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Cross-border Linkage of KSD

Cross-border Linkage of KSD. December 6, 2002 Almaty, Kazakhstan James J.W. KIM. Topics. Changing Global Trends of Cross-border Settlements Cross-border Linkage of KSD For domestic & foreign investors Cross-border Clearing Network For domestic & foreign companies

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Cross-border Linkage of KSD

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  1. Cross-border Linkage of KSD December 6, 2002 Almaty, Kazakhstan James J.W. KIM

  2. Topics • Changing Global Trends of Cross-border Settlements • Cross-border Linkage of KSD • For domestic & foreign investors • Cross-border Clearing Network • For domestic & foreign companies • Custodian for the underlying shares of ADR & GDR • Depository for Korean DR • Cross-Listing of the original shares

  3. Client Needs Deregulation IT Revolution Liberalization of capital market Global Trends in International Financial Markets • Increase in cross-border investments due to deregulation • Privatization of pension funds • T+1 settlement • Preference for high risk & high return assets • Increasing demand for long-term portfolios • Demand for anonymous transactions Cross-border Linkage by CSDs • Competition and M&A between exchanges • Linkage between financial institutions • Increase in international portfolios • U.S.: 59 billion USD • Europe: 56 billion EUR • Development of Information Technology • ATS, ECN • Standardization of trade and settlement system => STP

  4. Issuer Decentralized International Securities Custody / Settlement Model Client ICSD CSD Registrar Global Custodian Sub-custodian Domestic CSD Issuer Integrated CSD Linkage Model Client Local CSD Registrar ICSD New Trends in Cross-border Securities Settlement Model

  5. Easy Access to foreign clearing / settlement system Cost-down through the economies of scale Minimization of settlement risks Domestic CSD Issuer Client Local CSD Registrar ICSD Advantages of CSD Linkage Integrated CSD Linkage Model

  6. Foreign Securities Market Foreign Securities Market Korean Securities Market Korean Securities Market Domestic Investors Domestic Issuing Co. Foreign Issuing Co. Foreign Investors Cross-border linkage of KSD Single Gateway

  7. Cross-border Settlement Service for Domestic Investors • Global Custody - General Investors : Mandatory - Institutional Investors : Optional • Cross-border Clearing Network (CCN) - 42 Countries covered - Sub-Custodian: Euroclear, Clearstream Bank, State Street Bank, BNY, BNYC - Communication: SAFE21, SWIFT, Sub-Custodian’s proprietary S/W

  8. NYSE / NASDAQ / AMEX Domestic Securities co. American Securities co. BNYCI Cross-border Settlement Service for Domestic Investors • Home Trading System for American shares (April 2002) => STP Settlement Order / Trade Confirmation Buy/Sell Order Buy/Sell Order Domestic Investors Trust of Clearing / Settlement Settlement Instruction / Confirmation Settlement Instruction / Confirmation Settlement NSCC

  9. Cross-border Settlement Service for Domestic Investors In mil. USD

  10. Core Services Value Added Services Communication Custody Service for Foreign Investors • Direct participation: Disintermediation • Total Assets under Custody (Sep. 30, 2002) • Equity : 34 million shares for 7 clients • Securities Custody • Cash Management • Linked with FX banks • Standing Proxy • Securities Lending & • Borrowing • Tri-party Repo • FAX • SWIFT • Telex

  11. Cross-border Linkage for Domestic & Foreign Companies • Custodian Services for the Underlying Shares of ADR & GDR • Depository Services for Korean DR • Cross-Listing of the Original Shares

  12. Custodian Services for the Underlying Shares of ADR & GDR (Million Shares) • For domestic companies which issue ADR or GDR • Custody Agreement • Bank of New York • Citibank N.A. • Deutsche Bank Trust Company • JP Morgan Chase • Korean Companies issued ADR & GDR: 41 issues • Market Share of KSD in Korea: 97% (40 issues) • Total Custody Shares: 475 million shares

  13. Custodian Services for the Underlying Shares of ADR & GDR • Performance of DR business by KSD

  14. Depository Services for Korean DR • For foreign companies which issue Korean DR • KSD acts as an Issuing Organization and Depository under the regulation of Financial Supervisory Commission (Regulation on Securities Issuance and Disclosure) & the regulation of KSD (Regulation on KDR Issuance of KSD) • Mandatory designation by Issuing Companies • Agreements • Deposit Agreement with Issuing Companies • Custody Agreement with Foreign Custodians

  15. Depository Services for Korean DR Securities Report <Overseas> <Domestic> FSC Lead Manager Underwriting Agmt. etc Underwriters Issuer Ordinary Shares Listing DR Subscription & Delivery KSE DR Issue Custodian Deposit Agmt Investors Custody Agmt.

  16. Structures of Regulations on KDR Securities & Exchange Act Foreign Exchange Act Enforcement Decree & Ordinance Enforcement Decree & Ordinance Regulation on Securities Issuance And Disclosure Listing Rules of KSE Regulation on KDR Issue of KSD Foreign Exchange Rules FX Issue, Disclosure & Listing of KDR

  17. Cross-Listing of the original Shares • KSD-JSSC Linkage (December, 2001) (KOREA) (JAPAN) Listing Application Issuing Company TSE Clearing & Settlement of Listed Stocks Stock Deposit JSSC Notification of Deposit Participant Participant Participant Participant Participant JSSC

  18. Conclusion • Supporting improvement of the convenience of the domestic and foreign clients • Reduction of transaction costs Continuous efforts by CSD Successful Establishment of Cross- Border Linkage Formation of laws and regulations supporting cross-border linkage by regulatory bodies

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