MCDR OVERVIEW Misr For Central Clearing Depository Registry

MCDR OVERVIEW Misr For Central Clearing, Depository & Registry Presentation AMEDA conference Alex. , April 27 th -29 th 2009 Mohamed S. Abdel Salam Chairman & Managing Director

Contents • • • Introduction Mission MCDR Integrated Activities Services initiated upon the international standards MCDR Awards & International Recognition Relations among Correspondent Business MCDR Short term initiatives Future Plans Compliance to the International Recommendations Useful Links

Introduction MCDR – brief Overview § MCDR (Misr For Central Clearing, Depository & Registry ) was founded in 1994 § Branches: 6 branches in Cairo, Alex. &6 th October § MCDR members § Securities brokerage firms. § Custodians Banks. § Banks and financial institutions authorized to work as securities intermediaries or as custodian or settlement members. § MCDR Participants § Securities issuers, Brokerage firms, Custodians, Direct Settlement, Registered Owners, Primary Dealers § Website: http: //www. mcsd. com. eg

Introduction Establishment • MCDR was established according to the provisions of the Capital Market law #95 of 1992 and within the framework of the programs adopted by the Capital Market Authority (CMA) for developing the capital market mechanisms and applying the central depository system in accordance with the international standards in this field.

Introduction MCDR Profile • Legal Type Stock 100% Egyptian Joint • Date of Establishment August 1994 • Date of Operation October 1996 • Authorized Capital 250 million EGP • Issued Capital 140 million EGP • Paid Capital 140 million EGP • Governed by Depository & Registry Law no 93 year 2000

Introduction MCDR Ownership Shareholders structure shareholder % Banks- Custodians 50% Brokerage firms 45% Egyptian Exchange 5% (Member of central depository)

Introduction MCDR Participants Type Number Issuers 1260 Brokers 157 Custodians 41 Direct Settlement 32 Registered Owners 7 Primary Dealers 14

Mission In the past: MCDR focused mainly on: q Executing clearing and settlement of the daily stocks transactions in the Egyptian Capital market. q Finalizing central registry system for securities. q Providing investors with all information and data related to their accounts. q Managing the default risk through the settlement guarantee fund (SGF). q Guaranteeing the execution of financial or securities obligations. q Achieving stability and discipline in the market.

Mission q Reducing risks associated with delivering securities versus the value of the transaction. q Attracting foreign investor through applying the international standards (DVP). q Protecting securities investors against non-commercial risks. q Providing an auto match system matches online the trading system in the stock exchange with the clearing system in MCDR, Custodians and Brokerage firms.

Mission Recently: MCDR has conducted several initiative improvements to meet all market participants’ interests: q Well designed, clear, comprehensible and transparent legal infrastructure q Participating in IT company aims to provide Brokerage, Custodian firms with application systems in front and back office which are necessary to e -trade systems. q Managing the accounts of both cash and securities with the international institution for central depository (Clear Stream) q Establishing the automated system of the “Intra Day Trade” for active securities. q Protection of investor assets

Mission q Corporate governance structure providing balance between the interests of public and shareholders q Properly managed operational risk, business contingency and disaster recovery plans q Securities Lending/Borrowing practices q Efficient Cross-border settlement practices q Establishing the automated system of “Margin Trade” System and real time Gross settlement “RTGS”. q Providing accurate and timely information to the institutions rating Central Settlement and Custody institutions as well as market participants and auditors

Mission q Providing Digital signature services to benefit a wide sector of the electronic media users q Subscripting in the SWIFT as a service bureau to provide the company members and Middle East with the SWIFT service. q Enforcing the international relation with the external institutions “AMEDA”, “IOSCO”, “FEAS”, “CSDs and others. q Central Counterparty practices

MCDR Integrated Activities RTGS DVP STP OTHER Settlement Guarantee fund (SGF) Clearing & Settlement systems Central Depository Equities Clearing (traded Equities) Fixed Incomes Clearing (Corporate & Governmental Bonds) Central Registry Shareholder list Cash dividends Stock dividends (Beneficiary Owner) Bond redemption Exchanged Trading Data with EGX Other corporate action Participants Issuers Custodians Brokers Registered Direct Owner Settlement Primary Dealers

Central Depository Central depository activities all activities related to the depository of securities, clearing, settlement of financial position resulting from securities transactions, and the transfer of securities ownership through book entry, including: 1. The deposit of securities with the company or with any licensed entity. 2. The transfer of ownership by book-entry of securities traded among Central Depository Members. 3. The pledge of securities recorded by book - entry and financial position 4. The clearance and settlement of resulting from securities transaction

Number of settled transactions executed on deposited and undeposited securities

Clearing and settlement system • Clearing The daily executed transactions ( buy and sell orders), are processed through MCDR system in preparation for the transfer of ownership of the product and the fulfillment of all obligations. Executing the clearing and settlement transaction at the exact periods (T+2) , (T+1) or (T+0) upon its nature. • Settlement At due date when the obligation is settled, then the ownership of the product is transferred. This process involves ØMatching the buy and sell instructions ØRenewing the product's ownership, ØTransferring the related cash. Transactions involving securities are usually settled on a delivery-versuspayment (DVP) basis. .

Clearing & Settlement cycle Dr. Securities acc. Sell order Block for sale Broker 1 2 1 7 Check balance Custodian Cr. Securities acc. Registry owners log 3 Clearing between brokers 7 4 Buy order Broker 2 4 1 et t n nt ec me Inj ttle nt se ou am 6 EGX Executed trades Settlement Banks Buyer acc. Dr. cash Bal. Seller acc. Cr. cash Bal. 5 SWIFT/Net Settlement Clearing & Settlement Process MCDR process Clearing between Sett. Banks 7 Net settlement SWIFT notification 7 CBE Dr. Settlement Bank 1 Cr. Settlement Bank 2

Central Registry Central registry Activities All activities related to the bookkeeping of securities ownership, and of pledge of securities, including: 1. The maintenance of records with the names of owners of securities, the rights thereto, and the disposal thereof. 2. The distribution of entitlements of securities deposited with the company, including the principal amount, the proceeds, dividends, redemption value, and restructuring payments. 3. The publishing of any information and reports disclosed by issuers of securities, be it general or related to their securities. 4. The offering of services related to the issuance of securities on behalf of the issuer; and 5. The exchange of securities upon the restructuring of the issuing entity.

Development of the registered issuer number

Settlement Guarantee Fund • The Settlement Guarantee Fund is committed to settle transactions executed at the stock exchange in case of delay or default of settlement by any of the trading parties. • SGF cover, cash default through financing the financial position & Securities default through stock lending and borrowing • SGF positive role can be observed through the increase of the securities turn over rate as a result of the settlement of the member obligation defaults SGF aims to facilitate. – Guaranteeing the execution of financial or securities obligations. – Achieving stability and discipline in the market. – The fund is committed to settle transactions executed in the stock exchange in case delay or default of settlement by any trading party. – Attract local and foreign investments.

SGF positive role in market

Services initiated upon the international standards 1. Dividends distribution service MCDR Providing the distribution services for the dividends due on the deposited securities on behalf of the issuing companies (i. e. shares Dividends –Bond interest and redemption - …) , MCDR developed the distribution channels to satisfy the various customers needs Dividends Channel Home delivery SWIFT Bank transfers Cheques Cash dividends Through 47 bank branch

Services initiated upon the international standards 2. Introducing SWIFT service • MCDR was authorized to set the SWIFT message standers of the NSMPG (National securities Market Practice Group) in Egypt. • MCDR subscribed in SWIFT as a service bureau for company members allowing them to benefit from all system’s advantages with lower cost. • The system aims to introduce the latest scientific means in the field of connection and exchange of massages and information among markets through authorized banks in different countries.

Services initiated upon the international standards SWIFT Service Bureau Banks Corporate Insurance companies Broker-Dealers Investment Managers Stock Exchanges SWIFT Service Bureau (58 Brokers) Depositories Trustees Government Institutions Settlement Systems Clearing systems Payment Systems

Services initiated upon the international standards 3. Introducing Short Selling service q A New Leveraged Vehicle for Securities Trading being Introduced in Egypt Managed by MCDR q The system allows investors who own securities and wish to keep them in order to gain a return through lending these securities to other investors, this leads to: § Increase the market liquidity; § Benefit for all related parties; § Increase the activity in the stock exchange as a whole. § The following chart reveal the process of short selling

Services initiated upon the international standards Short Selling Process MCDR SLB System Lending Pool Lending Request Lending customer Lending Custodian Interest Income EGX Trading System Short Sell Order Borrowing Broker Waiting Queue Interest Income Cash Collateral MCDR Settlement System Cash Initial Margin Calls Short Selling Customer

Services initiated upon the international standards 4. Certificate Authority The Certification Authority (CA) is the entity authorized by the Policy Management Authority to create, sign and issue Digital Certificates which built in accordance with the newest & the most secured international technology “ISO 27001” standards and it will provide a key role in the Capital Markets: – – Protecting clearing and settlement system from fraud Providing extra security for E-Trade instructions Providing strong audit ability and legal enforceability of all transactions Enabling online services for issuers and their investors • E-Trade Solution • E-Voting for company resolutions – Strong authentication of stock market participants

Services initiated upon the international standards Written signature Signing using PKI • Unsecured documents` delivery • Late in documents` delivery • Availability of changing the contents • No verification of the signature validity • No verification of the document contents validity • No verification of time stamping • No verification of who exactly signed Digital signature Internet / intranet Using smart card and personal pin code 28 • Signing any document before sending • Signing data with Time stamping • verification of the signature validity • verification of the document`s contents validity • verification of time stamping • verification of who exactly signed Availability of storing signature & signed data

Services initiated upon the international standards 5. Other services MCDR initiate several services to meet the various market participant (Issuers , Investors, …. )needs: Ø Ø Ø Ø Shareholders list Pledge Repatriation Call center Internet Email & post mail SMS & Fax Ø E vote

MCDR AWARDS & International Recognition JP Morgan assessment MCDR was granted the highest level of efficiency with a score of 1. 25 points on a scale of 1 to 3 MCDR built the Information Security System in accordance with the ISO 27001 standards B. I. D. quality award in the Diamond category For significant contribution to the business world, for high standing and professionalism demonstrated by prestigious performance Thomas Murray Risks Assessment MCDR was granted an overall A in Thomas Murray depository risks assessment that overall, Rating for Misr for Central Clearing, Depository and Registry (MCDR) is: A = Low risk MCDR overall rating

TM Risk Assessment to MCDR Overall, the Thomas Murray CSD Rating for Misr Company for Central Clearing, Depository and Registry (MCDR) is: A = Low risk This Rating is for MCDR settlement, safekeeping and asset servicing operations Asset Servicing Risk Operational Risk Financial Risk Counterparty Risk Liquidity Risk Asset Commitment Risk Overall Rating CSD Rating MCDR Rating: A A A+ A The outlook for the rating is: Stable

Relations among Correspondent Business ● Africa & Middle East Depositories Association (AMEDA) ● Japan Securities Depository Center, Inc. (JASDEC) ● Thomas Murray ● International Organization of Securities Commissions (IOSCO) ● World Federation of Euro-Asian Stock Exchanges (FEAS) ● Union of Arab Stock Exchanges ● Central Securities Depositories (CSDs) ● Association of Global Custodian ● Association of National Numbering Agencies (ANNA)

MCDR Short term plans q Establishing the settlement system of the exchange traded funds (ETF) and the system of its related transactions: – – – Issuance of ETFs certificates. safekeeping of the portfolio assets of the ETFs to be established. Creation and redemption transactions of ETFs q Initiating an integrated system for clearing and settlement of the NILEX transactions (the Egyptian Exchange' market for growing medium and small companies) to provide an appropriate, secure, flexible movements for both companies & investors, together with an efficient and admission process. q Establishing an Effective risk management and corporate governance structures

Future plans q Implementing the clearing and settlement system of the derivatives market q Futures q. Options q Developing the fixed income market q. Settlement of Repo agreements. q Bonds short selling q Meeting the necessary requirements for obtaining a credit rate of (AAA) from the international rating agency “Thomas Murray”. q Cross-border movement of capital and funds q Increased cross-border securities trading q Integration among stock exchanges and clearing institutions q Full automation and STP q CCP and CMU Mechanism

Compliance to the International Recommendations q q q Compliance with G 30 recommendations Compliance with SEC 17 F 7 requirements. ISO 27001 standards Full automation in communication and data gathering Message standards and communication protocols Securities Lending/Borrowing practice Risk management and control processes Synchronized transfer of cash and securities Efficient business contingency and Disaster Recovery Planning Fair and easy access to the system Impartial, open and efficient corporate governance

Useful Links Ø Misr for Clearing, Central Depository and Registry (MCDR) www. mcsd. com. eg Ø Capital Market Authority (CMA) www. cma. gov. eg Ø Egyptian Stock Exchange (EGX) www. egyptse. com Ø Egyptian Capital Market Association (ECMA) www. ecma. org. eg Ø Ministry of investment www. investment. gov. eg Ø Central Bank of Egypt www. cbe. org. eg

M. C. D. R Thank you