May 23, 2003 is the official starting date for the Central Counterparty guarantee system (CCP) for Borsa Italiana's stock markets, a system managed and developed by Cassa di Compensazione e Garanzia to replace the current contract guarantee mechanisms.

The development is similar to what has already happened for Italy's derivatives markets. The new system will serve the Italian stock markets (MTA, Nuovo Mercato and its related after hours components) guaranteeing all contracts on stocks, convertible bonds, warrants and shares of closed-end real estate and securities funds.

The CCP will interpose itself between buyer and seller in each contract at the time of its conclusion on the market, assuming and managing the counterparty risk.

"The launch of the Central Counterparty system on the cash markets is part of the overall development strategy to improve our markets by exploiting the synergies of the Borsa Italiana Group," said Massimo Capuano, Vice President of Cassa di Compensazione e Garanzia and CEO of Borsa Italiana.

"It is a risk management system that is more efficient and open to interoperability with analogous systems that brings our stock markets into line with international best-practice," added Renato Tarantola, CEO of Cassa di Compensazione e Garanzia, "favouring the growth of liquidity."

In this initial phase, the CCP will not be involved with the Mercato Ristretto or the bond and government securities market (MOT), while the current contract guarantee mechanisms will continue to be valid for the Covered Warrant Market (MCW).

Membership in the CCP, which is obligatory for brokers operating on the stock markets, can occur directly - as a general or individual member - or indirectly - through an agreement with a general member (which can be different from the one used for the derivatives market).

Every direct member must satisfy minimum requirements in terms of supervisory capital and back-office systems.

The launch of the CCP will also introduce the performance bond system that was already adopted for derivatives. In fact, to support their own trading activity, each member must deposit collaterals for an amount correlated to the positions of risk assumed.

Margin collateral includes cash or government securities and will be calculated by Cassa di Compensazione e Garanzia using the TIMS methodology (Theoretical Intermarket Margins System, developed by the Options Clearing Corporation of Chicago) already used for derivatives and recognised as the best practice at an international level.

At the same time as the CCP, a Default Fund will also be established to which each participant will contribute in proportion to the margins, with monthly adjustments.

In case of insolvency, Cassa di Compensazione e Garanzia will cover any losses by using, in order of priority, the margins paid by the member, including any payments into the Default Fund, his own reserves up to the limit of €5 million, the remaining amount available in the Default Fund and, finally, the other resources of Cassa di Compensazione e Garanzia itself.

The systems relative to the CCP, which will make use of multiple reporting channels, will be subject to further testing during the next few months. The business model adopted minimises interventions into the each operator's organisational/remote computing structures. The CCP will start initially with the current Liquidazione dei Titoli (LdT) system, first being integrated and then fully deploying all its functions - including fully anonymous post trading - with the introduction of Express II, the new settlement system by Monte Titoli.

Documentation on the CCP is available on the Cassa di Compensazione e Garanzia web site (www.ccg.it) along with the Regulations and instructions and the manual containing the operational lines and a description of the information flows.




Milan, 3 April 2003

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