Introduction to SD&C —CSD Linkage

1. Introduction to SD&C—CSD Linkage May 2008

2. Contents 1、SD&C’s Roles and Main Business 2、Organization Structure of SD&C 3、SD&C’s technical systems 4、SD&C’s linkage with others 5、CSD linkage status quo 6、Future Landscapes

3. 1、SD&C’s Roles and Main Business ●SD&C and its roles SD&C (China Securities Depository and Clearing Co.,Ltd) is the sole provider of registration, depositing , clearing and settlement services for the mainland securities markets of China. It plays multiple functions of a CSD, CCP and registrar while providing a broad range of services for market participants.

4. 1、SD&C’s Roles and Main Business (Continued) ●SD&C’s Main Business Managing securities accounts about 76 ??million Issuing registered securities about 1400 ??Issuers Registering and Depositing securities Market value: RMB 5.5 ??trillion Clearing and Settlement Participants :about 300?? Daily Transactions :4.24?? million Total settlement value 1st quarter of 2008:RMB 13.7 trillion?? Net settlement value 1st quarter of 2008: RMB 1.24 trillion?? Service for Issuers and Participants Dividend Distribution, providing shareholders’ list, network query, etc.

5. 2. Orgnization Structure of SD&C(Continued) ●Orgnization Structure of SD&C The Board The Management Group SD&C Headquarter(Beijing) SD&C Shanghai Branch SD&C Shenzhen Branch

6. 3. SD&C’s Technical Systems ●Main Systems, located in different cities • Clearing and Settlement System of SD&C Shenzhen Branch • Clearing and Settlement System of SD&C Shanghai Branch • Clearing and Settlement System for Open-end Funds(Beijing) ●Other systems • Data Warehouse System • E- Vouchers Management System • Office Automation System • Web Service System

7. 3. SD&C’s Technical Systems(Continued) ●Technical Architecture of Main Systems Trading system of SSE Trading system of SZSE Participants （Brokers、Funds、Banks etc） PROP Shanghai Clearing&Settlement System in Shanghai Clearing&Settlement System in Shenzhen D-COM/IST Shenzhen Issuers SSCC System Clearing&Settlement System for Open-end Funds Investors Web System The Authorities Data Warehouse SD&C business staff

8. 3. SD&C Shenzhen , for instance ●The Shenzhen Application Systems Monitoring System Office Automation System E-Vouchers Management System Batch Processing System(mainboard) Statistics System Batch Processing System(Third board) Real-time Account Opening System Data Communication System (D-COM/IST—Integrated Settlement Terminal ; TCP/IP) Participants、Shenzhen Stock Exchange、 The SD&C headquarter、SD&C Shanghai Branch The SD&C Headquarter 、SD&C Shanghai Branch

9. 3. SD&C Shenzhen , for instance(Continued) ●The Shenzhen Application Systems (in more detail) • Batch Processing System(mainboard and 3rd board) : the centralized system respectively for clearing and settlement of all securities listed in Shenzhen Market and those delisted securities • Statistics System: for storage of business data in history and providing functions such as query、statistics and analysis and so on. • Data Communication System:D-COM is an integrated communication system for participants, IST is an application terminal built on D-COM.(main functions:real-time account opening、B share Communication、Real-time non-trade businesses、Settlement data、Capital transfering) And some settlement data are dispatched by SSSCC directly. • Office Automation System: to realize interior office automation as well as work-flow with the headquarter or Shanghai Branch • Monitoring System: to monitor hardware infrastructure and application systems to prevent system risks • In addition,the Backup System for Emergency: to make sure smooth running of production systems to support core businesses in case of emergency .

10. 4. SD&C’s Linkage with others ●with Stock Exchanges • Clearing and Settlement Systems of SD&C Shenzhen Branch and Shanghai Branch receive trading data from the trading systems in Shenzhen Stock Exchange and Shanghai Exchange respectively • SD&C transfers risk monitoring data to Stock Exchanges for real-time monitoring. E.g. short-selling is prohibited. ●with participants • After post-trade processing , SD&C will transfer clearing and settlement data to participants , e.g. brokers（including brokers in Hongkong,B shares）、funds、banks etc.

11. 4. SD&C’s Linkage with others (Continued） ●Web connection • Investors 、security issuers、participants can access certain information through the Web Systems ●for surveillance • Data warehouse system provides surveillance data for the authorities • ●TA connection • The Transfer Agency system(for open-end funds) in Beijing interconnect with Funds , banks and security brokers • ●Iner-connect within SD&C • The headquarter、Shenzhen Branch and Shanghai Branch inter-connect with each other for certain business data transfer and common office automation flows

12. 5. CSD linkage status quo • ● No deep linkage between SD&C Shanghai and SD&C Shenzhen • The two branches act as separate CSD for each market , in fact • In the past ,cooperated on certain businesses，such as IPO according to market values. • Broker’s money for settlement can be transferred between each other • ● No much cross-border trading currently • Only B-share for cross-border brokers and investors in the great China area. • Some new products such as cross-border ETFs are under researching • ● No cross-border linkage between CSDS

13. 6、Future Landscapes ●To constructAdvanced Clearing Technology System accomodating different markets at home • Support all functions of Shanghai、 Shenzhen and Beijing Systems • Support all functions of the new generation trading system of SSE and SZSE • Fulfill new business rules on stock markets of China in the future • Accomodating international standards • Complete risk management system • Adopt mainstream technical architecture

14. 4、Future Landscapes(Continued) • Support derivatives • Support loan of securities • Providing enhanced service for participants and investors • Support clearing and settlement of ex-exchange securities • Support direct or indirect possessing of securities • Comparatively independent registration and depository system • Support flexible accounts • Support multi-market、multi-currency and cross-border trading

15. 4、Future Landscapes(Continued) • Support a variety of clearing and settlement style, eg. Real-time or multi- batch processing,net or non-net etc. • Interconnect with international counterparts ● Or strengthening inter-linkage and cooperation between the Shanghai and Shenzhen markets • Strengthen broker’s money usage efficiency between different markets • Realizing mutual listing maybe

16. 4、Future Landscapes(Continued) ● Strengthening inter-linkage between SD&C CSD and China Government Securities Depositary Trust and Clearing Co.,Ltd • To facilitate transferring of government bonds between the two corporations

17. 4、Future Landscapes(Continued) ● Researching how to strengthening linkage and cooperation between the mainland China markets and Hong Kong、Southeast-asia markets • Mechanics of mutual linkage , the roles and architecture of Stock exchanges、CSDs、Clearing houses • Legal basement differences , different systems and definition • Difference of depository models , direct or indirect holding • Difference of Settlement cycles, T+1,T+2 or otherwise • International standards and data transfer protocols，etc.

18. Thanks 谢 谢！