KDPW and KDPW_CCP: Ready for EMIR

Iwona Sroka – President & CEO, KDPW and KDPW_CCP

Warsaw, 14 June 2013

Overview of the Polish Capital Market

2

Shareholders of KDPW and KDPW_CCP

3

NBP

Treasury

WSE 100 %

History 1991 - 1994

Integral part of the Warsaw Stock Exchange

1994 – now

Independent institution, joint stock company

Current shareholders (since 1999)

State Treasury 1/3 of shares WSE 1/3 of shares National Bank of Poland 1/3 of shares

KDPW_CCP (July 2011)

KDPW 100% of shares.

33%

33%

33%

Functionalities of KDPW_CCP (CCP) / KDPW (CSD)

CCP

Risk management

Clearing

Collateral administration

CSD

Operating

the CSD

Settlement

Corporate Actions

Asset management

Trade Repository

4

WSE BondSpot OTC Trade

Settlement

KDPW_CCP

Settlement

Clearing

CSD

Risk Management System

NBP

Clearing

KDPW

Trade Repository

Market Infrastructure

5

At-a-Glance Statistics: May 2013

KDPW participants – 67

Issuers – 1104 (of which 69 are foreign)

Deposited equities issues – 1088

Deposited bond issues – 680

Capitalisation of shares in KDPW – PLN 495 billion (EUR 119billion)

Capitalisation of bonds in KDPW – PLN 646 billion (EUR 156 billion)

Value of all operations cleared and settled in 2012: PLN 11 trillion (EUR

2.6 trillion)

7

Capitalisation of Securities

Capitalisation of shares, bonds and other securities registered in KDPW

(bln EUR)

0

20

40

60

80

100

120

140

160

12-2002 12-2003 12-2004 12-2005 12-2006 12-2007 12-2008 12-2009 12-2010 12-2011 12-2012

EU

R b

ln

shares bonds other securities

8

Regulated Market Trades Turnover

Regulated market cash and derivatives turnover

(bln EUR)

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

EU

R b

ln (

sin

gle

co

un

t)

cash market derivatives market

Number of Securities Accounts

9

Source: KDPW, based on information reported by Participants.

Year-end data for 2005-2012; end of April data for 2013.

853,333 908,926

996,565 1,028,962

1,132,602

1,477,419 1,497,609 1,508,519

1,486,122

0

800,000

1,600,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

10

KDPW Group – Business Model

• Article 9: Reporting obligation

• Article 55: Registration of Trade Repository by ESMA

Article 4: Clearing obligation of OTC derivatives

Article 14: Authorisation of KDPW_CCP

11

Harmonisation of KDPW and KDPW_CCP with EMIR

Harmonisation of KDPW and KDPW_CCP with EMIR requirements:

Harmonisation with the definition of CCP: Novation

Harmonisation with the capital requirement

New order of using the resources of the clearing guarantee system

New service: OTC clearing

Authorisation of a CCP

Creation of Trade Repository service

Application for registration of Trade Repository with the European Securities and

Markets Authority (2 May 2013)

Amended provisions of the Act on Trading in Financial Instruments effective as of 4 August

2012 introduced novation to the Polish legal system.

Through novation, the clearing house becomes a central counterparty: a buyer to each

seller and a seller to each buyer, taking over the mutual rights and obligations of the

original trading parties.

CCP as SELLER

SELLER

BUYER

CCP as BUYER

12

Novation

Increase of the share capital of KDPW_CCP in view of the implementation of clearing of

OTC trade to PLN 209,5 million (ca. EUR 50 million).

Minimum capital requirement: at least EUR 7.5 million (under Article 16 of EMIR).

According to the EBA technical standards, the capital of a CCP should be at least equal to

the sum of:

gross operational expenses during an appropriate time span for restructuring;

the capital necessary to cover operational risk;

the capital necessary to cover credit, counterparty credit and market risks of non-

clearing activities;

the capital necessary to cover legal risk and business risk.

Capital Requirement of KDPW_CCP

13

14

* Under EMIR

Capital of KDPW_CCP

(remaining own capital of KDPW_CCP)

Clearing fund

(remaining resources of the fund)

Capital of KDPW_CCP (25% of designated capital*)

Clearing fund

(contributions of the defaulting participant)

Margins

(deposited by the defaulting participant)

Receivables of the defaulting participant

Order of Using the Resources of the Clearing Guarantee System

Clearing Guarantee System

Why KDPW_CCP?

Access to the Polish capital market

Liquidity in PLN in central bank (NBP) money

Option of contributing collateral in Polish Treasuries, WIG20 stocks and PLN

Stability of the Polish banking sector

Reduced risk of cash, derivatives and OTC trade

Effective trade guarantee and clearing system

Settlement in central bank money

Application of high standards of risk management

Standard default procedures

15

OTC Clearing (1)

KDPW_CCP operates an OTC derivatives trade clearing system including a clearing

liquidity guarantee system.

Main functionalities of the OTC trade clearing system:

clearing of trade accepted to the OTC clearing system and intermediation in

settlement arising from clearing

management of clearing risk

administration of collateral

function of central counterparty (CCP) through novation

reporting to a trade repository (service offered by KDPW)

16

OTC Clearing (2)

List of OTC instruments cleared in KDPW_CCP:

Phase 1 – December 2012:

Forward Rate Agreements

Interest Rate Swaps

Overnight Index Swap

Basis Swaps

REPO

Phase 2 – January 2014:

FX swaps

FX options

Interest rate options

Currency Interest Rate Swaps (CIRS)

17

PLN

PLN and other currencies

OTC Clearing (3)

18

Authorisation of KDPW_CCP

Filing an application for authorisation under EMIR by PFSA

(Q2 2013)

The scope of harmonisation includes among others:

organisational requirements – including appointment of a Risk Committee, an Audit Committee and a Remuneration Committee, harmonisation of corporate boards and positions;

operational rules – including harmonisation of agreements between KDPW_CCP S.A. and KDPW S.A., investment policies, audit policies, data archivisation policies;

precautionary requirements – including the default procedure, the list of instruments acceptable as collateral, guarantee funds, liquidity risk controlling measures.

19

Trade Repository

A trade repository is a set of information which fulfils the requirements of

the Regulation of the European Parliament and of the Council on OTC

derivatives, central counterparties and trade repositories.

The KDPW Trade Repository became operational on 2 November 2012.

It operates under the Trade Repository Rules.

On 2 May 2013, KDPW filed an application for registration of a trade

repository with the European Securities and Markets Authority for purposes

related to the reporting of details of concluded derivative contracts in

accordance with the obligation imposed by the provisions of the EU

Regulation EMIR.

KDPW Group’s Integrated Offer

20

Building top-quality post-

trade infrastructure for the

regulated market

Polish market

competitive with

developed markets

OTC clearing

Harmonisation of KDPW Group’s IT systems with UTP

(WSE system)

Development of a risk management system based on

SPAN methodology

Introduction of novation

Introduction of securities netting in cash market clearing

Implementation by KDPW Group of a system of loans

initiated by participants

Launch of a confirmation platform for matching of repo

and buy/sell-back trades

Trade Repository service

Harmonisation of the KDPW system with cash settlement

on SORBNET2

Standardisation of corporate actions processing under

ISO20022

Introduction of omnibus securities accounts

Development of KDPW services for repo trades

(including tri-party repo agent)

Development of DvP operational links with foreign

CSDs

Harmonisation with the requirements of CSDR

www.kdpw.eu

www.kdpwccp.eu