POLICY FOR ACTING IN THE CLIENT S BEST INTEREST AS REGARDS SELECTED TREASURY PRODUCTS OF BANK PEKAO S.A.

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1 POLICY FOR ACTING IN THE CLIENT S BEST INTEREST AS REGARDS SELECTED TREASURY PRODUCTS OF BANK PEKAO S.A. Policy objective 1 This Policy specifies the principles of conduct of the Bank within the scope of applying solutions ensuring achieving the best possible results for the Client while offering: 1) Investment Service and 2) Transaction Service. Definitions 2 Definitions and abbreviations used in this Policy shall mean: 1) ASO MTF, an alternative trading system, maintained outside the regulated market, which is a multilateral system for matching the buy and sell offers for Financial Instruments in such a manner, that a Transaction is concluded within this system in a non-discretionary way; 2) Bank Bank Polska Kasa Opieki Spółka Akcyjna conducting activity within the scope referred to in art. 70 section 2 of the Act; 3) Fair Price Market Price increased by the Bank s Margin within the scope specified in Information on costs and fees related to the Investment Service provided ; 4) Market Price the price for which the Bank intends to conclude a transaction on his own account with a third party analogous to the terms of the Transaction that the Client can conclude with the Bank. The Bank incorporates several factors when establishing a Market Price, including: the type, denomination and tenor of the Transaction, the base instrument, a party to the Transaction (buying or selling), the model of valuation of the Transaction as well as management and maintenance costs of the Bank s position. The Market price does not cover the Bank s Margin; 5) Transaction Price the price for which the Client can conclude a specific Transaction with the Bank. The Transaction Price covers the Bank s Margin; 6) Financial Instruments the following financial instruments within the meaning of the Act; a) securities and b) not being securities: money market instruments and derivatives; 7) KDPW - National Depository for Securities [pl. Krajowy Depozyt Papierów Wartościowych S.A.]; 8) Client a natural person, a legal person or an organizational unit without legal personality with whom the Bank concludes a Transaction in Financial Instruments; 9) Retail Client a Client classified by the Bank as a retail client, in accordance with art. 3 section 39c of the Act and "Policy of classification and re-classification of Clients at the Bank Pekao S.A."; 10) Professional Client a Client classified by the Bank as a professional client, in accordance with art. 3 section 39b of the Act and "Policy of classification and re-classification of Clients at Bank Pekao S.A."; 11) Bank s Margin the margin between the Transaction Price and the Market Price. The Bank s Margin includes in particular: cost of capital, credit risk cost and the Bank s retail margin; 12) OTF - an organized trading facility being a multilateral system which is not a regulated market or ASO, which matches in a discretionary manner third party purchase and sell offers for bonds, structured financial products, emissions allowances, derivatives or wholesale energy products which must be supplied by way of delivery; 13) Bank s Securities bonds or bank securities [pl. bankowe papiery wartościowe] issued by the Bank, purchased by the Client on the primary market; 14) Policy this Policy for acting in the Client s best interest as regards selected treasury products of Bank Pekao S.A. ; 15) EMIR Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, and regulatory technical standards issued with the Regulation; 1

2 16) Regulation of the Minister of Finance regulation of the Minister of Finance of 24 September 2012 on the procedure and terms and conditions of conduct of investment companies, banks referred to in Art. 70 paragraph 2 of the Act, and custodian banks, (Consolidated text: Dz. U of 2015, item 878 as amended); 17) Treasury Securities - treasury securities acquired, disposed of or exchanged by the by the Bank during tenders organized by the Ministry of Finance as a result of the order of the Client. 18) Trading Venues denotes ASO or OTF; 19) Transaction - each transaction concerning a Financial Instrument, concluded between the Bank and the Client within the framework of the Transaction Service; 20) Offer Based Mode a way of concluding Transactions based on accepting the Client s offer, in accordance with the Rules for Offer-Based Transactions ; 21) Agreement of Terms of Transaction a way of concluding the Transaction based on making a declaration of will by the Bank and the Client within the scope of terms necessary to conclude a given Transaction; 22) Investment Service execution of orders for purchase and disposal of Financial Instruments on the Bank s own account or performance of activities producing effects equivalent to the aforementioned execution of orders; 23) Transaction Service - execution by the Bank of actions consisting in acquisition or disposal of Financial Instruments on the Bank's own account, in scenarios stipulated in 3 section 1 point 2); 24) Eligible Counterparty a Client classified by the Bank as an eligible counterparty, in accordance with the Regulation of the Minister of Finance and the "Policy of classification and re-classification of Clients at the Bank Pekao S.A."; 25) The Act - the act on trading in financial instruments of 29 July 2005 (Dz.U , consolidated text, as amended). Application scope of the Policy 3 1. This Policy shall be applicable when the Bank: 1) provides the Investment Service to the Clients, that is: a) executes Client orders within the scope of sale, repurchase or exchange of Treasury Securities during auctions organized by the Ministry of Finance; b) sells the Bank s Securities to the Clients on the primary market; 2) carries out the Transaction Service for the Clients, that is concludes Transactions in Financial Instruments with the Client. 2. Execution of the Transaction Service by the Bank shall constitute provision of the Investment Service to the Client only when the Bank concludes a Transaction in the execution of an order, referred to in section 1, point 1), letter a). In other cases the Bank shall not provide the Client with the Investment Service by performing the Transaction Service. Provision of the Investment Service by the Bank 4 1. The Client can submit orders to the Bank within the framework of the Investment Service provided by the Bank: 1) acquisition, disposal of or exchange of Treasury Securities during auctions organized by the Ministry of Finance; 2) acquisition of the Bank s Securities, in response to sending call for placing purchase declarations or a purchase offer by the Bank. 2. Bank executes the orders to acquire, dispose of or exchange Treasury Securities during auctions organized by the Ministry of Finance, when the requirements specified in a relevant transaction agreement are met and when a relevant call for auction has been made, where the Bank can execute the Client s order. 3. The Bank accepts the purchase offer of the Bank s Securities (which is equivalent to execution of the order), when the requirements set forth in the purchase offer or the call for placing purchase declarations are met. 4. The orders placed by the Clients shall be immediately and accurately registered, in accordance with the relevant procedures of the Bank. 2

3 5. The Bank shall send a confirmation of the execution of the order immediately after execution of the order to acquire, dispose of or exchange Treasury Securities during a auctions organized by the Ministry of Finance, in form of a Transaction confirmation to the Client, in which the most important information concerning the execution of the order are indicated, in particular: the type of security, total nominal value of the Transaction and the net price. In case of purchasing the Bank s Securities the confirmation of the execution of the order constitutes a confirmation of allocation, prepared in accordance with a relevant issue documentation. Additionally, the Bank shall provide the Client with information on the status of the order upon request. In case of Clients classified by the Bank as Eligible Counterparties, the rules of submitting the confirmation may be regulated in a different manner, in an agreement concluded with a specific Client or in a relevant issue documentation respectively. 6. The Bank shall inform the Retail Client of any significant difficulties which may influence the proper execution of the order, e.g. force majeure or a system breakdown, immediately after verifying such difficulties. 7. The following entities shall be responsible for supervision and organization of order settlement: 1) within the scope of Treasury Securities - KDPW; 2) within the scope of Bank s Securities: a) KDPW in case of registering relevant Bank s Securities at KDPW on the day of the issuance; b) Bank in case of Bank s Securities non-subject to registration at KDPW on the day of the issuance; 8. The Bank shall not misuse information relating to pending Client orders, and shall take all reasonable steps to prevent the misuse of such information by any of the persons involved in the execution of the Client orders. 9. The Bank shall not aggregate Client orders. Best execution of the Client orders within the framework of the Investment Service provided by the Bank 5 1. Within the scope of the provided Investment Service the Bank shall take all the necessary actions in order to provide best execution of the Client orders, in particular by conducting activities within the scope of executing orders in a honest, fair and professional manner, in accordance with the best interest of the Client and ensuring that the employees of the Bank supporting the execution of the Client orders have the necessary expertise. 2. The Bank executes orders of acquisition, disposal of or exchange of Treasury Securities during auctions organized by the Ministry of Finance by submitting in his own name and on his own behalf an offer during such auction. The Bank shall inform the Client about the possible order delivery date, before accepting the order. 3. When executing an order the Bank operates in accordance with the disposition (instruction) from the Client indicating a specific place, method and price by which the order ought to be executed within the framework of strictly defined Financial Instruments. 4. The Bank informs that it will not execute Client orders on the Trading Venues or on the regulated markets. In case of an order of acquisition, disposal of or exchange of Treasury Securities during auctions organized by the Ministry of Finance the execution venue shall be exclusively the Ministry of Finance. In case of an order of purchase of Bank s Securities on the primary market the execution venue shall be exclusively the Bank. As a consequence, Clients have to consider the following risk factors when considering cooperation with the Bank within the scope of executing orders: 1) the risk of inability to accept the order the Bank shall not be obliged to accept the order. In particular, the Bank shall not act as a liquidity provider or a market maker within the scope of any Financial Instrument subject to a specific order, unless the Bank informs the Client about that fact; 2) settlement risk in the event where due to the deterioration of the Bank s financial situation the Bank may fail to comply with the obligations (of supplying the Client with a Financial Instrument or monetary value) resulting from the accepted order; 3

4 3) operational risk Client s order may be subject to faulty execution in case of ineffective internal procedures of the Bank, malfunction of the Bank s systems or mistakes on the part of the employees of the Bank. 5. The Bank performs allocation of Bank s Securities in accordance with the rules of allocating the Bank s issuance, attached to a specific purchase offer or a call for placing purchase declarations. However, in case of acquisition, disposal of or exchange of Treasury Securities during auctions organized by the Ministry of Finance, the rules of allocation shall be defined by the Minister of Finance. Provision of the Transaction Service by the Bank 6 1. Within the scope of the provided Transaction Service the Bank shall conclude Transactions with the Client on the basis of Agreement of Terms of Transaction or in Offer-Based Mode. 2. The Transaction shall be concluded with the Client when the terms set forth in a relevant transaction agreements are met and when the specificity of the relevant Transaction and the market condition impose conditions allowing the Bank to acquire or dispose of Financial Instruments on the Bank s own account. 3. Transactions based on Agreement of Terms of Transaction shall be based on making consistent declarations of will by the Bank and the Client within the scope of terms necessary to conclude a given Transaction. 4. The Bank ensures immediate and accurate registration of the Transactions in the Bank s systems. Additionally, the Bank shall promptly inform the Retail Client of any significant difficulties which may influence the proper execution of the Transaction, after becoming aware of such difficulties. 5. In case of a submission of an offer of concluding a Transaction (Offer-Based Mode) the Bank makes a decision on acceptance of the offer on the basis of quotations of active interbank market participants. Another factor which may influence the decision on accepting an offer is the Bank Margin included in the Transaction Price. 6. The Bank ensures immediate and accurate registration of the submitted offer in the Bank s systems. The Bank shall immediately and subsequently examine the Transaction offers, unless the character of a given offer or prevalent market conditions preclude it or the interests of the Client require otherwise. Additionally, the Bank shall promptly inform the Retail Client of any significant difficulties which may influence proper examination of the Transaction offer, after becoming aware of such difficulties. 7. Immediately after concluding the Transaction the Banks shall provide the Client with a confirmation of the Transaction, which indicates the most important information on the Transaction, in particular the type and tenor of the Transaction. Additionally, in case of submitting a Transaction offer (Offer-Based Mode) by the Client, the Bank shall provide the Client with information on the status of the order upon request, using a communication mode proper for Offer- Based Mode. In case of Clients classified by the Bank as Eligible Counterparties the rules of submitting the confirmation may be regulated in a different manner in a transaction agreement concluded with a specific Client. 8. The Bank shall be liable for a proper settlement of the Transaction and shall take every reasonable steps in order to ensure immediate and accurate settlement, unless a third party, e.g. KDPW shall be responsible for supervision and organization of the Transaction settlement. 9. The Bank shall not misuse information relating to Transaction offers and Transactions and shall take all reasonable steps to prevent the misuse of such information by any of the persons involved. 10. In cases where more than one Client enquires about the terms of Transactions via a request for quotation (RFQ) the Bank shall answer by examining the enquires individually. 11. In case where more than one Client submits a Transaction offer in Offer-Based Mode, the Banks shall examine the offers individually. 12. The Bank reserves the right to make transactions on its own account in parallel to concluding Transactions with the Clients on the financial markets, where the Banks is an active trading participant. 4

5 Best execution of the Transaction within the framework of the Transaction Service provided by the Bank 7 1. The Bank shall take all the necessary actions in order to provide best execution of Transactions when providing Transaction Service, in particular executing Transactions in a fair and professional manner, in accordance with the best interest of the Client and ensure that the employees of the Bank supporting the Transactions with the Clients have the necessary expertise. 2. The Bank shall strive to ensure fulfillment of all obligations towards the Clients on terms reflecting the market conditions, including the terms reflecting the valuation of the Financial Instrument, which constitutes the object of the Transaction, achieved by utilizing own valuations system or available market prices, with the Bank retaining the right to remuneration arising from the risk and business activity. 3. The Bank shall verify whether the Transaction Price constitutes a Fair Price for the Client by way of gathering market data utilized to estimate the Market Price and, if possible, by way of comparison with similar or comparable products. 4. The Banks informs that it shall not execute Client Transactions on the Trading Venues or on the regulated markets. The Bank shall conclude Transactions with the Clients exclusively for the Bank s own portfolio. As a consequence, Clients have to consider the following risk factors when considering cooperation with the Bank within the scope of Transactions: 1) risk of the inability to conclude a Transaction the Bank shall not be obliged to conclude a Transaction with a Client. In particular, the Bank shall not act as a liquidity supplier or a market maker towards the Client in connection with any Transaction, unless the Bank informs the Client about it; 2) settlement risk in the event where due to the deterioration of the Bank s financial situation the Bank may fail to comply with the obligations (of supplying the Client with a Financial Instrument or monetary value) resulting from the concluded Transaction; 3) operational risk the Transaction may be executed in a faulty manner in case of ineffective internal procedures of the Bank, malfunction of the Bank s systems or mistakes on the part of the employees of the Bank. Exceptions to best execution and specific Client s instructions warning 8 1. The Bank shall not ensure best execution within the scope of: 1) Transaction with Client classified by the Bank as Eligible Counterparty. 2) Transaction with Client classified by the Bank as Retail Client and Professional Client, provided that said Client is not basing his activity on the relation with the Bank. The Client shall not base his activity on the relation with the Bank in case when the following criteria, that constitute the four-fold cumulative test, are met: a) the Transaction is concluded at the initiative of the Client. In particular it refers to cases of enquiry by the Client about the Transaction Price (request for quote) or expressed willingness by the Client to conclude a Transaction on specific terms. The Bank informs that transferring informative valuation of the Transaction to the Client, offering general investment advice to the Client, transferring presentations, simulations or marketing materials as well as investment and financial analyses and other general recommendations regarding the Transactions and offering explanations by the Bank within the scope of the Transaction shall not constitute a proposal of the Bank to conclude a Transaction; b) the Client shall be entitled to conclude Transactions with other financial institutions and may compare terms of concluded Transactions (or analogous transactions) in other financial institutions (shop around). In particular, the evaluation is influenced by the availability of a given Transaction in offers of other financial institutions, particularly on the Polish market; c) transparency of the market price for a given Transaction; In particular it refers cases, where the Clients have opportunity to verify the terms of concluded Transaction in the systems, services or information portals; 5

6 d) the information documents transferred by the Bank and the transaction agreement concluded between the Client and the Bank do not imply that the Client can rely on the Bank in justifiable manner in reference to ensuring the best possible terms for a specific type of Transaction. The Bank, based on the aforementioned criteria (four-fold cumulative test) shall not ensure best execution of the Transaction: a) for the Retail Client or Professional Client who is a financial counterparty, as provided in the EMIR Regulation, within the scope of FX forward transactions, plain vanilla FX options, FX swap transactions, commodity swaps, commodity options, IRS transactions, CIRS transactions, FRA transactions, interest rate options (Cap/Floor) and transactions on treasury securities and other securities admitted to trading on the Trading Venues or on the regulated markets; b) to Professional Clients who are non-financial counterparties within the meaning of EMIR: - within the scope of forward transactions and currency swap transactions; and - additionally within the scope of plain vanilla FX options, FX swap transactions, commodity swaps, commodity options, IRS transactions, CIRS transactions, FRA transactions, interest rate options (Cap/Floor) and transactions on treasury securities and other securities admitted to trading on the Trading Venues or on the regulated markets, provided that it meets the abovementioned criteria (four-fold cumulative test), of which the Bank shall inform the Client via or fax. In case where the Client, referred to in this point, would like for the Bank to ensure best execution of the Transaction, he shall be obliged to immediately inform the Bank about that fact in a written form. 3) Transactions entered into with the Client on the Trading Venues and on the regulated markets. 2. Notwithstanding the provision of section 1, the Bank shall ensure best execution of the Transaction in case where the Client shall be obliged to conclude a specific Transaction with the Bank based on the provisions of any agreement concluded between the Bank and the Client, in particular market risk hedging transactions (e.g. interest rate risk or currency risk) resulting from the credit agreement. This shall not constitute inclusion of provisions obliging the Client to execute a specific volume on foreign exchange transactions with a Bank in the agreement between the Bank and the Client. 3. The Bank hereby informs the Clients, that it meets the requirement of best execution within the scope in which it executes an order or Transaction according to the dispositions (instructions) from the Clients, indicating e.g. price levels of Financial Instruments or modifying delivery date or the method of concluding Transactions or executing orders. In particular, in case of concluding FX forward transaction, where the Client indicates spot rate which ought to be used to determine the forward rate in a FX forward transaction, the Bank shall meet the best execution requirement by applying spot rate in accordance with the disposition (instruction) of the Client. Conflict of interest 9 1. Regardless of the fact whether the Bank ensures best execution of the order or Transaction, the Bank undertakes activities aimed at efficient identification, management and monitoring of situations that may possibly lead to infringement of the Client's interest (conflict of interest). 2. Detailed description of conflicts of interests, possible sources and the model and accepted methods of management thereof shall be contained in "Policy of management of conflicts of interest at Bank Pekao S.A.", made available to the Client prior to the provision of the Investment Service or conclusion of a Transaction, depending on the choice, via the Bank website at or on a durable medium. Generic advice (lack of investment advisory) Authorized employees of the Bank may, within the scope of the provided Investment Service and cooperation within the framework of concluded Transactions, provide the Client with a written or oral generic advice (including during recorded calls), regarding: 1) characteristics of specific types of Financial Instruments, 6

7 2) investment in specific types of Financial Instruments, 3) comparisons of Financial Instruments, 4) risks factors associated with investing in Financial instruments, 5) market factors influencing the valuation of Financial Instruments. 2. Providing generic advice does not constitute provision of investment advisory services, nor does it constitute preparation of investment analyses, financial analyses or other recommendations of a general character concerning transactions in Financial Instruments. 3. Any information or explanation provided by the Bank regarding a Financial Instrument, which is the object of the Transaction or Client s order shall be considered as presentations of the product offering of the Bank and shall not constitute recommendation or offering of said Financial Instrument. 4. Any decisions made by the Client as a result of the provided generic advice and information or explanation regarding the product offering of the Bank shall be regarded as autonomous decisions of the Client based on their own individual and independent evaluation or evaluation of the Client s own advisors. 5. Generic advice and information or explanation regarding the product offering of the Bank can not be considered by the Client as a guarantee of achieving the Client s desired results, even in a case where a Client followed the generic advice or information or explanations concerning the product offering of the Bank while making his own independent decision. 6. The Bank assumes no liability for possible damages that the Client may incur as a result of concluding a Transaction with the Bank or execution of the Client s order. 7. The Bank does not provide investment advisory services in relation to the provided Investment Service and Transactions. Lack of inducements 11 The Bank shall not accept or transfer cash consideration, including fees and commission or non-cash consideration (referred to as inducements ) in relation to provision of the Investment Service for the Clients and cooperation within the scope of Transactions. Costs and associated fees 12 The Client may incur costs and associated fees in connection with the Investment Service rendered to the Client and cooperation within the scope of Transactions. In particular, as a result of entering into an Transaction or performing other operation regarding such Transaction, the Client may incur cost constituting the Bank s Margin. The Bank s Margin shall not constitute a separate fee or commission, but shall be included in the Transaction Price. Information on costs and associated fees in relation to the Investment Service rendered to the Client and cooperation within the scope of Transactions, shall be made available to the Client in form of Information on costs and fees related to the Investment Service provided. This information shall be made available to the Client prior to the provision of the Investment Service or cooperation within the scope of Transactions, depending on the choice, via the Bank website at or on a durable medium. Final Provisions The Bank shall transfer the Policy to the Clients via a durable medium or by posting the up-to-date version of the Policy on the website 2. Conclusion of a Transaction by the Client or submitting an order to execute an sale, repurchase or exchange of Treasury Securities, after prior presentation of the Policy, shall be considered as acceptance of its provisions by the Client. 7

8 3. An up-to-date version of the Policy is available on the website of the Bank at: 4. The Policy shall be verified at least once a year in regards to meeting requirements set forth in the provisions of law, in particular the requirement to act in the best interest of the Client. Such review shall also be conducted each time when any event which significantly influences the Bank s ability for best execution of the order or the Transaction occurs. 5. Information on the changes to the Policy shall be transferred by the Bank to the Clients via a durable medium or by posting the up-to-date version of the Policy on the website The Bank shall inform the Client about any change at a date allowing the Client to terminate the agreement regarding the Transaction in compliance with the notice period specified in said agreement. 6. The Policy comes into force as of 3 rd January,