FINANCIAL INSTRUMENTS

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2 CASH AND DERIVATIVES MARKET FINANCIAL INSTRUMENTS CASH MARKET OTC DERIVATIVES, OTC REPO T-BONDS, EQUITIES NBP WSE 100% Regulated market (RM) ATS market OTC market Non-centrally cleared Treasury Equity capital: PLN 446 m (EUR 105* m) Equity capital: PLN m (EUR 55* m) Warsaw Stock Exchange (WSE) BondSpot (cash only) NewConnect Catalyst BondSpot Repo platforms MarkitWire BondSpot Warsaw Stock Exchange Interbank Treasury BondSpot Poland *Exchange rate on 07/05/2018 TRANSACTION RM ATS OTC SETTLEMENT TRADE REPOSITORY/ARM SAFEKEEPING ASSET MANAGEMENT CORPORATE ACTIONS DATABASE ADMINISTRATION SETTLEMENT AND REPORTING NCA Reporting Reporting Reporting Reporting REGULATORS Settlement Settlement NUMBERING AGENCY LEI ASSIGNING Payment Payment Payment CASH SETTLEMENT Polish Central Bank (NBP) TARGET2 - EUR SORBNET2 - PLN Commercial Bank OF TRADES RISK MANAGEMENT DEFAULT MANAGEMENT COLLATERAL MANAGEMENT 2 3

3 OF TRADES Bank A Bank E 30 of OTC market PLN, EUR STP with WSE trading system, UTP - NYSE Euronext RISK MANAGEMENT D Segregation of accounts B Netting: in cash (obligatory); in securities (optional) - full or directional netting; Bank Bank Central counterparty functionality through novation On-line monitoring of risk exposure Bank C Marking-to-market; Margining for cash and derivatives market SPAN (organised market) VaR (OTC market) Default waterfall compliant with EMIR Funds covering RM, ATS, OTC Buy-in Sell-out Own capital COLLATERAL MANAGEMENT MEMBER Currencies: PLN EUR A 30 MEMBER E 5 Securities: T-bonds T-bills WIG20 shares Eurobonds MEMBER 45 B SUPPLEMENTARY SERVICES Reporting of derivatives trades to KDPW_TR 10 MEMBER D 4 MEMBER C EMIR PLN authorisation (April 2014) EMIR EUR authorisation (August 2016) 5

4 ORGANISED MARKET (Warsaw Stock Exchange and BondSpot): Equity & debt securities WSE Trades Directional netting Day T messages Options (index) Treasury BondSpot Poland Trades Full netting messages member Futures contracts (index, stock, CCY, STIR, T-bonds) Gross messages OTC MARKET IRS, FRA, OIS, Basis Swap (WIBOR, POLONIA, EURIBOR, EONIA) Settlement Instructions Repo (Polish Treasury bonds) Outright (Polish Treasury bonds) 6 7

5 SPAN METHODOLOGY - method used to calculate margin requirements VaR METHODOLOGY - method used to calculate margin requirements CASH MARKET Margin requirement is determined on the basis of the following risk parameters: level of market risk and specific risk level of margin for the intra-class spread credit co-efficient for inter-class spread co-efficient limiting loss DERIVATIVES MARKET Margin requirement is determined on the basis of the following partial calculations: scenario risk margin (scanning risk margin) delivery margin (delivery charge/spot charge) minimum margin for short position in options (short option minimum) inter-class spread margin (inter-month spread charge) intra-class spread credit (inter commodity spread credit) Initial Margin requirement for a portfolio is based on historical VaR of that portfolio calculated according to the following parameters: Confidence level: 99.5% Observation window: 10 years Liquidation period: 5 days No decay rate: all historical observations have equal weight Perturbation method: Interest rates- additive movement over 1 day adjusted by the square root of the liquidation period; FX rates relative movement over 1 day adjusted by the square root of the liquidation period. Risk compensation: full offset within a single product, no risk offsets between different products Confidence levels used in the estimation of margin calculation model parameters: 99% (may be raised up to 99,5% in case when market price history is shorter than 10Y) Liquidation period used in calculations of risk parameters: 2-3 business days depending on liquidity class 8 9

6 TOTAL CAPITAL: PLN m (EUR 55 m) ORGANISED TRADING KDPW_CCP manages two default funds: Credits of the defaulting member Guarantee Fund (regulated market) WSE BondSpot ATS Guarantee Fund Margins of the defaulting member Resources of the relevant default fund Contributed by the defaulting member OTC TRADING KDPW_CCP manages: OTC Guarantee Fund Dedicated resources of KDPW_CCP (taking into account the allocation of the resources in relation to the size of the fund) Contributions of other KDPW_CCP clearing members to the relevant default fund KDPW_CCP own capital (up to 110% of the capital requirements) Additional contributions of other KDPW_CCP clearing members to the relevant default fund (up to 50% of the last contributions value) Remaining own capital of KDPW_CCP 10 11

7 SETTLEMENT OF TRADES FROM Regulated markets (WSE) Non-regulated, organised markets (BondSpot, NewConnect), OTC, Treasury BondSpot Poland MAINTENANCE OF SECURITIES AT THE TOP-TIER LEVEL Collective depository accounts Option to segregate by investor/group of investors Omnibus accounts for foreign investors SECURITIES SETTLEMENT SYSTEM Hold/Release mechanism -optional Partial settlement CENTRAL SECURITIES DEPOSITORY DVP SETTLEMENT IN CENTRAL BANK MONEY: PLN in SORBNET2 EUR in TARGET2 Commercial bank money for other currencies Initial recording of securities in a book entry system for all securities admitted to trading following public issue Reconciliation and monitoring of securities issue with participants All securities admitted to trading in the organised market must be registered in KDPW as the CSD Shares (foreign and domestic) Bonds (Treasury, Bank, Corporate, Municipal, Convertible, EIB, with priorities rights, non-public bonds, mortgage bonds, structured certificates) Exchange Traded Funds (ETFs) Investment Fund Certificates Warrants (WIG 20 index) Derivatives are registered on clearing accounts in KDPW_CCP CORPORATE ACTIONS BASED ON ISO 20022: Information, distribution of proceedings, tax services Mandatory reorganisations Registration and withdrawals ANCILLARY SERVICES Operational links to foreign CSDs (20 markets) Asset Management PLUS Management of Investor Compensation Scheme Transfer payments between pension funds Management of Pension Guarantee Fund Futures Contracts (share, interest rate, currency, WIG20 index, bond basket) Index Participation Units Options (European style), (WIG20 index, single stock) COMMERCIAL SERVICES Exception: CSDR application (II H 2017) National Numbering Agency and LEI assigning local operating unit - LOU Tri-Party Repo Treasury bills - custody, clearing and settlement in the National Bank of Poland system CSDR authorisation (II H 2018) Agent for negotiated securities lending & borrowing Trade Repository 12 13

8 Polish Central Bank (PLN) TARGET2 (EUR) Foreign CSDs Links created with foreign CSDs (FOP links) in connection with dual listing of shares on the WSE. Currently there are 5 direct and 2 indirect links covering 20 foreign markets. Euroclear EUROCLEAR UK & IRELAND EUROCLEAR NETHERLANDS Trading platforms WSE SWIFT Settlement bank for other currencies EUROCLEAR FRANCE IBERCLEAR EUROCLEAR SWEDEN Nasdaq CSD Keler BondSpot Web OeKB Confirmation platform MarkitWire Issuers NLB KDD PARTICIPANTS (e.g. brokers, custodians) SWI* SWIFT MQ ESDIWeb REGULATORS NCA CDCP SR Clearstream CSDP DTCC UniCredit Bulbank CDAD MONTE TITOLI CDS ASX *SWI - KDPW Information Exchange System 14 15

9 SFT TRADE REPOSITORY Reporting to KDPW_TR the Trade Repository must receive a complete set of information about the derivative trade (or about any change of the terms / parameters / valuation of the trade, etc.) in an XML message. KDPW_TR XML messages are proprietary messages developed to cover the information defined in the technical standards (RTS/ITS to EMIR); they contain the data required by the Trade Repository to identify and process the recording of trades under the ESMA requirements. Scope of mandatory information to be reported: counterparty details (including identification of the counterparties, the broker, the clearing member, the beneficiary, address and sector details, other counterparty details FC or NFC, etc.); valuation and collateral details; trade details (including UTI; contract type e.g. product ID, underlying, currency; expiry date, compression, price, face amount, termination date, settlement date, clearing, trade details by type of instrument options, FX, commodity, interest rate contracts). As counterparties will be required under the SFTR to report details of their transactions to trade repositories, KDPW is preparing to provide market participants with a new service enabling them to meet this obligation. KDPW has operated for more than two years as a Trade Repository under the EMIR and has the necessary experience, expertise, resources and a range of technological and procedural solutions necessary to accept and maintain trade reports. In addition, as a trade repository authorised by the ESMA under the EMIR, KDPW_TR is eligible for the fast-track authorisation procedure under the SFTR. The complementary service offered by KDPW provides trade repository participants (both under the SFTR and under the EMIR) with major benefits including: KDPW_TR s existing communication interfaces; the option of meeting both obligations by reporting to a single TR operator (to save costs and workload thanks to a single communication channel); the experience and expertise of KDPW staff operating the Trade Repository; professional support in the harmonisation of reporting with the SFTR standards; the application of available technical and technological solutions; support for SFTs settled in KDPW. KDPW_TR: full compatibility with the new RTS; user-friendly intuitive website interface with reporting functionalities and direct access to maintained data; global communication standards: XML messages, dedicated message queues (MQ); reporting of derivative trades (all classes, on all markets); reports received from participants directly or via KDPW_CCP

10 RECEIVING AND MAINTAINING TRANSACTION REPORTS FROM INVESTMENT FIRMS ARM TRANSACTION DATABASE ARM CLIENT DATABASE PERFORMING FILE AND CONTENT CHECKS OF RECEIVED REPORTS Transactions Client data BUILDING REPORTS ON THE BASIS OF TRANSACTION DATA FROM THE MARKETS AND KDPW_TR WSE SENDING REPORTS TO THE NCAs Transactions Transactions SENDING COPIES OF REPORTS SENT TO THE NCA TO INVESTMENT FIRMS ARM PARTICIPANT REPORTING THE REPORT STATUS ISSUED BY THE NCA AND THE REPORT STATUS AFTER THE PERFORMED FILE AND CONTENT CHECKS 18 19

11 NATIONAL NUMBERING AGENCY LOCAL OPERATING UNIT (LOU) LEI ISSUING KDPW is the only institution in Poland and one of few institutions in Europe to offer such a broad range of numbering services for financial market entities and instruments. The LEI is a global unique legal entity identifier comprised of 20 alphanumeric characters according to ISO17442, issued by a Local Operating Units (LOU) in the Global LEI System. KDPW assigns: The LEI should have all entities which have or will have the reporting obligation under the following regulations: EMIR entities trading in derivatives on regulated and OTC markets: options, futures, etc., ISIN International Securities Identification Number FISN Financial Instrument Short Name CFI Classification of Financial Instruments MIFID II / MIFIR entities trading on regulated markets, CSDR participants of central securities depositories (CSD) including participants with the status of Issuer, SFTR entities engaged in repo, sell buy back, buy sell back, securities lending and borrowing, as well as collateral management transactions. Since 1994 KDPW is the member of The Association of National Numbering Agencies (ANNA), and since 1996 plays the role of the national numbering agency. KDPW issuing a LEI according to the Regulatory Oversight Committee* decision of 27 December Since 21 December 2016 is fully accredited as a LOU by Global Legal Entity Identifier Foundation (GLEIF) and is the only Polish institution authorised to issue LEIs. How to get LEI in KDPW KDPW offers quick and customer-friendly issuance of LEIs on the website 1. Open an online account 2. Place an order 3. Pay the fee 4. Get the LEI * regulatory body appointed by the Financial Stability Board 20 21

12 CONTACTS: KDPW ul. Książęca Warsaw, Poland kdpw@kdpw.pl KDPW_CCP ul. Książęca Warsaw, Poland ccp@kdpw.pl Trade Repository KDPW_TR repository@kdpw.pl ARM Service arm@kdpw.pl KDPW_LEI lei_service@kdpw.pl More information