How Euroclear manages the interoperability with the different markets

Agenda The Euroclear group Creating a “European Domestic Market”, an exemple of cooperation and consolidation among the CSD’s of the Euroclear group Euroclear Bank’s links with the different markets

Euroclear Group structure

Turnover Q2 2005 350 307.1 300 256.2 114.4 241.9 250 85.5 85.4 200 171.4 60.1 150 52.6 61 53 100 36.3 132.6 118.1 103.5 50 74.1 2002 2003 2004 2005 € trillion 6 months CRESTCo Euroclear France Euroclear Bank ST005

Value of securities held Q2 2005 14.6 14 0.8 13.1 11.9 0.8 3 12 10.9 0.7 2.6 0.7 10 2.4 4.1 2.2 8 3.8 3.5 3.2 6 6.7 4 5.9 5.3 2 4.8 2002 2003 2004 2005 € trillion 30 June Euroclear Nederland Euroclear France CRESTCo Euroclear Bank ST006

Agenda The Euroclear group Creating a “European Domestic Market”, an exemple of cooperation and consolidation among the CSD’s of the Euroclear group Euroclear Bank’s links with the different markets

European capital markets infrastructure The problem of fragmentation Settlement is a key component of capital markets efficiency National markets not a European market At least one CSD per country fragmentation has a major impact on efficiency, cost and risk Both Harmonisation and Consolidation enable efficiency gains, and reduction of costs and risks Consolidation of settlement is necessary to make European capital markets competitive for issuers and investors

Our vision is full consolidation of markets within Euroclear Group Customer Agent Common User Interface CREST Euroclear France Euroclear Netherlands CIK Euroclear Bank Euroclear’s business model is based on a dual service structure, the Domestic Service for Group Securities, a CSD like service, and the Full Service, for the Group and Non-Group Securities, similar to Euroclear Bank service. The business model will result in a consolidated platform for input, processing, and reporting, consolidated and harmonized service modules across (I)CSDs, flexible payment arrangements with choice between central bank and commercial bank money. Put simply, the objective is to make cross-border activity as easy, efficient and cheap for our clients as domestic activity already is in most European markets. It is only thus that a single market can become a reality for the users of securities markets in Europe, and allow Europe to compete with the US capital markets. In practice, this ‘Domestic Market for Europe’ can be achieved effectively only by combining two actions: substantial harmonisation of market practices across European markets and the consolidation of settlement platforms across the group markets. However, one can happen without the other but the implication on cost for the market will be massively different. This is what Euroclear started in 2000 with the acquisition of Sicovam in France, in 2001 with the acquisition of Necigef in the Netherlands and more recently with the acquisition of Crest Co in the UK. Our objective is to complete this harmonisation and platform consolidation gradually over the next five years. The objective at the end is a ‘Domestic Market’ for the markets served by the group, where cross-border settlement and custody will be more effective and providing an improved price quality ratio. Central Banks & Payment systems Domestic Service Full Service Full integration of legacy systems and functionality Single Settlement Engine

From today’s fragmentation towards consolidation Step 1 SSE (2006) Current situation Step 2 ESES (2007) CIK E NL E F CREST E B CIK E NL E F CREST E B CIK E NL E F CREST E B ESES-CCI – e-RGV - E2A ESES - RGV upgrade ESES - SP component SSE SSE STEP 1 At the end of 2006, the securities and cash positioning and booking sub-systems of 3 Euroclear group (I)CSDs will be consolidated in the SSE. This is the foundation for further consolidation of all IT systems within the group. We do not include the Dutch and the Belgian market to avoid a double migration with the implementation of ESES in 2007. STEP 2 ESES (2007) At the end of 2007, when we will have delivered ESES, a combination of (i) selective harmonisation on the CRESTCo and Euroclear Bank legacy platforms and (ii) the first strategic components of the CCI and consolidated single platform for the custody area will be available. STEP 3 – Gradual steps to SAP By early 2009, we will have expanded strategic components and consolidated all group custody processing on the Euroclear single platform. At the end of 2009, we will consolidate all group settlement processing. After this, all common (I)CSD services (payments, custody and settlement) will be available on multi-jurisdictional securities accounts, thereby delivering major benefits of the Business Model. Step 3 Single Platform (in phases from 2008) CIK E NL E F CREST E B Legend CCI Client Communication Interface Single Application Platform Positioning & booking Core Processing Legacy SSE Legal record Country boundary

Conclusion Euroclear’s business model meets the challenges facing the European markets Creating efficiency (e.g. reduce costs) and reduce risks while retaining choice and competition Eliminating differences in technology – both standards and processes Harmonising market practices and legal/regulatory framework Offering a settlement model that allows choice of service levels to meet the needs of all issuers investors, and intermediaries

Agenda The Euroclear group Creating a “European Domestic Market”, an exemple of cooperation and consolidation among the CSD’s of the Euroclear group Euroclear Bank’s links with the different markets

Credit and Banking Services Euroclear Bank’s services Money Transfer Settlement services Custody services Client Services and Migration Team Support. Communications Credit and Banking Services Tri-Party services Lending & Borrowing FundSettle GE014B

Domestic debt Austria Luxembourg the Netherlands Belgium Australia Denmark Norway Hong Kong Argentina Finland Portugal Indonesia Canada France Russia Japan Mexico Germany South Africa Malaysia USA Greece Spain New Zealand Ireland Sweden the Philippines Italy Switzerland Singapore the United Kingdom Thailand Against payment Free of payment CS205

Equities Austria Luxembourg Belgium the Netherlands Denmark the United Kingdom Argentina Finland Hong Kong Malaysia Singapore Japan Norway Canada France Portugal Mexico Germany Spain USA Greece Sweden Ireland Switzerland Italy SE Settlement CS206

“No client sector stands by itself” Activity breakdown by market segment “No client sector stands by itself” 26 % 8 % Broker/dealers Borrowers Seller Fixed income Equities Derivatives 52 % 4 % Other participants Lenders Purchaser 10 %

Accessing new markets Issuance of eurobonds -> acceptance of denomination currency -> acceptance of settlement currency

Access to the national domestic securities markets Major determining factors guiding the decision to service a market International flows Sufficient international demand from international investors justifying a link Operational procedure Service level agreements Contractual relationship external agents Operational Risk Choice of agents – depositories (settlement + payments, asset servicing) Reputation Risk Importance of high client satisfaction: Increased competition Move towards market infrastructure role Funding of long term infrastructure projects Difficult market conditions in recent years have led clients to become more demanding, with a strong focus on their costs (direct and indirect) and service quality The Euroclear group IT budget allocated to long-term developments (SSE, DCS,CCI) The Euroclear move to new products (e.g. equities, mutual funds) means increasing competition and demand for more flexibility Free access to the currency Credit Lines with cash correspondents (settlements + payments) Liquidity Risk Asset protection Enforceability of contracts Legal Risk