ISSUES FOR AMEDA DEPOSITORIES IN MANAGING RISK IN THE CURRENT ENVIRONMENT April 2010

© 2010 Thomas Murray Ltd. Page 2 PRIVATE AND CONFIDENTIAL Agenda  TM Depository Risk Definitions & Country Categories  Risk Comparisons: AMEDA vs Rest of the World with Key Issues

© 2010 Thomas Murray Ltd. Page 3 PRIVATE AND CONFIDENTIAL Risk Definitions  Asset Commitment Risk - The period of time from when control of securities or cash is given up until receipt of countervalue.  Liquidity Risk - The risk that insufficient securities and or funds are available to meet commitments; the obligation will be covered some time later.  Counterparty Risk - The risk that a counterparty (i.e., a participant) will not settle its obligations for full value at any time.  Asset Servicing Risk - The risk that a participant may incur a loss arising from missed or inaccurate information provided by the depository, or from incorrectly executed instructions, in respect of corporate actions and proxy voting.  Financial Risk - The ability of the CSD to operate as a financially viable company.  Operational Risk - The risk that deficiencies in information systems or internal controls, human errors or management failures will result in losses.

© 2010 Thomas Murray Ltd. Page 4 PRIVATE AND CONFIDENTIAL Country Categories  Middle East Countries and CSDs  Bahrain – CDS  Egypt – MCDR  Israel – TASECH  Jordan – SDC  Kuwait – KCC  Lebanon – Midclear  Morocco – Maroclear  Oman – MDSRC  Palestine – CDS  Qatar – Qatar Exchange  Saudi Arabia – Tadawul  Tunisia – Sticodevam  UAE – DFM  UAE Nasdaq Dubai  Additional CSDs in Country Average  Lebanon – CBL African Countries and CSDs  Kenya – CDSC  Mauritius – CDS  Nigeria – CSCS  South Africa – Strate Additional CSDs in Country Average  Kenya – CBK  Mauritius – BOM  West Africa – DCBR  Zambia – LuSE  Zambia – BoZ  AMEDA CSDs Under preparation  Ghana – GSD  UAE - ADX

© 2010 Thomas Murray Ltd. Page 5 PRIVATE AND CONFIDENTIAL Overall Risk Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East Key Issues  What is the role of market infrastructure, and CSDs in particular in protecting investors against the next Lehmans or Madoff?  What lessons have been learnt from the financial crisis?  If market infrastructure is to take on more responsibility for asset protection, should their business model change? Key Variants: AMEDA vs ROW  Some AMEDA markets are still in the emerging zone and are yet to adopt the more recent standards of best market practice  Overall systems and approach to risk mitigation is less sophisticated than in developed markets  However, most CSDs weathered the global financial storm well both from a revenue and a risk perspective AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating

© 2010 Thomas Murray Ltd. Page 6 PRIVATE AND CONFIDENTIAL Asset Commitment Risk Key Issues  RTGS (normally with optimisation cycles) is now common in developed market settlement systems  Often combined with overnight and or daytime batch routines to maximise liquidity efficiency  This flexibility gives participants the choice of optimising liquidity or asset availability Key Variants: AMEDA vs ROW  Still a prevalence exists for batch processing rather than real time processing  Most central banks are using RTGS but not linked real time to SSS (8 CSDs have linkage)  Significant blocking or prefunding in contrast to other regions.(10 CSDs block securities on Trade Date) AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East

© 2010 Thomas Murray Ltd. Page 7 PRIVATE AND CONFIDENTIAL Liquidity Risk AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating Key Issues  Pressure on liquidity has intensified, and margin and collateral requirements may have tightened. Has this been an issue for AMEDA markets?  Widespread bans or restrictions on short selling  Tightening of credit leads to higher funding costs Key Variants: AMEDA vs ROW  No AMEDA markets banned short selling (mainly Europe & AP)  Some AMEDA markets lack developed fails management processes  Some AMEDA markets lack a critical mass of issued securities under custody leaving a significant proportion of the market physical  Some restrictions on credit facilities for foreign investors and the lack of a developed interbank lending market Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East

© 2010 Thomas Murray Ltd. Page 8 PRIVATE AND CONFIDENTIAL Short Selling Bans By Region CSDs & the Global Financial Crisis

© 2010 Thomas Murray Ltd. Page 9 PRIVATE AND CONFIDENTIAL Counterparty Risk AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating Key Issues  Counterparty Risk is now back on top of the agenda for institutional investors  How do CSDs that commingle CSD and CCP roles in the same legal entity manage to ring-fence the CCP risk?  How have risk models been adapted since the global financial crisis? Has surveillance been improved? Has stress-testing been developed? Key Variants: AMEDA vs ROW  Few CCPs exist in the region (3) in contrast to Europe. Most AMEDA markets have a guarantee fund in place  Still a lack of true DVP especially for off-market/ client- side settlement in some AMEDA markets  Real-time monitoring of participants’ exposures (and their collateralisation) is uncommon in AMEDA markets  Stress testing is rare. Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East

© 2010 Thomas Murray Ltd. Page 10 PRIVATE AND CONFIDENTIAL Broker Capital Requirement (in USD) Broker Capital

© 2010 Thomas Murray Ltd. Page 11 PRIVATE AND CONFIDENTIAL Guarantee Fund vs Exchange Average Daily Turnover (2008 figures in USD) Guarantee Fund vsTurnover

© 2010 Thomas Murray Ltd. Page 12 PRIVATE AND CONFIDENTIAL Asset Servicing Risk Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating Key Issues  An expanding business sector for CSDs - gaining ground on custodians  Does the removal of commercial banking capital from asset servicing disadvantage market participants and investors?  How have markets ‘de-risked’ corporate actions processing? Key Variants: AMEDA vs ROW  Not all AMEDA members are involved in Asset Servicing to a degree that they are taking on risk exposure  Where AMEDA members are engaged in Asset Servicing, some have relatively low capital backing this business  Few AMEDA members have moved up the value chain enough to threaten to compete with their participants (Only one offers proxy voting)

© 2010 Thomas Murray Ltd. Page 13 PRIVATE AND CONFIDENTIAL CSD Role in Corporate Actions CSD Participation In Corporate Actions (As at July 2009)

© 2010 Thomas Murray Ltd. Page 14 PRIVATE AND CONFIDENTIAL Financial Risk Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating Key Issues  Adequacy of financial resources was a key concern during the recent financial crisis  Many CSDs’ profit margins slumped in 2008/9. How have CSDs responded in the short and medium-term?  How have business models adapted to the crisis and what lessons have been learnt? Key Variants: AMEDA vs ROW  Massive diversity in financial resources amongst AMEDA members  AMEDA members’ profit margins not as hard-hit as ECSDA and ACG  Still, few AMEDA members have real diversity in revenue streams  Some independent CSDs in the region susceptible to horizontal or vertical consolidation

© 2010 Thomas Murray Ltd. Page 15 PRIVATE AND CONFIDENTIAL Capital vs Exchange Average Daily Turnover (2008 figures in USD) Capital vsTurnover

© 2010 Thomas Murray Ltd. Page 16 PRIVATE AND CONFIDENTIAL Capital vs Profit of CSDs (2008 figures in USD) Capital vs Profit

© 2010 Thomas Murray Ltd. Page 17 PRIVATE AND CONFIDENTIAL Operational Risk Average Rating - ACSDA Average Rating – EU/EEA Average Rating – Eurasia Average Rating – Asia Pacific Average Rating – Africa Average Rating – Middle East AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Rating Key Issues  Adequacy of controls and procedures to maximise asset safety more important than ever  Globally, DRP/BCP facilities have been greatly strengthened since 9/11  Standardised messaging being more widely adopted by market infrastructure (e.g. SWIFT in Link-Up) Key Variants: AMEDA vs ROW  Although ISO certification becoming more prevalent, external operational audits (e.g. SAS70) are still rare amongst AMEDA CSDs  Relatively low level of messaging adoption limiting cross-border STP. Only 7 CSDs have SWIFT – used mainly for cash settlement with CB.  DRP/BCP strategies in some markets still need further development.