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The Polish Capital Market and Post-trading Infrastructure in the New EU Regulatory Era Ph.D. Iwona Sroka, President & CEO, KDPW and KDPW_CCP EMEA Audit Parters' Meeting Warsaw, 26 September 2014

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Page 1: The Polish Capital Market and Post-trading Infrastructure ... Polish... · The Polish Capital Market and Post-trading Infrastructure in the New EU Regulatory Era ... 5 Cassa di Compensazione

The Polish Capital Market and Post-trading Infrastructure in the New EU Regulatory Era

Ph.D. Iwona Sroka, President & CEO, KDPW and KDPW_CCP

EMEA Audit Parters' Meeting Warsaw, 26 September 2014

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join the celebrations of the 25th anniversary of economic freedom in Poland

___________________________________

was established in 1991

was separated in 1994, as an independent, join stock company

was created in 2011

25 Years of Polish Freedom

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Overview of the Polish Capital Market

3

KDPW

Financial Supervision Authority (KNF)

WSE Main Market,

BondSpot, Catalyst,

NewConnect, OTC

Financial

institutions and

intermediaries Issuers Institutional

investors

Individual

investors

National Bank of

Poland

KDPW_CCP

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Polish Capital Market vs. Europe

4

Equity market

Futures market

Market Operator 2012 2013

London Stock Exchange Group 21,37% 20,56%

NYSE Euronext 15,36% 15,21%

Deutsche Börse 12,42% 12,29%

BME (Spanish Exchanges) 8,31% 7,48%

SIX Swiss Exchange 5,69% 6,28%

NASDAQ OMX Nordic 5,71% 5,72%

Oslo Børs 1,42% 1,11%

Warsaw Stock Exchange 0,57% 0,64%

CEESEG - Vienna 0,23% 0,23%

Athens Exchange 0,15% 0,18%

Boerse Stuttgart 0,14% 0,18%

Irish Stock Exchange 0,09% 0,13%

CEESEG - Budapest 0,11% 0,09%

CEESEG - Prague 0,13% 0,08%

Bucharest Stock Exchange 0,01% 0,01%

Bulgarian Stock Exchange 0,00% 0,01%

CEESEG - Ljubljana 0,00% 0,00%

Luxembourg Stock Exchange 0,00% 0,00%

Malta Stock Exchange 0,00% 0,00%

Bratislava Stock Exchange 0,00% 0,00%

Cyprus Stock Exchange 0,00% 0,00%

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KDPW and KDPW_CCP

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• Stable and credible shareholders • Main objective: safety and stability of financial

system • Low risk profile - not-for-profit infrastructure

institution • Supervision by Polish FSA and ESMA, oversight

by Polish Central Bank ***

• EU registration of KDPW Trade Repository – one of 4 first TRs registered in Europe

• LEI assigning (KDPW_LEI) • Services for energy market (KDPW_GIR) • Planned CSDR authorisation of KDPW

***

100 %

NBP

Treasury

WSE

33%

33%

33%

KDPW_LEI

• EMIR authorisation of KDPW_CCP (3rd in Europe)

• KDPW_CCP own capital: EUR 54 M (USD 70 M) • Central counterparty functionality through

novation • Reporting to KDPW_TR (non mandatory)

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At-a-Glance Statistics: August 2014

KDPW participants – 65

KDPW_CCP participants – 38

Issuers – 1152 (of which 77 are foreign)

Deposited equities issues – 1099

Deposited debt instrument issues – 1099

Capitalisation of equities in KDPW – PLN 582 billion (EUR 138 billion)

Capitalisation of debt instruments in KDPW – PLN 580 billion (EUR 139 billion)

Number of cleared transactions – cash market: 13.69 million

Value of cleared transactions – cash market: PLN 451 billion (EUR 107) billion

Number of cleared transactions – derivatives market: 3.2 million

Value of cleared transactions – derivatives market: PLN 435 billion (EUR 104 billion)

Value of all operations cleared and settled in 2013: PLN 12 trillion (EUR 2.9 trillion)

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Regulated Market ATS Derivative OTC

Clearing

Risk Management

Collateral Management

SPAN VaR

Govt. Bonds T-Bills PLN WIG20

Companies

REPO OTC

Regulated Market ATS Cash OTC

Central Securities Depository

Corporate Actions

Numbering Agency (ISIN, LEI)

Operational Links with Foreign CSDs

Managing Deposit Accounts Registering and Safekeeping

of Securities

OFE Transfer Payments

Trade Repository

Exchange Clearing House (GIR KDPW)

Database Management

Settlement

Investor Compensation Scheme

Asset Management

Guarantee Fund

100%

Main responsibilities of KDPW and KDPW_CCP

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The functions and tasks of KDPW are set out in the Act on Trading in Financial Instruments of 29 July 2005.

Main task: To organise, operate and supervise the depository-settlement system for trade in financial instruments in Poland

Pursuant to Article 48.7 of the Act on Trading…, KDPW may outsource, under a contract, the performance of specific tasks to a subsidiary. In line with this provision, KDPW has outsourced to the clearing house KDPW_CCP the performance of tasks including trade guarantees and clearing.

Central Securities Depository of Poland

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Main Tasks of KDPW

Managing Participants’ depository accounts in which securities are registered as electronic records

Registration and safekeeping of dematerialised financial instruments in Participants’ depository accounts

Settlement of transactions executed on regulated markets (WSE and BondSpot) and transactions executed outside of regulated markets (NewConnect, BondSpot)

Monitoring the number of securities in trading to ensure it corresponds with the number of securities issued

Corporate actions – performance of issuers’ obligations to securities holders (e.g., dividend payment, merger of shares)

Assigning ISIN (International Securities Identifying Numbers) to Polish issues of financial instruments (KDPW is the national institution responsible for assignment of ISIN)

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Number of Securities Accounts

10

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KDPW_CCP is a modern clearing house, which clears transactions using a range of mechanisms ensuring systemic mitigation of counterparty default risk. It was separated from KDPW structure as of July 1, 2011. CHARACTERISTICS: Separate legal entity In line with international standards, due to the different risks of CCP clearing house services and risks of the core business of the central securities depository (KDPW), a separate legal entity had to be set up to provide clearing house services: KDPW_CCP. Guarantee of the clearing of trade based on CCP capital An important feature of KDPW_CCP is that its capital can be used in the clearing guarantee system, which improves the safety of clearing. KDPW_CCP has a capital of PLN 223 million (ca. EUR 52 million), which can be used in the clearing guarantee system as one of its resources.

Clearing House KDPW_CCP

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KDPW_CCP operates as a CCP (central counterparty) within the meaning of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, performing the clearing of transactions executed in the cash and derivatives markets, both in on-exchange and off-exchange (OTC) markets.

In accordance with KDPW_CCP regulations (the Rules of Transaction Clearing (Organised Trading) and the Rules of Transaction Clearing (Non-Organised Trading)) KDPW_CCP becomes the counterparty for all transactions accepted for clearing.

This is performed using the mechanism of clearing novation, introduced on the basis of the Law on Trading in Financial Instruments.

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About KDPW_CCP

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KDPW_CCP - Markets & Products

CASH MARKET DERIVATIVES MARKET

Regulated ATS OTC Regulated

- Warsaw Stock

Exchange (WSE)

- BondSpot

shares, bonds,

subscription rights,

allotment certificates,

investment &

structured certificates,

index participation

units, mortgage

bonds, warrants,

ETFs

- NewConnect

- Catalyst

- BondSpot

shares,

allotment

certificates,

bonds,

mortgage bonds

- Warsaw Stock

Exchange (WSE)

futures contracts,

options, index

participation units

Forward Rate

Agreements,

Interest Rate

Swaps,

Overnight Index

Swaps, Basis

Swaps

- OTC

(MarkitWire,

SWIFTAccord)

OTC

- Matching

Engine

for REPO

T-bonds

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KDPW_CCP guarantees clearing of transactions executed on the regulated cash and derivatives market.

Regulated cash market trading platforms Regulated derivatives market trading platform

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KDPW_CCP guarantees clearing of transactions executed on the cash market in the alternative trading system.

ATS cash market trading platforms:

Regulated Market and Alternative Trading System

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Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade

repositories (EMIR)

Regulation (EU) No 909/2014 on improving securities settlement in the European

Union and on central securities depositories and amending Directives 98/26/EC and

2014/65/EU and Regulation (EU) No 236/2012 (CSDR)

EU Regulations in Post-trade Infrastructure

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Harmonisation of KDPW_CCP with EMIR requirements:

Harmonisation with the definition of CCP: Novation

Harmonisation with the capital requirement

New order of using the resources of the clearing guarantee system

New service: OTC clearing

Authorisation of KDPW_CCP

Harmonisation of KDPW with EMIR requirements:

Creation of Trade Repository service

Registration of Trade Repository with the European Securities and Markets Authority

Harmonisation of KDPW and KDPW_CCP with EMIR

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Amended provisions of the Act on Trading in Financial Instruments effective as of 4 August 2012 introduced novation to the Polish legal system.

Through novation, the clearing house becomes a central counterparty: a buyer to each seller and a seller to each buyer, taking over the mutual rights and obligations of the original trading parties.

CCP as SELLER

SELLER

BUYER

CCP as BUYER

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Novation

EMIR

compliant

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Increase of the share capital of KDPW_CCP in view of the implementation of clearing of OTC trade to PLN 223 million (ca. EUR 54 million).

Minimum capital requirement: at least EUR 7.5 million (under Article 16 of EMIR).

According to the EBA technical standards, the capital of a CCP should be at least equal to the sum of:

gross operational expenses during an appropriate time span for restructuring;

the capital necessary to cover operational risk;

the capital necessary to cover credit, counterparty credit and market risks of non-clearing activities;

the capital necessary to cover legal risk and business risk.

Capital Requirement of KDPW_CCP

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EMIR

compliant

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Clearing Guarantee System – Default Waterfall

Credits of the defaulting member

Margins:

initial deposit > initial margin > additional margin

Resources of the relevant default fund

Contributed by the defaulting member

Dedicated resources of KDPW_CCP

(in the amount corresponding to at least 25% of the capital requirements taking into account the allocation of the resources in relation to the size of the fund)

Contributions of other KDPW_CCP clearing members to the relevant default fund

Own funds of KDPW_CCP

(up to 110% of the capital requirements)

Additional contributions of other KDPW_CCP clearing members to the relevant default fund

(not more than 50% of the last existing contributions according to the lates update)

Remaining own funds of KDPW_CCP

EMIR

compliant

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KDPW_CCP operates an OTC derivatives trade clearing system including a clearing liquidity guarantee system.

Main functionalities of the OTC trade clearing system:

clearing of trades accepted to the OTC clearing system and intermediation in settlement arising from clearing

risk management

collateral management

function of central counterparty (CCP) through novation

reporting to the Trade Repository (service offered by KDPW)

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OTC Clearing in KDPW_CCP

Bank A

Bank B

Trade Repository

(KDPW)

National Bank of

Poland Confirmation

platforms* Communication

SWIFT

CSD (KDPW)

• repo settlement

• safekeeping

SWI

EMIR

compliant

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FRA

IRS

OIS

Basis Swaps

REPO

Nov. 2014: ESMA application for instruments denominated in EUR

Other currencies – with regard to market demand

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PLN

OTC Clearing: Cleared Instruments

KDPW_CCP has focused on OTC

derivatives denominated in PLN

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MarkitWire

KDPW_CCP clears trades on the basis of clearing instructions delivered by an electronic platform operator (MarkitWire, SWIFT Accord or proprietary matching solution for REPO).

SWIFT Accord

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OTC Clearing: Confirmation Platforms

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Authorised CCPs in UE (as of 22.09.2014)

No. CCP Country Date

1 Nasdaq OMX Clearing AB Sweden 18.03.2014

2 European Central Counterparty N.V. Netherlands 1.04.2014

3 KDPW_CCP Poland 8.04.2014

4 Eurex Clearing AG Germany 10.04.2014

5 Cassa di Compensazione e Garanzia S.p.A. Italy 20.05.2014

6 LCH.Clearnet SA France 22.05.2014

7 European Commodity Clearing Germany 11.06.2014

8 LCH.Clearnet Ltd United Kingdom 12.06.2014

9 Keler CCP Hungary 4.07.2014

10 CME Clearing Europe Ltd United Kingdom 4.08.2014

11 CCP Austria, Abwicklungsstelle für Börsengeschäfte GmbH

Austria 14.08.2014

12 LME Clear Ltd United Kingdom 3.09.2014

13 BME Clearing Spain 16.09.2014

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In addition to compliance with its reporting obligations as a CCP, KDPW_CCP has developed the service of reporting derivative contracts to the Trade Repository operated by KDPW (KDPW_TR) on request of Clearing Members.

Reporting can be delegated both by Clearing Members and through them by their Clients and entities concluding derivative transactions on request of their Clients (Brokers).

On 7 November 2013 The European Securities Market Authority (ESMA) has registered the KDPW Trade Repository, confirming that it fulfills all trade repository requirements under EMIR.

The KDPW Trade Repository (KDPW_TR) was one of the first four such institutions to be registered in Europe.

KDPW_TR is approved to register all derivative contracts classes, both from the regulated and OTC market.

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EMIR

compliant

Reporting to the Trade Repository

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1. DTCC Derivatives Repository Ltd. (DDRL) 14 November 2013

1. Krajowy Depozyt Papierów Wartościowych S.A. (KDPW) 14 November 2013

1. Regis-TR S.A. 14 November 2013

1. UnaVista Limited 14 November 2013

2. CME Trade Repository Ltd. (CME TR) 5 December 2013

2. ICE Trade Vault Europe Ltd. (ICE TVEL) 5 December 2013

Reporting to the Trade Repository (as of 12.09.2014)

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LEI Assigning

On 19 August 2013, KDPW has been assigned a prefix (2594) necessary to assign identifiers – future LEI – to legal entities.

According to the provisions of regulations delegated under EMIR, a relevant identifier is necessary in order to report derivative trades to a trade repository.

The prefix has been assigned by the ROC Secretariat (Regulatory Oversight Committee Secretariat) and will identify codes assigned by KDPW in the global LEI system (GLEIS). The KDPW prefix has been requested by the Polish Financial Supervision Authority, which acts as a sponsoring authority in the process of ROC’s authorisation of a local unit as an LOU (pre-LOU) within the global LEI system.

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CSDR

Impact of the CSD Regulation on central depositories, market participants, issuers and investors: Single authorisation of CSDs and supervision process – Q2 2015 Move to a T+2 settlement cycle – as of 6 October 2014 in KDPW Prudential requirements

Capital requirements: proportional to risk profile of the CSD, with minimum of 6 months operating expenses

The end of paper securities New rules on account segregation

CSD participants must offer choice to their clients between omnibus a/c & individual segregation at CSD level

Account segregation at CSD level Issuer choice of a CSD

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T+2 Settlement Cycle

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From the perspective of building international competitiveness, KDPW is

starting to prepare for European authorisation as a central securities depository (CSD) under the Central Securities Depository Regulation (CSDR).

European authorisation will confirm KDPW’s compliance with the highest EU

standards applicable to CSD infrastructure. The clearing house KDPW_CCP

has completed a similar authorisation process under EMIR.

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CSD Authorisation

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CSD Services

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Numbering Agency (LEI, ISIN, FISIN)

Key functionalities:

Omnibus accounts for foreign investors

Collective securities accounts on the CSD level, with option to segregate by investor/group of investors

Hold/Release mechanism (optional)

Cash settlement in central bank money – PLN in Polish Central Bank, EUR in TARGET2

Agent for Securities lending & borrowing - automatic and negotiated

Settlement and collateral management for repo (Tri-party Repo Agent)

Partial settlement

CA: information, distribution of proceedings, tax services

GIR - clearing and settlement of energy market transactions

T+2 settlement cycle regarding to CSDR requirements

Ancilliary Services

Core Services

Commercial Services

Initial recording of securities in a book-entry system

Maintaining securities accounts at the top-tier level

Regulated market

Alternative Trading System

OTC cash market

Central Depository of Securities

Corporate Actions processing

Operational links to foreign CSDs

Trade Repository

Commodities Clearing House (GIR KDPW)

Securities settlement system

CSD authorisation process planned for 2015/2016

Tri-Party Repo

Maintaining securities accounts at the top-tier level

Initial recording of securities in a book-entry system

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www.kdpw.eu

www.kdpwccp.eu