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Supervision over the administration of securities depository by KDPW participants

In accordance with the Rules of the National Depository for Securities (which specifies the rights and obligations of depository-settlement system participants, the level of supervision to ensure compliance, the manner of exercising the supervisory function and the measures to address non-compliance), one of the major functions of the National Depository for Securities (KDPW) is to supervise the administration of securities depository by KDPW participants and to monitor their compliance with requirements for participation.
The principal area of supervision, namely the administration of the securities depository by the National Depository (and its participants) involves defining the rules applicable to securities registration system and performing other functions related to securities registration. The compliance of securities depository administration with the provisions of the law, the Rules and resolutions passed by the National Depository's Management Board is verified by analysing documents and reports submitted by the participants, and by performing audits at the participants' premises.
KDPW monitors compliance with the requirements for participation by direct participants (including those applicable to clearing members) operating within the depository-settlement system and verifies compliance with the requirements by institutions applying for KDPW participant status (based on documents attached to the application for participation agreement). This mainly concerns:

• compliance with financial requirements (minimum capital and capital adequacy requirements) - by clearing members,
• compliance with organisational requirements, including adequate qualifications of employees responsible for the registration of securities (qualification titles awarded following an examination given by the KDPW Examination Board) ? by all direct participants,
• compliance with material & technical requirements by participants keeping securities accounts to ensure the continuity of operations and the safety of securities registration procedures (maintaining operational functions of the registration IT systems), as well as appropriate archiving of documents and data.

The above functions are performed by the KDPW's Audit Department. Market-related supervision of participants operating on the derivatives market is exercised by the Clearing House.

AUDIT DEPARTMENT - SELECTED FUNCTIONS

Supervision is exercised from when an application for participation agreement is submitted to when such agreement is terminated and the participant's accounts are closed. Specific functions are performed through the following supervisory procedures:

• audits in the participant's premises in the form of direct inspections covering registration, archiving, registration systems and the levels of maintenance margin in respect of derivatives positions. In the case of a failure to comply with the requirements for participation in the National Depository for Securities, an application is made to the KDPW Management Board for disciplinary measures,
• considering applications for participation in the KDPW's system and being consulted on extending participation to include additional types of activity (for participants operating on the derivatives market, this function is performed by the Clearing House). An institution applying for participation in the KDPW's system submits an application to which certain documents are to be attached. At this stage, the completeness of the application is verified and the applicant's compliance with the financial requirements (for institutions applying for a clearing member status) and the material & technical requirements (for institutions intending to keep securities accounts) is checked based on the applicant's submissions.
• verification of compliance with financial requirements by clearing members is exercised on the basis of their financial statements, by assessing the levels of equity and precautionary standard),
• verification of the correctness of account balances in the securities registration system managed by participants by comparing them with balances in the registration system managed by KDPW, based on reports submitted by participants,
• verification of the correctness of balances of, and volume of trade in, T-bonds, based on the monthly reporting submitted by participants pursuant to the relevant Regulation of the Minister of Finance,
• analysing incorrect transactions, i.e. transactions executed without a client order or those whose details do not correspond to a correct client order, as well as non-executed orders, on the basis of information provided on a monthly basis,
• preparing quarterly data in the form of a ranking of participants based on statistical reports generated by the KDPW's system assessing the participants' performance in the depository-settlement system, data provided by participants and the results of auditing daily reports; afterwards, specific information in this respect is communicated to direct participants holding the "brokerage office" participant status,
• informing the regulator of any failures identified in the participant's operation; where failures are identified in the participant's operation on the regulated market, the operator of the market is also to be informed.