SETTLEMENT OF CO 2 EMISSION UNIT DEALS - Information for investment service providers (ISPs)

1. SETTLEMENT OF CO2 EMISSION UNIT DEALS - Information for investment service providers (ISPs) October 15, 2005

2. What is a CO2 emission unit? • In the European Union’s Emission Trading System, the owner of a unit is entitled to emit 1 ton of CO2 during a period of time. (See Act XV of 2005 on the Trading of greenhouse gases.) • Since July 1, 2005 according to the Hungarian Capital Market Act greenhouse gases are considered as investment instruments.

3. What can be done with CO2 emission units? ‘Operators’: largest industrial emitters falling under the law on the Trading of greenhouse gases that receive a certain number of units from State free of charge on a yearly basis. They are obliged to give back to the State an amount of units equals their real emission during the year (obligatory surrender of units), but they can sell their surplus or they have to buy the missing amount on the market in case of shortage. Anyone else, i.e. any natural or legal person or organization incorporated in the EU can freely trade with the units, without the obligatory surrender procedure. Any owner of a unit can initiate the cancellation of it.

4. The Registry • The authentic and public Registry keeps CO2 emission units as electronic signs, and ownership of units can be changed through the transfer of units in the Registry from one owner to the other, where anyone can have an account. • The settlement of a deal for the buy / sell of CO2 emission units takes place through the Registry.

5. Trading opportunities Present situation in Hungary • OTC deals on the units In the future • Primary market - State CO2 unit auctions on a yearly basis • Secondary market – CO2 to be launched to the Budapest Stock Exchange (cash, derivatives)

6. Potential clients for ISPs • Operators, • Other companies that will fall under the corresponding law later on (e.g. chemical industry, transportation), • Institutional investors (with investment reasons), • Environment protection organizations and private persons (e.g. for the reason of unit cancellation).

7. About the market • There are 12,000 operators from 6 industrial sectors of the EU25 countries. • In Hungary there are about 250 operators, their yearly total emission is about 30 million tons. • The price of CO2 ranged between 7-29 € in the last 10 months.

8. Price and turnover data(01.12.2004 – 28.09.2005.) Source: www.pointcarbon.com

9. The model of settlement

10. The settlement process 1/2 • Signing an Agreement for the buy / sale of CO2 units • Seller and Buyer gives instruction to their ISPs to settle their deal through a DVP mechanism through KELER. • The ISPs submit their Settlement Instruction forms to KELER. • KELER matches theSettlement Instructions. • TheSeller (or its ISP) transfers CO2 units to KELER’s Registry account. • TheBuyer (or its ISP)transfers money to KELER’s cash account.

11. The settlement process 2/2 • KELER checks coverage on both the CO2and cash accounts. In case it is succesful, • KELER transfers CO2to the Buyer’s ISP’s Registry account and parallel to this • transfers the cash value of the unitsto the Seller’s ISP’s cash account. • In case of an unsuccessful matching or coverage check CO2and cash rearrangement between KELER and the Buyer & Seller takes place, respectively. • Seller & Buyer receives information on the status’ of settlement from his ISP.

12. Start of KELER’s DVP settlement service End of 2005 or beginning of 2006, when: • the Hungarian National Registry will start its operation. • operators will receive their CO2 units from State. • KELER, the ISPs and other participants will open their accounts in the Registry. • ISPs sign the corresponding Agreement with KELER.

13. Further information Central Clearing House and Depository (Budapest) Ltd. 9-11 Asbóth street Budapest 1075, Hungary Kristóf Matuszka tel.: +36-1-483-6171e-mail: matuszka.kristof@keler.hu Csaba Sarok tel.: +36-1-483-6203e-mail: sarok.csaba@keler.hu