Settlement Agent Settlement Agent General provisions q Addressees

Settlement Agent

Settlement Agent General provisions q Addressees of the new functionality: Foreign clearing members (CM) q Beneficiaries: Foreign CM and entities playing the role of Settlement Agents q Purpose: To enable foreign investment firms to apply for KDPW_CCP CM status without having to open and maintain a KDPW account. separation of clearing and settlement 2

Settlement Agent Main principles (1) Settlement Agent (SA) q KDPW direct participant (participation type: representative/settlement agent) authorised to operate a securities accout, a derivative instruments account or a depository account q CM’s financial instruments are registered and CM’s transactions are settled in KDPW depository account operated by the settlement agent. q Settlement agent performs the function of payer bank for CM or indicates to KDPW an entity which performs this function for CM – it performs cash settlement of CM’s transactions; SA and CM must indicate the same payer; the Settlement Agent may indicate another default payer for its other functions q Liable for tax issues – the final responsibility for covering tax costs to be defined in the bilateral agreement between SA and CM. 3

Settlement Agent and Clearing Member SA and CM market position WSE KDPW_CCP CM instructions Securities, margins KDPW SA 4

Settlement Agent Main principles (2) Foreign investment firm q KDPW_CCP participant with clearing member (CM) status q Not a KDPW participant – cannot operate securities accounts (need not open a branch in Poland) q Signs an agreement with one entity performing SA function in KDPW q Indicates SA account to KDPW_CCP and presents a declaration indicating the entity to perform this function and the entity’s declaration of consent. q Pays cash liabilities following marking-to-market. q Is the only participant of the settlement guarantee system (contributes cash via the payer bank; securities contributed to the SGS are transferred to KDPW from CM account operated by SA) 5

Settlement Agent Main principles (3) Cont’d. q Foreign entity submits an application for a participation agreement to KDPW_CCP and SA submits a representation agreement with CM to KDPW CM receives a participant ID within a formal account operated by SA in KDPW. q Entity performing SA function does so under its existing KDPW participant ID (e. g. XXXX) while being a CM account operator (e. g. YYYY) SA manages accounts under different IDs (both XXXX and YYYY). q Relation between SA and CM identified in the system by means of a new type of activity for a CM, a new type of participant status: Representative/Settlement Agent and an agreement between CM and SA. q CM ensures participation in the securities lending system via its SA. 6

Settlement Agent and Clearing Member SA in relation to KDPW and CM in relation to KDPW_CCP CM YYYY CM ZZZZ KDPW positions, Dv. P margins KDPW_CCP XXXX SA XXXX for CM YYYY SA XXXX for CM ZZZZ 7

Settlement Agent KDPW message flow chart Example: SA assigned to two foreign CMsre KDPW SA CM ZZZZ SA CM YYYY XXXX AS Message to inbox XXXX, but Rcvr: ZZZZ Message to inbox XXXX, but Rcvr: YYYY SA XXXX Message re SA to inbox XXXX, Rcvr: XXXX 8

Settlement Agent KDPW_CCP message flow chart KDPW_CCP CM ZZZZ Message to inbox ZZZZ, Rcvr: ZZZZ CM ZZZZ Message to inbox YYYY, Rcvr: YYYY CM YYYY 9

Settlement Agent Timetable Next project phases Ø By 04. 03. 2011 – request for preliminary declaration of KDPW participants’ interest in performing the Settlement Agent function foreign Clearing Members in order to participate in tests Ø 2 nd half of March 2011 – tests with participants Ø Implementation of the SA functionality when KDPW_CCP goes live 10