1. National Depository for Securities (KDPW)
Warsaw, 25 October 2011 .

2. Overview of the Polish Capital Market
Polish Financial Supervision Authority (KNF)
National Depository for Securities (KDPW)
KDPW_CCP
Markets
Warsaw Stock Exchange, Bondspot, Catalyst, New Connect, OTC
National Bank of Poland (Clearing Bank)
Financial institutions & Intermediaries
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.
Institutional investors
Issuers
Individual investors

3. KDPW – Introduction Responsibilities: Clients:
Central securities depository
Clearing house
Settlement
Custody
Risk management
Clients:
Issuers (foreign & domestic)
Intermediaries (custodian banks & brokers)
PARTICIPANTS
Issuers – in 2006 KDPW admitted and registered the shares of 51 participants holding the status of ISSUER. Now the overall number of participants with the status of issuer totalls …………………. (including ………………Polish issuers and ……………… issuers)
Now there are ……………….direct participants (of which ………………domestic and 4 foreign participants)

4. KDPW – Ownership
An integral part of the Warsaw Stock Exchange
Present
Independent joint - stock company
Current shareholders
KDPW (CSD) - (since 1999)
The State Treasury - 1/3
The Warsaw Stock Exchange - 1/3
The National Bank of Poland - 1/3
KDPW_CCP - (from 1 July 2011 )
KDPW %
KDPW 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).

5. Main KDPW Responsibilities
KDPW_CCP
Clearing of transactions executed on:
Regulated markets: Warsaw Stock Exchange, BondSpot
Non-regulated markets: New Connect, Treasury BondSpot-Poland, OTC
Risk management –management of:
Settlement Guarantee Fund covering regulated markets & ATS
Margaining for cash and derivatives market
Collateralisation of security loans in automatic securities lending - borrowing system
KDPW (CSD)
Safekeeping and custody of all securities admitted to trading following public issue
Reconciliation and monitoring
Asset management
Settlement of transactions executed on:
Regulated and non-regulated markets
OTC
Processing of corporate actions
Assigning ISIN codes for Polish issues (National Numbering Agency)
 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.

6. Separation of functionality between KDPW CSD and KDPW_CCP
Clearing of guaranteed trades
Safekeeping
Settlement
Risk Management
Corporate Actions
Collateral Management
Asset Management
Database Administration

7. Securities registered in KDPW
All securities admitted to trading in the regulated market must be registered in KDPW
Currently, 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)
Exchange Traded Funds (ETFs)
Investment Fund Certificates
Derivatives
Futures Contracts (WIG20 index, currency, share)
Index Participation Units
Options (European style), (WIG20 index, share)
Exception: Treasury bills - custody, clearing and settlement in the National Bank of Poland system

8. Capitalisation of securities
Capitalisation of shares, bonds and other securities registered in KDPW (bln. EUR)

9. Regulated market trades turnover
Regulated market cash and derivatives turnover (bln. EUR)

10. OTC trades turnover

11. Number of transactions settled

12. Foreign investors in Polish market
Foreign investors in Polish market (share of cash market turnover) – Stock Exchange (H1 2011)
Source: Warsaw Stock Exchange
Foreign investors in Polish market (ownership) – Treasury bonds (August 2011)
36.3 billion EUR
121.5 billion EUR
Source: Polish Ministry of Finance

13. The National Depository for Securities (KDPW)
Clearing & Settlement
PARTICIPANTS
Issuers – in 2006 KDPW admitted and registered the shares of 51 participants holding the status of ISSUER. Now the overall number of participants with the status of issuer totalls …………………. (including ………………Polish issuers and ……………… issuers)
Now there are ……………….direct participants (of which ………………domestic and 4 foreign participants)

14. Clearing & Settlement (until Q1 2011)
Trade execution
Markets (regulated & OTC)
Clearing
Guarantee system
KDPW_CLEARPOOL
Clearing & Settlement
Settlement
Custody
Central Bank system

15. Clearing & Settlement (from July 2011)
Trade execution
Markets (regulated & OTC)
Clearing
KDPW_LEARPOOL
Clearing
Risk Management system
Settlement
Settlement
Central Bank system
Custody

16. Basic principles
All securities cleared and settled in KDPW are dematerialised
All securities transfers are made by book-entry in KDPW depository, clearing & settlement system
Transfers are made between KDPW participant accounts
- Mandatory asset segregation (own assets, client assets)
Change of ownership at the moment of book-entry
Clearing & Settlement service for transactions from:
- WSE, BondSpot, New Connect (ATS), Treasury BondSpot Poland
DvP Settlement model:
- BIS model I, BIS model II
Settlement :
- T+2, T+3 - for regulated - market trades – SE, BondSpot
- T+0 to T+n - for non-regulated market transactions – OTC
Two settlement channels:
- RTGS DVP , FOP
- multiple batch system

17. Basic principles
Daily settlement schedule : multibatch and RTGS
6 settlement sessions a day with intra-day finality after each session
RTGS
BATCHES
7.30
10.30
13.00
15.30
18.30
18.45
Technical
8.00
DVP
FOP
DVP
FOP
17.00
18.30
FOP
FOP
Technical

18. Basic principles Cash leg settlement
Central Bank Money - in the National Bank of Poland for PLN and Euro
Commercial Bank Money for other currencies
Settlement liquidity facilities
securities L&B automatic and on-request
repo
buy-in, sell-out
transactions from regulated market guaranteed by the Settlement Guarantee Fund, by the collateral system (for derivatives only) and KDPW_CCP
transactions from ATS (unregulated market) guaranteed by special ATS guarantee fund

19. Cash settlement side (CBM)
Agreement between Central Bank (CB) and KDPW
Authorisation for KDPW to debit Payment Bank (PB) accounts
Cash Settlement on PB accounts in CB
Payment banks: banks having status of KDPW participant and holding cash account in CB PAYMENT SYSTEM
Payment bank responsible for settlement of:
its own and its clients transactions
transactions executed by Clearing Members (CMs) which are not allowed to have a cash account in CB
KDPW informs PB about net cash positions to be paid on S
KDPW sends payment instructions to CB using CB interface

20. KDPW in the Polish capital market
Post-trading processing flow
Seller
Buyer
Markets
Trade
Trade
Trade execution
Trade execution
Trade feed = Already matched for settlement
Securities accounts of the Seller / seller’s custodian
Securities 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 NBP
Cash accounts of the Buyer/ buyer’s custodian cash clearer in NBP

21. Life cycle of settlement instruction
WSE
BondSpot
New Connect
CLEARING
(KDPW_CCP)
POST- TRADE SETTLEMENT
INPUT
VALIDATION
SETTLEMENT
T+2
T+3 S
Locked-in TRADES
MATCHING
Treasury BondSpot Poland
INPUT
VALIDATION
MATCHING
CLEARING
SETTLEMENT
T+2
T+n
INSTRUCTIONS
TRADES
VALIDATION
Bilateral cancellation
Unilateral cancellation
OTC
INPUT
VALIDATION
MATCHING
CLEARING
SETTLEMENT
INPUT
T+n S
INSTRUCTIONS
INSTRUCTIONS

22. Order that funds in the guarantee system are initiated in KDPW_CCP
Credits due to insolvent CM
Margins (cash and derivatives)
Standard contributions of insolvent CM
Standard contributions of remaining CMs
50% max additional contributions (limited to110% of the standard contribution)
20 million PLN from KDPW_CCP assets
Decision of the KDPW Management Board
KDPW_CCP assets
Guarantee Fund
Total
KDPW_CCP capital:
PLN 100 million

23. kdpw_stream – System architecture - August 2009
Clearing banks
Participants
Markets
WWW
SWIFT
External communication
Processing of cash market
Processing of derivatives market
Risk module
Asset Management MB
RTGS
Data flow
Collateral register
Corporate actions
Transfer payments
Static data

24. The National Depository for Securities (KDPW) Cross Border Settlement
PARTICIPANTS
Issuers – in 2006 KDPW admitted and registered the shares of 51 participants holding the status of ISSUER. Now the overall number of participants with the status of issuer totalls …………………. (including ………………Polish issuers and ……………… issuers)
Now there are ……………….direct participants (of which ………………domestic and 4 foreign participants)

25. Links with foreign CSDs
Links created with foreign CSDs (FOP links) in connection with the dual listing of shares on the WSE. Currently there are 8 direct links and 9 indirect links into 20 foreign markets
Euroclear Sweden
EVK

26. Principles of cross-border transfers
Transfer executed between investor’s account in one country and the same investor’s securities account in the second country before trading can take place – there is no change of ownership,
Shares need to be registered on KDPW account in foreign intermediary to be traded on the WSE,
Transfers are free of payment (FOP),
Foreign shares quoted on WSE in PLN,
Clearing and settlement in KDPW in PLN,
Dividends paid to Polish shareholders in foreign currency or PLN following f/x conversion,
Transfer based on SWIFT (ISO messaging standards),
The transfer may be settled intra-day (RTGS in KDPW).

27. Receive FoP Transfer confirmation (MT544)
Free of Payment cross-border links between KDPW and foreign CSD – Share transfer
Transfer of shares prior to a Warsaw Stock Exchange transaction executed between
a Polish and foreign investor using a FOP link
Foreign investor wishing to
sell shares on the
Warsaw Stock Exchange 2
Instruction to receive shares
Transfer order
Entity managing foreign investor’s
securities account in Poland 1
Instruction to
receive shares
Instruction to deliver
shares FOP 3 5
Matching of instructions (1&4) in Foreign CSD 4
Instruction to receive shares FOP (MT540)
Foreign CSD
Receive FoP Transfer confirmation (MT544)
Investor’s
Account
KDPW
Account 6 7
Transfer of shares to KDPW omnibus account following matching

28. National Depository for Securities (KDPW)
Strategy
PARTICIPANTS
Issuers – in 2006 KDPW admitted and registered the shares of 51 participants holding the status of ISSUER. Now the overall number of participants with the status of issuer totalls …………………. (including ………………Polish issuers and ……………… issuers)
Now there are ……………….direct participants (of which ………………domestic and 4 foreign participants)

29. KDPW Group corporate values
Innovation in technology and operations with the aim of introducing new services, providing a rapid response for to the needs of the market while providing cost efficient clearing and settlement
Reliability built on its daily business operations that grow the Polish financial market
Compliance with international clearing and settlement standards and a world class IT infrastructure
Efficiency ensuring the safety, business continuity, high standards and timely execution of clearing and settlement services

30. KDPW Group – Strategic Goals
(1) Strengthening the new KDPW Group business model
(2) Positioning the KDPW Group in the region and integration with European infrastructures
(3) Introduction of new services to increase the value of the KDPW Group
(4) Raising the standard and scope of services currently provided
(5) Promotion and sale of KDPW Group services

31. KDPW - New Strategy, New Services
New services for foreign financial intermediaries:
Omnibus accounts
Separation of Clearing Member and Settlement Agent status
Hold-Release mechanism
Other future services:
KDPW_CCP
SPAN methodology
Netting in securities
CCP for OTC
KDPW (CSD)
Partial settlements
TARGET2
TARGET2-Securities
Lending and borrowing system (in cooperation with KDPW_CCP)