Changhee Lee Manager, Core technology Korea Exchange

AOSEF WorkshopIT Integration at KRX Changhee Lee Manager, Core technology Korea Exchange 12 November 2007

Agenda • Backgrounds • Current Status • Strategies • Architecture • Pilot Trading System • Next steps

Backgrounds • Worldwide trends • Listing exchanges by IPO • M&A of major exchanges • Alliances between exchanges • IT exporting exchanges • Increasing IT investment • Internal requirements • 3 markets consolidated • More transactions, shorter latency • One-stop service, STP

Current Status 2005 2006 2007 • IT strategies • Vision • Goals • IT Assessment • HR, Management • Improve revenue • Loadmap • IT systems • Benchmarking • Architectures • Define projects • Execution plan • Project Preparation • Scope definition • Requirements • RFP sent • PMO* setup • IT enhancement • Legacy upgrades • Project starts • Deriv. integrated • Pilot trading systems • Core technologies • Design for all • Functional Platform demos * Project Management Office

IT Vision & Objectives Achieve “IT competitive advantages” to build Global KRX KRX IT vision IT Objectives Cost efficiency Higher quality service Revenue diversification We need world-class IT systems Global KRX, premier capital market in Northeast Asia Customer Needs KRX vision IT is strategically critical factor in competition between capital markets Benchmarking Benchmarking

Integration Goals IT Objectives Goals of IT Integration Reducing transaction cost in IT investment & operation Cost Efficiency Flexible for wide range of products, regulations and services to support multiple markets Higher Quality Service More stable in market operation Competitive customer service for link, access, usage locally and globally Revenue Diversification Commercializing IT systems for diverse incomes

Strategical features Current analysis Strategies Redundant Systems • Single application, multiple instances Redundant Operation costs • 30% reducing costs within 5 years • Stay below current operation cost Long time for new products • New product within 3 month Late take-over • Application takeover within 1 minute • Site backup within 30 minutes Many access Long latency • STP • Shorter turnaround time Localized functionalities • International standard access • Multi-language and multi-currency

Architectural Features Architecture Features Integrated architecture • Less redundant / reusable applications • Cash and derivatives on single platform Service Oriented archi. • Fast reaction to business changes • Modularized blocks, replaceable Layered architecture • Less changing core business functions • More changing at interface, rules, presentations On-Demand • Reaction to IT needs • High available, high performance, high service IT channel service • Standard protocol to participants • Single point of access

In-House Development Consider In-House Package Strategic Fitness • Easy commercializing • More IT competitive • Short term • Global rules/regulations Resource • More human resources • More development cost • Use verified system • Lest cost • Needs customizing Operation • Easier modification • Time to market • More communication • Less time to market Competiveness • Contain own knowledge • Technology dependant

Success Factors Categories Success factors Business Strategy Alignment • IT positions adjustment in KRX • Business-IT intimate relationship • IT role as a profit center • Multi-purpose oriented integration • Enhanced core technology • Collaboration with competent partners System Integration Teaming / Competency • Task force development teams, maintenance teams • More competent IT staffs Business participation • Business Analysis groups • Business staffs joining and co-works • Continuous process innovation

Expectations Figures Quality > 30% cost reduction Operation/Investment • Increase Customer • Value • trading cost ↓ • latency time ↓ • service ↑ • Increase • Shareholders • Value • stock price ↑ • gains↑ • dividend↑ 2-3 IT Exporting 20 % decreasing workload Business Strategy Coherent

Organizational structure

Integrated Architecture Current Integrated • Similar functions, different applications • Redundant operations • Several architectures, platforms • Single application • Centralized/single operation • Same platform/architecture Main board Surveil G/W Trading Clearing Market Data Listing KOSDAQ Integrated System Surveil G/W Trading Clearing Market Data Listing Surveil G/W Trading Clearing Market Data Listing Index Deriv. Surveil G/W Trading Clearing Market Data Listing Commodity Deriv. Surveil G/W Trading Clearing Market Data Listing

Layered components • Server programming language : mainly C • Overall Methodology : Information Engineering M. Application Message Middleware Database • Message handler : Tibco EMS, Rendezvous • Database : Oracle, DB2, Sybase • UNIX Operating System • Mid-range from IBM, HP, Sun Hardware

Layered architecture Application Business Extension • Exchange specific functionality Business Core • Common business functionality • Common feature for business environments Functional Framework Technical Framework • Technical operation for system environments Backplane • Transaction & message processing Middleware

Service Models

Tiered model Access tier Middle tier Business tier Brokers Point-to-Point Multi-casting 정보분배 Matcher Info. Dissemination Market Access - Gateway - Security - Authenticate Infor vendor Clearing Other services Bank Internal User Framework Framework Integrated Infrastructure • Access tier : Provides single access point to participants, openness & flexibility to various kind of channels, protocols and message interfaces • Middle tier : Guarantees reliable & high-speed messaging, efficient routing & multi-casting, absolute data integrity & fail-over in terms of middleware • Business tier : Provides a level of abstraction over components, packages & system to make up well-structured business application. Especially, common functional features & technical operations from whole application was encapsulated by framework.

Pilot Trading System Pilot Trading System Newly designed matching algorithm Final Integrated system Coding : 3mth Testing : 1mth M/M : 10 Reference data service Performance Capability Quality Of Service Trade-off Framework based implementation Stability, Efficiency, Flexibility Open architecture oriented Unix environment

PTS – functions implemented Gateway Message Router Matching Engine Post-trade Market Data events Market control Market Control Order broker Receive order Market operator Accept order Order acknowledgement Order queue for serialization Matcher Orders & trades Order book Trade information to broker/clearing member Return trades Trade information

PTS results - performance Category PTS Current systems Single instrument • 120 ~ 200 transactions/sec • 40 ~ 80 tps 2.5 times • 700~900 tps Total • 2,000 transactions/sec 2.5 times • response : N/A • turnaround : 0.15~2 sec Latency • Response : 0.001 sec • turn around : 0.05 sec 3 times

PTS results - failover Category Results Technology System failure • < 30 seconds • HA solution • Disk Clustering Process failure • < 1 second • Message middleware takeover mechanism Database failure • < 90 seconds • Oracle RAC (Real Application Clustering)

Next steps 2008 2009 2010 • IT strategies – intensifying strategy coherency – improving management process – commercialization plans • IT systems – open listing /surveillance systems • Business parts – updating rules • IT strategies – continuous innovation environment – level-up management process IT systems – open trading/clearing systems – commercial packaging • Business part – marketing planning – business analysis team

Thank you!

Changhee Lee Manager, Core technology Korea Exchange