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CLS Group: Magyar Nemzeti Bank

CLS Group: Magyar Nemzeti Bank. Sarah Medlar Relationship Manager CLS Services 9 October 2003. Agenda. CLS – structure CLS – how it works CLS – how it’s working CLS - next steps. CLS Shareholders.

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CLS Group: Magyar Nemzeti Bank

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  1. CLS Group:Magyar Nemzeti Bank Sarah Medlar Relationship Manager CLS Services 9 October 2003

  2. Agenda • CLS – structure • CLS – how it works • CLS – how it’s working • CLS - next steps

  3. CLS Shareholders Australia - Australia & New Zealand Banking Group * Commonwealth Bank of Australia * National Australia Bank * Westpac Banking Corporation *Belgium- Fortis Bank * KBC Bank * Canada - Bank of Montreal * The Bank of Nova Scotia * CIBC * Royal Bank of Canada * The Toronto-Dominion Bank *Denmark- Danske Bank * Nordea * France- BNP Paribas * Caisse Nationale De Credit Agricole * Credit Lyonnais * Société Générale * Germany- Bayerische Landesbank * Commerzbank * Deutsche Bank * DZ Bank * Dresdner Bank * Hypo Vereinsbank * Westdeutsche Landesbank *Italy– Banca Intesa * UniCredito *Japan- The Bank of Tokyo-Mitsubishi, Ltd * Mizuho Corporate Bank* Norinchukin Bank * Sumitomo Mitsui Banking Corporation * The Sumitomo Trust & Banking Co., Ltd. * UFJ Bank *Luxembourg– Dexia Banque Internationale a Luxembourg *Netherlands- ABN AMRO Bank * ING Bank * Rabobank Nederland *Norway- Den norske Bank *Singapore – DBS Bank * Oversea-Chinese Banking Corporation * United Overseas Bank * Spain- BBVA * Banco Popular Espanol * Banco Santander Central Hispano*Sweden- Skandinaviska Enskilda Banken * Svenska Handelsbanken *Switzerland - Credit Suisse * UBS * Zurcher Kantonalbank *United Kingdom- Barclays Bank * HSBC Holdings * Royal Bank of Scotland * Standard Chartered Bank *United States- American International Group * Bank of America * The Bank of New York * Bank One * Bear Stearns Securities * Citibank * The Goldman Sachs Group * JPMorgan Chase * Lehman Brothers * Mellon Bank * Merrill Lynch * Morgan Stanley & Co. * Northern Trust Corporation * State Street Bank and Trust Co.

  4. Structure • CLS Group Holdings - parent company • NY: CLS Bank International Edge Act Bank - Lead Regulator the Federal Reserve Bank of New York • London: CLS Services Ltd. Facilities Management/ Operations • Tokyo: Representative office

  5. EUR funds EUR agent Bank 1 EUR agent Bank 2 FX-Deal USD EUR MT 202 Bank 1 Bank 2 MT300 MT 202 USD agent Bank 2 USD agent Bank 1 USD funds Payment/information flow pre CLS The Problem

  6. How the world worked before CLS 2 days PLUS

  7. Solving the Problem • 1995 Allsopp report • Banks should review their internal control processes • Industry groups should take collective action • Central Bank measures to encourage risk reduction • led to industry initiative • 1996 - Produced the CLS concept - Preferred Solution • July 1997 New company CLS Services Ltd. • Today 67 shareholders • 2 September 2002 “GO LIVE”

  8. North America Europe Europe Asia/Pacific Overlapping RTGS systems

  9. CLS Settlement – How it Works

  10. Monetary Authority of Singapore Danmarks Nationalbank Norges Bank Sveriges Riksbank Reserve Bank of Australia European Central Bank Bank of Canada Bank of England Bank of Japan US Federal Reserve Swiss National Bank CLS Bank is a Multicurrency Bank Holds a multi currency account for each Settlement Member CLS Bank holds RTGS settlement accounts with Central Banks

  11. Funding & settlement Funding completion Submitting Instructions 06:30 How CLS Works 07:00 09:00 12:00

  12. Instructions submitted Instructions submitted

  13. Settlement • Commences at 07.00 CET and is scheduled to complete at 09.00 CET. • Risk Management Tests applied to both Settlement Members. • Real-time exchange of currencies i.e. CLS Bank will not settle the trade unless both parties have the required funds available. • Exchange is effected with finality & irrevocability for Settlement Members over their accounts with CLS Bank • Haircut (volatility margin) applied to Settlement Member’s currency balances to minimise credit risk for CLS Bank.

  14. Risk Management Tests • CLS Bank applies three tests to each Settlement Member’s account before settling individual instructions or paying out funds • Will both Settlement Members still be within the currency Short Position Limit? • Will both Settlement Members still be within their Aggregate Short Position Limit? • Will either Settlement Member’s account become negative after settlement? • No instructions will settle if any of the six tests fail.

  15. CLS Central Bank Accounts Funding

  16. Pay-In Schedule • Multilateral net amount of Settlement Member’s obligations on a given value date. • Short position currencies to be paid in over a period of 5 hours (3 hours for Asia Pacific currencies) commencing at 07.00 CET. • Long position currencies to be paid out by CLS Bank. • Includes all matched Instructions submitted by the Settlement Member and any User Members & Customers (3rd Parties) that the Settlement Member is sponsoring.

  17. Short position limit € 0.5 Billion Total paid in Pay-in € 1.0 Billion € 166 m € 1000 m € 834 m € 167m € 167m € 667 m € 250 m € 500 m € 250 m € 250 m CET 08:00 - 09:00 - 10:00 - 11:00 - 12:00 Responding to the Pay-in Schedule

  18. Pay-outs • Algorithm seeks to make recycle liquidity throughout the process within risk parameters • CLS Bank checks that a Settlement Member is entitled to receive funds, and that funds are available in the Central Bank account before paying out • If Member has unsettled instruction, its pay-out will be adjusted to retain sufficient value to settle irrespective of large intra-day FX move. • No amount will be paid-out that will cause the settlement member’s account to have an overall negative balance.

  19. C Funding and Pay-out 12:00 CET 12:00 CET

  20. CLS Settlement Member B CLS Settlement Member A Payment & information flow under CLS FX-Deal USD EUR MT 300 input input Input Input information Information USD a/c USD a/c Bank 1 Bank 2 EUR a/c EUR a/c CLS Bank CLS Bank

  21. CLS has changed market practice Possible same day settlement Normal - 2 day contract CLS eliminates Settlement risk (temporal risk) Normal - 2 day risk Historical information Real-time information Timed payments - intraday requirement 1 day funding Extends domestic settlement finality globally

  22. CLS Features – a summary • Linked to CB (RTGS) • Finality in PVP settlement • Multilateral Netted Funding • Real Time settlement and funds flow information • Intra-day Capability • Universal: Global Shareholders/Customers • Independent (Utility) • Not a Central Counterparty • Provides Crisis Management Support

  23. CLS – How it’s Working

  24. 54 banks settling live transactions in 11 currencies 25 Registered Vendors using CLS brand Over 14 million sides settled in 1 year with a gross value of over $160 trillion Settling over 80,000 sides and over $1 trillion a day 70Third party customers of Member banks CLS at September 2003

  25. CLS Volumes

  26. CLS Values

  27. Net Funding

  28. New products and services – short term 2003 Up-grades 1.14 Application and infrastructure conversion - achieved 1.15 Currency expansion, NKR, DKR, SEK and SGD – now live 1.16 Matching field for Custody & CLS capacity up-grade Further Currencies HK and New Zealand dollar, Korean won New Shareholders 2003/04 plan to add five and four new shareholders respectively. SSI Database

  29. Planned medium term investments Additional Settlement Window (second session) and In/In swap High value liquidity settlements Information Services Straight through processing initiatives (including E-trading connectivity)

  30. CLS Bank: a unique achievement Creates a global industry standard First global banking settlement system Unprecedented co-operation across the industry 67 shareholders, 25 vendors, 11 central banks Growing number of providers of third party services Major business & technical achievement Extends finality of domestic RTGS settlement globally Level playing field – target of one price for all

  31. Other CLS shareholder benefits In / Out swaps Future direction: Prioritisation of product development / market development Risk profile Involvement in CLS Group Governance Information delivery / control plus Crisis management Industry forum

  32. Other CLS shareholder benefits CLS Bank membership Gateway to the provision of third party services

  33. CLS Benefits – what our members say Reduces error rates Eliminates Settlement Risk Post-Settlement Reporting Pre-Settlement Information Reduction or elimination of credit (settlement) limits Source: TowerGroup

  34. 500 20% Other 3rd Party 350 Matching Field for Custody 50% 290 Other Currencies 260 Financial Institutions as 3rd Party 50% 100 Intra-Shareholder Transactions 90% Planned CLS Market Share after 5 Years CLS Market Potential (Sides per day) - Future potential - 2004 plans - Very early days - Good progress

  35. Questions? www.cls-group.com

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