AECSD

1. AECSD Risk Issues for CSDs in 2010 – Examination of Role in Information Dissemination John Woodhouse Group COO & Director Capital Markets, Thomas Murray

2. Risk Issues for CSDs Contents • Risk Issues – how Eurasia fares • Counterparty Risk – continues to maintain focus • Asset Servicing Risk Rating Profile for Eurasia • Developments in the Provision of C.A. Information - Last Two Years • Information Disclosure – TM Transparency Criteria

3. Risk Issues for CSDs Risk Issues – Key issues across the globe • Key Developments: • Global: Short selling has been banned in many countries since 2008. The ban has been removed in some markets but still remains in Austria, Belgium, Denmark, France, Iceland Ireland, Luxembourg, Portugal, Japan, Korea. Tighter reporting requirements for short positions are also in place in most markets. • France: The settlement cycle is expected to be shortened from T+3 to T+1.This modification aims to reduce the risks associated with short selling, and will include all instruments including the French Debt. • Qatar: The cash settlement of the electronic transactions is now carried out by the central bank which replaced the risk exposure in one single clearing bank by the use of central bank funds. • Korea: The Banking Act has been revised and from November 2010, the restrictions on banks providing loans to foreign investors for securities investment purposes will be abolished. • Czech Republic: In July 2010, CDCP (formerly UNIVYC) became a fully operational CSD, harmonising the Czech market practices with the EU markets; and the transfer of records from the Central Securities Registry (SCP) database to CDCP was completed. • Canada: Although 90% of the securities are immobilised or dematerialised, initiatives are underway to introduce a “book entry only” service by 2014 to eliminate physical securities.

4. Risk Issues for CSDs Risk Issues – Key Issues in Eurasia • Key Developments: • Russia: FFMS is planning to tighten the regulation of registrars. The stricter requirements on registrars’ activities will apply additional procedures and measures to registrars and is expected to prolong the time for the registration process.FFMS is also planning to introduce a CSD concept in Russia (on the basis of Crest in the UK). The functions between the CSD and the registrars will be split for listed and unlisted securities. The CSD will execute the functions for listed securities, which the FFMS has called the 'tradable part', while the registrars will undertake the function for unlisted securities or 'non-tradable part'. • Kazakhstan: In November 2009, the KASE merged with the Regional Financial Center of Almaty (STF RFCA) which resulted in some changes such as the implementation of repo transactions and the reduction of the settlement cycle for STF RFCA trades from T+3 to T+0. • Bosnia and Herzegovina: In March 2010, CRS extended the cash settlement deadlines. The market deadline for posting funds into the liquidity reserve was extended from 12.00pm on T+1 to 12.00pm on T+2, and the remaining net funds are required to reach the account of CRS by 9.00am on T+3 instead of the previous 1.00pm on T+2.  • Belarus: The CSD in Poland (KDPW) signed a Memorandum of Understanding (MoU) with the Republican Central Securities Depository of Belarus (RCSD), in order to set up an operational link between the two entities and list Belarusian companies at the Warsaw Stock Exchange (WSE). • Ukraine: In October 2009, the private joint stock company AUSD became the legal successor of the IRSU and is now providing depository, clearing and settlement services in compliance with Ukrainian legislation.

5. Counterparty Risk Issues Counterparty Risk Issues – Key Issues across the globe • Key Developments: • Poland: The CSD is to create a new subsidiary which will assume the role of CCP in 2011. • Spain: The market regulator issued a clearing, settlement and registry system reform which includes the future introduction of a CCP in the market. Furthermore, LCH.Clearnet started operating as a CCP for government debt and repos in August 2010 with settlement taking place at Euroclear Bank or Clearstream. • Denmark, Finland, Sweden: CCP services were launched in the NASDAQ OMX Nordic markets in October 2009. The appointed CCP is EMCF but competitive clearing is expected in the future with two more CCPs (EuroCCP and SIX x-clear). An interoperability programme between the three CCPs is underway. • Greece: The post trading services framework is to be unbundled in September 2010, with the introduction of a clearing membership structure to consolidate the risk exposure at the clearing member level rather than at the level of individual brokers. • Kenya: Settlement caps based on the activities of market participants were introduced in January 2010. Participant contributions to the guarantee funds are expected to significantly increase next year. • Japan: Issuance of a roadmap to reduce settlement risks for government bonds trades. Reduction of settlement cycle and expansion of the use of the CCP (JGBCC)

6. Counterparty Risk Issues Counterparty Risk Issues – Key Issues in Eurasia • Key Developments: • Russia :Following changes of the clearing rules at DCC, participants can now settle DVP transactions on a real-time basis throughout the day until 7.00pm. In February 2010, MICEX introduced new modes of trading in the stock market, where MICEX acts as the CCP for all transactions conducted under the new modes including the main trading mode, the REPO trading mode and the negotiated transactions mode. The transactions of the new modes will be conducted with the most liquid shares from the composition of the MICEX Index and bonds with a high credibility rating.  MICEX also introduced a CCP for its derivatives markets in June 2010.

7. Counterparty Risk Issues Counterparty Rating Market Comparisons Rating Rating AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Absolute Rating - Highest Rating Public CSD TM Rating of 10 Eurasian CSDs Average Rating - Highest Rated Regions Gap between top and bottom rated Eurasian CSDs Average Rating - Eurasia

8. Counterparty Risk Issues

9. CSD Role in Corporate Actions • Corporate Actions: • Event initiated by a public company’s board of directors that gives an entitlement to holders of the company’s securities. • Information on the event is key to a successful corporate action • Asset Servicing: • Service provided by custodians or CSDs related to securities administration activities such as processing corporate actions, proxy voting and tax reclaims. • Weighting varies dependent on extent of services provided by the CSD: • 33% where CSD covers full service range • 23% where CSD provides a reduced range of services or is not recognised as the primary source of information

10. CSD Role in Corporate Actions Asset Servicing Risk Factors: • Receipt of Information • Information received from issuer, registrar, exchange • Manual vs automated, ‘guaranteed’ vs best endeavours • Dissemination of Information • Information disseminated to participants • Mode of dissemination, timeliness, liability • Receipt of Instructions • Instruction received from participant • Manual vs electronic, follow-up, time constraints, corrections permitted • Execution of Instructions • Processing of instruction • Type of processing, provide confirmation/report, timeliness, liability • Proxy Voting

11. CSD Role in Corporate Actions AAAAA+ AA AA- A+ A A- BBB BB B CCC August 2010

12. CSD Role in Corporate Actions Asset Servicing Rating Market Comparisons Rating Rating AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C AAA AA+ AA AA- A+ A A- BBB BB B CCC CC C Absolute Rating - Highest Rating Public CSD TM Rating of 7 Eurasian CSDs Average Rating - Highest Rated Regions Gap between top and bottom rated Eurasian CSDs Average Rating - Eurasia

13. CSD Role in Information Processing Corporate Actions Developments in the Last Two Years • Information Processing: • USA: The CSD in collaboration with SWIFT, has launched its new model of corporate action messages on the basis of ISO corporate action message formats. The new model of messages establishes a framework of the eXtensible Business Reporting Language (XBRL), which allows issuers to directly distribute the corporate action announcements in the financial markets on an electronic basis. • Brazil: In January 2010, the market regulator introduced new rules of information requirements to the issuer companies listed at the exchanges to be included in shareholder meeting announcements. This provides the shareholders with the facilities to access the relevant information and documents in relation to the shareholder meetings which enhances market transparency for participants.

14. CSD Role in Information Processing Eurasia: Information Processing

15. CSD Role in Information Disclosure CSD Governance & Transparency • Governance & Transparency Risk: The risk of loss due to poor governance and management arrangements and inadequate disclosure of information. • Directors and management have a responsibility to ensure the market has adequate and timely information on a fair and equivalent basis.

16. CSD Role in Information Disclosure CSD Information Disclosure • TM Rating Information Criteria: • Corporate Information is readily available to market participants according to the IOSCO recommendations on the disclosure of information. • Statistical information is produced in a timely manner and is made available to participants and the wider market interests. • A forum is available for all market participants to receive information and provide their input to management.

17. CSD Role in Information Disclosure TM Rating Information Criteria • Corporate Information: • Annual reports and annual accounts • Plan and budget for the coming year • CSD Code of Conduct • Risk management methodology and processes • Participant rules and regulations • Audit policy • Information on the external auditing of operational controls • Information on relevant capital market laws or CSD law • Statement on CSD’s liability for errors, omissions or late execution • Statement on controls CSD operates • Technical operational information • Compliance with IOSCO guidelines • Publication of AGC questionnaire

18. CSD Role in Information Disclosure TM Rating Information Criteria • Statistical Information: • Data related to services it operates • Assets under custody • Settlement data • Buy-in data • Fails rates • Concentration information • Corporate action events • Participant criteria and surveillance information • Information on its operational performance • Computer availability/unavailability • Computer utilisation • DRP test results • Claims received/paid • Staff responsiveness measures • Risk management measures

19. CSD Role in Information Disclosure TM Rating Information Criteria • Forum to Receive Information: • User Group arrangements • Participant representation on internal committees/working groups • Account management/client relationship meetings • Feedback mechanisms