Kluczowe problemy poruszane na Advisory Group: Pricing, Future T2s Governance User Connectivity Sławomir Panasiuk Wiceprezes Zarządu KDPW SA Warszawa 14 grudnia 2010

European Central Bank - T2S Programme Office T2S Pricing EUROPEAN CENTRAL BANK T2S Programme Office

T2S costs  Development phase (total, from Jan to Sep. 2014): 4CB: € million ECB: € 90.2 million  Migration and running phase (annual average, from Sep to Sep 2022) 4CB: € 51.0 million ECB: € 9.2 million  Capital cost over development and migration/running phase of eight years: € 88.9 million in total  Contingency provision during migration and running phase: € 41.1 million over eight years

Volume estimates for future years Estimates of future annual growth rates based on March 2010 AG questionnaire: Expected annual growth rates % until T2S go-live+4.7% after T2S go-live+6.3% (in million securities settlement transactions) Full 2010 (projected) 1) all euro settlement of euro area CSDs ) all euro settlement and Scandinavian non-euro business ) all settlement from CSDs having signed the MoU271.4

Changes to pricing proposal presented in September AG  The T2S Programme Board presented a range of prices to the September AG, depending on  which non-euro currencies are in T2S  the length of the cost recovery period  Depending on the scenario, the price ranged from 12 – 24 cents per DVP instruction.  Based on the feed-back of the AG, the T2S Programme Board modified several parameters :  Proportion of revenue to be generated from information services was increased from 20% to 25%  One year extension of the cost recovery period to 7 years of full operation (plus 1 year migration)  De-linking of the price from participation of particular non-euro currencies and instead targeting a certain volume share N.B. no support for step-wise pricing

T2S pricing policy – I  Governing Council decided to fix the DvP price at 15 cent per instruction for the period Sep to Dec  Commitment not to increase T2S fees by more than 10% per year between 2019 and the end of the cost recovery period, i.e. September 2022  This pricing policy is subject to the following conditions: i.in addition to the euro settlement volume, non-euro currencies add at least 20% to the total volume; ii.the securities settlement volume in the EU is no more than 10% lower than the volumes projected by the T2S Programme Office, which are based on information provided by market participants; and iii.the tax authorities confirm that the Eurosystem will not be charged VAT for the T2S services it provides.

T2S pricing policy – II For period Jan 2019 – September 2022:  Still many unknowns, which make a price guarantee difficult BUT  Expected volume increases caused by dynamic effects  Percentage of non-euro currencies likely to be higher than 20% The T2S Programme Board aims at further lowering settlement prices below 15 cents

Price list – I Tariff itemsPriceExplanation Settlement services† Two instructions per transaction will be charged Delivery versus payment15 centsper instruction † Free of payment9 centsper instruction † Payment free of delivery9 centsper instruction † Internal T2S liquidity transfer9 centsper transfer Account allocation3 centsper instruction † Matching3 centsper instruction † Intra-position movement6 centsper transaction Intra-balance movement6 centsper transaction Auto-collateralisation service with payment bank15 centsfor issue and return, charged to collateral provider Intended settlement day failed transaction15 centssurcharge per business day failed per instruction † Daytime settlement process3 centssurcharge per instruction †

Price list - II Tariff itemsPriceExplanation Settlement services (continued)† Two instructions per transaction will be charged * Daytime congestion charge, from p.m.Freeadditional surcharge per instruction † * Auto-collateralisation service with NCBFreefor issue and return, charged to the collateral provider * Instruction marked with ‘top or high priority’Freesurcharge per instruction † * CancellationFreeper instruction † * Settlement modificationFreeper instruction † Information services A2A queries and reports 25% of annual revenue per business item in any report or query generated U2A queriesper executed search function Message subscription servicesper message Account management services * Securities accountFreeFee options: a) monthly fee per ISIN in the account or b) monthly fee per account * Fee per cash accountFreeMonthly * These items will initially be set at a zero price, presuming that actual usage will be within an expected consumption pattern. However, should there be a stronger than expected use of the IT system resources which adversely affects T2S performance, it will be reconsidered to charge for these items. Such review will occur at regular intervals.

European Central Bank - T2S Programme Office Proposal for future T2S Governance EUROPEAN CENTRAL BANK T2S Programme Office

Non-euro Currencies Steering Group (non-euro area NCBs that signed Currency Participation Agreement) ECB Governing Council Executive Board CSD Steering Group (CSDs that signed Framework Agreement) Advisory Group National User Groups Information Sessions with all Stakeholders T2S Board Eurosystem Informal Group ESCB/ Eurosystem Committees Non-euro central banks’ governors / boards Governors’ Forum Proposed T2S Governance structure

Changes in the remit of the CSG Resolutions on changes in the remit of the CSG (after views of T2S Board, NCSG, AG) If consensus with central banks  implementation If no consensus If not subject to conditions  implementation If subject to condition … Safeguarding the integrity of the respective currency  Central banks’ nihil obstat required Financial stability  Central banks’ nihil obstat required level playing field/competition issues  Informal advice of DG- COMP would be followed Economic viability  Agreement on mitigation measures or no implementatio n Functional viability  Binding advice of independent expert panel Purely technical viability  Eurosystem nihil obstat as operator required

European Central Bank - T2S Programme Office User Connectivity for T2S Update EUROPEAN CENTRAL BANK T2S Programme Office

Status and plan  Formal launch of licensing of up to 3 providers (NSPs) at end of February 2011  Delayed by two months to take account of feedback from Technical Dialogue held on 25 October 2010  Licences to be awarded in Sep 2011  Proof of concept, to prove feasibility of each NSP’s design, finishes Mar 2012  Acceptance testing of full scale solution, finishes May 2013  Then up to 3 licensed solutions are available for user testing by CSDs, DCPs and CBs. 14

Design objectives  The solutions should be compliant with the Giovannini protocol recommendations and in line with the URD requirements  There should be competition between NSPs in order to achieve low prices, both at the start of, and during the life of, T2S  To support low prices, we should achieve:  As little value added service as possible provided by the NSPs, while consistent with T2S requirements  As much re-use of existing NSP products as possible, to keep their costs low 15

Key connectivity services UR referenceDescription Services provided by NSP A2A - Store and forward T2S Audit log of message or file; Guaranteed delivery of message or file; Delivery once, and only once, of message or file A2A - Real-timeT2S Channel for querying the T2S application U2AT2S Web access to the T2S application PKI T2S Public key infrastructure is delivered by network service provider Time stampingT2S Time stamping is ensured by T2S and network service provider Confidentiality T2S ; T2S Confidentiality is ensured by network service provider on the network level End-to-end IntegrityT2S Integrity is ensured on the ISO protocol level (end-to-end) Non-repudiationT2S Non-repudiation of origin is ensured on the ISO protocol level (end-to-end) AuthenticationT2S Authentication is ensured on the ISO protocol level (end-to-end) Safety  Achieving safety is not free of cost!  NSPs must provide value-added security features  These have been minimised 16

Safety and operational disruptions  The level of operational risk rises very rapidly as the number of channels for incoming and outgoing traffic is increased. That is why we have limited the number to “up to 3” NSPs (as already explained to the AG).  T2S is “built on TARGET2” – which has only one such channel.  Each NSP thus provides an essential value added service because concentrates traffic from many Actors into one stream of data arriving at T2S (and vice versa for outbound). 17

The interpretation of “direct lines”  NSPs are acting as network traffic concentrators.  UR [T2S ] is interpreted ensuring that an Actor can buy network capacity (bandwidth) rather than pay for each unit of traffic (message or file).  Each Actor can agree bilaterally on the level of service provided to him by the NSP.  And competition will ensure that the extra costs for the limited mandatory value added services will be recovered by the NSP via a fair economic price.  This interpretation is not new; it is inescapable in the context of the decision to limit the number of connections to up to 3, and has already been presented on several occasions. 18

Interpretation of the “pull” service  The URD refers to Actors “pulling” data from T2S [T2S ]  This business requirement is met on the technical level – as it is in many other systems – by Actors pushing a request to T2S which then pushes the data to the requestor.  This also simplifies the system build by Actors since they have only one operating model. 19

Approval  The AG is asked to approve the preceding interpretations.  The AG may wish to consider whether the URD need to be formally revised, after appropriate consideration. 20

Krajowy Depozyt Papierów Wartościowych S.A. ul. Książęca 4, Warszawa 21