Opportunities and Barriers in CEE Derivatives Markets

1. Opportunities and Barriers in CEE Derivatives Markets Derivatives World Central and Eastern Europe 2011

2. UniCredit Markets & Investment BankingA broad Investment Banking platform in Poland and CEE provides excellent local market knowledge for our clients. Markets Investment Banking Core Derivatives markets • Poland • Hungary / Czech Republic • Germany / Austria / Italy • Russia • Turkey • South Eastern Europe Moscow Tokyo New York Oslo Hong Kong Moscow Singapore Copenhagen London Core competencies • Equities Research & Trading • Flow Trading & Structured Derivatives • Principal Investments • Research • Merger & Acquisition in core markets • Fixed Income & Currencies and Commodities • Project & Leveraged Finance Warsaw Prague Munich Paris Budapest Vienna Milan Istanbul Derivatives Market marking • WSE, EUREX, IDEM, LSE-EDX and Turkdex Listed futures & Options • Authorised Participant in every major ETFs program • Warrants, Certificates and Structured Notes for Retail Investors 2 Source: company data

3. Poland’s Unique Selling Points for Derivatives Economics: The strong economy during the crisis has attracted additional investment flows as Poland has been “upgraded” in investors minds from an Emerging Market to a “Developed” market. Political / Business Risks: Much more predictable political system than other EM benchmarks of Hungary or Russia. High level of economic participation, literacy and Per Captia GDP Market Structure Legal enforceability of ISDA and Collateral/Margining Agreements. 5yr CDS levels (235) are low compared to EM peers

4. Individual Market Strengths : Where is the Liquidity?UniCredit is committed to become an essential trading partner to every WSE professional participant WIG20 Futures Contract The WIG20 futures offers good liquidity, substantially more the CEE peers • Futures liquidity is always a pre-requisite for Index Options hedging • The WSE offers coherent business practices, giving investor confidence/security The CTX, PTX and CECEEUR indices The Over-The-Counter (OTC) derivatives trading represents the only real trading volume(s) • Common practice is to cross OTC synthetics/forwards for OTC trades • CECEEUR as a regional index is very popular with Retail Investors. However, as a practical matter for hedging any exposure, the Polish equity weighting is 69% (R2 = 95%) thus WIG is cheaper than a basket of futures • CFTC restrictions prevent US Institutional investors from using Hungarian or Czech products UniCredit is a significant participant within the WSE • Our custodial and cleared client volumes range between 5-10% WIG20 Futures traded Volume • When International Fund Managers are actively invested, our Futures Block Trade for Index Calendar Rolls ranges from 25-45% of the Crossing Volume • We are an active WIG20 Index Option market-maker, with traded volumes in excess of 15% The OTC market hides the liquidity from the Exchange, giving participants with the hedgeable exposures the FALSE impression that the WIG20 derivatives market is illiquid.

5. CEE derivative trading activity : Where was it ? The OTC Derivatives market Approximate weekly trading volumes in OTC Derivatives • WIG20 OTC market trades PLN 200-400mm notional per week • CECEEUR OTC market trades EUR 50-100mm notional per week • No regular trading activity in PTX / BUX options, but derivatives Flow Derivatives Market Hedge Funds: • engaged in Arbitrage, Long/Short and Directional trading • WIG20 has been a cheaper and popular hedge for EEMEA risks and panic induced outflows • CECEEUR is frequency traded in Variance Swaps Institutional investors: • Overwriting (selling CALLs) / Underwriting (selling PUTs) against Stock Portfolios. No Listed Stock Options • Systematic Index Overwriting Funds in Europe, typically selling 2-6wk 105% Calls • The collective Institutional Investor knowledge is very high, having learned much over the past 10 years The Retail Structured Product market Retail and Institutional Products create primary Long-dated exposure • Secondary OTC hedging flows in Synthetics/Forwards and Options • Highly structured trades of 5-10yr maturities are possible, although the bulk done in 2-3yr

6. Liquidity waiting to be used : SO WHAT HAPPENED ?? The OTC Derivatives market : Post Crisis • Privacy and confidentiality Transparency / UCITS 2 • Credit Lehmans/Bear Stearns : credit risk vs Central Counterpart • Client/Trade facilitation Depth improves as participants migrate to Exchanges • Contract detail flexibility Establish Exchanges respond with “FLEX” Options, After Market reporting and longer maturities to capture Institutional hedging demand and Proprietary trading volumes • Consolidation of liquidity Dark Pools and DMA access • Cost issues Credit/Regulatory/Reputational Risks now primary. Basel III has dramatically increased Risk Weighted Asset Costs of the OTC dealers. This will force migration toward Exchanged Traded products. Bid/Offer spreads will widen over time as “Cost” outweighs “Competition”

7. WIG20 : Implied/Historical Volatility study

8. WIG20 : Options market – More visibility & depth than you might think!

9. Increasing International Investor participation International Participants Impediments for arbitrage access • Interference by Government/Oligarchs in Corporate actions • Restrictions in DMA latency and product design • Recent expansion of allowable Stock Lending activity and Legal Opinions • Stock Lending : International demand for Repo/Lending is rising • ETF programs [MSCI EM / MSCI EU / CECE / WIG20] main source of borrow Cost of local presence vs. volume demanded by international clients • This dis-intermediated large international banks, no “service” then provided beyond execution • CEE market competency was outsourced • Block trading facility is not understood by casual participants Domestic participants Domestic response to Derivatives is “brokerage” • Agency trading: Domestic risk appetite overwhelmed by nature and size of potential international demand • London Inter-Bank market accessed, but Institutional investors globally not impacted • Custodial systems and existing Client agreements require updating Participants primarily Retail, HNW investors • Regulatory evolution for Institutional Managers do not match industry developments • No onscreen liquidity for Institutional investors

10. Increasing International Investor participation (2) UniCredit is confident in the growth of the Polish WIG20 Derivatives market Growing the International Investor base • Target the foreign institutional owners of Polish equity • Promote awareness that common hedging strategies can be employed in Poland UniCredit has chosen a different model for our Polish derivative business. • Focus on developing the WSE Listed Options market • Bring offshore OTC transactions onto the WSE to enhance liquidity, visibility and encourage more participation We reflect the same commitment shown in Retail and Commercial Banking or Equity Capital Markets UniCredit has committed to the Warsaw Stock Exchange to be a long-term liquidity provider. • Index Option market-making • All Listed maturities of WIG20 Options • Quoting 100 x 100 contract bid/offer markets, substantially improving liquidity

11. Regulatory & WSE improvements Developments to improve volume, transparency and fairness Liberialise the regulatory environment to reflect norms seen across the EU • Identify and encourage institutional users • Current Regulatory policy is improperly defined. This restrains institutions from using Futures/options correctly • Restrictions on Pension Fund usage is bad policy. This forces underperformance, hurting Pension Fund returns to members • Lack of Institutional activity leaves market vulnerable to Retail sentiment, fluxuations in volume • Circular argument then prevails – not enought liquidity to attract larger stable investors • Follow the example of other EU states to lower restrictions on institution investors Educational campaigns on the uses derivatives • Promote active dialogue on risk parameters • Educational awareness is here but not employed Attract more market-makers to further enhance tradeable liqiudity • Develop a balanced participant base • Beyond Retail or HNWIs, the market needs Liquity-providers, Arbitraguers and Institutional investors • International participation must be encouraged • Publication of Corporate Actions & Exchange Announcments in English

12. Regulatory & WSE improvements (2) Developments to improve volume, transparency and fairness Corporate practices regarding Dividends must change Joint Campaign with Regulator to increase awareness of Corporates / Government • Better and more timely guidance from Corporates on material events • Any movement over Futures/Options contractual expiry creates windfall gains/losses • Need for more explicit Index Change Rules for corporate actoins (STOXX is best practice benchmark) • Publication of future Ex-Dividend Dates Dividend Policy • More clarity on WSE Dividend Adjustment Policy is required on Special Dividends vs. Regular dividends • KGHM dividend fully confirmed in AGM at PLN 8.0, governent insists on PLN 14.93 • Speculation of PZU dividend payments : interim & final dividend payments too close together • New speculation on PKN on Polkomtel divestment : Proceeds distributed as “dividends” ? Exchange For Physical (EFP) trading Promote connection speeds for Direct Market Access to Exchange • Make OTC Stock trades Stamp Tax exempt to encourage stock-basket trades • Will further increase underlying Futures activity • International Arbitrage participation should be encouraged

13. Successful Regional Products Retail Structured products • OTC based derivatives embedded into Deposits, Bonds or Insurance products • Regional banks will market these products through retail networks across the region ETFs launched by the leading providers (a selection) • MSCI Eastern Eu (ex RU)        CE9_FP • BUX Hungary                BUXETF_HB • MSCI EM Consumer Staple sector    XECS_LN • Lyxor Poland                ETFWIG20l_PW

14. WIG20 : Index Options market – Improved visibility & depth If you trade WIG20 Index Options, you will trade with UniCredit 100 x100

15. The Market’s growth potential • WIG20 Listed Options traded volume is increasing rapidly ! • 24% projected annualized volume growth rate, although the higher market volatility may actually impede the desired growth rate • Prior to the recent Eurozone wobbles, UniCredit is trading PLN 65mm average daily Listed Option notional, this has decreased significantly • Prior to the recent Eurozone wobbles, the London OTC market liquidity has nearly doubled in PLN 320mm per week. This has also decreased although the WIG20 remains a cheap proxy hedge for Russia/Turkey during stressed times. 2011 Y/E projected Volume +24% vs. 2010 2011 YTD volume 418,350 Source: WSE

16. What’s next for the Polish Derivatives? : Liquidity in the Single Stock Futures!!

17. Why are Single Stock Futures better than Cash Equities? Ability to short the stock • It is very expensive to borrow cash equities due to structural issues in the equity finance market (brokerage costs, PLN settlement issues, etc.) and not all domestic institutions are able to lend stock Leverage • Through posting a certain percentage of initial margin with the exchange futures can offer up substantially more leverage than a fully funded cash equity investment Better dividend treatment • Futures benefit from dividend optimisation as arbitrageurs ensure that the price of the future reflects the best possible dividend treatment Direct lending benefit • Direct reimbursement for lending value of stocks through the price of the future as arbitrageurs ensure that the price of the future reflects the lending value of the synthetic inventory

18. Stock Futures : The assumptions that create the market between competitors… Your funding rates may be different from other participants. • Through UniCredit’s collateral desk we are often able to show better funding rates by utilising the stock inventory created more efficiently Your dividend expectations may be different when compared to the market. • What is the amount of dividends paid by a company?, the ex-date for the dividends?, what is the value of the stock alternative in a scrip dividend?, etc. • Is this a change in dividend policy. For example, a company splitting its annual dividend into quarterly payments. Our arbitrage activity gives us studied insight into the dividend payment policies of companies and hence a competitive edge in pricing stock futures Your tax assumptions may be different. • Each participant may have different tax jurisdictions and tax rates on dividends when compared to others Our ability to borrow and lend stock may be different. • Through our asset management operations (Pioneer), our deep relationships with ETF providers (as an Authorised Participant) and our unique equity platform strengths (mid-cap Germany, Italy, Austria and Emerging Markets) we have a substantial and diversified pool of equity inventory that can be used to support a short stock position more cheaply. • UniCredit’s Equity Finance desk offers us the opportunity to generate revenue from being long stock through collateral or lending transactions

19. Polish Equity Derivatives : OTC Single Stock Options • UniCredit offers Over The Counter (OTC) options on Polish Equities. Prior negotiation of an ISDA Master agreement is required for most transactions.

20. Contact details: Warsaw: • Beata Markiewicz +48 22 586 2399 beata.Markiewicz@caib.unicreditgroup.eu • Lukasz Wydra +48 22 586 2881 lukasz.wydra@caib.unicreditgroup.eu London: • Douglass Welch +44 20 7826 6882 douglass.welch@unicreditgroup.eu • Brian Hatton +44 20 7826 6859 brian.hatton@unicreditgroup.eu Vienna: • Friedrich Schagerl +43 50505 82467 friedrich.schagerl@unicreditgroup.at • Domink Ressig +43 50505 82441 dominik.ressig@unicreditgroup.at

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