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( I) Introduction

AMS/3 Media Workshop (I) Introduction (II) System Overview (III) Functions & Capacity (IV) Preparation for Rollout (V) Contingency Arrangements (VI) FAQ (VII) Questions & Answers. ( I) Introduction. Introduction.

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( I) Introduction

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  1. AMS/3 Media Workshop(I) Introduction(II) System Overview (III) Functions & Capacity (IV) Preparation for Rollout(V) Contingency Arrangements(VI) FAQ(VII) Questions & Answers - 1 -

  2. (I) Introduction - 2 -

  3. Introduction • AMS/3 provides a reliable trading system for investors, Exchange Participants and market participants. • AMS/3 provides a trading infrastructure which connects investors, Exchange Participants and the central markets through eCommerce facilities. • AMS/3 can bring benefits and business opportunities to the Hong Kong securities market. - 3 -

  4. Benefits • After its full implementation,AMS/3 will bring the following benefits to investors, Exchange Participants and the market. • To Investors • Enable investors to have access to the central market through additional channels via Exchange Participants • Place trading requests anywhere and anytime via Internet and mobile phone • Allow efficient access to trading request processing status - 4 -

  5. Benefits To Exchange Participants • Increase Exchange Participants’ order throughput per trading right • Allow improvement of operational efficiency • reduce manual work to handle investors’ trading requests, answering enquiries about order status • better order management for traders - 5 -

  6. Benefits • To Hong Kong • A market accessible by global investors • contribute to the globalisation of Hong Kong securities market • strengthen Hong Kong’s position as a major international financial centre - 6 -

  7. Benefits • To Hong Kong • Improve the Hong Kong securities market’s competitiveness • higher market accessibility and trading efficiency will help attract more market participation • provide market infrastructure of higher trading capacity • allow multiple-market trading platform and flexible trading hours • set the path for the future implementation of straight- through processing - 7 -

  8. (II) System Overview - 8 -

  9. AMS/3 Overview AMS/3 Trading System consists of five major components - Host, Trading Terminal, Multi-Workstation System (MWS), Open Gateway (OG) and Order Routing System (ORS). Broker Trading Facilities Investor Access Channels Terminal Approach AMS/3 Trading Host Frame Relay Trading Network Order Routing System PNS Gateway Approach Internet Trading Terminals (On-floor) Open Gateway (OG) Open Gateway (OG) Multi- workstation System (MWS) Mobile Phone Internet Broker Supplied System (BSS) Trading Terminals (Off-floor) Terminal OG/MWS OG/BSS - 9 -

  10. System Overview • Trading Terminals - AMS/3 trading terminals are similar to the existing on-floor and off-floor terminals in terms of operation but they offer new functionalities • Open Gateway (OG) - an electronic linkage between Exchange Participants and the Trading Host, which enables Exchange Participants to capture electronic trading requests from investors via Broker Supplied Systems and Order Routing System. One trading right is entitled to one OG - 10 -

  11. System Overview • Multi-Workstation System (MWS) - a new Exchange Participants’ trading front end with expanded functionality. A maximum of eight terminals can be connected to a MWS server. One trading right is entitled to one MWS server • Broker Supplied Systems (BSS) - trading systems developed by Exchange Participants themselves or by commercial vendors to capture electronic trading requests - 11 -

  12. System Overview • Order Routing System (ORS) - enables investors to place trading requests and enquire about trading results through the Internet and other eChannels. The trading requests will be automatically routed to Exchange Participants for approval and submission to the market for matching and trade generation • Proprietary Network System (PNS) - an alternative investor access channel developed by service providers that collects trading requests from third party networks - 12 -

  13. Existing Trading Process AMS/3 Trading Host Order Capture Order Input Investor Order Approval Broker Office AMS/3 Channels AMS/3 Trading Host PNS Channels Electronic Order Capture, Order Distribution, Order Approval Brokers’ Proprietary Channels Broker Office New Trading Process - 13 -

  14. (III) Functions & Capacity - 14 -

  15. Order types Limit Order - By phone/in person - Over the Internet or by mobile phone By phone/in person Trading Request Comparison of AMS/3 and AMS/2 Functionalities AMS/2 AMS/3 Single Market Multiple Market Market Model Automatching - Automatching - Single price auction - Allow for other new trading methods Trading Method - Limit order - Enhanced limit order - At auction order - Others - 15 -

  16. Comparison of AMS/3 and AMS/2 Functionalities AMS/2 AMS/3 - Done by Exchange Participants - Investors can initiate through Internet or mobile phone Order Modification and Order Status Enquiry Done by Exchange Participants - Done by Exchange Participants - Sent to investors automatically by email, pager or mobile phone Done by Exchange Participants Order Confirmation Straight-through Processing Trading platform established to set the path for the future implementation of straight-through processing N/A - 16 -

  17. New Functionalities • Market Model • Multiple Market Models • supports concurrent and continuous trading in multiple markets • each market having its own products, timetable, trading method and trading rules - 17 -

  18. New Functionalities • Trading Methods • Automatching • New trading methods to be introduced according to market needs • Single Price Auction (mainly to support high volume order input during market pre-opening or first day of an IPO) • Order input • Auction matching • Others - 18 -

  19. New Functionalities • New Order Types • Enhanced Limit Order • allows matching in up to 2 price queues, where the price of the trade generated is at or better than the limit price • unfilled orders after matching will be converted to limit orders at the input limit price) - 19 -

  20. New Order Type - 20 -

  21. New Functionalities • New Order Types to be introduced according to market needs • At-Auction Order • a market order which can be input during the auction period. It will enjoy a higher auction matching priority • unfilled at-auction orders will be cancelled after auction matching • Others - 21 -

  22. Component AMS/3 Capacity AMS/2 Capacity (2) Network - Host End Total data transmission throughput 1,600Kbps Total data transmission throughput 18,000Kbps (3) Network - Broker End 9.6Kbps per trading right 12Kbps per trading right Comparison of AMS/3 and AMS/2 System Capacity (1) Host Handle 200 transactions per second (2.88 million transactions per day based on 4 hours of trading) Handle 75 transactions per second - 22 -

  23. AMS/2 Capacity N/A N/A 2.5 seconds per order per terminal (Exchange Participants may have second and third terminals) N/A Comparison of AMS/3 and AMS/2 System Capacity AMS/3 Capacity Component (4) Open Gateway (OG) Hardware capacity: 12 transactions per second (5) Multi-Workstation System* (MWS) Max. 12 transactions per second and 6 transactions per second if risk management function is on (6) Order Throughput in addition to first terminal 1 second per order (7) Order Routing System (ORS) 40 transactions per second *8 workstations can be connected to a MWS server. - 23 -

  24. Throttle Rate • Throttle rate is the number of orders that can be submitted to the Host System from OG within a specific period of time. • Rationales of adopting throttle control : • As a flood control mechanism which is common to systems of this type, to ensure fair and orderly operation of the market • To ensure OG-Host traffic flow will not exceed the planned capacity of AMS/3 • As a reference of SEHK to plan, measure and manage trading capacity and upgrade activities - 24 -

  25. Throttle Rate • The throttle rate under AMS/3 is defined as 1 second per order per trading right. The order throughput of AMS/2 is 2.5 seconds per terminal. Some Exchange Participants may have installed two off-floor trading terminals (second and third terminals) per trading right. - 25 -

  26. Scalability Paths • AMS/3 Host • AMS/3 Hostsystem isdesigned to be scalable, meaning that the system capacity could be expanded by adding hardware like CPU, memory, disc, etc and the software reconfiguration of AMS/3. • AMS/3 Network • If market needs warrant, AMS/3 Network expansion involves addition of network hardware and reconfiguration of routers and Internet Protocol addresses for the entire network. - 26 -

  27. Scalability Paths • ORS • ORS is designed to be scalable to support future transaction growth. Its capacity can be further expanded by adding ORS server and security hardwares. • OG & MWS • OG vertical scalability is currently limited by the security hardware (for message encryption / decryption) of 12 orders per second. Upgrade direction will either be installing new encryption devices or, if technically feasible, to adopt software encryption mechanism. - 27 -

  28. New Frame- Relay Trading Network System Security In order to structurally handle system security, AMS/3 has been organised into three different zones each having its specific challenges and security measures. AMS/3 Host Security Zone Host 1st Terminal at Trading Floor Internet ORS/PNS 2nd Terminal at Member Offices Mobile Phone OG OG ORS Security Zone MWS BSS Member System Security Zone - 28 -

  29. System Security • Various tools are employed to ensure the security of AMS/3’s various components. These include: • Firewall • Anti-virus System • Smart Card • Public Key Infrastructure (e-certificate) • Intrusion Detective System - 29 -

  30. (IV) Preparation for Rollout - 30 -

  31. Before AMS/3 market rehearsals, various testing activities have been performed to ensure readiness at individual component, system and operational levels. These items were covered as follows : • Functional Test • Volume Stress Test • Fail-over and Recovery Test • Security and Operation Control Test User Acceptance Test Production Readiness Test AMS/3 Day-0 Rehearsal Programme • Production Environment Shakedown • Production Fallback (e.g. Fallback to Backup Site ) • Connectivity Test • Network Operations Setup • Market Contingency Plan Rehearsal (e.g. Fallback to AMS/2) - 31 -

  32. Production Readiness Test • Production readiness tests had been conducted in the past 10 consecutive weeks. • 10 pilot MWS brokers, 41 pilot BSS brokers, selected terminal brokers and all information vendors participated. • Themes of the tests include: production environment shakedown, production fallback, connectivity, network operations setup, fallback to AMS/2, and volume stress, etc. • Technical issues encountered during the fallback test from primary site to backup site. The issues had been resolved. - 32 -

  33. Preparation for Rollout A series of broker activities were held to familiarise brokers with AMS/3 - 33 -

  34. Preparation for Rollout • The Exchange’s various initiatives to get the market prepared for AMS/3 rollout: • Raising public/market awareness • market consultation before system development • AMS/3 web corner • press release and presentation to news media • AMS/3 newsletter • other investor education initiatives - 34 -

  35. Preparation for Rollout • Support for Exchange Participants • seminars • product brochures • site visits • terminal training /computer based training - 35 -

  36. Preparation for Rollout • Support for Information Vendors to facilitate their connectivity to AMS/3 • Support for BSS Suppliers • release technical specifications to support their in-house system development • briefing sessions, including technical briefings after production readiness tests to share experience for ensuring that their systems are capable for handling high throughput • Help desk to handle telephone and email enquiries - 36 -

  37. Market Rehearsals • Four consecutive weeks from 2 September - 23 September • Aim to familiarise all Exchange Participants (including 10 pilot MWS and 41 pilot BSS) with new trading environment • New functionalities • Operation of Trading Terminals, MWS and OG • Volume stress (3 times of historical peak) • AMS/3-to-AMS/2 fallback - 37 -

  38. Details of the Market Rehearsal (MR) Scenarios and Calendar are as follows: - 38 -

  39. Market Rehearsals General • AMS/3 terminal operation rehearsal following completion of terminal training for 1,800 traders • Compulsory participation and reporting of rehearsal status by Exchange Participants • Real-life trading procedure - 39 -

  40. Market Rehearsals General • Briefings will be provided to all Exchange Participants on Market Rehearsal arrangements • Rehearsal programme will be closely monitored and reviewed by the Exchange and the SFC, and Exchange Participants are requested to participate in compliance with stated requirements and guidelines • Rehearsal programme consists of Normal Trading, Volume Stress, Fallback to AMS/3 backup site, and Fallback to AMS/2 - 40 -

  41. Market Rehearsals Normal Trading Rehearsal • Repeated rehearsals for each session for all on-floor and off-floor terminal users • Script-free • To ensure a “real-life” practice, Exchange Participants have to observe a set of guidelines (For example: order quantity NOT greater than 10 board lots, and order price should be within +/- 32 spreads against opening price). The guidelines are not related to system capacity. Exchange Participants are requested to follow the guidelines or else will be suspended from the rehearsal - 41 -

  42. Market Rehearsals Normal Trading Rehearsal • Include normal administrative activities (For example: new listings, suspension of trading for individual stocks, and trading and issuers’ news announcements) - 42 -

  43. Market Rehearsals Volume Stress Rehearsal • To create a “real-life” testing environment, two runs of two 45 minutes sessions of volume stress test at 3 times historical peak for ~ 350,000 orders and 250,000 trades per each 45 minutes session • Exchange Participants are required to key in 3 orders per minute using off-floor terminals, and on-floor terminals will be reserved for computer-assisted generation of traffic to meet the target stress - 43 -

  44. Market Rehearsals Fallback Rehearsal • AMS/3 primary site to AMS/3 backup site (normal contingency fallback) • AMS/3 to AMS/2 ("3 to 2" fall back, special contingency fallback for the first two weeks after Day 0) - 44 -

  45. Day 0 (First day of AMS/3 implementation) • The Exchange will determine if other readiness activities will be required after four weeks of market rehearsals • Day 0 is subject to satisfactory conclusion of Market Rehearsals which involve all Exchange Participants • AMS/3 will operate in terminal mode on Day 0. Other functions and open accessibility will be activated thereafter in phases • The Exchange will inform the market of the Day 0 when its assessment shows the market is ready - 45 -

  46. AMS/3 Rollout Schedule 3rd Batch Rollout Pilot Rollout 10 sets of MWS terminals Pilot BSS Rollout 1st Batch Rollout 50 MWS, ~30 BSS 2nd Batch Rollout 50 MWS, ~40 BSS 10 MWS 50 MWS xx MWS 50 MWS Terminals 30~40 BSS 30 BSS xx BSS 40 BSS Day 0 + 3 weeks ……… Month 3 Month 2 Day 0 Month 1 DAY 0 DAY 0 + 3 weeks DAY 0 + 2 month DAY 0 + 3 month • Terminal Delivery • MWS Multi- Terminal Mode Delivery plus OG Delivery • Activate 30-40 BSS plus OG Delivery • Online trading provided by the 30-40 BSS • Rollout depending on market needs • Auction Trading • New Order Types - Enhanced Limit Order • Rollout depending on market needs • ORS Internet Delivery • ORS Mobile Delivery - 46 -

  47. (V) Contingency Arrangements - 47 -

  48. Contingency Arrangements After Day 0 • Adopting a prudent approach, the Exchange has developed a complete set of contingency arrangements to cater for emergency system situation. • AMS/3-to-AMS/3 Fallback (Normal Contingency) • from AMS/3 primary site to AMS/3 backup site to prepare for AMS/3 hardware failure • AMS/3-to-AMS/2 Fallback (Special Contingency) • AMS/2 will be in standby mode during the first 2 weeks after the AMS/3 Day 0. Trading will be reverted to AMS/2 in case of emergency - 48 -

  49. Contingency Arrangements After Day 0 • 3-to-3 Fallback (similar to 2-to-2 Fallback) • Fallback will be required if there are environmental failures, such as fire and major hardware failure at the AMS/3 primary site • Trading and stock data at the backup site are synchronised with the primary site • Fallback will normally take 1 to 1.5 hours, and reasonable time will be allowed to inform the market • The last nominal prices will be used as initial nominal price when trading resumes - 49 -

  50. Contingency Arrangements After Day 0 • 3-to-2 Fallback • Scenario 1(AMS/3 fails before or during the morning session) • trading will resume in AMS/2 in the afternoon session • the previous day closing prices of securities will become theinitial nominal prices at the restart of AMS/2 in the afternoon session - 50 -

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