Governance Transparency Report prepared for AMEDA May 2008

Governance & Transparency Report prepared for AMEDA May 2008 Page 1 © 2008 Thomas Murray Ltd.

Agenda I. III. IV. V. Page 2 Objective for Governance & Transparency Market Practice and Standards Ownership & Governance & Transparency Risk Rating Concluding remarks Page 2 © 2008 Thomas Murray Ltd.

I. Objective for Governance & Transparency Page 3 © 2008 Thomas Murray Ltd.

Market Practice and Standards Thomas Murray Objective Governance arrangements should reflect the public interest requirements to ensure a high standard of management with full accountability in promoting the objectives of the owners and users of the depository services. There should be full disclosure of information to market participants and widespread disclosure to the public to enable them to accurately assess the costs and risks associated with using the CSD. Page 4 © 2008 Thomas Murray Ltd.

Market Practice and Standards Risk Associated with Governance & Transparency Risk arises when a participant places reliance on the management and governance arrangements of the depository to operate in a fit and proper manner according to its rules and regulations and on the information provided by the depository. If governance arrangements that allow the depository to act in a way that does not promote the objectives of the owners and users and fulfil public interest requirements then this could cause investors opportunity loss. Equally if information is not disclosed on a timely and accurate basis this could also result in loss to the investor. • Application of capital (for system development vs shareholder return) • Owner transparency (declared conflicts of interest) • Fee setting (monopoly pricing vs public good) Page 5 © 2008 Thomas Murray Ltd.

II. Market Practice and Standards Page 6 © 2008 Thomas Murray Ltd.

Market Practice and Standards The International Organisation of Securities Commissions (IOSCO) www. iosco. org BIS/IOSCO "Recommendations for Securities Settlement Systems", Report of the Committee on Payment and Settlement Systems and the Technical Committee of IOSCO November 2001 Recommendations of particular relevance on Governance & Transparency at this time; Page 7 • Recommendation # 13 – Governance: Governance arrangements for CDSs and CCPs should be designed to fulfill public interest requirements and to promote the objectives of owners and users • Recommendation # 17 – Transparency CSDs and CCPs should provide market participants with sufficient information for them to identify and evaluate accurately the risks and costs associated with use of the CSD or CCP services. Page 7 © 2008 Thomas Murray Ltd.

III. Ownership and Governance Page 8 © 2008 Thomas Murray Ltd.

Governance Ownership and Governance m m m Page 9 Historical transition from exchange/broker owned, to market owned Market owned entities develop for the benefit of the whole market CSDs need ‘understanding’ shareholders Should central banks be in the business? Balanced board composition and independent directors, essential to manage competing interests Page 9 © 2008 Thomas Murray Ltd.

Governance DCV Chile CDS Canada 30% Stock Exch 18% Stock Exchanges 30% Banks Ownership 10% Insurance comp. Ownership 15. 2 Brokers 30% Pension Funds Board Composition 22% Santiago Exch. 6. 7% Toronto Exch. 33% Banks 33. 3% Banks 22% Pension Funds 22% Insurance Comp 0% Independent Page 10 66. 7% Banks Board Composition 20% Brokers 6. 7% CDS 33. 3% Independent Page 10 © 2008 Thomas Murray Ltd.

IV. Governance & Transparency Risk Rating Page 11 © 2008 Thomas Murray Ltd.

CSD Risks Governance and Transparency Governance & Transparency - The risk that a participant may incur a loss arising from the depository not acting according to its rules and regulations or not providing full and accurate information on its activities and the activities of the market. Page 12 This risk arises when a participant places reliance on the depository to act in a fit and proper manner according to its rules and regulations and to provide full and accurate disclosure of information about itself and the depository and settlement activities of the market. There is an obligation on the management and the directors to ensure that the depository is operated according to high international management standards which includes ensuring that information and data relating to its activities and the activities of the market it represents is freely available to participants and the public in a timely manner. If the depository fails either to provide full and accurate information or to strictly abide by its own rules and regulations then the participant and public may be mislead and may suffer Page 12 © 2008 Thomas Murray Ltd. a loss for which the depository may not accept liability.

Governance and Transparency Criteria m m m Page 13 Governance arrangements should include an independent board of directors Board should have independent audit and/or risk committees Published and timely corporate information Active User Group with input into developments Active performance management systems Full data disclosure to participants and public Page 13 © 2008 Thomas Murray Ltd.

CSD Risks Governance & Transparency CSD New Ratings AA Rating A AA + G 1 G 4 G 1 Board Arrangements G 2 Establishment of risk management G 2 G 3 AA CSD AA- CSD G 3 G 5 A+ Comparative Chart Average Americas - TM Proprietary Rating Average Eastern Europe – TM Proprietary Avge West Euro – TM Proprietary Avge Asia Pac – TM Proprietary CSD User Group Arrangements G 6 Management Arrangements ABB B Average Africa – TM Proprietary CC C Avge Mid East – TM Proprietary CC Previous Proprietary Rating C New Public Rating Page 14 G 5 Disclosure of statistical information G 6 A G 4 Disclosure of Corporate Information Less important Important Critical Page 14 © 2008 Thomas Murray Ltd.

C CC CCC Governance and Transparency Risk: m G 1 G 2 Ô Page 15 B BB BBB A- A A+ AA- AA AA+ AAA AA Board Arrangements Ô One third of the Board comprises independent directors (5 directors) who have the opportunity to meet separately at the end of each Board meeting. Committees also have in-camera sessions at end of meetings. Ô Independent directors chair the Board, the Governance/Human Resources committee and the Audit/risk Committee. However, CEO is a member of Governance/HR Committee. Ô The participants have good representation on the Board (9 directors). Ô The CSD has developed a Corporate Governance Manual that sets out the responsibilities of the Board and its committees. This has been approved by regulators. Ô There is an opportunity to assess the Board’s performance – this is a self-assessment process. Ô There is a policy to replace the external auditor on a 5 year basis and senior partner is rotated every 3 years. Establishment of Risk Management Ô Impetus has been given to risk management through the establishment of a risk management division and the adoption of a methodology for the management. Ô There is a Risk Committee that functions within the Board with 2 independent directors Page 15 © 2008 Thomas Murray Ltd. including the Chair.

C CC CCC Governance and Transparency Risk: m G 3 G 4 Ô Page 16 B BB BBB A- A A+ AA- AA AA+ AAA AA Disclosure of Corporate Information Ô The CSD provides corporate information through its website. This information is disseminated when available and the CSD assumes full responsibility for its accuracy. Ô There appears to be established guidelines on the timeliness of the publication of the annual reports (AR) and the annual accounts. Ô The CSD publishes its accounts based on International standards. Ô The CSD does not publish or provide much information on the relevant capital market laws in a concise way nor provide an explanation of the laws related to its operations. Ô The CSD does provide information on its risk management methodology on its website, although the paper is not consistently kept up-to-date. Ô The CSD does not provide information on its audit arrangements and outcomes on its website. Ô The CSD does not provide details on its insurance arrangements. User Group Arrangements Ô A User Group has been established with widespread participation. There is also wellorganised industry groups operating in the market. Ô There a number of internal committees with user representation. Participants have an opportunity to provide input into significant developments such as new functionality or the redevelopment of systems. Page 16 © 2008 Thomas Murray Ltd.

C CC CCC Governance and Transparency Risk: G 5 m G 6 Ô Page 17 B BB BBB A- A A+ AA- AA AA+ AAA AA Management Arrangements Ô A performance pay structure had been developed with 25% of pay at risk for senior managers. Bonus figures are compiled by Internal Audit An established training plan was available. Ô Management training was provided for and there was some opportunity for rotation (not widely practiced). Ô Regular management meetings were a feature of management practices and there was a corporate policy on the process for communication from management to staff. Ô A formal management assessment tool such as a 360 degree appraisal system for senior management has not been developed. Ô A CEO succession plan has been developed. Disclosure of Statistical Information Ô The CSD provides a range of information about its services on its website. It has an upto-date English site. Ô The CSD does not provide detailed data on the assets under custody and settlement data on its website. Nor are there any formal reports on this. Reports can only be obtained by participants on their activity. Ô The CSD distributes a regular newsletter, ‘Depository News’ and provides press Page 17 © 2008 Thomas Murray Ltd. releases on developments on a timely basis on its website.

V. Concluding Remarks Page 18 © 2008 Thomas Murray Ltd.