2 Overview of the Polish Capital Market Polish Financial Supervision Authority (KNF)National Depository for Securities (KDPW)MarketsNational Bank of Poland (Clearing Bank)The Polish Financial Supervision Authority plays an important role in KDPW external relations. It carries out the regulatory supervision in the Polish capital market. National Bank of Poland performs the role of the settlement bank in the cash settlement, which is managed by KDPW.As far as the financial institutions and intermediaries are concerned, I have to mention Warsaw Stock Exchange which obviously facilitates the execution of transactions involving securities in organised market trading, which are the cleared and settled by KDPW. The Polish State Ministry in the Polish capital market is the institution which regulates the introduction of state-owned companies to public trading.Participants – brokerage houses & banks – these are KDPW participants for which KDPW manages omnibus account. At the same time, they manage cash & securities accounts for their clients.Issuers – these form the largest number of KDPW participants who entrust KDPW with the safekeeping of their securities. The largest issuer in terms of capitalisation is the Polish Ministry of Finance.Financial institutions & IntermediariesInstitutional investorsIssuersIndividual investors
3 KDPW – history & ownership 1991 – 1994: An integral part of the Warsaw Stock Exchange1994 – Present : Independent joint - stock company1997 – Clearing of derivatives1998 – Multilateral cash netting for exchange and non-exchange market2002 – RTGS introduced2003 – First foreign shares listed and settled2009 – New Depository Clearing & Settlement System (NSDR)Current shareholders (since 1999)The State Treasury - 1/3The Warsaw Stock Exchange - 1/3The National Bank of Poland - 1/3KDPW was founded in 1991 as an integral part of the Warsaw Stock Exchange.Since 1994 it has operated as an independent joint-stock company.It is worth mentioning that the founders of the Polish capital market decided at the time of its creation that securities trading would be fully dematerialsed (a system of accounts on which securities balances were registered for each trading member).
4 Main KDPW Responsibilities Custody of all securities admitted to trading following public issueReconciliation and monitoringClearing and settlement of transactions executed on regulated markets: the Warsaw Stock Exchange and BondSpot; and outside the regulated markets (New Connect, MTS-Poland)Processing of corporate actionsAssigning ISIN codes for Polish issues (National Numbering Agency)Risk management –management of:Settlement Guarantee Fund covering regulated markets & ATSCollateral system for derivatives,Collateralisation of security loans in automatic securities lending - borrowing system safekeeping of all securities admitted to trading on the regulated market KDPW manages the depository accounts for participants of the depository-settlement system on which securities are registered (participants are entities entitled to keep securities in KDPW) these entities in turn manage investor accounts for their clients); of course securities are registered in the form of electronic book entries (advantages: shorter settlement deadlines, safety, elimination of the risk of theft, forgery and fraud, there is also no requirement to manage a treasury vault); all securities have to be registered in KDPW apart from Treasury Bills which are registered national Bank of Poland; reconciliation and monitoring KDPW monitors the number of securities registered on all participant accounts to ensure it correspond with the number of securities issued by the issuer (registered on the so called issue account); clearing and settlement of transactions executed on regulated markets: the Warsaw Stock Exchange and MTS-CeTO; and outside the regulated market (MTS-POLAND);From the technical point of view we are a CCP (let’s say de facto CCP), however from the legal point of view – not.*MTS-CeTO Electronic Treasury Securities Market (ETSM) – licensed to organised and manage a regulated market; is also entitled to create platforms for electronic trading in securities and financial instruments also on a non-regulated market;- transaction execution results in the transfer of title in the securities;- each investor must hold a cash account and securities account with a licensed broker or bank; in the case of derivatives, the client applies to KDPW (via a broker)for a NIK – Client Identification Number which allows the investor to register all derivatives operations on his account;KDPW participants (brokerage houses and banks) hold depository accounts in the KDPW system and a bank account in the National Bank of Poland;- A client order is sent to the broker’s computer system then a sale order to the stock exchange trading system then the transaction is executed and reported by the Stock Exchange to the broker the following the confirmation of the transaction details by the parties to the trade is reported to KDPW KDPW prepares payment calculation forecasts for transaction settlement day;They are sent to KDPW participants (parties to the trade) and to banks holding accounts in the payment system of National Bank of Poland /cash side of transaction/)- settlement of transactions in KDPW means transfer of securities between the depository accounts of participants of the depository-settlement system, with the simultaneous transfer of cash between accounts of the payment banks;transactions are settled in KDPW in a multibatch system (this will be more precisely explained by my colleague, later in his presentation) processing of corporate actions KDPW acts as an intermediary between issuers of securities and their owners for dividend payments and interest payments and carries out the following corporate events on behalf of issuers: assimilations, exchanges, conversions and share splits, pre-emptive right issues, and the conversion of convertible bonds into shares;assigning ISIN codes for Polish issues (National Numbering Agency) securities are admitted to KDPW once the KDPW Management Board has adopted the appropriate resolution; on this basis securities are registered in the depository and assigned an ID code, in line with international standards (ISIN and CFI – International Securities Identification Numbers and Classification of Financial Instruments Standards); risk management – management of:the settlement guarantee fund covering regulated markets KDPW manages settlement guarantee fund made up from participant contributions which is used to secure transaction settlement in the event of a shortage of cash on the participant’s account necessary to settle the transaction;collateral system for derivatives ???collateralisation of securities loans in automatic securities lending-borrowing system in order to ensure transaction settlement liquidity, KDPW organises and manages an automatic securities lending and borrowing system whose purpose is to prevent or eliminate suspensions of a settlement for transactions secured by the Settlement Guarantee Fund. Moreover KDPW system offers on request securities loans for the purpose of ensuring the liquidity of settlement for transactions concluded on regulated market.
5 Other KDPW Responsibilities Additional Services:Management of the Investor Compensation SchemeFor the Polish Social Security System:Transfer payments between open-end pension fundsManagement of the Pension Guarantee FundOther:Membership of European and international associations and working groupsEducation, promotion, sponsorship management of the Investor Compensation Scheme was created in 2001 in order to guarantee the assets and securities registered in investment accounts following the bankruptcy of a brokerage house or bank managing securities accounts. Participants of the Investor Compensation Scheme pay the appropriate contribution each month, calculated by KDPW according to the provisions of the Law on Trading in Financial Instruments; for the Polish Social Security System: KDPW is responsible for performing several significant functions relating to the state social security system:This include:the performance and processing of cash transfers between all the pension funds, following changes of membership in open-ended pension funds, known commonly as transfer payments,the management of the Pension Guarantee Fund created for the purpose of guaranteeing the payment of any potential shortages of a pension fund , as well as compensating for any losses caused by the pension fund society; education, promotion, sponsorship (co-operation with Polish universities, conferences relating to capital market issues etc.)
6 Securities registered in KDPW All securities admitted to trading in the regulated market must be registered in KDPWCurrently, the following securities are recorded in the KDPW system:Shares (foreign and domestic)Bonds (Treasury, Central Bank, Corporate, Municipal, Convertible, EIB, with priorities rights, non-public bonds, mortgage bonds)Investment Fund CertificatesDerivativesFutures Contracts (WIG20 index, currency, share)Index Participation UnitsOptions (European style), (WIG20 index, share)Exception: Treasury bills - custody, clearing and settlement in the National Bank of Poland system
7 Basic principles of Clearing and Settlement All securities settled in KDPW are dematerialised and transfers are made by book-entry between KDPW participant accountsMandatory asset segregation (own assets, client assets)Change of ownership at the moment of book-entry in securities accountDvP Settlement model:BIS model I, BIS model IISettlement :T+2, T+3 - for regulated - market trades – SE, Bond SpotT+0 to T+n - for non-regulated market transactions – OTCTwo settlement channels:RTGS DVP , FOPMultiple batch systemCash leg settlementCBM - in the National Bank of Poland for PLN and EuroCLB for other currenciesSettlement liquidity facilitiessecurities L&B automatic and on-requestrepobuy-in, sell-out
8 Number of investement accounts operated by KDPW Participants
9 KDPW in Figures - January 2010 Number of KDPW Participants,Including:72Resident participants71Brokerage houses23Bank15Other33Non –resident participants1Issuers589Foreign issuers36Domestic issuers553
10 KDPW in Figures (2) January 2010 CapitalisationSecuritiesPLNSharesPLN- Domestic issuersPLN-Foreign issuersPLNInvestement certificatesPLN
11 Basic principlesDaily settlement schedule : multibatch and RTGS- 6 settlement sessions a day with intra-day finality after each sessionRTGSBATCHES7.3010.3013.0015.3018.3019.00Technical8.00DVPFOPDVPFOP17.0018.30FOPFOPTechnical
12 KDPW in the Polish capital market Post-trading processing flowSellerBuyerMarketsTradeTradeTrade executionTrade executionTrade feed = Already matched for settlementSecurities accounts of the Seller / seller’s custodianSecurities accounts of the Buyer / buyer’s custodian- transaction execution results in the transfer of title in the securities;- each investor must hold a cash account and securities account with a licensed broker or bank; in the case of derivatives, the client applies to KDPW (via a broker)for a NIK – Client Identification Number which allows the investor to register all derivatives operations on his account;KDPW participants (brokerage houses and banks) hold depository accounts in the KDPW system and a bank account in the National Bank of Poland;- A client order is sent to the broker’s computer system then a sale order to the stock exchange trading system then the transaction is executed and reported by the Stock Exchange to the broker the following the confirmation of the transaction details by the parties to the trade is reported to KDPW KDPW prepares payment calculation forecasts for transaction settlement day;They are sent to KDPW participants (parties to the trade) and to banks holding accounts in the payment system of National Bank of Poland /cash side of transaction/)- settlement of transactions in KDPW means transfer of securities between the depository accounts of participants of the depository-settlement system, with the simultaneous transfer of cash between accounts of the payment banks;transactions are settled in KDPW in a multibatch system (this will be more precisely explained by my colleague, later in his presentation)Cash accounts of the seller/ seller’s custodian cash clearer in NBPCash accounts of the Buyer/ buyer’s custodian cash clearer in NBP
13 Links with foreign CSDs Links created with foreign CSDs (FOP links) in connection with the dual listing of shares on the WSE. More FOP and DVP links planned.Euroclear SwedenEVK
14 Basic principles of dual listing Foreign shares quoted on WSE in PLNClearing and settlement in KDPW in PLNDividends paid to Polish shareholders in foreign currencyTransaction finality – entry on the participant’s KDPW accountShares need to be registered on KDPW account in foreign CSD to be traded on the WSEThe transfer may be settled intra-day (RTGS in KDPW)
15 Principles of KDPW cross-border links Free of Payment transfers The links work on a Free of Payment (FOP) basis, which means that securities will be transferred without a corresponding transfer of cash.The links may in future be upgraded to a bilateral DVP link, once a relevant business case has been identified and the appropriate legal conditions have been met.
16 Links with foreign CSDs NoCSDCountryType of linkCompany*Year of opening1.KELERHungaryIndirectMOL20042.EVKEstoniaDirectOlimpic Entertainment GroupSilvano Fashion Group20073.OeKBAustriaWARIMPEXImmoeast20034.CDCPSlovakiaAsseco Slovakia5.Clearstream FrankfurtGermanyIndirect– CBL**bmp6Monte TitoliItalyIndirect – CBLUnicredito Italiano7.DTCUSAIndirect– CBLCEDC20068.SCPCzech RepublicCEZ9.Euroclear FranceFranceIndirect – EB ***ORCOBelvedere200810.Euroclear UK & IRUKIndirect – EBAtlas EstatesPlaza Centres11.Euroclear SwedenSwedenIndirect - EBReinhold* ** Clearstream Banking Luxembourg *** Euroclear Bank
17 Plans for the futureRomania (Indirect)Canada (Indirect)2010
18 KDPW Vision Build a robust capital group by 2013: Anticipate competitive challenges;Build a service portfolio based on state-of-the-art, innovative technologies and solutions creating value for capital market participants;Support the development of a regional centre in Warsaw in active co-operation with other Polish and foreign market participants with KDPW as the main depository-settlement institution in Central and Eastern Europe
19 KDPW Strategic Goals (1) Introduction of a new KDPW business model (2) Positioning KDPW as the leading CSD and clearing house in the CEE region(3)KDPW integration with European infrastructures(4) Introduction of new services to increase the value of the KDPW capital group(5) Raising the standard and scope of services currently provided(6) Optimisation of the KDPW capital group business processes(7) Improving the input and skills of KDPW capital group personnel in order to meet the strategic goals(8) Promoting the KDPW capital group corporate image and products and services through enhanced corporate communication