How Euroclear manages the interoperability with the different

How Euroclear manages the interoperability with the different markets

Agenda l The Euroclear group l Creating a “European Domestic Market”, an exemple of cooperation and consolidation among the CSD’s of the Euroclear group l Euroclear Bank’s links with the different markets

Euroclear Group structure

Turnover Q 2 2005 350 307. 1 300 241. 9 250 85. 4 200 256. 2 114. 4 85. 5 171. 4 150 53 52. 6 60. 1 100 103. 5 50 118. 1 132. 6 61 36. 3 74. 1 0 2002 CRESTCo 2003 Euroclear France 2004 2005 6 months € trillion Euroclear Bank ST 005

Value of securities held Q 2 2005 14. 6 14 12 13. 1 11. 9 10. 9 0. 7 10 0. 8 0. 7 3 2. 6 2. 4 4. 1 2. 2 8 0. 8 3. 2 6 3. 5 6. 7 4 4. 8 2 5. 9 5. 3 0 2002 2003 2004 2005 € trillion 30 June Euroclear Nederland Euroclear France CRESTCo Euroclear Bank ST 006

Agenda l The Euroclear group l Creating a “European Domestic Market”, an exemple of cooperation and consolidation among the CSD’s of the Euroclear group l Euroclear Bank’s links with the different markets

European capital markets infrastructure The problem of fragmentation l Settlement is a key component of capital markets efficiency – National markets not a European market – At least one CSD per country – fragmentation has a major impact on efficiency, cost and risk l Both Harmonisation and Consolidation enable efficiency gains, and reduction of costs and risks Consolidation of settlement is necessary to make European capital markets competitive for issuers and investors

Our vision is full consolidation of markets within Euroclear Group Customer Agent Common User Interface CREST Central Banks Euroclear France Euroclear Netherlands CIK Domestic Service & Full integration of legacy systems and functionality Payment systems Single Settlement Engine Euroclear Bank Full Service

From today’s fragmentation towards consolidation Current situation CIK E NL E F CREST E B Step 2 ESES (2007) Step 1 SSE (2006) CIK E NL E F CREST E B CIK E NL EF ESES-CCI – e-RGV - E 2 A ESES - RGV upgrade ESES - SP component SSE Step 3 Single Platform (in phases from 2008) Legend SSE CIK E NL EF CREST E B CCI Client Communication Interface Positioning & booking Core Processing Single Application Platform Legacy Legal record Country boundary SSE CREST E B

Conclusion Euroclear’s business model meets the challenges facing the European markets l Creating efficiency (e. g. reduce costs) and reduce risks while retaining choice and competition l Eliminating differences in technology – both standards and processes l Harmonising market practices and legal/regulatory framework l Offering a settlement model that allows choice of service levels to meet the needs of all issuers investors, and intermediaries

Agenda l The Euroclear group l Creating a “European Domestic Market”, an exemple of cooperation and consolidation among the CSD’s of the Euroclear group l Euroclear Bank’s links with the different markets

Money Transfer Settlement services Custody services Credit and Banking Services Tri-Party services Lending & Borrowing Fund. Settle Communications Client Services and Support. Migration Team Euroclear Bank’s services GE 014 B

Domestic debt Austria Luxembourg Belgium the Netherlands Australia Denmark Norway Hong Kong Argentina Finland Portugal Indonesia Canada France Russia Japan Mexico Germany South Africa Malaysia Greece Spain New Zealand Ireland Sweden the Philippines Italy Switzerland Singapore the United Kingdom Thailand USA Against payment Free of payment CS 205

Equities Austria Luxembourg Belgium the Netherlands Denmark the United Kingdom Argentina Finland Norway Hong Kong Canada France Portugal Japan Mexico Germany Spain Malaysia USA Greece Sweden Singapore Ireland Switzerland Italy SE Settlement CS 206

Activity breakdown by market segment “No client sector stands by itself” 26 % 8% Broker/dealers Borrowers Seller Fixed income 52 % Equities Derivatives 4% Other participants 10 % Lenders Purchaser

Accessing new markets 1. Issuance of eurobonds -> acceptance of denomination currency -> acceptance of settlement currency

2. Access to the national domestic securities markets Major determining factors guiding the decision to service a market International flows Operational Risk Reputation Risk Liquidity Risk Legal Risk l Sufficient international demand from international investors justifying a link l Operational procedure l Service level agreements l Contractual relationship external agents l Choice of agents – depositories (settlement + payments, asset servicing) l Free access to the currency l Credit Lines with cash correspondents (settlements + payments) l Asset protection l Enforceability of contracts