF=UR 2 Clearing House Project – General Information 17

18. System 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.001.01.xml/DepozytDodatkowy/ SGF M Stress M Normal CM „A” additional margin CM „A” additional margin Clearing House Project – General Information 18

19. 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 Clearing House Project – General Information 19

20. Files available from KDPW_CCP SPAN files RPNJE.ZRS – XML file in PC-SPAN application format. Contains risk parameters, prices, risk scenarios and a list of active instruments at end-of-business. File used by KDPW_CCP to calculate margins. RPNJI.ZRS – XML file in PC-SPAN application format. Contains risk parameters, prices, risk scenarios and a list of active instruments as of next day. KM.ZRS – XLS file containing SPAN model risk parameters. Files supporting the existing methodology rrmmddDX.ZAR – auxiliary Excel spread sheet for initial calculations rrmmddRP.ZAR – risk parameters file rrmmddSC.ZAR – risk scenarios file rrmmddSD.ZAR – risk scenarios file Information for Participants Relations between clients and CM 20

21. WWW application for the calculation of maintenance margins (available only in Polish) Purpose: auxiliary calculation of maintenance margins Location: KDPW website tab Serwisy>Izba Rozliczeniowa-narzędzia (Services>Derivatives Clearing House-useful tools) The application will also be available for tests from 14.02 to 11.03.2011. Information for Participants Relations between clients and CM 21

22. Information for Participants Relations between clients and CM 22

23. SPAN methodology information Location: KDPW website tab Serwisy>Izba Rozliczeniowa-narzędzia>SPAN (Services>Derivatives Clearing House-useful tools) Information for Participants Relations between clients and CM 23

24. SPAN tests in TST B test environment  Dates: 14 February 2011 – 11 March 2011  New files sent via SWI (KDPW information exchange system) from TST B:  RRMMDDRPNJE.ZRS – XML file read by SPAN application containing end-of-business data  RRMMDDRPNJI.ZRS – XML file read by SPAN application containing next day data  RRMMDDKM.ZRS – XLS file containing risk parameters  colr.exm.001.01.xml – XML file containing additional margin information  Additional text message kdpw.spn.001.01 from PRD system – information on margins and contributions to the settlement guarantee fund based on production data Tests 24

25. 25 Tests  Two types of tests:  Data of SPAN calculations based on production data for comparison – text file  Data on test transactions – set of messages available after implementation of changes  Additional option of testing contribution of securities as collateral  KDPW staff support (telephones/ e-mail contacts in a letter)  Test timetable and parameters communicated in a letter and posted on the website

26. Part 2 KDPW_CCP Regulations Major Amendments

27. KDPW hands over to KDPW_CCP all responsibilities under Article 48.2 of the Act on Trading in Financial Instruments: 1)Clearing transactions concluded on the regulated market; 2)Clearing transactions concluded in the alternative trading system in dematerialised securities; 3)Operating a settlement liquidity guarantee system including a settlement guarantee system for transactions concluded on the regulated market. KDPW_CCP Regulations – Major Amendments 27

28. 1.KDPW will only be a settlement and depository system operator while KDPW_CCP will clear all transactions.  Separation of clearing and settlement resulting in independent development of both functionalities. 2.KDPW_CCP will only clear transactions in organised trading (regulated market and ATS).  Clearing of transactions covered by the settlement guarantee system and of the other.  OTC cash market transactions will not be formally cleared; instead, they will go directly to KDPW for settlement.  KDPW will net cash settlements on each payer. 3.Collateral in securities will be registered in an account operated in KDPW for KDPW_CCP. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (1) 28

29. 4.Introduction of Settlement Agents (SA) – clearing members of KDPW_CCP need not be KDPW participants.  New categories of entities eligible as KDPW_CCP participants  Requirement to hold a depository account or a securities account in KDPW or to have a Settlement Agent and a bank account in the clearing bank or a payer holding an account in the clearing bank. 5.Electronic communication between KDPW_CCP and its participants via KDPW  Annexes to SWI system agreements of existing participants or conclusion of SWI agreements between KDPW and new KDPW_CCP participants 6.Simplified classification of KDPW_CCP participation types  Three clearing membership types corresponding to standards defining general and direct clearing members separately for the cash and the derivatives market. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (2) 29

30. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (3) KDPW_CCP MEMBERS – MEMBERSHIP TYPES Representative – Member clearing all transactions in securities concluded by another entity including a Non-clearing Member (General CM (GCM), cash market), Clearing Member – own transactions - Member clearing all transactions concluded by himself on own account or on clients’ account (Direct CM (DCM), cash and derivatives market), Clearing Member – derivatives accounts - Member clearing transactions concluded on the derivatives market by other entities, including Non-clearing Members, if such transactions are concluded on account of clients holding derivatives accounts operated by this Member or on the Member’s own account (GCM, derivatives market), Non-clearing Member - Member concluding transactions who does not hold the Clearing Member status (open offer). 30

31. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (4) Clearing transactions Concluding transactions Operating accounts MARKETKDPW_CCPKDPW REM (Remote Exchange Member) REM (Remote Exchange Member) BH (brokerage house) BH (brokerage house) DCM GCM Member Settlement Agent 31

32. 7.Changes to capital requirements addressed to clearing members: unification of requirements addressed to members operating on the cash market and the derivatives market, capital requirement depending on the number of entities represented in clearing.  General Clearing Member (GCM): PLN 50 M plus PLN 5 million times the number of represented entities – for banks PLN 15 M plus PLN 2 million times the number of represented entities – for brokers  Direct Clearing Member (clearing only own transactions concluded on the cash market and/or the derivatives market): PLN 25 M – for banks, PLN 4 M – for brokers. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (5) 32

33. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (6) 11.Changes to the automatic loan system – the system de facto remains within KDPW while it is formally operated by KDPW_CCP in co-operation with KDPW; obligation to participate in the system, directly or via a settlement agent, imposed on KDPW_CCP participants  No guarantee of loan return using the Guarantee Settlement Fund’s assets.  Development of the market lending system in KDPW_CCP. 33

34. 12.Change to the rules of eliminating suspension of settlement of guaranteed transactions – mainly the option of providing a cash benefit instead of performing transaction liabilities:  Using other methods of eliminating suspension of settlement (BISO), a method used on other markets, it will certainly ensure more effective elimination of suspensions. 13.Introduction of regulation allowing KDPW_CCP to clear transactions concluded on foreign markets. 14.Elimination of participation types related to market making. 15.Equal priority of KDPW settlement of transactions covered by the Settlement Guarantee Fund and the ATS guarantee fund. Amendments to Regulations – Separating Clearing and Settlement between KDPW and KDPW_CCP (7) 34

35. Amendments to the Rules of the Settlement Guarantee Fund (1) 1.Maintenance margin calculated both for the derivatives market and the cash market. 2.Settlement guarantee fund not to be divided into functional parts; it will be calculated using SPAN® methodology on the basis of open positions on the derivatives market and outstanding transactions on the cash market based on stress-test parameters taking into account potential default of the participant with the highest exposure. 3.KDPW_CCP guarantee liabilities to cover session transactions concluded on the regulated market and in the ATS  Introduction of KDPW_CCP liability using its own capital and covering also ATS transactions currently guaranteed only by the ATS guarantee fund up to its total amount. 4.The fund will no longer guarantee the return of automatic securities loans. 35

36. Amendments to the Rules of the Settlement Guarantee Fund (2) 5.Lower frequency of contributions’ payments: once per month.  Additional margins contributed by participants on demand when the participant’s uncovered risk exceeds the fund’s value; currently contributions to the Settlement Guarantee Fund are updated daily. 6.Netting participants’ receivables/liabilities under contributions to the Settlement Guarantee Fund and receivables/liabilities under contributions to the ATS guarantee funds as well as maintenance margins and MtM/current settlements. 7.Deadline for supplementary contributions to the fund moved to 08:30 (opening of trading on the derivatives market) on the day following contribution update or the day following identification of a decrease in the present market value of contributed securities by at least PLN 1,000. 8.Settlement Guarantee Fund’s assets will no longer be used for lending. 36

37. Q&A Presentation available at www.kdpw.plwww.kdpw.pl FAQs Contact e-mail concerning Clearing House projects: ccp@kdpw.pl 37

38. Settlement Agent Part 3

39. Settlement Agent 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 39

40. Settlement Agent Main principles (1) Settlement Agent (SA)  KDPW direct participant (participation type: representative/settlement agent) authorised to operate a securities accout, 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 payer bank for CM or indicates to KDPW an entity which performs this function for CM – it performs cash settlement of CM’s transactions; SA and CM must indicate the same payer; the Settlement Agent may indicate another default payer for its other functions  Liable for tax issues – the final responsibility for covering tax costs to be defined in the bilateral agreement between SA and CM. 40

41. Settlement Agent Settlement Agent and Clearing Member SA and CM market position WSE KDPW_CCP CM KDPW SA instructions Securities, margins 41

42. Settlement Agent Main principles (2) Foreign investment firm  KDPW_CCP participant with clearing member (CM) 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.  Pays cash liabilities following marking-to-market.  Is the only participant of the settlement guarantee system (contributes cash via the payer bank; securities contributed to the SGS are transferred to KDPW from CM account operated by SA) 42

43. Settlement Agent Main principles (3) Cont’d.  Foreign entity submits an application for a participation agreement to KDPW_CCP and SA submits a representation agreement with CM to KDPW  CM receives a participant ID within a formal account operated by SA in KDPW.  Entity performing SA function does so under its existing KDPW participant ID (e.g. XXXX) while being a CM account operator (e.g. YYYY)  SA manages accounts under different IDs (both XXXX and YYYY).  Relation between SA and CM identified in the system by means of a new type of activity for a CM, a new type of participant status: Representative/Settlement Agent and an agreement between CM and SA.  CM ensures participation in the securities lending system via its SA. 43

44. Settlement Agent Settlement Agent and Clearing Member SA in relation to KDPW and CM in relation to KDPW_CCP KDPW_CCP CM YYYYCM ZZZZ KDPW XXXX SA XXXX for CM YYYY SA XXXX for CM ZZZZ margins positions, DvP 44

45. Settlement Agent KDPW message flow chart Example: SA assigned to two foreign CMsre KDPW Message to inbox XXXX, but Rcvr: ZZZZ Message to inbox XXXX, but Rcvr: YYYY Message re SA to inbox XXXX, Rcvr: XXXX SA CM ZZZZ SA CM YYYY SA XXXX SA XXXX SA XXXX 45

46. Settlement Agent KDPW_CCP message flow chart KDPW_CCP Message to inbox ZZZZ, Rcvr: ZZZZ Message to inbox YYYY, Rcvr: YYYY CM ZZZZ CM YYYY CM ZZZZ CM YYYY 46

47. Settlement Agent Timetable Next project phases  By 04.03.2011 – request for preliminary declaration of KDPW participants’ interest in performing the Settlement Agent function for foreign Clearing Members in order to participate in tests  2nd half of March 2011 – tests with participants  Implementation of the SA functionality when KDPW_CCP goes live 47

48. KDPW New Settlement Risk Management System Comparison of Contributions Part 4

49. Main parameters used in cash market simulation ClassParameterVariantOwnOwn increasedLCH.Clearnet LQ1XNormal5,5% 5,6% LQ1XStress-test8,0%11,0%24,0% LQ1YNormal4,6% 5,0% LQ1YStress-test7,1%9,2%13,7% LQ2XNormal11,1% 9,3% LQ2XStress-test13,6%22,2%24,0% LQ2YNormal3,2% 9,6% LQ2YStress-test5,7%6,4%22,5%  Own parameters:  Normal – confidence level 99.7%  Stress-test – increased by ca. 50%  Own increased parameters:  Normal – confidence level 99.7%  Stress-test – increased by 100%  Parameters used by LCH.Clearnet clearing house LCH.Clearnet parameters are used for comparison because the clearing house uses a similar risk management model based on SPAN methodology under a CME licence. In addition, LCH.Clearnet has many years of experience managing risks of different market sectors, as demonstrated among others during the 2008 crisis when the Lehman Brothers positions were liquidated effectively without engaging own equity. 49

50. Main parameters used in derivatives market simulation ClassParameterVariantOwnOwn increasedLCH.Clearnet W20PriceSCRNormal5% 7% W20PriceSCRStress-test10%15%23% W20VolSCRNormal3,8%7,6%10% W20VolSCRStress-test3,8%7,6%10%  Own parameters:  Normal – PriceSCR parameters calculated using the existing methodology (exponentially weighted moving average model with confidence level 99.9%, not less than 5%, annual maximum for other classes) and increased by 100% for stress-test conditions.  Stress-test – increased by 100%  Own increased parameters:  Normal – as above  Stress-test – increased by 200%  Parameters used by LCH.Clearnet clearing house 50

51. 51

52. Analysis of contributions to the settlement guarantee system Presentation of the results of simulations carried out in the analysed period As of 14.02.2011, in parallel to tests carried out in TST environment, KDPW will begin to distribute information on the amounts of individual contributions of clearing members generated on the basis of production data. Information to be sent in text files via ESDI (Electronic System of Distribution of Information) from PRD system. 52

53. SPAN margins are slightly lower mainly due to: - full netting of risk with long positions in options and - smaller scope of volatility change */obecne – current/ 53

54. SPAN margins are compared to existing contributions to the cash market SGF. Higher margins are mainly due to the different methodology and the segregation of positions used as a basis for the calculation into own positions (e.g. own securities, market maker) and clients’ positions */FR obecnie (RK) – SGF currently (cash market)/ 54

55. SGF calculations are based on uncovered risk (UR) calculations: */FR obecnie – SGF currently/ 55

56. time 56 d - derivatives market c - cash market

57. Comparison of clearing members’ individual contributions to the new risk management system; Examples for big, medium and small clearing member 57

58. Maximum PLN 64.2 M, minimum PLN 53.6 M, maximum difference PLN -0.6 M, minimum difference PLN 1 M SPAN margins are slightly lower, mainly due to full netting of risk with long positions in options and smaller scope of volatility change. */Depozyty SPAN – SPAN margins; Depozyty aktualne – current margins/ 58

59. Maximum PLN 20 M, minimum PLN 5.4 M; maximum difference PLN 9.2 M, minimum difference PLN 2.6 M Higher requirements mainly result from transactions segregation in the member’s entity accounts. */Depozyty SPAN – SPAN margins; FR aktualny – current SGF/ 59

60. time Maximum PLN 14.9 M, minimum PLN 8.1 M; maximum difference PLN -12 M, minimum difference PLN 1.0 M. For SGF SPAN simulation, a projection of contributions to the SGF is used, the existing algorythm reacts more slowly to changes, among others due to updating period (derivatives market) and threshold parameter (10%). SGF SPAN contributions are strongly dependent on the degree of transaction segregation in entity accounts, the highest uncovered risk level and the distribution of uncovered risk among participants. 60

61. time */Obciążenia SPAN – SPAN contributions; Obciążenia aktualne – current contributions/ Maximum PLN 90.1 M, Minimum PLN 70.0 M maximum difference PLN 10.4 M, minimum difference PLN 2.0 M 61

62. time Maximum PLN 7.9 M, minimum PLN 6.1 M, maximum difference PLN 0.1 M 62

63. Maximum PLN 8.6 M, minimum PLN 5.1 M; maximum difference PLN 3.8 M, minimum difference PLN 1.0 M 63

64. Maximum PLN 2.3 M, minimum PLN 1.2 M; maximum difference PLN -4.5 M, minimum difference PLN -3.0 M 64

65. time Maximum PLN17.8 M, minimum PLN 13.6 M; maximum difference PLN 4.9 M, minimum difference PLN 1.5 M 65

66. Maximum PLN1.4 M, minimum PLN 1.1 M; maximum difference PLN 0.1 M 66

67. Maximum PLN 0.9 M, minimum PLN 0.3 M; maximum difference PLN 0.5 M, minimum difference PLN 0.1 M 67

68. Maximum PLN 0.3 M, minimum PLN 0.2 M; maximum difference PLN -0.5 M, minimum difference PLN -0.2 M 68

69. Maximum PLN 2.3 M, minimum PLN 1.8 M; maximum difference PLN 0.4 M, minimum difference PLN 0.0 M 69

70. D ISCUSSION 70