KDPW CCP Annual Report 2012 - ccp-poland.pl filetable of contents letter from the president and ceo kdpw_ccp clearing house key events in 2012 corporate risk management system participation

Annual Report 2012

Table of Contents

LETTER FROM THE PRESIDENT AND CEO

KDPW_CCP CLEARING HOUSE

KEY EVENTS IN 2012

CORPORATE RISK MANAGEMENT SYSTEM

PARTICIPATION IN THE DEVELOPMENT OF CAPITAL MARKET REGULATIONS

RELATIONS WITH MARKET PARTICIPANTS

PROMOTION AND INFORMATION

Core Business

Corporate Bodies

KDPW_CCP Organisational Chart

Legal Basis of the Company’s Business

PROJECTS COMPLETED IN 2012

Launch of the OTC Derivatives and Repo Clearing and Guarantee Service

Introduction of Novation into the Polish Legal System

Transfer of Title in Securities as Collateral

PROJECTS ADVANCED IN 2012

KDPW_CCP Authorisation under EMIR

Harmonisation of the Clearing Risk Management System with EMIR Requirements

New Structure of Accounts

Extending System Guarantees to Negotiated Securities Lending

Securities Netting in Cash Clearing

Harmonisation with the WSE’s New Trading System (UTP)

National Legislation

European Legislation

Relations with the Advisory Group

Relations with Participants

Promotion of the OTC Derivatives and Repo Clearing Service

Promotion of the KDPW_CCP Brand

INTERNATIONAL RELATIONS

CASH MARKET AND DERIVATIVES MARKET CLEARING

KEY STATISTICS

FUND MANAGEMENT

DIRECTIONS OF DEVELOPMENT

FINANCIAL STATEMENTS

Clearing Fund Management

Guarantee Funds Management

Balance Sheet

Profit and Loss Account

Auditor’s Opinion

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Letter from the President and CEO

The EU Regulation EMIR effective as of 2012 imposes the obligation of clearing

specific classes of OTC derivatives through CCP clearing houses and

of reporting derivatives trades to trade repositories. The KDPW Group has

addressed these regulations and market needs by developing solutions which

comply with the requirements of EMIR.

The Rules of Transaction Clearing (non-organised trading) took effect

on 2 January 2013 and at the same time the OTC derivatives and repo clearing

and guarantee service was launched.

The implementation of the service took close to 2 years and was executed

in close collaboration with Polish banks. In view of this new operating segment

and the clearing of a new range of services, KDPW_CCP increased its capital

from PLN 100 to 200 million as necessary to safely manage risks including

the new interbank market. The clearing house offered promotional terms

to institutions which became its participants in this area.

The comprehensive launch of the new services required amendments to the

Polish legislation enabling KDPW_CCP to become a central counterparty.

The amendment to the Act on Trading in Financial Instruments introducing

novation for the first time into the Polish legal legal system took effect

on 4 August 2012. As a result, the clearing house has become a fully-fledged

central counterparty (CCP).

We look forward to many new projects which will improve the quality and scope

of KDPW_CCP services. The year 2013 brings many challenges: we will focus

among others on the authorisation of KDPW_CCP under the requirements of EMIR.

The process will be executed under the supervision of the local regulator (PFSA)

in co-operation with representatives of ESMA and the National Bank of Poland.

In implementing all of our projects, we will be listening attentively to the opinions

of our existing and prospective participants in order to ensure top-quality services

addressing market expectations.

In 2012, the Supervisory Board of KDPW_CCP appointed the Company’s

Management Board of a new term of office with the same membership

as the previous Management Board. On behalf of my colleagues

of the Management Board and on my own behalf, I would like to thank

the Supervisory Board for their confidence.

I give you this Annual Report for your perusal.

President and CEO, KDPW_CCP

Dr Iwona Sroka

The modifications we have implemented

thanks to our close partnership with

the participants have harmonised

our services with the requirements

of the EU regulations and international

clearing standards.

The key project implemented by KDPW_CCP

in 2012 was the launch of the OTC derivatives

and repo clearing and guarantee service.

The year 2012 was the first

full year of operation of

the clearing house KDPW_CCP.

It was a time of ambitious

projects implemented

to improve the quality

of the Polish financial market

infrastructure and to bring it

in line with the standards

offered by Europe’s largest

financial hubs.

Dear Sir or Madam,

3

KDPW_CCP Clearing House

The company KDPW_CCP S.A. (KDPW_CCP) was

established under Article 48.7 of the Act on Trading

in Financial Instruments, which authorises

the Central Securities Depository of Poland (KDPW S.A.)

to outsource to a subsidiary, under an agreement,

the performance of tasks specified in the Act including

among others the clearing and settlement of transactions

concluded on the regulated market and in the alternative

trading system, and the operation of a liquidity

guarantee system.

The clearing house KDPW_CCP

started operations on 1 July 2011.

4

According to applicable legislation

and the KDPW_CCP Statutes,

the core business of the Company includes:

to clear transactions concluded in financial instruments;

to operate a transaction clearing liquidity guarantee system;

to promote information and perform educational activities

concerning the capital market.

performance of functions of an exchange settlement institution

for transactions concluded on commodity markets;

other forms of lending – cash loans outside of the banking system;

other financial services not classified otherwise, excluding

insurance and pension funds – other financial intermediation

related mainly to distribution of cash other than by lending,

concluding hedging transactions.

Core Business

•

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Furthermore, under the Statutes, the Company

may conduct activities involving:

The Company’s corporate bodies

are the General Meeting,

the Supervisory Board,

and the Management Board.

Corporate Bodies

General Meeting

Supervisory Board

In 2012, the Central Securities Depository of Poland

was the sole shareholder of the Company.

The KDPW_CCP Supervisory Board

was comprised of:

5KDPW_CCP Clearing House

Beata Jarosz

Maciej Szymański

Iwona Lewińska

Chairperson

Deputy Chairperson

Member

Management Board

In 2012, the Management Board of KDPW_CCP was comprised of:

Dr. Iwona SrokaPresident and CEO

Sławomir PanasiukDeputy President

Michał StępniewskiManagement Board Member


KDPW_CCP Organisational Chart

MANAGEMENT BOARD OF KDPW_CCP S.A.

Managing Director

Deputy Managing Director

Legal SectionRisk Management Section

Clearing Section

Clearing House Relations Officer

Secretariat

The legal basis of the activity

of KDPW_CCP in 2012 consisted of

Act on Trading in Financial Instruments, Act on Capital Market Supervision,

and other Acts governing the financial market;

Rules of Transaction Clearing (organised trading);

KDPW_CCP Detailed Clearing Rules;

Rules of the Clearing Fund;

Rules of Transaction Clearing (non-organised trading),

including Rules of the OTC Guarantee Fund;

Detailed Rules of the OTC Clearing System;

Rules of the Guarantee Fund for Clearing of Transactions Concluded

in the Alternative Trading System Organised by the Warsaw Stock Exchange;

Rules of the Guarantee Fund for Clearing of Transactions Concluded

in the Alternative Trading System Organised by BondSpot S.A.;

Rules of the KDPW Court of Arbitration;

Commercial Companies Code;

KDPW_CCP Statutes;

Rules of the KDPW_CCP Supervisory Board;

Rules of the KDPW_CCP Management Board;

KDPW_CCP Organisational Rules.

Legal Basis of the Company’s Business

legal acts which govern the procedures of conducting the operating activity:

•

•

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as well as corporate regulations:

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Key Events in 2012

Launch of the OTC Derivatives

and Repo Clearing

and Guarantee Service

PROJECTS COMPLETED IN 2012

The project designed to launch the OTC

derivatives and repo clearing and guarantee

service was completed in December 2012.

In the OTC clearing system, KDPW_CCP clears

transactions in the following PLN-denominated

OTC instruments: interest rate forwards,

interest rate swaps, overnight index swaps,

basis swap, repos (for Treasury bonds).

In the course of future development, further instruments will be added

to the list as follows: FX swaps, FX options, interest rate options, CIRS.

The launch of the new service was required in particular under

the provisions of Regulation No. 648/2012 of the European Parliament

and of the Council of 4 July 2012 on OTC derivatives, central counterparties

and trade repositories (EMIR), whereby all OTC trades in derivatives

of the classes specified by ESMA must be cleared through an authorised

CCP (central counterparty). The harmonisation of KDPW_CCP with these

provisions required that the OTC derivatives clearing service was available

as soon as possible. Furthermore, all derivatives trades will have to be

reported to registered trade repositories, a service that KDPW offers since

2 November 2012.

8

The amendment to the Act on Trading in Financial Instruments introducing novation

into the national legal system took effect on 4 August 2012. The regulations

governing the relations between KDPW_CCP and the participants took effect

on 2 January 2013, including the Rules of Transaction Clearing (non-organised trading)

approved by the Polish Financial Supervision Authority on 19 December 2012

and the Detailed Rules of the OTC Clearing System. The provisions of both these

Rules had been broadly consulted with the banking industry. Consultations were

also carried out with respect to the standardisation and pricing of OTC derivatives,

communication between participants and the clearing system, and the selection

of trade confirmation platforms (MarkitWire and SWIFT Accord).

The kdpw_otc system was developed by KDPW_CCP and KDPW experts on the basis

of a module acquired from Nasdaq OMX. The third-party application was equipped

with additional functionalities supported by the existing IT infrastructure, enabling

interaction with the previously selected third-party trade confirmation platforms

and the Reuters newsfeed platform. The clearing house KDPW_CCP made

the kdpw_otc system available for testing in accordance with the project timeline

on 19 November 2012. The system became operational as of 2 January 2013,

the effective date of the Rules.

Transactions accepted for clearing in the OTC system are covered by a multi-tiered

clearing guarantee system. The transaction clearing liquidity guarantee system

registers margins deposited by participants: the initial margin, the maintenance

margin, additional margins; and it operates the OTC clearing fund. Participants

are allowed to deposit margins in securities acceptable to KDPW_CCP and in cash.

Securities are deposited in accordance with the procedure for transfer of title

in securities as collateral onto the account of KDPW_CCP.

The implementation of the project took close to 2 years

and required the drafting of relevant regulations,

collaboration with the Parliament necessary to introduce

novation into the Polish legislation, and the development

and implementation of an IT system (kdpw_otc).

As an important part of the implementation work,

the share capital of KDPW_CCP was increased up to

PLN 200 million as necessary to support the multi-tiered

clearing guarantee system.

The OTC transaction liquidity clearing guarantee system is built

out of margins, the OTC clearing fund, additional margins,

and KDPW_CCP’s own capital.

In case of participant default, KDPW_CCP becomes responsible

for the clearing of all trades of the defaulting participant.

The credits of the defaulting participant are used in the first

place. If these are insufficient, KDPW_CCP uses the defaulting

participant’s margins. If these are insufficient, the clearing

house uses the defaulting participant’s contributions

to the OTC guarantee fund. Next, the designated part of the own

capital of KDPW_CCP is used up to 25% of the capital of KDPW_CCP

referred to in Article 16(2) of EMIR. Once these resources

are exhausted, the other assets of the OTC guarantee fund

and the remaining own capital of KDPW_CCP are used.

9Key Events in 2012

Introduction of Novation

into the Polish Legal System

A turning point in the activity of KDPW_CCP and

a milestone in the launch of the OTC derivatives

clearing service came with the introduction of novation

into the Polish legislation, allowing KDPW_CCP to

act as a fully-fledged central counterparty.

The work necessary to implement this new settlement

method was successfully completed in 2012. The amendment

to the Act on Trading in Financial Instruments introducing

novation into the national legal system took effect

on 4 August 2012, which enabled KDPW_CCP to act

as a counterparty to each trading entity according to

the definitions in EMIR. As a result of the mechanism,

KDPW_CCP becomes directly liable to a participant that is

a clearing counterparty while the original trade expires.

The rights and obligations under a transaction are taken over

as soon as a clearing instruction is entered into the clearing

system. Novation applies separately to the credits and debits

from each transaction as per its terms set out in the clearing

instruction.

Transfer of Title in Securities

as Collateral

Modifications to the method of depositing securities

as margins of participants to KDPW_CCP took effect

on 1 January 2013.

Previously, securities would be deposited as margins by means

of modifying the status of securities to blocked in the depository

account of the participant. Under the new legal concept, securities

are deposited by means of transferring them to the securities

account of KDPW_CCP.

10Key Events in 2012

KDPW_CCP Authorisation

under EMIR

PROJECTS ADVANCED IN 2012

Following the effective date, as of 16 August 2012,

of EMIR, which introduced the concept of central

counterparty (CCP) responsible in clearing for taking

over the rights and obligations of counterparties

to a derivatives trade, a project was set up in order

to prepare KDPW_CCP’s procedures, regulations

and technologies for authorisation under European

regulations to become a qualified CCP.

The preparatory work is based on the provisions

of EMIR, the technical standards issued by

the European Securities and Markets Authority

(ESMA) as implementing regulations for EMIR,

as well as draft regulatory technical standards

of the European Banking Authority (EBA) concerning

capital requirements for central counterparties.

According to the Capital Requirements Directive (CRD), central counterparties

that comply with the requirements of EMIR may use reduced risk weights for

transactions to which they become a counterparty through novation.

Furthermore, the authorisation of KDPW_CCP prior to the effective date

of the clearing obligation for banks will help to avoid the risk that the clearing

of OTC derivatives transactions on the Polish market could be taken over

by foreign CCPs which become authorised first.

In 2012, the timeline of the project was designed, the deadlines of project

actions were set, and the development of procedures, documents

and regulations for the authorisation of KDPW_CCP was initiated.


Harmonisation of the Clearing

Risk Management System

with EMIR Requirements

The project was related to the preparation

for KDPW_CCP’s authorisation under EMIR

and aimed to harmonise KDPW_CCP’s procedures,

regulations and technologies that cover

the risk management system based on SPAN

methodology. In 2012, work continued to

harmonise the risk management system

with the requirements of the regulation.

In particular, comprehensive validation of the risk management

model and methodology was decided. The validation will be

delivered by a renowned third party in line with ESMA’s

recommendation for validation to be performed by a competent

independent party. The relevant agreement was signed in 2012

and the review, evaluation and validation of risk management

and pricing models was initiated according to the guidelines

and rules under EMIR and the ESMA technical paper.

New Structure of Accounts

Another modification to the structure of accounts will introduce

the functionality of aggregate accounts in order to combine positions

in a number of clearing accounts into a single virtual portfolio for which

margin requirements will be calculated. The functionality was announced

in the implementation of the SPAN methodology as a way of reducing

the margin requirements for clearing members.

In view of the implementation of EMIR, work continued

in 2012 aiming to divide registration accounts within

kdpw_stream into clearing accounts (KDPW_CCP)

and settlement accounts (KDPW) which will operate

within two separate databases. Under the new solution,

new accounts will be opened separately within KDPW_CCP

and separately within KDPW; settlement accounts within

KDPW will be assigned to corresponding clearing accounts

within KDPW_CCP. Clearing members will be responsible

for designating the relevant settlement account for each

clearing account. If no such account is designated,

the default settlement accounts of the participant or its

settlement agent within KDPW will be used. In addition

to clearing accounts, collateral accounts

(set up automatically for each clearing account)

within KDPW_CCP will be created to maintain

collateral information.


Extending System Guarantees

to Negotiated Securities Lending

KDPW will launch the negotiated securities

lending and borrowing module in 2013.

The settlement of securities loan payment

will be guaranteed by KDPW_CCP. The new

service will make the Polish market more

attractive to foreign investors whose trades

are frequently suspended due to a shortage

of securities necessary for timely settlement.

In 2012, implementation work was conducted and detailed technical

specifications were drafted, including a specification of xml messages

dedicated for the lending system, as well as relevant technical

documentation for participants. Technology development was

completed, the new solution was tested, and the regulations were

amended accordingly.

Securities Netting

in Cash Clearing

In 2012, project work included development and distribution

to KDPW_CCP participants of a detailed concept of securities

netting in cash clearing, consultations were conducted, and

a detailed specification for the solution was developed.

The distribution of ISO 20022 messages, which are used by

clearing houses to send clearing updates, was initiated among

participants. Work was continued to harmonise kdpw_stream with

the new functionality.

An important functionality that KDPW_CCP is planning

to offer to its participants is securities netting.

The mechanism is broadly used by foreign CCP clearing

houses in order to significantly reduce the cost

of settlement in a securities depository. As a final

deliverable of the project, KDPW_CCP will develop

securities netting functionalities within kdpw_stream.

The mechanism should allow KDPW_CCP to generate

a single settlement instruction (both for securities

settlement and cash settlement) for all operations

cleared within KDPW_CCP at a session for a clearing

account to be sent by KDPW_CCP to KDPW or another

settlement system in order to credit or debit

a designated account operated by KDPW.


Harmonisation with the WSE’s

New Trading System (UTP)

Work was continued in 2012 to harmonise

kdpw_stream with the WSE’s new trading platform

UTP (Universal Trading Platform).

The harmonisation with UTP entails major technology modifications

to kdpw_stream, mainly involving data exchanged between the WSE

and KDPW_CCP and enriched by KDPW_CCP for settlement in KDPW,

as well as trade cancellation functionalities and changes in the procedure

of blocking Remote Exchange Members. The implementation of UTP

requires far-reaching harmonisation measures in the internal systems

of participants as well as amendments of KDPW regulations. In 2012,

kdpw_stream was connected to the test environment UTP CDE,

as necessary to initiate integration work within kdpw_stream.

Participants received detailed procedures and timelines for the migration

of entity accounts. System functionalities were gradually made available

to participants for testing starting in April. Furthermore, new network

infrastructure based on telecommunication operators was developed,

KDPW participants’ entity accounts were migrated, the harmonisation

of KDPW’s internal systems which support trade monitoring

and short-selling functions were harmonised with UTP.


The contract valid until 30 June 2013 insures KDPW

and KDPW_CCP against operational risk of the activity

of the Central Securities Depository of Poland

and the clearing house KDPW_CCP.

Corporate Risk Management System

The insurance cover extends to financial instruments and cash held by KDPW

and KDPW_CCP or other entities, kept in the accounts of KDPW and KDPW_CCP

and in the accounts of other entities operated by KDPW and KDPW_CCP.

The insurance cover also extends to potential losses caused by computer crime.

Furthermore, the insurance policy covers risks of professional liability of financial

institutions (interest or damages for non-performance, delayed or undue

performance of obligations by KDPW and KDPW_CCP). Insurance against financial

consequences of operational risk improves the security of business operations

and is part of risk management within the KDPW Group.

Furthermore, operational risk management activities included the testing

of the Business Continuity System in May 2012, which involved participants

and other partner institutions and corroborated the BCP and all technical

and organisational measures provided for by the system, thus confirming that

KDPW and KDPW_CCP are capable of continued business operation in case

of an emergency.

In 2012, following a request

for proposals procedure for

the insurance of KDPW Group

companies against operational

risk, a contract was signed

with Chartis Europe with a sum

insured of PLN 100 million.

15

Participation in the Development of Capital Market Regulations

In 2012, KDPW_CCP participated

in a number of legislative

projects concerning the Polish

capital market. In those projects,

KDPW_CCP put forth initiatives

and proposals for legislative

amendments and took part

in social consultations on draft

legislation.

National Legislation

amendment of the Act on Trading in Financial Instruments

introducing novation in clearing;

amendment of the Act on Trading in Financial Instruments

implementing Directive No. 2010/78/EU;

assumptions for the draft Act amending the Act on Trading

in Financial Instruments derived from Regulation No. 236/2012

of the European Parliament and of the Council on short selling

and certain aspects of credit default swaps.

KDPW_CCP participated in the drafting of the following legislation:

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16

European Legislation

On-going review of European regulatory

requirements applicable to the activity

and development of the KDPW Group

ensures that action is taken timely in order

to harmonise KDPW and KDPW_CCP with

the legislation, standards and

recommendations.

Regulation No. 648/2012 of the European Parliament

and of the Council on OTC derivatives, central

counterparties and trade repositories (EMIR), including

the draft technical standards referred to in the Regulation;

draft CRD IV, including the Regulation on prudential

requirements for credit institutions and investment

firms (CRR) and the Directive on access to the activity

of credit institutions and the prudential supervision

of credit institutions and investment firms, amending

Directive 2002/87/EC;

draft MiFID II, including the Directive on markets in financial

instruments and amending Directive 2004/109/EC

and the Regulation on markets in financial instruments.

In 2012, work was carried out to harmonise KDPW_CCP

with the following European regulations:

•

•

•

Furthermore, the clearing house was also involved

in giving opinions on European documents and draft

European legislation relevant to the financial market

(mainly in co-operation with ECSDA, EACH, CCP12

and the Polish authorities – the Ministry of Finance

and the Polish Financial Supervision Authority),

draft Regulation of the European Parliament and of the Council

on improving securities settlement in the European Union

and on central securities depositories (CSDR);

draft Regulation of the European Parliament and of the Council

on markets in financial instruments (MiFIR);

draft Directive on a common system of financial transaction tax

amending Directive 2008/7/EC (FTT);

draft Regulation of the European Parliament on insider dealing

and market manipulation (market abuse) (MAR);

consultation paper of the European Commission

on the harmonisation of securities law (SLL);


on shadow banking;


on a possible recovery and resolution framework for financial

institutions other than banks.

including the following:

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17Participation in the Development of Capital Market Regulations

Relations with Market Participants

Relations with the Advisory Group

KDPW_CCP worked with the Advisory Group

on a regular basis. The Advisory Group gave

opinions on 12 draft amendments to KDPW_CCP

regulations. The members of the Advisory Group

were in particular involved in work on opinions

on draft regulations concerning the launch

of the OTC derivatives clearing service and

the introduction of novation into the Polish

legislation.

Relations with Participants

Working meetings with participants play

a special role in the activity of KDPW_CCP.

KDPW_CCP actively consults the participant

community on an on-going basis on matters

concerning its business operations. In 2012,

the meetings were devoted mainly to issues

concerning novation and the new OTC derivatives

clearing service.

18

Promotion and information activities

in 2022 focused on the launch

of the OTC derivatives and repo

clearing service and on building up

the KDPW_CCP brand in the capital

market community in Poland

and internationally.

Promotion and Information 19

Promotion of the OTC Derivatives and Repo Clearing Service

The main project in 2012 was the promotion of the OTC

derivatives and repo clearing service. These activities

were carried out on the local market and internationally.

The new services offered by KDPW_CCP were presented

at conferences, seminars and industry meetings.

KDPW_CCP representatives were guest speakers

at industry training events. In June 2012, KDPW_CCP

and KDPW organised training on EMIR; due to strong

interest, two sessions were held, which gathered more

than 200 participants: representatives of banks,

brokerage houses and market institutions.

A road show was organised in London in October 2012.

The road show featured a presentation of the OTC derivatives

clearing service for major London-based banks, as well as

a number of one-on-one meetings. The road show was

accompanied by meetings with the financial media.

A joint conference held by KDPW_CCP and the Polish Bank

Association in December announced the approval of the OTC

rules by the Polish Financial Supervision Authority and the launch

date of the service.

Special supplements published in the financial papers Parkiet

and Puls Biznesu in December 2012 presented the OTC derivatives

clearing service and the Trade Repository.

Promotion of the KDPW_CCP Brand

The clearing house KDPW_CCP was a partner

of the major events on the Polish capital market

and supported industry events and conferences.

The clearing house in partnership with the Central

Securities Depository of Poland and the Department

of Management, University of Warsaw, organised

the Capital Market Congress. The main goal

of the Congress is to promote capital market

expertise including the services and the role

of the Central Securities Depository of Poland,

KDPW_CCP, and the Warsaw Stock Exchange

in the academic community and to facilitate

its integration.

KDPW_CCP was the sponsor of the publication of Richard

M. Bookstaber’s book A Demon of Our Own Design about

the reasons for the recent financial crisis and the importance

of risk management.

A multimedia presentation about the market functions and

services of the clearing house KDPW_CCP was designed for

the purposes of corporate promotion. KDPW_CCP’s publicity

video was developed on the basis of the presentation.

An information brochure entitled KDPW_CCP …and everything’s

cleared which describes the process of joining the clearing

house was published to promote participation of foreign entities

in KDPW_CCP.

The key projects and activities of the clearing house were

promoted in the mass media. 18 press releases were distributed

to the Polish and international press and 25 interviews with

the Management Board and over 80 articles on KDPW_CCP were

published in 2012. KDPW_CCP’s Annual Report was published

for the first time.

20Promotion and Information

Representatives of KDPW_CCP

are members of working groups

of international organisations

and associations which are working

to implement international standards

applied on other European markets.

In 2012, they took active part in the work

of the following international organisations

and associations:

International Relations

The European Association of Central Counterparty Clearing

Houses develops standards for CCP services of clearing

institutions. It groups clearing houses in and outside

the European Union. Representatives of KDPW_CCP took part

in the work of the Association and of its Risk Committee

Working Group.

In 2012, the work focused on developing a common position

on draft European regulations: EMIR, MiFID/MiFIR, ESMA

and EBA technical standards, CPSS-IOSCO Consultative Report

on Recovery and Resolution of FMIs, the CSD Regulation.

EACH

European Association

of Central Counterparty Clearing Houses

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CCP12 is an international organisation with

a membership encompassing clearing houses from

all over the world aiming to exchange information

and experience in the clearing of financial instruments.

Its has 29 member organisations representing over 37

CCP clearing houses in Africa, the Americas, Asia,

Australia, and Europe. The association develops

the best practice of financial instruments clearing

and risk management.

The meetings of the organisation in 2012 covered

the following issues: interoperability, position of CCP12

on CPSS-IOSCO consultative reports on clearing house

standards, and clearing risk management.

CCP12

The Global Association

of Central Counterparties

The International Swaps and Derivatives Association

was founded to establish the rules of trade in OTC

instruments. The organisation has standardised all

derivatives contracts, helping their widespread

promotion. In addition to clearing houses, ISDA

groups the biggest banks in America, Europe

and Japan.

KDPW_CCP joined ISDA in late 2012 in connection

to the implementation of the OTC derivatives and

repo clearing project and services of the CCP.

ISDA

International Swaps

and Derivatives Association

22International Relations

In 2012, KDPW_CCP cleared

transactions on regulated markets

and in alternative trading systems

covered by the clearing guarantee

system based on a multi-tiered

SPAN risk management system.

Cash Market and Derivatives Market Clearing

11,560,003

800,538

guaranteed transactions on the regulated

cash market (WSE and BondSpot) were cleared in 2012,

a decrease of 21% year on year (14,009,043 transactions

cleared in 2011). transactions in the alternative

trading systems organised by the WSE and BondSpot

were cleared in aggregate, a decrease of 36% year on year

(1,104,052 transactions cleared in 2011).

23

3,201,151 transactions on the derivatives market

operated by the WSE were cleared, a decrease of 43%

year on year (4,589,941 transactions cleared).

As at 2012 year-end, 4 series of WIG20 futures, 3 series

of mWIG40 futures, 6 series of each of the currency futures

(USD, EUR, CHF), 3 series of each of the futures on stocks

of 18 companies, and 1 series of WIG20 index participation

units were in trading on the WSE.

The volume of trading in single-stock futures was contracts

in 2012, a decrease of 21% year on year (737,742 contracts in 2011).

The volume of trading in WIG20 and WIG40 futures was contracts

in 2012, a decrease of 27% year on year (13,671,721 contracts in 2011).

The volume of trading in WIG20 options was contracts in 2012,

a decrease of 17% year on year (861,967 contracts in 2011). The volume

of trading in currency futures was contracts in 2012, an increase

of 79% year on year. The increase was driven by the modification

of the standard specification of currency futures (USD/PLN, EUR/PLN,

CHF/PLN) as of 2 May 2012 under Resolution No. 97/2012 of the WSE

Management Board dated 30 January 2012. KDPW_CCP increased

the positions in these futures. The number of positions in the futures

was multiplied by 10 prior to the effective date of the new standard

specification of the currency futures. The volume of trading in index

participation units (MW20) was contracts in 2012, a decrease

of 42% year on year (50,040 contracts in 2011).

540,330

9,091,088

715,364

960,935

26,610

24Cash Market and Derivatives Market Clearing

Key Statistics 25

2011**

2012

Number of clearing members*

42

42

2011**

2012

Number of contracts (ISIN) and number of open interest in contracts

Number of contracts

85

97

* clearing members are all participants who made contributions

to at least one of the funds: Clearing Fund, WSE ATS Guarantee Fund,

BondSpot ATS Guarantee Fund.

** aggregate data for two periods:

until 30.06.2011 when KDPW was the clearing institution,

and from 01.07.2011 when KDPW_CCP was spun off




2011**

2012

Number of contracts (ISIN) and number of open interest in contracts

Number of open interest in contracts

115

123

thou.




26Key Statistics

2011**

2012

Number of options (ISIN) and number of open interest in options

Number of options

360

476




2011**

2012

Number of options (ISIN) and number of open interest in options

Number of open interest in options

17.52

14.46

thou.




2011**

2012

Number of index particiption units (ISIN) and number of open interest

Number of index participation units

1

1




2011**

2012

Number of index particiption units (ISIN) and number of open interest

Number of open interest in index participation units

12.39

10.67

thou.




27Key Statistics

2011**

2012

509.68

379.76




2011**

2012

723.97

433.26

PLN bn




2011**

2012

Number of guaranteed transactions cleared on the secondary market

Cash market

15.11

12.36




2011**

2012

Number of guaranteed transactions cleared on the secondary market

Derivatives market

4.59

3.2

mn




mn

Value of guaranteed transactions cleared on the secondary market

Cash market

Value of guaranteed transactions cleared on the secondary market

Derivatives market

28

PLN bn

Key Statistics

2011**

2012

616.82

406.51




*** total number and value of operations including

all operations in derivatives and guaranteed transactions

in securities

2011**

2012

Volume of contracts cleared on the derivatives market

14.61

10.59




2011**

2012

Total number of all operations cleared by KDPW CCP***

19.78

15.56

mn




*** total number and value of operations including

all operations in derivatives and guaranteed transactions

in securities

mn

Total value of all operations cleared by KDPW CCP***

PLN bn

29Key Statistics

Fund Management

Clearing Fund Management

In 2012, KDPW_CCP organised

and executed updates of contributions

to the basic resources of the Clearing

Fund at the last day of each month

in which transactions on the regulated

market were cleared.

The Clearing Fund guarantees the clearing of transactions

on the regulated market operated by the Warsaw Stock

Exchange and BondSpot.

Contributions to (regulated market) were

updated timely at the last day of each month of 2012

in which transactions were cleared in KDPW_CCP.

Complex A

The total contributions of KDPW_CCP participants to Complex A

as at 28 December 2012 compared to 2011 were as follows:

Total participant contributions

as at 2011 year-end

PLN 197 532 166.40


as at 2012 year-end

PLN 267 521 992.34

30

Contributions to the Clearing Fund may be made in cash or in Treasury securities.

Participants may contribute Treasury securities up to 90% of the updated contribution

amount. As at the 2012 year-end, 6 participants held parts of contributions in securities.

The balances of the participants’ contributions to the Clearing Fund

following updates in 2012 were as follows:

Update

2012-01-31

2012-02-29

2012-03-30

2012-04-30

2012-05-31

2012-06-29

2012-07-31

2012-08-31

2012-09-28

2012-10-31

2012-11-30

2012-12-28

Percentage share

of contributions

in Treasury

securities

10.00%

9.30%

9.39%

8.71%

9.55%

9.31%

9.21%

10.10%

8.10%

7.62%

16.42%

15.30%

Balance

of contributions

in Treasury

securities

19 766 900.39

18 484 467.35

18 534 210.35

17 587 122.88

17 618 201.88

17 676 150.88

17 417 668.56

17 370 163.66

20 270 707.67

19 417 993.87

42 131 918.36

40 929 326.28

Balance of contributions

to the Clearing Fund

(cash + Treasury securities)

197 644 242.68

198 651 511.30

197 476 229.31

201 854 371.41

184 488 709.54

189 774 426.60

189 065 541.74

171 996 207.11

250 319 473.37

254 775 755.74

256 623 471.45

267 521 992.34

The number of KDPW_CCP participants in Complex A

as at 2012 year-end did not change compared to 2011:

Clearing Fund Number of KDPW_CCP

participants at 2012 year-end

41

Number of KDPW_CCP


41

Guarantee Funds Management

In 2012, KDPW_CCP organised and executed updates

of contributions to the

(Complex B) timely at the last day of each month in which

transactions were cleared in KDPW_CCP.

Guarantee Fund for Clearing

of Transactions Concluded in the Alternative Trading

System Organised by the Warsaw Stock Exchange

The number of Fund participants as at 2012 year-end

changed compared to 2011 as follows:

WSE ATS

Guarantee Fund

Number of KDPW_CCP


35

Number of KDPW_CCP


34

The total contributions of participants to Complex B

at 2012 and 2011 year-end were as follows:


as at 2011 year-end

PLN 1 939 553.81


as at 2012 year-end

PLN 2 577 264.79

31Fund Management

Contributions to the Guarantee Fund may be made in cash or in Treasury securities.


amount. As at the 2012 year-end, 1 participant held parts of contributions in securities.

The balances of the participants’ contributions to the Guarantee

Fund for Clearing of Transactions Concluded in the ATS Organised

by the WSE following updates in 2012 were as follows:

Update

2012-01-31

2012-02-29

2012-03-30

2012-04-30

2012-05-31

2012-06-29

2012-07-31

2012-08-31

2012-09-28

2012-10-31

2012-11-30

2012-12-28

Percentage share

of contributions

in Treasury

securities

0.87%

0.85%

1.01%

1.00%

1.03%

1.30%

1.61%

1.65%

1.71%

0.71%

0.69%

0.70%

Balance

of contributions

in Treasury

securities

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

Balance

of contributions

to the WSE ATS

Guarantee Fund


2 077 527.50

2 122 379.66

1 777 776.93

1 794 664.89

1 746 577.31

1 386 267.45

1 121 135.60

1 091 835.55

1 052 029.15

2 545 605.73

2 596 192.89

2 577 264.79

The other alternative fund organised and operated by KDPW_CCP was the

(Complex C).

Guarantee

Fund for Clearing of Transactions Concluded in the Alternative Trading System

Organised by BondSpot

The number of Fund participants as at 2012 year-end

changed compared to 2011 as follows:

BS ATS

Guarantee Fund

Number of KDPW_CCP


20

Number of KDPW_CCP


16

The total contributions of participants

at 2012 and 2011 year-end were as follows:


as at 2011 year-end

PLN 329 437.78


as at 2012 year-end

PLN 674 913.31

32Fund Management

Contributions to the Guarantee Fund may be made in cash or in Treasury securities.


amount. As at the 2012 year-end, 1 participant held parts of contributions in securities.

The balances of the participants’ contributions to the Guarantee Fund

for Clearing of Transactions Concluded in the ATS Organised by

the BondSpot following updates in 2012 were as follows:

Update

2012-01-31

2012-02-29

2012-03-30

2012-04-30

2012-05-31

2012-06-29

2012-07-31

2012-08-31

2012-09-28

2012-10-31

2012-11-30

2012-12-28

Percentage share

of contributions

in Treasury

securities

5.00%

5.00%

5.57%

5.23%

4.62%

4.54%

4.45%

4.75%

4.62%

2.80%

2.67%

2.77%

Balance

of contributions

in Treasury

securities

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

18 000.00

Balance

of contributions

to the BS ATS

Guarantee Fund


360 017.08

360 017.08

323 045.81

344 436.91

389 654.25

396 380.75

404 580.87

379 323.68

389 262.10

659 704.67

695 136.94

674 913.31

In 2012, credits and debits between KDPW_CCP and

clearing members relating to updates of contributions

to the Clearing Fund and the ATS Guarantee Funds were

calculated on the basis of bilateral netting. Payments

were executed via the payment bank in the NBP Payment

System Department.

33Fund Management

The profile and scope of services

provided by KDPW_CCP and

the organisational and technical

infrastructure will be further

developed in 2013 in line with

the approved strategic objectives

set out for the KDPW Group.

In order to strengthen the business model

of the KDPW Group, work will be undertaken

to further stabilise the business model, which

relies on synergies and co-existence of both

companies, to develop new services and improve

the quality of the service offer in line with

international standards, and enhance effectiveness

by maximising the use of available resources

and developing a beneficial financial strategy.

The efforts will focus on strategic projects of key

importance to building the value of KDPW

and KDPW_CCP and improving their competitive

position.

Directions of Development 34

monitoring of European standards and regulatory requirements

for clearing houses;

analysing interoperability solutions in Europe in order to develop

a model of interoperability between KDPW_CCP and other

European CCPs.

development of services related to OTC derivatives and repo

clearing in the CCP;

authorisation of KDPW_CCP under EMIR;

introduction of securities netting in cash market clearing;

authorisation of KDPW_CCP to provide some banking functionalities.

development of a risk management system based

on SPAN methodology;

harmonisation of kdpw_stream with the WSE’s new trading

system (UTP).

Efforts will be made to position the KDPW Group in the Region

as a leading institution integrating with the European structures,

as follows:

•

•

Efforts will be made to grow the value of the KDPW Group

by launching new services, as follows:

•

•

•

•

Efforts will be made to improve the quality and efficiency

of existing services, as follows:

•

•

Efforts will be made to acquire new participants and investors

for the Polish capital market by promoting the services offered

by KDPW_CCP.

35Directions of Development

Financial Statements 36

Balance Sheet as at 31 December 2012

ASSETS

Non-current assets

Intangible assets

Fixed assets

Long-term investments

Long-term prepayments

Current assets

Short-term receivables

Other intangible assets

Long-term financial assets

in related parties

- other long-term financial assets

Deferred tax assets

Other prepayments

Receivables from other entities

trade receivables, maturing:

- up to 12 months

tax, subsidy, customs, social security, health insurance and other benefits

other

As at 31.12.2012

38 647 802.58

6 263 763.61

0.00

32 063 030.00

321 008.97

185 798 458.64

4 223 113.27

6 263 763.61

32 063 030.00

32 063 030.00

32 063 030.00

320 962.85

46.12

4 223 113.27

4 215 434.02

4 215 434.02

762.88

6 916.37

As at 31.12.2011

25 447 146.65

6 992 204.94

0.00

18 237 700.00

217 241.71

93 114 923.64

4 770 328.08

6 992 204.94

18 237 700.00

18 237 700.00

18 237 700.00

217 164.22

77.49

4 770 328.08

4 759 801.56

4 759 801.56

95.22

10 431.30

37Financial Statements

ASSETS

Short-term investments

Short-term prepayments

Other assets

Total assets

Short-term financial assets

in related parties

- other short-term financial assets

cash and other pecuniary assets

cash in hand and at bank

Assets of the Clearing Fund

Assets of Additional Margins for the Clearing Fund

Assets of the BondSpot ATS Guarantee Fund

Assets of the WSE ATS Guarantee Fund

Assets of WSE ATS Additional Margins

Assets of Maintenance Margins

Assets of Initial Margins

As at 31.12.2012

181 325 790.45

249 554.92

973 547 134.37

1 197 993 395.59

181 325 790.45

181 239 235.67

181 239 235.67

86 554.78

86 554.78

219 087 513.58

6 650 939.30

683 583.06

2 602 428.72

4 980.15

534 749 928.46

209 767 761.10

As at 31.12.2011

88 219 304.22

125 291.34

886 865 985.91

1 005 428 056.20

88 219 304.22

88 159 245.64

88 159 245.64

60 058.58

60 058.58

159 925 889.57

20 437 266.39

354 943.53

1 626 068.71

1 350.68

381 841 136.83

322 679 330.20



LIABILITIES

Equity

Share capital

Supplementary capital

Revaluation reserve

Other reserve capitals

Previous years' profit (loss)

Net profit (loss)

Liabilities and provisions for liabilities

Provisions for liabilities

Long-term liabilities

Provision for deferred income tax

Provision for retirement and similar benefits

- long-term

- short-term

Other provisions

- short-term

To related parties

other financial liabilities

As at 31.12.2012

212 178 501.70

200 000 000.00

1 376 970.99

2 560 224.72

4 709 882.52

0.00

3 531 423.47

12 267 759.52

1 871 075.57

6 001 415.91

782 262.57

1 045 763.00

564 639.00

481 124.00

43 050.00

43 050.00

6 001 415.91

6 001 415.91

As at 31.12.2011

106 541 608.01

100 000 000.00

963 853.51

413 785.96

0.00

0.00

5 163 968.54

12 020 462.28

1 173 726.16

6 545 738.62

179 968.16

950 708.00

488 428.00

462 280.00

43 050.00

43 050.00

6 545 738.62

6 545 738.62



LIABILITIES

Short-term liabilities

Accruals

Other liabilities

Total liabilities

To related parties

trade liabilities, maturing:

- up to 12 months

other financial liabilities

To other entities

trade liabilities, maturing:

- up to 12 months

tax, customs, insurance and other liabilities

salaries

other

Special funds

Liabilities to participants of the Clearing Fund

Liabilities under Additional Margins for the Clearing Fund

Liabilities under the BondSpot ATS Guarantee Fund

Liabilities under the WSE ATS Guarantee Fund

Liabilities under WSE ATS Additional Margins

Liabilities under Maintenance Margins

Liabilities under Initial Margins

As at 31.12.2012

4 395 268.04

0.00

973 547 134.37

1 197 993 395.59

3 177 114.57

2 632 791.85

2 632 791.85

544 322.72

1 102 593.99

195 977.63

195 977.63

896 748.38

7 698.39

2 169.59

115 559.48

219 087 513.58

6 650 939.30

683 583.06

2 602 428.72

4 980.15

534 749 928.46

209 767 761.10

As at 31.12.2011

4 300 997.50

0.00

886 865 985.91

1 005 428 056.20

4 009 619.83

3 512 147.33

3 512 147.33

497 472.50

161 456.20

39 593.84

39 593.84

113 386.65

0.00

8 475.71

129 921.47

159 925 889.57

20 437 266.39

354 943.53

1 626 068.71

1 350.68

381 841 136.83

322 679 330.20



Profit and Loss Account

Net revenues from sales and equivalent, including revenues:

Operating expenses

Profit (loss) on sales

Other operating revenues

Other operating expenses

Operating profit (loss)

Financial revenues

- from related parties

Net revenues from sales of products

Amortisation and depreciation

Consumption of materials and energy

External services

Taxes and charges

Payroll

Social security and other benefits

Other costs by type

Other operating revenues

Other operating expenses

Interest

Other

01.01.2012 - 31.12.2012

31 651 122.45

32 053 366.22

-402 243.77

130.55

12.72

-402 125.94

5 957 899.04

0.00

31 651 122.45

732 144.86

32 357.35

26 008 082.56

153 241.59

3 056 475.50

926 088.69

1 144 975.67

130.55

12.72

5 957 893.61

5.43

01.01.2011 - 31.12.2011

21 613 896.23

18 487 214.82

3 126 681.41

29 049.45

29 049.45

3 126 681.41

3 821 995.05

714 203.58

21 613 896.23

314 816.49

29 285.63

15 029 892.24

79 473.82

1 967 220.78

353 090.23

713 435.63

29 049.45

29 049.45

3 821 993.16

1.89


for the period 01.01.2012 - 31.12.2012

Financial expenses

Profit on business activities

Gross profit

Net profit

Interest, including:

- for related parties

Other

Income tax

01.01.2012 - 31.12.2012

1 003 689.49

4 552 083.61

4 552 083.61

3 531 423.47

483 598.80

483 550.80

520 090.69

1 020 660.14

01.01.2011 - 31.12.2011

473 634.59

6 475 041.87

6 475 041.87

5 163 968.54

254 600.65

254 600.65

219 033.94

1 311 073.33


Profit and Loss Account for the period 01.01.2012 - 31.12.2012

Auditor’s Opinion


KDPW_CCP S.A., September 2013

KDPW CCP Annual Report 2012 - ccp-poland.pl filetable of contents letter from the president and ceo kdpw_ccp clearing house key events in 2012 corporate risk management system participation

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