Tamás Madlena KELER Director Marketing & Customer Relations

1. EU Accession What next in Hungary? Tamás Madlena KELER Director Marketing & Customer Relations 15th September 2004 – 7th Annual Clearing and Settlement Conference / pre-conference workshop

2. The Hungarian Landscape / Institutions Budapest Stock Exchange (BSE) • Re-established in 1990 by 42 Hungarian banks and brokerage companies • De-mutualized and became a joint-stock company in 2002 • Turbulance in ownership • Acquisition by an Austrian group (see later) • Sections: equities, debt, derivatives

3. The Hungarian Landscape / Institutions Budapest Commodity Exchange (BCE) • Leading commodity exchange in CEE • Established in 1989 • BSE-BCE merger under preparation • Sections: grain, financial, livestock

4. The Hungarian Landscape / Institutions KELER (Central Clearing House and Depository) • Established in 1993 (50% Central Bank, 25% BSE, 25% BCE) • CSD functions • CCP clearing house for spot and derivatives • Other services (cross-border, share registry)

5. The Hungarian Landscape / Institutions Interbank Market • State Debt Management Agency • Primary dealer system (10 banks, 1 broker) • OTC- dominated by government bonds • DVP settlement in KELER (usually T+2)

6. The Hungarian Landscape / Institutions Hungarian Financial Supervisory Authority • Integration of different supervisors (banking, securities market, insurance, pension) in HFSA in 2000 • Indipendence, accountable to the Parliament and the government (Ministry of Finance) • Tasks include: entry control, risk assessment, compliance, transparent regulations, etc.

7. The Hungarian Landscape / Institutions Trade Bodies • Allience of Investment Service Providers • Association of Fund Management Companies • Hungarian Banking Association

8. The Hungarian Landscape / Institutions • The National Bank of Hungary • Ownersip in KELER • Oversight role

9. Securities Market Legislation • Capital Market Act • Act on Venture Capital Funds • Act on Financial Services • Companies Act

10. EU Compliance 1 • Hungary was a regional pioneer • 1990, First Act on Securities and the Stock Exchange • 1996, Significant amendments to bring legislation closer to EU • Supervisory bodies merged • 2002 Act on Capital Markets, harmonized with EU

11. EU Compliance 2 • 2002-2003 other regulatory changes (e.g. Central Bank oversight over SSS) • Latest amendments to incorporate USITS II and III provisions • Little additional work remained • Updates on Capital Market Act are relatively fast and efficient – should be furher simplified in places • The Capital Market Arbitration Court – offering convenient solutions

12. Corporate Governance • Budapest Stock Exchange coordination • Prepared for listed companies, adopted in February 2004 • Standards vary • Blue chip listed issuer largely converged

13. Gains with accession • Reputaion • Additional foreign companies entering the market – promote competition and increase investment opportunities • EU structual fund investmeent project may encourage securities based finacing • Dual listings

14. Challenges 1 • Implications of joining the EU on the securities market are not clear • Small size of the Hungarian market • Cost of doing business (transaction + safekeeping) • Hungarian subsidiaries of foreign banks (OTC) • Emerging market funds exit

15. Challenges 2 • Domestic funds investing abroad • Limited supply of domestic securities • Small number of IPOs • Limited opportunities for further privatization • International ownership and consolidation may end up in takeover

16. KELER Profile • Innovative institution committed to development, responsive to market participants • Full range of services, comparable and competitive with EU • Changes in ownership structure • Strategy

17. KELER – new clearing membership structure • Remote membership on BSE • January 2005 – opportunity for traders to choose a clearing bank • Responsibilities of a general clearing member • Real time trade data from KELER / monitoring

18. KELER - Communication • Subject to client needs (existing and potential) • Propriatory system • Standard SWIFT • Strategic decision to be made • Different stages

19. Budapest Stock Exchange - Profile Takeover of a majority stake in BSE by a group of Austrian banks and securities market institutions in May • Restructuring – review by EU competition authorities • Main shareholders (June 2004): • HVB Hungary (25,2% ) • Wiener Börse AG (14%) • OeKB AG (11%) • The National Bank of Hungary (6,95%) • Raiffeisen Zentralbank AG (6,37%) • Erste Bank Vienna AG (6,37%) • Erste Securities Hungary (5,85%)

20. Budapest Stock Exchange - Strategy To form strategic alliance of independent markets with • co-ordinated strategies • focus on new listings • increased liquidity • easy access for investors • transparency • Warsaw? • Prague, Bratislava, Ljubljana? • Domestic consolidation – BSE/BCE integration • KELER stake

21. Practicalissues • Setting up securities / bank accounts – no restrictions • KELER account • Netting + CCP, RTGS • Weakness in communication / reporting, language • Non-resident accounts • Strategy (CSDs, ICSDs) • Bilateral agreement – standard custodian service • Central Bank Money • Banks • Brokers (CSD money)

22. Summary • Well-established infrastructure • Harmonized legislation and market practices • Further domestic consolidation for growing efficiency • Well performing market • Ownership issues

23. madlena.tamas@keler.huwww.keler.hu