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Enclosure 13 (E13) – Rules on the Organization and Use of the Guarantee Settlement Fund  

1. Purpose

1.1. The Guarantee Settlement Fund (GSF) is a pool of funds from members of the Stock Exchange and CD AD (the Members), which has been established with the sole purpose to guarantee the settlement liabilities of the members, in accordance with CD AD’s definitions, regarding transactions concluded on the Stock Exchange and reported by the Stock Exchange to CD AD. The Fund is not used to guarantee any other liabilities of the members whatsoever.

2. Organization

2.1. GSF is a separate fund within and under the supervision of the Stock Exchange and CD AD.

2.2. GSF is administrated, controlled and managed by the GSF Governance Committee (the Committee). It is composed by the following 3 members having voting power: 1. One member elected from among the members of the Board of Directors of CD AD, by decision of the same body. 2. One member elected from among the members of the Board of Directors of the Stock Exchange.

3. The Executive Director of CD AD, who is also Chairperson of the Committee.

2.3. The Committee shall be able to elect 3 members with no voting power, i.e. as Advisors. These shall include a legal expert, a financial expert or an economist expert, and the Operational Manager of CD AD.

2.4. All members of the Committee, including the Advisors, shall be elected for a 3-year-term-in-office and can be re-elected without limitations.

2.5. The Committee shall be convened by the Chairperson at least once quarterly. In case of some Member’s insolvency for a settlement, or a potential/probable impossibility of a settlement, any member of the Committee shall be able to ask the Chairperson to convene an extraordinary session. These sessions may be held in operative order as well.

2.6. Any member of the Committee can give written authorization to any other member of the Committee. Any member of the Committee can possess not more than one such authorization/power of attorney.

2.7. On all issues within the competence of the Committee, decisions shall be made with simple majority.

2.8. The minimum quorum to convene a session of the Committee shall be half of its members who have voting power.

2.9. The members of the Committee shall participate voluntarily, i. e. without payment. The expenses occurred in relation with the fulfillment of their obligations may be covered by CD AD or the Stock Exchange.

2.10. Only with an official permit issued by decision of the Committee can an insolvent Member’s impossibility to pay a settlement be covered – except for the cases provided for under these Rules.

3. General and Specific Powers of the Committee

3.1. The Committee shall have all power, authority and rights that are necessary or required in relation to the management, control and activating of the GSF.

3.2. The Committee shall define the risks that can be covered, the minimum amount of GSF and the specific formula – same for all Members, - used to calculate the contribution due from each Member into GSF. The calculation formula and the deadlines can be modified by decision of the Committee.

3.3. The Committee shall approve the form (forms) in which the Members’ contributions can be paid in GSF. The possible contribution forms are: cash, short-term government securities or an irrevocable, transferable and unconditional bank’s guarantee.

3.4. The Committee shall be able to take any action considered expedient in order to arrange the Members’ settlement liabilities, including, but not limited to:

1. Monitoring the execution of settlement operations by insolvent Members;

2. Monitoring the proper spending of the GSF cash;

3. Monitoring the spending of insolvent Members’ assets, so that the GSF be subsequently compensated by the insolvent Member;

4. Selling and turning into cash all GSF assets;

5. Opening, keeping and controlling bank accounts for the available cash of the GSF and appointing one or several persons from among the Committee members with the right to sign for these bank accounts.

3.5. The Committee shall act, on behalf of the Members, as a creditor to the insolvent Member whose settlement liabilities have been covered by the GSF. 20.1. The Committee shall resolve all disputes and interpretations pertaining to these Rules.

3.6. The Committee’s decisions may be appealed against in front of the Board of Directors of the Stock Exchange or CD AD.

4. Members’ Deposits, Financing Requirements

4.1. Deposits of GSF Members shall be taken from the obligatory minimum deposit of each member and the current contribution of each member. GSF shall be supported by the Accountancy Department of the Stock Exchange, to which the GSF Members’ contributions are also made.

4.2. The GSF Members deposits shall be kept in the books separately for each individual Member. Separation means at least keeping separate analytical accounts for the amount of each Member’s deposit.

4.3. Contributions to GSF shall be paid in until the minimum amount is reached as determined by the Committee. Once the minimum fund amount is reached, the Members’ contributions are terminated.

4.4. The current contribution of a Member should be paid in within 5 business days upon receipt of the Stock Exchange’s notice of contribution due. Cash contributions shall be made to the account stated in the Stock Exchange Membership Agreements, unless otherwise provided for by Committee’s decision.

4.5. If there is an additional amount to be paid by some Member, as a result from the GSF being activated to satisfy settlement liabilities, this amount should be paid in within 5 business days upon receipt of the Committee’s notice that further means are necessary.

4.6. Membership termination does not lead to termination of liabilities related to covering the loss suffered by GSF as a result from the Fund being activated to satisfy settlement liabilities of the respective person.

4.7. The notice under Paragraphs 5 and 6 may be in e-format as well, and it may also be sent under the procedure for sending the transactions reports by the Members, in accordance with the Rules and Regulations of the Stock Exchange.

5. Activating and Using the GSF Means

5.1. GSF can only be used to cover settlement liabilities of the Members under those transactions on the Stock Exchange, for which net-base settlement has been agreed upon. GSF activating shall take place by decision of the Committee, except for the cases under Paragraph 2.

5.2. GSF shall cover the unpaid net cash liabilities of the clearing member on the next business day after the last settlement day allowed.

5.3. GSF can also be used to cover Members’ liabilities stemming from “short sales”, in accordance with an Ordinance by the Council of Ministers. In such cases, GSF shall be activated only when the short seller is unable to pay for the purchase of the respective securities, plus the fines and sanctions provided for those cases in the Ordinance quoted, the Regulations of the Stock Exchange and the Regulations of CD AD.

5.4. When using GSF for a settlement, the necessary means shall be taken from the insolvent Member’s account. If this account is depleted or the means are not enough to satisfy the settlement requirements, all additional amounts shall be taken from all other Members, either in equal portions, or based upon equal percentage rates complying with each Member’s deposit with GSF.

5.5. GSF usage shall be limited to satisfying the losses, liabilities or the transactions’ settlement liabilities and the appropriate expenses of the Members. This includes, but is not limited to, satisfying the liabilities under debts incurred by decision of the Committee, in order to satisfy similar settlement liabilities, which require further legal, accounting and operational assistance.

5.6. Cash deposits with GSF may be invested in short-term government securities, in order to get additional interest gain for the Members. The interest gain shall be distributed to the Members in equal portions and in compliance with each Member’s general deposit.

5.7. If GSF’ losses or expenses have been subsequently covered – partially or entirely, - the net amount reimbursed should be credited or distributed to the Members’ accounts, including the persons whose membership has been already terminated.

5.8. The Committee shall have the right to determine, by its decision, additional equal contributions due from the GSF Members in order to cover the net liabilities under an insolvent Member’s settlement.

6. Insolvent Member’s Participation, Sanctions

6.1. Besides the cases described in the above articles, in case when GSF is used to cover a settlement on behalf of an insolvent Member, the Committee shall designate a person to control/supervise the insolvent Member’s operations. This person shall be entitled to have access to all journals and recordings, as well as to receive cooperation from the part of all employees of the insolvent Member.

6.2. All Members – including all Members who are insolvent or gone bankrupt, - shall be liable for the entire amount of their settlement liability. All and any kind of expenses made by GSF from the accounts of all Members as a result from a specific insolvency, shall remain the liability of the insolvent Member who has originated these expenses.

6.3. A Member who has become unable to pay under a settlement shall be entitled to only execute transactions for liquidation of clients’ accounts. No new purchases shall be permitted. The only transactions allowed are those in which the client has paid in full for the government securities, the client has decided to liquidate all or some of his items, or to transfer his accounts to another Member.

6.4. The insolvent Member can be discharged as a full-fledged participant and re-established in good condition on the Stock Exchange and with the Central Depository AD only by decision of the Board of Directors of CD AD, decision of the Board of Directors of the Stock Exchange, and recommendation of the Committee, and upon receipt of the Member’s application for re-establishment of his membership, but not earlier than 90 days after the Member has settled his obligations and liabilities to CD AD and GSF.

6.5. Item 6.4 shall not be applied to the cases under Item 5.2, if the Member has covered his liabilities and has paid within due time all the fines determined in these Rules.

6.6. In case GSF is used to cover settlement payment, the insolvent Member shall be obligated to reimburse the full amount spent plus the fines due within 5 (five) business days following the day when the GSF was used.

6.7. Pecuniary Fines and Additional Sanctions: 1. In all cases when GSF has been used to cover settlement payment, the insolvent Member shall owe a pecuniary fine for each day passed until the reimbursement of the amount due in GSF. The pecuniary amount shall be determined as one per cent (1%) of the amount due for each day until the entire liability and the accrued fines are reimbursed. 2. If the insolvent Member has not covered his liability to the GSF within the deadline under Paragraph 6, upon a proposal by the Committee, the following sanctions can be imposed: · · additional pecuniary fine under the terms of the Rules and Regulations of the Stock Exchange, the minimum amount being BGN 1,000 (one thousand leva); · · suspension or termination of the membership, under the terms of the Rules and Regulations of the Stock Exchange and the Rules and Regulations of CD AD.

6.8. The pecuniary fines and sanctions imposed shall be paid in front of the Stock Exchange in the same way as the GSF contributions. The money collected in the form of fines and additional sanctions shall be distributed equally or proportionally to the accounts of all Members, depending on the procedure under which GSF has been used.

7. Drawing Means from GSF

7.1. After his Stock Exchange membership or CD AD membership was terminated, the respective entity shall have the right to ask for and to receive the net amount of the whole deposit on his account with GSF: · 90 (ninety) days following the termination of his Stock Exchange membership or CD AD membership; and · if all his transactions are closed and he has no future liabilities at CD AD; and · if all his liabilities to the Stock Exchange, CD AD and GSF are satisfied; and · by discretion of the Committee, the respective indemnities or bank guarantees have been exchanged for all transactions and liabilities.

8. Additional Disposition

8.1. Abbreviations and definitions used: 1. GSF – Guarantee Settlement Fund 2. CD AD – Central Depository AD 3. Stock Exchange – Bulgarian Stock Exchange–Sofia AD 4. Members – the members of the Stock Exchange and CD AD 5. Committee – the GSF Governance Committee 6. “Short sales” – transaction on the sale of securities on condition that the real seller does not possess at his own expense the respective securities.

8.2. For all issues not regulated in the present Rules, the Rules and Regulations of the Stock Exchange, the Rules and Regulations of CD AD and the pertaining legislation shall be applied.

9. Final Dispositions

9.1. Article 116 of the Rules and Regulations of the Stock Exchange shall be amended as follows: “Art. 116 The Stock Exchange, jointly with the CD, shall establish and manage a Guarantee Settlement Fund to guarantee the net settlement liabilities under the transactions concluded on the Stock Exchange, in accordance with Enclosure to these Rules and Regulations.”

9.2. Articles 117-123 inclusively shall be revoked.

9.3. Everywhere in the Rules and Regulations of the Stock Exchange and the Rules and Regulations of CD AD and the Enclosures thereto, the wording “Guarantee Fund” shall be replaced by the wording “Guarantee Settlement Fund”.

9.4. The amounts accrued from members’ contributions to the Guarantee Fund at the Stock Exchange prior to these Rules’ entrance into force shall be regulated anew as GSF members’ deposits equal to the amount of contributions accrued by each Member.

9.5. The obligatory minimum deposit made by the Members with GSF shall be replenished within 10 (ten) business days upon receipt of the Committee’s notice of its decision on the amount of the minimum deposit with GSF.