1. National Depository for Securities (KDPW)

2. 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

3. 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).

4. 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.

5. 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.)

6. 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

7. 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 , FOP
Multiple batch system
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

8. Number of investement accounts operated by KDPW Participants

9. 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

10. KDPW in Figures (2) January 2010
Capitalisation
Securities
PLN
Shares
PLN
- Domestic issuers
PLN
-Foreign issuers
PLN
Investement certificates
PLN

11. 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

12. 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

13. 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

14. 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)

15. 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.

16. Links with foreign CSDsNo
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

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

18. 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

19. 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