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Hong Kong Securities Clearing Company Limited June 2008 - Bali

10 th ACG Cross-Training Seminar. CSD Linkages. Hong Kong Securities Clearing Company Limited June 2008 - Bali. Agenda. CSD Linkages of HKSCC - Depository Trust Corporation (DTC) of the U.S. - Central Moneymarkets Unit (CMU) Pilot Programme Cross Border Securities Settlement

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Hong Kong Securities Clearing Company Limited June 2008 - Bali

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  1. 10th ACG Cross-Training Seminar CSD Linkages Hong Kong Securities Clearing Company Limited June 2008 - Bali

  2. Agenda • CSD Linkages of HKSCC - Depository Trust Corporation (DTC) of the U.S. - Central Moneymarkets Unit (CMU) • Pilot Programme • Cross Border Securities Settlement • Cross System Settlement • Depository & Nominee Services (DNS)

  3. CSD Linkages - 1 Depository Trust Corporation (DTC) of the U.S. • The US-based depository that provides clearing and settlement services to Nasdaq • HKSCC maintains an account with DTC to facilitate the Free-of-payment (FOP) cross-border securities transfer of the Pilot ProgrammeSecurities traded in HK and the US and to hold on behalf of its participants shareholdings of these securities

  4. CSD Linkages - 2 Central Moneymarkets Unit (CMU) • Hong Kong Monetary Authority (HKMA) established the Central Moneymarkets Unit (CMU) to provide a computerised clearing and settlement facility for Hong Kong debt securities (including Exchange Fund Notes) • HKSCC is a Recognized Dealer and maintains an account with CMU to facilitate the Free-of-payment (FOP) cross system transfer of the debt securities traded between a CMU member of HKMA and a CCASS participant, such as Exchange Fund Notes (EFN) and to hold the shareholdings of EFN on behalf of the participants

  5. Pilot Programme - 1 • Launched in May 2000 • Nine issues of global securities listed on Nasdaq and the AMEX • Admitted to the Stock Exchange of Hong Kong (SEHK) for trading only • Accepted by Hong Kong Securities Clearing Company Limited (HKSCC) for clearing and settlement at Central Clearing and Settlement System (CCASS)

  6. Pilot Programme - 2

  7. Pilot Programme - 3 • HKSCC Rules for clearing, settlement, custodian and nominee services apply • Cross Border Transfer to facilitate the selling/purchasing of Pilot Programme Securities in HK • Settlement is achieved by adjusting the two clearing system’s book-entry record

  8. Cross Border Securities Settlement - 1 Selling of Pilot Programme Securities inHK US HK HKSCC DTC 1. CCASS Participant submits Cross-border Transfer Instruction Form (Receive) 2. DTC Participant inputs deliver instruction 3. Debits the account of DTC Participant and credits HKSCC’s account 5. Credits the account of the CCASS Participant 4. HKSCC checks the Activity Report to confirm the receipt of shares _____ _____ ______ _____ _____ Receive 6. Settlement

  9. Cross Border Securities Settlement - 2 Purchase of Pilot Programme Securities in HK HK US 3. Inputs Deliver Instruction to DTC HKSCC DTC 1. CCASS Participant submits Cross-border Transfer Instruction Form (Deliver) 4. Debits HKSCC’s account and credits the account of the DTC Participant 2. Debits the account of the CCASS Participant Delivery _____________ _____________ __________ _____________ ___________ 5. HKSCC checks Activity Report to confirm the delivery Activity Report ___________ ___________ _________

  10. Cross System Settlement - 1 • To facilitate cross system settlement, a linkage is established to allow FOP transfers between a CMU member of HKMA and a CCASS participant • The CMU Terminal (CMT) is installed in CCASS Depository to facilitate stock transfer instruction • The communications between HKSCC and CMU are mainly through CMU Terminal

  11. Cross System Settlement - 2 Selling of the Exchange Fund Notes (EFN) CMU Terminal (CMT) HKSCC 3. Corresponding CMU member inputs deliver instruction via CMT 2. Inputs receive instruction via CMT 4. Matched 1. CCASS Participants submits Transfer Instruction Form (Receive) 5. Completion Advice (Debits the account of the CMU member and credits HKSCC’s account. 7. Credits the account of the CCASS Participant 6. HKSCC confirms the transfer via CMT Receive ________________ ________ ________ 8. Settlement

  12. Cross System Settlement - 3 Purchase of the Exchange Fund Notes (EFN) CMU Terminal (CMT) HKSCC 4. Corresponding CMU member inputs receive instruction via CMT 3. Inputs deliver instruction via CMT 5. Matched 1. CCASS Participants submits Transfer Instruction Form (Deliver) 6. Completion Advice (Debits HKSCC’s account and credits the account of the CMU member) 2. Debits the account of the CCASS Participant 7. HKSCC confirms the transfer via CMT Delivery ________________ ________ ________

  13. Depository & Nominee Services (DNS) - 1 • Deposit & Withdrawal Services • Pilot Programme Securities • HKSCC has an account with DTC to enable HKSCC to hold the shareholdings on behalf of its participants • Physical deposit of the Pilot Programme Securities with the CCASS Depository is not available • Participants are required to arrange with a person who has an account with the DTC and then transfer to HKSCC’s account with the DTC via Cross-Border Transfer Instruction

  14. Depository & Nominee Services (DNS) - 2 • Participants who wish to withdraw the Pilot Programme • Securities are required to submit withdrawal forms to HKSCC • for processing • The certificate is registered in the name of a beneficiary • Exchange Fund Notes (EFN) • Exchange Fund Notes are issued in scripless form,no physical depository service is provided by HKSCC

  15. Depository & Nominee Services (DNS) - 3 • Major types of nominee services are offered: • Pilot Programme Securities • Cash Dividend • Corporate Voting • Exchange Fund Notes (EFN) • Periodic Interest Payment • Redemption Upon Maturity • Corporate Voting (subject to constitutive document)

  16. Depository & Nominee Services (DNS) - 4 Pilot Programme Securities • Cash Dividend • DTC will determine the entitlements of dividend payment of HKSCC under DTC account based on its holdings as of the record date • HKSCC will maintain a corporate announcement in CCASS with the same record date to determine the entitlements of relevant CCASS Participants • Upon receipt of the cash dividend (after deduction of the U.S. withholding taxes), HKSCC will distribute the cash amount to its participants • Participants of HKSCC can choose either HK or US dollars

  17. Depository & Nominee Services (DNS) - 5

  18. Depository & Nominee Services (DNS) - 6

  19. Depository & Nominee Services (DNS) - 7 Pilot Programme Securities • Corporate Voting • HKSCC does not send representative to attend meetings held outside Hong Kong • Participants give voting instructions to HKSCC • HKSCC submits one combined proxy form

  20. Depository & Nominee Services (DNS) - 8 Exchange Fund Notes (EFN) • Periodic Interest Payment $$$$ • Interest is paid semi-annually • HKSCC will distribute the interest accruing to its participants upon receipt of the interest payment • Redemption upon Maturity • Upon receipt of the redemption monies, HKSCC will cause the money to be credited to its participants

  21. Depository & Nominee Services (DNS) - 9 Exchange Fund Notes (EFN) • Corporate Voting • Subject to the constitutive document, HKSCC will send representative to attend meetings • Participants give voting instructions to HKSCC • HKSCC submits one combined proxy form

  22. Questions

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