and everything’s cleared

… and everything’s cleared

KDPW_CCP is a modern clearing house, which clears transactions using a range of mechanisms ensuring systemic mitigation of counterparty default risk. With the application of new tools (including financial instruments netting, development of the clearing guarantee system, KDPW_CCP’s participation in securities lending as a guarantor of loan return), KDPW_CCP is ready to serve Polish and foreign financial institutions operating on different markets. The establishment of KDPW_CCP has improved the international position of the Polish capital market and was welcomed by rating agencies, mainly thanks to reduced counterparty risk. KDPW_CCP was established following a decision of the Polish Financial Supervision Authority (KNF) approving the position of KDPW_CCP’s capital in the clearing guarantee system and a cap on the obligations of clearing members in respect of additional contributions to the clearing fund. The capital of KDPW_CCP can be used to support the liquidity of clearing transactions concluded on the regulated market.

KDPW_CCP Separate legal entity In line with international standards, due to the different risks of CCP clearing house services and risks of the core business of the central securities depository (KDPW), a separate legal entity had to be set up to provide clearing house services: KDPW_CCP. Guarantees of the clearing of transactions based on CCP capital An important feature of KDPW_CCP is that its capital can be used in the clearing guarantee system, which improves the safety of clearing. KDPW_CCP has a capital of PLN 100 million (ca. EUR 25 million), which can be used in the clearing guarantee system as one of its resources. Capped additional contributions of participants to the guarantee fund The establishment of KDPW_CCP allowed to cap maximum additional contributions to the clearing fund at 110% of the participant’s basic contribution. The cap enables participants to assess the risk of participation in the clearing guarantee fund.

Clearing Guarantee System Concurrently with the start of operations of KDPW_CCP, a new clearing guarantee system has been implemented. The new system is comprised of two main tiers: individual margins and marking-to-market, and a solidary clearing fund. The model is complemented by the capital of the KDPW_CCP clearing house. These solutions allow to improve the level of available guarantees by adjusting collateral to the level of generated risks. The new system is based on international standards and solutions used on the biggest financial markets of the world, in particular the SPAN® methodology. KDPW_CCP’s clearing guarantee system currently available to mitigate the risk of default includes the following resources: • margins deposited by clearing participants; • basic contributions to the clearing fund; • additional contributions to the clearing fund; • KDPW_CCP capital.

Sequence of activating the resources of the clearing guarantee system:

Receivables of the defaulting member

Margins (cash and derivatives market)

New: cash market margins

Basic contributions of the defaulting member Margins Basic contributions of non-defaulting member

Clearing fund KDPW_CCP capital

50% of maximum additional contributions (capped at 110% of basic contributions)

PLN 20 million of KPDW_CCP capital KDPW_CCP Management Board decision

50% of maximum additional contributions (capped at 110% of basic contributions)

KDPW_CCP capital: PLN 100 million KDPW_CCP capital

SPAN® Methodology (Standard Portfolio Analysis of Risk): precise estimation of risks for both cash and derivatives transactions; calculation of contributions to the clearing fund; widely known and recognised standard on global financial markets; more transparency and attractiveness of the Polish market; safer clearing; designed and introduced by Chicago Mercantile Exchange Inc. (CME).

Participation in KDPW_CCP Eligible as KDPW_CCP participants is any legal entity which is: • an investment firm; • a bank; • a foreign investment firm; • a financial institution other than those in points above; • an entity with a registered office outside the Republic of Poland which performs clearing of transactions concluded in financial instruments trading; • a company operating a clearing house. A foreign investment firm may become a KDPW_CCP clearing member as a General Clearing Member (GUR) or a Direct Clearing Member (BUR). With the introduction of the KDPW Settlement Agent function, entities which do not have a registered office or branch in Poland can become KDPW_CCP clearing members without having to hold a depository account with KDPW (CSD). The Settlement Agent will operate the company’s account with the central depository KDPW. Main conditions for KDPW_CCP clearing members: • to hold a depository account or securities account with a settlement institution responsible for the settlement of transactions, or to have a Settlement Agent with the settlement institution (applicable to foreign financial institutions); • to hold a bank account with the relevant clearing bank in the currency of the planned clearing of transactions handled by KDPW_CCP or to have a payer holding such an account with the clearing bank.

Capital requirements for KDPW_CCP Participants

Participant status type

Minimum capital requirement Bank

Broker

GUR (General Clearing Member)

PLN 50 million (ca. EUR 12 million) plus a multiple of PLN 5 million (ca. EUR 1.2 million) per entity represented in KDPW_CCP

PLN 15 million (ca. EUR 3.5 million) plus a multiple of PLN 2 million (ca. EUR 0.5 million) per entity represented in KDPW_CCP

BUR (Direct Clearing Member)

PLN 25 million (ca. EUR 6 million)

PLN 4 million (ca. EUR 0.9 million)

In practice… A foreign investment firm: will be a KDPW_CCP participant with clearing member status; will not be a KDPW (CSD) participant – cannot operate securities accounts (need not open a branch in Poland); will sign an agreement with one entity performing KDPW Settlement Agent functions; will indicate the Settlement Agent’s account to KDPW_CCP; will pay cash liabilities depending on current mark-to-market; will be a sole participant of the clearing guarantee fund.

Important regulations Participation in KDPW_CCP is regulated mainly by: Rules of Transaction Clearing; KDPW_CCP S.A. Detailed Clearing Rules; Rules of the Clearing Guarantee Fund.

How to become a KDPW_CCP clearing member? An entity which is seeking participation in KDPW_CCP should submit to KDPW_CCP an application for conclusion of a participation agreement and grant of clearing member status, which should contain the following: • indication of the type of activities the applicant intends to perform within the clearing system; • indication of the type(s) of participation status, relevant to the activities which the applicant intends to perform. The following should be attached to the application: • a copy of the company statute or articles of association and a valid copy or excerpt from the relevant company register; • a copy of the brokerage licence or licences to conduct other activities related to securities trading or registration; for a foreign investment firm operating a brokerage business in the Republic of Poland, also a declaration confirming the occurrence of conditions necessary for that firm to initiate a brokerage business in the Republic of Poland (pursuant to the provisions of the Act on Trading in Financial Instruments); • card with specimen signatures of the applicant’s authorised representatives; • declaration of acceptance of the jurisdiction of the Arbitration Court at the National Depository; • information card containing the mailing address and the list of persons engaged in securities trading including their positions, telephone numbers, fax numbers and e-mail addresses; • declaration indicating the applicant’s identifier in the relevant settlement institution or naming the entity to perform the settlement agent function for the applicant and indicating the entity’s identifier in the relevant settlement institution; • declaration indicating the applicant’s bank account number in the relevant clearing bank in the currency of the planned clearing of transactions handled by KDPW_CCP for the applicant or indicating the entity to perform the payer function for the applicant; • declarations of entities indicated by the applicant to perform the settlement agent or payer function, whereby they agree to perform such function for the applicant. Detailed information about required documents and application forms are available at www.kdpwccp.pl/en

List of entities which can perform Settlement Agent functions: Deutsche Bank Polska S.A.; Bank Pekao S.A.; Bank Handlowy w Warszawie S.A.; Bank BPH S.A.; Societe Generale S.A. Branch in Poland.

Communication with KDPW_CCP SWIFT is the communication standard between KDPW_CCP and its foreign clearing members. In order to ensure efficient exchange of messages between the institutions, it is necessary: • • • • •

to sign an agreement between the foreign entity and KDPW; to provide identification data of the person authorised to send and receive information via the XML/SWIFT system; to register with the Closed User Group established by SWIFT for KDPW; to establish connectivity with SWIFTNet; to have the necessary SWIFT application and software modules.

Contact KDPW_CCP 4 Ksiazeca St. 00-498 Warsaw Poland www.kdpwccp.pl/en

Contact us with any questions: Marcin Truchanowicz – KDPW_CCP Managing Director T: +48 22 537 9564 E: [email protected] Żaneta Skorupska-Świrska – KDPW_CCP Deputy Managing Director T: +48 22 537 9325 E: [email protected] Paweł Popławski – Head of Risk Management T: +48 22 537 9374 E: [email protected] Marcin Chojnowski T: +48 22 537 9501 E: [email protected] Karolina Ziółkowska T: +48 22 537 9474 E: [email protected] Magdalena Medyńska T: +48 22 537 9323 E: [email protected]