CLS Group:Magyar Nemzeti Bank

Sarah Medlar

Relationship Manager CLS Services

9 October 2003

2

Agenda

CLS – structure

CLS – how it works

CLS – how it’s working

CLS - next steps

3

AustraliaAustralia - Australia & New Zealand Banking Group * Commonwealth Bank of Australia * - Australia & New Zealand Banking Group * Commonwealth Bank of Australia * National Australia Bank * Westpac Banking Corporation *National Australia Bank * Westpac Banking Corporation * BelgiumBelgium-- Fortis Bank * KBC Fortis Bank * KBC Bank * Bank * CanadaCanada - - Bank of Montreal * The Bank of Nova Scotia * CIBC * Royal Bank of Bank of Montreal * The Bank of Nova Scotia * CIBC * Royal Bank of Canada * The Toronto-Dominion Bank *Canada * The Toronto-Dominion Bank * DenmarkDenmark - Danske Bank * Nordea - Danske Bank * Nordea * * FranceFrance - BNP - BNP Paribas * Caisse Nationale De Credit Agricole * Credit Lyonnais * Société Générale Paribas * Caisse Nationale De Credit Agricole * Credit Lyonnais * Société Générale * * GermanyGermany - Bayerische Landesbank * Commerzbank * Deutsche Bank * DZ Bank * - Bayerische Landesbank * Commerzbank * Deutsche Bank * DZ Bank * Dresdner Bank * Hypo Vereinsbank * Westdeutsche Landesbank *Dresdner Bank * Hypo Vereinsbank * Westdeutsche Landesbank * ItalyItaly – Banca Intesa * – Banca Intesa * UniCredito *UniCredito * JapanJapan - The Bank of Tokyo-Mitsubishi, Ltd * - The Bank of Tokyo-Mitsubishi, Ltd * Mizuho Corporate BankMizuho Corporate Bank * * Norinchukin Bank * Sumitomo Mitsui Banking Corporation * The Sumitomo Trust & Norinchukin Bank * Sumitomo Mitsui Banking Corporation * The Sumitomo Trust & Banking Co., Ltd. * UFJ Bank *Banking Co., Ltd. * UFJ Bank * LuxembourgLuxembourg – Dexia Banque Internationale a Luxembourg – Dexia Banque Internationale a Luxembourg ** NetherlandsNetherlands - ABN AMRO Bank * ING Bank * Rabobank Nederland *- ABN AMRO Bank * ING Bank * Rabobank Nederland * NorwayNorway - Den - Den norske Bank *norske Bank *SingaporeSingapore – – DBS Bank * Oversea-Chinese Banking Corporation * United DBS Bank * Oversea-Chinese Banking Corporation * United Overseas Bank * Overseas Bank * SpainSpain - BBVA * Banco Popular Espanol * Banco Santander Central - BBVA * Banco Popular Espanol * Banco Santander Central Hispano*Hispano* SwedenSweden - Skandinaviska Enskilda Banken * Svenska Handelsbanken *- Skandinaviska Enskilda Banken * Svenska Handelsbanken * SwitzerlandSwitzerland - - Credit Suisse * UBS * Zurcher Kantonalbank * Credit Suisse * UBS * Zurcher Kantonalbank * United KingdomUnited Kingdom - Barclays - Barclays Bank * HSBC Holdings * Royal Bank of Scotland * Standard Chartered Bank *Bank * HSBC Holdings * Royal Bank of Scotland * Standard Chartered Bank * United United StatesStates - American International Group * Bank of America * The Bank of New York * Bank - American International Group * Bank of America * The Bank of New York * Bank One * Bear Stearns Securities * Citibank * The Goldman Sachs Group * JPMorgan Chase * One * Bear Stearns Securities * Citibank * The Goldman Sachs Group * JPMorgan Chase * Lehman Brothers * Mellon Bank * Merrill Lynch * Morgan Stanley & Co. * Northern Trust Lehman Brothers * Mellon Bank * Merrill Lynch * Morgan Stanley & Co. * Northern Trust Corporation * State Street Bank and Trust Co.Corporation * State Street Bank and Trust Co.

CLS Shareholders

4

Structure

CLS Group Holdings - parent company

NY: CLS Bank International

Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York

London: CLS Services Ltd.

Facilities Management/ Operations

Tokyo: Representative office

5

EUR agentBank 1

Bank 1

USD agentBank 1

EUR agentBank 2

Bank 2

USD agentBank 2

MT 202

MT 202

USD funds

EUR funds

MT300

FX-Deal

USD

EUR

Payment/information flow pre CLS The Problem

6

How the world worked before CLS

2 days PLUS

7

Solving the Problem

1995 Allsopp report —Banks should review their internal control processes

—Industry groups should take collective action

—Central Bank measures to encourage risk reduction

led to industry initiative

1996 - Produced the CLS concept - Preferred Solution

July 1997 New company CLS Services Ltd.

Today 67 shareholders

2 September 2002 “GO LIVE”

8

Overlapping RTGS systems

Asia/PacificAsia/Pacific

EuropeEurope

North AmericaNorth America

EuropeEurope

CLS Settlement – How it Works

10

CLS Bank holds RTGS settlement accounts with Central Banks

Holds a multi currency account for each Settlement Member

CLS Bank is a Multicurrency Bank

Reserve Bank of Australia

European European Central BankCentral Bank

Swiss National BankSwiss National BankUS Federal ReserveBank of JapanBank of Japan

Bank of EnglandBank of England Bank of CanadaBank of Canada

Monetary AuthorityMonetary Authorityof Singaporeof Singapore

DanmarksDanmarksNationalbankNationalbank

Norges Bank Sveriges RiksbankSveriges Riksbank

11

How CLS Works

06:30 07:00 09:00 12:00

Submitting Instructions

Funding &settlement

Fundingcompletion

12

Instructions submitted

Instructions submitted

13

Settlement

Commences at 07.00 CET and is scheduled to complete at 09.00 CET.

Risk Management Tests applied to both Settlement Members.

Real-time exchange of currencies i.e. CLS Bank will not settle the trade unless both parties have the required funds available.

Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank

Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank.

14

Risk Management Tests

CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds

– Will both Settlement Members still be within the currency Short Position Limit?

– Will both Settlement Members still be within their Aggregate Short Position Limit?

– Will either Settlement Member’s account become negative after settlement?

No instructions will settle if any of the six tests fail.

15

FundingCLS Central

Bank Accounts

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Pay-In Schedule

Multilateral net amount of Settlement Member’s obligations on a given value date.

Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at 07.00 CET.

Long position currencies to be paid out by CLS Bank.

Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3rd Parties) that the Settlement Member is sponsoring.

17

Short position limit € 0.5 Billion

09:00 - 10:00 - 11:00 -08:00 - 12:00CET

Pay-in

€ 1.0 Billion

Total paid in

€ 250 m€ 500 m

€ 166 m € 1000 m

Responding to the Pay-in Schedule

€ 167m € 667 m

€ 834 m€ 167m

€ 250 m€ 250 m

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Algorithm seeks to make recycle liquidity throughout the process within risk parameters

CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out

If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move.

No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance.

Pay-outs

19

C

12:00 CET12:00 CET

Funding and Pay-out

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FX-DealUSD

EUR

MT 300

information

CLS Bank

USD a/c USD a/c

Bank 1 Bank 2

EUR a/c EUR a/c

InformationInput Inputinput input

CLS BankCLS Bank

CLS Settlement CLS Settlement Member BMember BCLS Settlement CLS Settlement

Member AMember A

Payment & information flow under CLS

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CLS has changed market practice

1 day funding

Normal - 2 day risk

Historical information

Possible same day settlement

Normal - 2 day contract

CLS eliminates Settlement risk (temporal risk)

Real-time information

Timed payments -intraday requirement

Extends domestic settlement finality

globally

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CLS Features – a summary

Linked to CB (RTGS)

Finality in PVP settlement

Multilateral Netted Funding

Real Time settlement and funds flow information

Intra-day Capability

Universal: Global Shareholders/Customers

Independent (Utility)

Not a Central Counterparty

Provides Crisis Management Support

CLS – How it’s Working

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CLS at September 2003

Settling over 80,000 sides and over $1 trillion

a day

70 Third party customers of

Member banks

54 banks settling live transactions in 11 currencies

25 Registered Vendors using

CLS brand

Over 14 million sides settled in

1 year with a gross value of

over $160 trillion

25

CLS VolumesVolumes

0

20

40

60

80

100

120

140

160

180

200

12-S

ep

17-S

ep

20-S

ep

25-S

ep

30-S

ep

3-O

ct

8-O

ct

11-O

ct

16-O

ct

21-O

ct

24-O

ct

29-O

ct

1-N

ov

6-N

ov

9-N

ov

14-N

ov

19-N

ov

22-N

ov

27-N

ov

2-D

ec

5-D

ec

10-D

ec

13-D

ec

18-D

ec

23-D

ec

27-D

ec

2-J

an

7-J

an

10-J

an

15-J

an

20-J

an

23-J

an

28-J

an

31-J

an

5-F

eb

10-F

eb

13-F

eb

18-F

eb

21-F

eb

26-F

eb

3-M

ar

6-M

ar

11-M

ar

14-M

ar

19-M

ar

24-M

ar

27-M

ar

1-A

pr

4-A

pr

9-A

pr

14-A

pr

17-A

pr

22-A

pr

25-A

pr

30-A

pr

5-M

ay

8-M

ay

13-M

ay

16-M

ay

21-M

ay

26-M

ay

29-M

ay

3-J

un

6-J

un

11-J

un

16-J

un

19-J

un

24-J

un

27-J

un

2-J

ul

7-J

ul

10-J

ul

15-J

ul

18-J

ul

23-J

ul

28-J

ul

31-J

ul

5-A

ug

8-A

ug

13-A

ug

18-A

ug

21-A

ug

26-A

ug

29-A

ug

3-S

ep

Sid

es

Se

ttle

d (

'00

0s

)

Additional Sides due to Splitting

Underlying Trades

26

CLS Values

Values

0

200

400

600

800

1000

1200

1400

12-S

ep17

-Sep

20-S

ep25

-Sep

30-S

ep3-

Oct

8-O

ct11

-Oct

16-O

ct21

-Oct

24-O

ct29

-Oct

1-N

ov6-

Nov

11-N

ov14

-Nov

19-N

ov22

-Nov

27-N

ov2-

Dec

5-D

ec10

-Dec

13-D

ec18

-Dec

23-D

ec27

-Dec

2-Ja

n7-

Jan

10-J

an15

-Jan

20-J

an23

-Jan

28-J

an31

-Jan

5-Fe

b10

-Feb

13-F

eb18

-Feb

21-F

eb26

-Feb

3-M

ar6-

Mar

11-M

ar14

-Mar

19-M

ar24

-Mar

27-M

ar1-

Apr

4-Ap

r9-

Apr

14-A

pr17

-Apr

22-A

pr25

-Apr

30-A

pr5-

May

8-M

ay13

-May

16-M

ay21

-May

26-M

ay29

-May

3-Ju

n6-

Jun

11-J

un16

-Jun

19-J

un24

-Jun

27-J

un2-

Jul

7-Ju

l10

-Jul

15-J

ul18

-Jul

23-J

ul28

-Jul

31-J

ul5-

Aug

8-Au

g13

-Aug

18-A

ug21

-Aug

26-A

ug29

-Aug

3-Se

p

I/O SwapsOriginal TradesNet Funding

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Net Funding

Average Values

0

200

400

600

800

1000

1200

US

D b

illio

ns

0

2

4

6

8

10

12

14

16

18

20

Per

cent

age

Net

Fun

ding

R

equi

rem

ent

In/Out Swaps Value Net Funding %

28

New products and services – short term

1.14 Application and infrastructure conversion - achieved1.15 Currency expansion, NKR, DKR, SEK and SGD – now live1.16 Matching field for Custody & CLS capacity up-grade

2003 Up-grades

2003/04 plan to add five and four new shareholders respectively.

HK and New Zealand dollar, Korean won

Further Currencies

New Shareholders

SSI Database

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Planned medium term investments

Additional Settlement Window (second session) and In/In swap

Straight through processing initiatives (including E-trading connectivity)

High value liquidity settlements

Information Services

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CLS Bank: a unique achievement

First global banking settlement system

Unprecedented co-operation across the industry

Creates a global industry standard

67 shareholders, 25 vendors, 11 central banks

Major business & technical achievement

Extends finality of domestic RTGS settlement globally

Growing number of providers of third party services

Level playing field – target of one price for all

31

Other CLS shareholder benefits

In / Out swaps

Crisis management

Information delivery / control

Risk profile

Future direction:Prioritisation of product

development / market development

plus

Industry forum

Involvement in CLS Group Governance

32

Other CLS shareholder benefits

CLS Bank membershipCLS Bank membership

Gateway to the provision Gateway to the provision of third party servicesof third party services

33

CLS Benefits – what our members say

Post-Settlement Reporting

Pre-Settlement Information

Eliminates Settlement Risk

Reduces error ratesReduces error rates

Reduction or elimination of Reduction or elimination of credit (settlement) limitscredit (settlement) limits

Source: TowerGroupSource: TowerGroup

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CLS Market Potential (Sides per day)

Intra-Shareholder Transactions

100

Financial Institutions as 3rd Party

260

Other Currencies 290

Matching Field for Custody350

500

Other 3rd Party

- Future potential

- 2004 plans

- Very early days

- Good progress

Planned CLS Market Share after 5 Years

20%

50%

50%

90%

35

Questions?

www.cls-group.com