CLS Group Meeting Sarah Medlar Relationship Manager CLS

CLS Group Meeting Sarah Medlar Relationship Manager CLS Services Istanbul 3 October 2003

Agenda 2 l CLS – structure l CLS – how it works l CLS – how it’s working l CLS - next steps

Structure l CLS Group Holdings - parent company l NY: CLS Bank International Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York l London: CLS Services Ltd. Facilities Management/ Operations l 3 Tokyo: Representative office

Payment/information flow pre CLS The Problem EUR agent Bank 1 EUR funds FX-Deal USD Bank 1 MT 202 USD agent Bank 1 4 EUR agent Bank 2 MT 202 Bank 2 MT 300 USD funds USD agent Bank 2

How the world worked before CLS 2 days PLUS 5

Solving the Problem l 1995 Allsopp report —Banks should review their internal control processes —Industry groups should take collective action —Central Bank measures to encourage risk reduction 6 l led to industry initiative l 1996 - Produced the CLS concept - Preferred Solution l July 1997 New company CLS Services Ltd. l Today 67 shareholders l 2 September 2002 “GO LIVE”

Overlapping RTGS systems North America Europe Asia/Pacific 7

CLS Bank is a Multicurrency Bank Holds a multi currency account for each Settlement Member CLS Bank holds RTGS settlement accounts with Central Banks Danmarks Nationalbank Norges Bank of England Bank of Japan 8 Sveriges Riksbank Reserve Bank of Australia US Federal Reserve Monetary Authority of Singapore Bank of Canada Swiss National Bank European Central Bank

How CLS Works Submitting Instructions 06: 30 9 Funding & settlement 07: 00 Funding completion 09: 00 12: 00

Instructions submitted 10

Settlement l Commences at 07. 00 CET and is scheduled to complete at 09. 00 CET. l Risk Management Tests applied to both Settlement Members. l Real-time exchange of currencies i. e. CLS Bank will not settle the trade unless both parties have the required funds available. l Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank l Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank. 11

Risk Management Tests l CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds – Will both Settlement Members still be within the currency Short Position Limit? – Will both Settlement Members still be within their Aggregate Short Position Limit? – Will either Settlement Member’s account become negative after settlement? l 12 No instructions will settle if any of the six tests fail.

Funding CLS Central Bank Accounts 13

Pay-In Schedule l Multilateral net amount of Settlement Member’s obligations on a given value date. l Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at 07. 00 CET. l Long position currencies to be paid out by CLS Bank. l Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3 rd Parties) that the Settlement Member is sponsoring. 14

Responding to the Pay-in Schedule Short position limit € 0. 5 Billion Total paid in Pay-in € 166 m € 1. 0 Billion € 167 m € 250 m CET 15 08: 00 - € 1000 m € 834 m € 667 m € 500 m € 250 m 09: 00 - 10: 00 - 11: 00 - 12: 00

Pay-outs 16 l Algorithm seeks to make recycle liquidity throughout the process within risk parameters l CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out l If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move. l No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance.

Funding and Pay-out C T E C 0 0 : 2 1 17

Payment & information flow under CLS FX-Deal USD CLS Settlement Member B EUR CLS Settlement Member A MT 300 information input Input input USD a/c Bank 1 EUR a/c USD a/c Bank 2 EUR a/c CLS Bank 18 CLS Bank Information

CLS Features – a summary l Linked to CB (RTGS) l Finality in PVP settlement l Multilateral Netted Funding l Real Time settlement and funds flow information l Intra-day Capability l Universal: Global Shareholders/Customers l Independent (Utility) l Not a Central Counterparty l Provides Crisis Management Support 19

Other CLS shareholder benefits CLS Bank membership Gateway to the provision of third party services 20

Questions? www. cls-group. com 21