May 7 th 2003 ISSUE BRIEFING European Parliament

May 7 th, 2003 ISSUE BRIEFING European Parliament Warrants and Bonds Prospectuses

Warrants Société Générale Equities & Derivatives « Trading and sale of equity derivatives products » n More precisely, derivatives products such as : 4 Simple calls & puts • example : a plain vanilla call gives the right to buy a specific underyling at a fixed price - at or up to a determined date (maturity date) 4 a wide range of « innovative » options • May 7 th, 2003 example : corridor option gives the right to receive 1 euro per day, where the underlying asset closes inside specific range (up and down limits) during a period of time. 2

Warrants Société Générale Equities & Derivatives « Trading and sale of equity derivatives products » 4 Structured products • • May 7 th, 2003 with simple or innovative indexations example : at maturity the holder will receive 100% of the initial amount invested plus x% of the performance of the CAC 40 index over the period. 3

Warrants Adapting the offer to client needs . . . n Different « wrappers » …. 4 4 Warrants Certificats EMTN Funds n …. answering specific needs for different types of customers May 7 th, 2003 4

Warrants What are Covered Warrants? n Generally simple call & put options n “Covered” means that when the issuer launches a warrant on the market, he buys/sells the underlying share to cover its position (i. e. no equity creation in case of exercise) n Issued by a financial institution n Mid to long-term (6 to 24 month) options n High liquidity provided on the exchanges n Leverage effect n Possibility to hedge : portfolio protection May 7 th, 2003 5

Warrants Warrant markets in the world Helsinki Stockholm Amsterdam Frankfurt Brussel Stuttgart Paris Zurich Lisboa Madrid Milan Hong-Kong Sydney May 7 th, 2003 6

Warrants 2002 Turnover on Warrant markets May 7 th, 2003 7

Warrants Issue process today n SG acts as issuer targeting retail investors in 13 countries n Today, plain vanilla call and put warrants are considered as « standard » by market authorities throughout Europe n SG Manages a global range of 5, 000 warrants updated on a daily basis (strikes, maturities) with a lot of product replication due to a lack of common European regulations and definitions n When it comes to innovative products discrepancies throughout Europe limit the offering possibilities May 7 th, 2003 8

Warrants Germany’s legal framework n The oldest warrants market (with Switzerland) : 1 st issue in 86 n German market authorities have set the listing guidelines with the input of issuers n Great reactivity : listing within two days n Same issue procedures for simple and innovative warrants : Deposit of a Master Document for each category ; once a year with the new financial statements of the issuer 4 For all following issues only a complete prospectus is required to be deposited at the exchange ; listing the next day 4 No legal restrictions on the characteristics (strikes, redemption at maturity, expiry…) 4 May 7 th, 2003 9

Warrants France’s legal framework n The warrants are issued and listed on the Stock Exchange since the issue is approved by the COB n Less reactivity : listing within a week (minimum) n Different procedures for simple warrants and innovative products Warrants program registered by the COB ; updated once a year with the new financial statements of the issuer 4 Innovative structures should be issued as bonds (legal and fiscal consequences) 4 May 7 th, 2003 10

Warrants Italy’s legal framework n The warrants are issued and listed on the Stock Exchange since the issue is approved by first CONSOB then Borsa Italiana n Different procedures for simple warrants and innovative products 4 Warrants program registered with the CONSOB ; updated once a year. • 4 Delay of approval : 1 month and 1 week for every supplement Innovative structures should be issued on a “stand alone” format. • Delay for approval : 1 month minimum n Registration costs extremely high May 7 th, 2003 11

Warrants Issue process today n Issuers still have to cope with 13 different issue procedures (requirements and delays) n All market authorities have different views on the product : 4 a digital option should be issued as a warrant? As a certificat? As an EMTN? 4 Up and in options? What Does the Directive Prospectus propose ? May 7 th, 2003 12

Warrants The Directive proposals n First proposal 4 European Passport 4 No choice of competent market authority : headquarter of the issuer 4 Language of the prospectus (French exception) n The current proposal 4 Choice of the competent market authority : country of the headquarter of the issuer or country where the public offer will take place • Since market authorities accept different products under the name of “warrants”, competition discrepancies between issuers will subsist (ex : German issuers) 4 Different rules for warrants when issued by SG on SG share • different requirements are not justified on a financial basis May 7 th, 2003 13

Warrants The « ideal world » n All market authorities should agree on the same definition and language 4 local rules should converge, in particular in the context of Stock Exchange mergers 4 adapted language: one common and usual languages should be accepted by all market authorities n Accuracy and reactivity of the product range to market fluctuations : 4 Delays reduced to the minimum : 1 week maximum n Investor protection 4 information on the underlying asset should not undermine an understandable description of the rights attached to the product 4 adapted language : summary in the language of the country where the product is offered May 7 th, 2003 14