AGENDA

1. T-REX: Regional Integration of Securities MarketsAn implementable concept for the link-up of the securities markets in the former Yugoslavian countries and AlbaniaHannes A. TakacsCAPMEX – The Capital Market ExpertsTallinn, 8th May 2012

2. AGENDA Key Industry Trends and Current Status Rationale of the Integration Concept Challenges & Obstacles Forms of Integration T-REX Concept Case Studies Next Steps

3. Four Key Industry Trends Increasing Power of Investors Single currency looses existing ties to national exchanges (e.g. Euro-Zone) Direct market access Globalisation intensifies competition Change of International Regulatory Environment Increases global competition by eroding advantages of domestic exchanges and clearing structures Increasing Importance of Status of Technology Easy and cheap access to exchange and clearing platforms One stop “shopping” Economies of Scales drive Consolidation Process Margin pressure leads to integrated value chains Multi market functionality leads to cost/fee reductions Shift from national to regional markets

4. Major Regional Players and Potential Effects Major players dominate Eastern European markets Warsaw Stock Exchange attracts regional listings and acts as competitor to regional exchanges increases competition for IPOs and listings CEESEG – CEE Stock Exchange Group combines regional exchanges under one umbrella with the aim to create synergies and raise liquidity shared infrastructure and services home market principle Istanbul Stock Exchange Istanbul SE, TakasbankandTurkishCRA acquired15% of Sarajevo SE Regional effects Increased competition for members, listings and turnover Need for alliances/market consolidation to increase market attractiveness and liquidity and reach critical mass

5. Current Status: Vicious Circle • Marginalized capital market – a vicious circle • Low market capitalization as well as trade velocity • Domestic investors seek global liquidity • Limited access of international investors • Going public of domestic companies on international exchanges • Capital markets infrastructure still in development

6. Current Status of SEE Markets

7. Howto break theviciouscircle andcreatethecriticalmass andliquidityneeded? It´s time for Regional Cooperation!

8. Why Cooperate – Potential Market Effects Cooperationmayincreaseattractivness & liquidity No direct effects expected through cooperation Cooperationmaysupport VC access & development Investors will haveaccessto a highernumberoffinancialinstrumentstodiversifytheirinvestments ? Partnershipmayincreaseattractivnessfordomesticinvestors Cooperationmayattract int. investors (e.g. data, index, researchcoverage…) Cooperationmay promote private stock ownership

9. Rationale of the Integration Concept • Development of a strong regional securities market • Concept should lead to an increased attractiveness of the regional markets • Establish the Balkan capital markets as asset class (e.g. like Baltics) • Solution must be realistic and widely accepted • Needs of bigger as well as smaller market operators in the region have to be reflected • Wide acceptance of the proposed concept needed • It has to interfere as minimal as possible into the current trading and post-trading regimes by observing the regulations in place. • Proposed concept should represent the maximum acceptable solution by all regional market operators. Therefore, it should be rather seen as the first step of regional integration than the most optimal model for regional integration. • Solution must be realistic, cost effective and easily implementable

10. ObstaclesandChallenges • Different levels of capital market development in each country • 8 Exchanges in 7 countries with different market set-ups • Partly deficiencies in the market infrastructures (trade and post-trade environment) • Different trading systems • Differences in market sizes and the range of products • Uneven development of institutional investors • Lack of critical mass needed to finance up-to-date infrastructure, attract issuers and investors • Ongoing consolidation process of financial intermediaries • Ownership structure of exchanges and post-trade environment • Regulatory regimes and legal environment not harmonized • Up-to-now only two regional countries apply EU Directives: Slovenia and Croatia • Differences in regulatory regimes are the largest impediments for regional integration • Remote membership is - except in Slovenia - in none of the regional countries allowed (Croatia will follow with the EU accession in mid 2013) • Tendency rather to protect domestic market than to support integration • Local market is seen as “national pride” • Differing perceptions of costs, risks, and benefits of regional integration among market players and country supervisory authorities • Lack of regional focused products and hedging instruments Further decrease in trading volumes will lead to regional integration!

11. Joining a larger Exchange Group Transfer of know-how - time to market Market place serving local companies must be secured Integration driven by Mergers & Acquisitions Regional integration driven by M&A activities Independent investor into regional exchanges acts as integrator Optimum: common shareholder structure Regional Exchange Hub – Virtual Regional Exchange Legal entity jointly established by the exchanges as Meta Exchange One face to the customer Order-routing to member exchanges plus regional derivatives market Shared IT infrastructure and services T-REX Hub: Solution for Trading on Regional Level Order-routing link between exchanges International Example: ASEAN Trading Link, MercadosIntegrado Potential Drivers for Regional Integration

12. Integration into a larger exchange group Majority of the exchange(s) owned by a larger exchange group Access to and transfer of know-how Shared IT infrastructure Joint marketing and business development Market place serving local companies must be secured Common ownership if various regional exchanges may drive integration Feasibility Only few of the regional exchanges are for sale at a realistic price Some foreign exchanges are already invested in regional exchanges E.g. LJSE, SASE Shareholder structure or regulations don’t allow the acquisitions of majority stakes in some of the exchanges (e.g. BELEX owned by Government; ZSE: 10% limit) No regional integration will be achieved unless most of the regional exchanges are part of the acquirer Joining a larger Exchange Group

13. Integration driven by regional Mergers & Acquisitions Regional exchange acquires most of the other regional exchanges Common shareholder of regional exchanges acts as integrator E.g. EBRD, Exchange Group… Feasibility 8 Exchanges in 7 countries exist Only few of the regional exchanges are for sale at a realistic price Some foreign exchanges are already invested in regional exchanges E.g. LJSE, SASE Shareholder structure or regulations don’t allow the acquisitions of majority stakes in some exchanges (e.g. BELEX owned by Government; ZSE: 10% limit) No regional integration will be achieved unless most of the regional exchanges have a common shareholder who drives the integration process National interests will not support acquisition by a neighboring exchange Larger exchange group or IFI as acquirer may be preferred by most market players Integration driven by Regional M&A

14. Regional Exchange Hub – Virtual Regional Exchange Legal entity jointly established by the exchanges as Meta Exchange One face to the customer Order-routing to member exchanges plus regional derivatives market Shared IT infrastructure and services Feasibility No political willingness on national levels Hardly possible to reach regional consensus Who will be in the driver seat? Where should it be located? Who takes care for the management? Who owns how many shares of the new Meta Exchange? Virtual Regional Exchange

15. It´s Time for Regional Integration • A Feasible Solution: T-REX Hub The Regional Exchange Hub • T-REX Hub: Trading on Regional Level • T-REX acts as order-routing link between regional exchanges • International Example: ASEAN Trading Link, Mercado Integrado • Simple, fast and cost efficient

16. Basic Principles behind the T-REX Hub Cross-border trading via T-REX T-REX acts as order-routing facility using the regional exchanges as access points Should be a value driver for local exchanges Will act as an additional distribution channel Standard interface for regional trading via order-routing Aggregation of liquidity in the home market without maintaining an own order-book T-REX will route all orders to local exchange Liquidity stays in the central order book of the home market Market regulation, supervision and enforcement Home market rules prevail Regulation, supervision and enforcement stays with home market authorities Clearing and settlement No changes in current clearing and settlement structures needed Implementation based on multi-lateral agreement

17. Additional services for exchange members Exchange acts as technical access point for regional trading of its members Trading of instruments listed on connected exchanges via order-routing Cost-effective access to various SEE markets through one connection Opportunity to offer regional products (e.g. certificates, regional ETF…) Aggregation of liquidity Aggregation of liquidity in the single order book of home market Liquidity creates liquidity, increases market attractiveness and public awareness Additional services for exchange members Regional outreach increases attractiveness for IPOs and corporate bond issues Increased revenue streams Additional income streams based on expected higher turnovers and technical services Increased attractiveness (e.g. exchange data, capital raising…) Advantages for T-REX Exchanges

18. Advantages for Exchange Members • Simplified access to multiple markets • One access point to multiple markets via one infrastructure • Trading of securities listed on the connected exchanges in form of order-routing • Clearing and Settlement takes place via member of the exchange where the trade took place • From a local to a regional player • No need to establish costly subsidiaries in each of the target countries • Extended product range - exchange members can offer their clients products of all connected exchanges • New business opportunities also for small and medium sized brokers through common gateway • Increased attractiveness for clients • Access to various markets through one broker • Additional trading offerings for institutional and retail investors • Possibility to introduce regional products • Potential increased revenue streams

19. Advantages for Issuers • Regional outreach with home country feeling • Access to a wider investment community • Listing at one T-REX eligible exchange segment opens trading for all regional exchange members • No double listing or DR programs on regional level needed • Home exchange is single point of contact • Home country rules and regulations are applied • Increased liquidity • Attracting the interest of investors on a regional basis • Easier access of regional brokers and their clients to the stocks traded at the issuer´s home market will result in increased liquidity as well as public awareness on regional level • No fragmentation of liquidity • Reduced capital costs for companies expected

20. Advantages for Investors • Easy access to regional financial instruments • Broker can offer all regionally traded financial instruments which are available on the T-REX hub • Regional products can be included into the Internet brokerage platforms of brokers • Extended product offering • Standard products are comprising all eligible regionally traded securities • Easier regional portfolio diversification at competitive fees • Direct Market Access • DMA services for institutional investors may include regional exchange products

21. Eligible Products • Decision on T-REX marketed products • T-REX Trading Advisory Group decides on products available via order-routing • One vote per exchange principle • Phase I • Prime market stocks (Blue Chips) • Regional products (e.g. regional ETF…) • Phase II • All products traded at the connected T-REX exchanges via order-routing

22. Market Harmonization • Market Harmonization • Quick and easy market harmonization is currently not feasible • Support by all stakeholders needed • By most of the stakeholders seen as unrealistic under a short- to medium perspective • Phase I • Blue chip segment of all markets should use at least the same brand name (e.g. REX1.[Country Code], Balkan.Prime …) • Phase II • Harmonization of market models and fees • Harmonization of rules and regulations • Harmonization of market segments

23. Private law Official Market Semi- official Market Third Market MTF Segment REX.prime Segment REX.plus Market Standardisation on T-REX Level (Phase II) Public law Low Requirements High

24. Proposed Setup of the T-REX Hub • T-Rex Hub will be enable regional order-routing • Set-up takes into consideration that remote membership is legally not possible (except in Slovenia and from 06/2013 in Croatia) • Will provide access to the local trading systems – exchanges act as access points • Brokers play a key role in the T-Rex Concept • Direct access from foreign brokers not allowed, therefore trade has to come legally from local exchange member • Trades from non-exchange members have to be directed in form of “direct market access” to local exchange member(s) • Differentiation between “Originating Broker” and “Sponsoring Broker”

25. Originating and Sponsoring Brokers • Trading Process • An Originating Broker, sends his order for “foreign” shares to the T-REX access point hosted at his home exchange • Order is directly routed to the foreign exchange via the central T-REX Hub and executed there by using the local membership of the so called Sponsoring Broker • Order is cleared and settled locally through the Sponsoring Broker • Sponsoring Broker • Bilateral agreement between Originating Broker and Sponsoring Broker required • Exchange member on Foreign Exchange • Views and cancels sponsored orders • Sets and monitors position/credit limits for Originating Broker • Handles post-trade activities

26. Trading Process via T-REX Hub

27. Sponsoring Broker • Current Members act as Sponsoring Brokers • Pros • Easily implementable • Only bilateral agreement between Originating and Sponsoring Broker needed • Cons • Fee charged by Sponsoring Broker can hardly be controlled by Exchange • Too high fees of Sponsoring Brokers may be a hurdle for regional market access • Tender Process to select Sponsoring Broker(s) • Pros • Competitive fee levels may be achieved • Selection of one to n brokers to act as Sponsoring Brokers possible • Cons • Question of duration of contract allocation as changes have direct impact on Originating Brokers and their business processes • Broker may not want to establish business relation with Sponsoring Broker or vice-versa • Sponsoring Broker as Subsidiary of the Exchange • Pros • Full Control on fees and processes • Can act as non-profit organization • Highly attractive fees can be established • Cons • Potential legal impediments • Costs and risks for exchange to establish and run a brokerage • Competition to Exchange members as they may loose clients

28. Latin American Integration Approach • Covering 3 Exchanges: Chile, Colombia and Peru Case Study MercadosIntegradoI Source: Mercados Integrado

29. Case Study: MercadosIntegradoII • Institutional and Operational Set-up (Phase II) Source: Mercados Integrado

30. Singapore, Malaysia, Thailand and the Philippines will be connected via ASEAN Link • Start date: June 2012 • Inclusion of Indonesian & Vietnamese stock exchanges is planned Case Study: ASEAN Exchange Link I Source: Sunguard Source: Sunguard

31. Institutional and Operational Set-up Case Study: ASEAN Exchange Link II

32. Case Study: ASEAN Exchange Link III • Technical Setup

33. Agreement on concept Agreement by regional exchanges, post-trade operators and especially regulators that the T-REX concept is feasible and will be supported Establishment of regional working group Representative from each exchange Organizational and technical support may be partly provided by USAID PFS Detailing of technical solution(s) needed Definition of eligible products for Phase 1 Detailing implementation plan and needed resources Next Steps – Medium Term

34. T-REX Hub The Regional Exchange Hub Let´sstart!