hae-il jang managing director korea securities depository

We bridge Asia and the rest of the world as Global Partner with internationally compatible investment services.

Korea Securities Depository

Hae-Il Jang Managing Director


KSD’s Global Custody Services



KSD Overview

Central Securities Depository of Korea

Founded in 1974 under the Commercial Code and transformed in 1994 under the Securities & Exchange Act

59 shareholders including KRX, securities companies, banks, etc and 1,067 participants including securities companies, banks, insurance companies, etc. (Dec. 31, 2010)

Supervised by Ministry of Strategy & Finance, Financial Services Commission (FSC), and Financial Supervisory Service (FSS)

※ Participants of KSD

43%48%

55%61%

69%

57%

52%

45%

39%

31%

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010

No. & ratio of Domestic Participants

No. & ratio of Foreign Participants



KSD Overview

Core Infrastructure of the Capital MarketCore Infrastructure of the Capital Market

Deposit & Settlement Services Primary

Market Services

Primary Market

ServicesAsset

Management Support

Derivatives Market

Services

International Deposit & Settlement

International Deposit & Settlement

Low Cost ㆍ High Efficiency Global Standard

• Securities Deposit

• Securities Settlement

• Entitlements

Processing

• Transfer Agent

Services

• Bond Registration

Service

• FundNet Service

(deposit, establishment,

redemption, settlement)

• Fund Servicing

(calculate, disclose NAV)

• SLB Intermediary

• Repo Services

• Secured Call

Management

• Collateral Management

for OTC transaction

• Global Custody

Service

• Local Custody

Service

• KDR Depositary

• Custody for ADR

underlying shares



KDR DepositaryKDR DepositaryKDR DepositaryKDR Depositary

Custodian for ADR(GDR)Custodian for ADR(GDR)Underlying SharesUnderlying Shares

Custodian for ADR(GDR)Custodian for ADR(GDR)Underlying SharesUnderlying Shares

PrimaryPrimaryMarketMarketPrimaryPrimaryMarketMarket

Korean Korean CompaniesCompanies

Korean Korean CompaniesCompanies

국내증권시장국내증권시장국내증권시장국내증권시장KoreanKoreanMarketMarketKoreanKoreanMarketMarket

ForeignForeignCompaniesCompanies

ForeignForeignCompaniesCompanies

OverseasOverseasMarketMarket


Local Custody ServiceLocal Custody ServiceLocal Custody ServiceLocal Custody Service

Global Custody ServiceGlobal Custody ServiceGlobal Custody ServiceGlobal Custody Service

SecondarySecondaryMarketMarket

SecondarySecondaryMarketMarket

KoreanKoreanInvestorsInvestorsKoreanKorean

InvestorsInvestors

ForeignForeignInvestorsInvestorsForeignForeign

InvestorsInvestors국내증권시장국내증권시장국내증권시장국내증권시장KoreanKoreanMarketMarketKoreanKoreanMarketMarket

국내증권시장국내증권시장국내증권시장국내증권시장OverseasOverseasMarketMarket


One Single Gateway for Global Investment

KSD’s global services



GlobalCustodian

ICSD

CSD Linkage

Local Agent

DirectAccess

Multi CSDModel

Cross-border Securities Settlement Channel

6 Models for Cross-border

Securities Settlement

These models vary by “legislation structure”, “market practices for investment” and “openness for foreign financial organization”

6 Models for Cross-border Securities Settlement by BIS



Global custody service for domestic investors

Unique model that CSD provides global custody service by expanding the scope of its eligible securities from domestic securities to global securities

- cross-border custody, settlement and corporate action services over the 36 markets of

34 countries with 4 custodians for overseas investment by domestic investors

※KSD’s Custodian Euroclear Clearstream Citibank SSB Americas

ArgentinaCanadaChileMexicoUnited States

EuropeAustriaDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsNorwayPortugalSpainSwitzerlandUnited KingdomBelgiumIsraelSweden

ICSDsEuroclearClearstream

AsiaAustraliaChina(Shanghai)China(Shenzen)Hong KongIndonesiaJapanNew ZealandPhilippinesSingaporeThailandTaiwanVietnam

Africa &Mid EastUnited Arab EmiratesSouth Africa



5.9

12

6

8.5

4.9

9.7

12.5

12,69918,800

32,341

97,28389,722

144,797

118,674

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2004 2005 2006 2007 2008 2009 2010

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Settlement Amount (Bil, USD) Number of Settlements

(Bil., USD)

※ Cross-border settlement volume

Global custody service for domestic investors



STP in KSD's global custody service

Before STP

Clients KSD Custodian

SAFE Terminal

Manual operation for data transformation

Low efficiency, High risk

After STP

Clients

SAFE SWIFT

STP : Automatic transformation from original message into SWIFT message ⇒ No manual operations

High efficiency, Low risk

KSD Custodian

STP launched to reduce operational risks and inefficiency by automatic transformation (March 2006)



Disintermediation - Local custody service

KSD

Local CustodianLocal Custodian

Foreign InvestorForeign Investor

Global CustodianGlobal Custodian

Multi-tier structure

for foreign investors

DISINTERMEDIATIONby KSD’s

local custody service

KSD’s custody service (1998)

- custodian services: securities and cash account opening and management, settlement and balance report, etc.

- standing proxy services: exercise of voting right and dividend distribution, reports to the regulator, investment registration to FSS, etc.

Unique model that CSD functions as a local custodian by DISINTERMEDIATION to cross-border investment

- Direct access to CSD- Custody a/c as a participant’s a/c and legal ledger



Prerequisite conditions for custody service by CSD

- stipulation by laws or decrees for cross-border securities deposit and settlement business by account opening with foreign CSDs or foreign institutional organizations

Disintermediation - Local custody service

Advantages of KSD’s custody service

- direct access to CSD, custody a/c as a participant’s a/c and legal ledger

- precise corporate actions by CSD

- stable and firm legal basis as CSD

- reasonable fee

Weakness of KSD’s custody service

- non-commercial banking institution (cash management or FX not available directly)

- no global network

Overcoming the weakness:

- alliance with commercial bank for cash management and FX

Citi 23.1%SCB 25.4%

HSBC 36.0%Others 7.9%KSD 1.9%Samsung Se

2.7%

DB 3.0%

<Market share of local custody service>



CSD Linkage

Base of CSD linkage – Local custody service

Co-listing of Korean securities on Tokyo Stock Exchange

- Kodex200 ETF co-listed on KRX and TSE in November, 2007 - arbitrage trading between Korea and Japan - STP through SWIFT for migration (1 BUSINESS DAY)

KSD-JASDEC linkage Model

TSESelling Broker Buying Broker

JASDECJASDEC

KSD

JASDEC A/C

Custody agreementCustody

agreement

Application for listing

Selling ’ Buying

Data of trading

IssuerIssuer

JapanJapan

KoreaKorea Stocks issuing & deposit

(through brokers)

Notification of deposit (Migration)

Selling broker Buying broker



KSD’s Custody Service for Domestic Companies issuing ADR∙GDR(1994)

- For domestic companies that issue ADR or GDR

- Custody agreement

Bank of New York

Citibank N.A.

Deutsche Bank Trust Company

JP Morgan Chase

- Korean companies’ ADR & GDR: 45 issues for 39 companies

- Market share of KSD in Korea: 100%

Citibank,81.1%

JPMC,14.8%

DBTC,0.01%

BNY, 4%

※ Total custody share

Custody service for ADR∙GDR underlying shares



Advantages using KSD custody services for ADR∙GDR underlying shares

- book-entry issuance of DR underlying

shares

- direct participation in central deposit

system

- STP through SWIFT for DR conversion

and release(1~2 business days)

- corporate actions such as rights

exercising, tax withholding, etc. through

SWIFT

※ ADR∙GDR conversion and release

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2004 2005 2006 2007 2008 2009 2010

0

50

100

150

200

250

Conversion, case Release, case

Conversion, No. of Shares(Mil. Shares) Release, No. of Shares(Mil. Shares)

(Mil. Shares)(Mil. Shares)

1~2 business days for DR conversion and release

Custody service for ADR∙GDR underlying shares



KDR Depositary for foreign companies

Centralized securities depository and settlement system of Korea

☞ authorized to issue KDR pursuant to the Financial Investment Service and Capital

Market Act of Korea and its Enforcement Decree

CSD: securities deposit and settlement

Transfer Agent for issuance of foreign shares

Depositary for KDR issuance

CSD

KDRDeposi-

tary

TransferAgent

KSD

※ KSD’s functions at primary market




Current foreign candidates for KRX listing

- mostly Chinese and Japanese companies

- Cayman holding companies which have subsidiaries in mainland China

- U.S, Germany, Canadian companies also considering listing to Korean market

CompaniesEstablish

mentIssuing country

Foreign listing Migration Listing typeListing

schedule

3NOD Digital Cayman Korea Non-listing X Share Aug. 2007

Huafeng Group Holdings

Cayman Hong Kong Hong Kong O KDR Nov. 2007

Cowell E Holdings Cayman Korea Non-listing X Share Feb. 2008

16 more companies

JapanHong Kong

Cayman

KoreaJapan

Non-listingOX

Share or KDR -

※ Foreign Companies’ Listing to Korean Market(2010)




※ KDR Issuance Structure

KDR Distribution

KDR Distribution

KoreaOverseas

Issuance of Underlying Shares

Issuance of Underlying Shares

FSSFSS

Lead ManagerLead Manager SubscriptionHandling Co.SubscriptionHandling Co.

InvestorsInvestors

Issuing Co.Issuing Co.

CustodianCustodianKRXKRX

Securities ReportSecurities Report

Custody

Agreement

Custody

Agreement

Deposit Agreement

Deposit Agreement

Listing Application

Listing Application

Underwriting AgreementUnderwriting Agreement

Notification ofListing

Notification ofListing

Issuance of KDR

Issuance of KDR

KSDKDRDepositary(Primary Market)

KDRDepositary(Primary Market)

CSD (Secondary Market)

CSD (Secondary Market)



Expandability of CSD's role in global market

Unique global custody model by expanding its role from domestic securities to

global securities, overcoming the limits of a traditional CSD

Possibility and expandability of local custody service by CSD, implementing

Disintermediation

Fast and efficient CSD linkage model for the migration between the markets in

the case of co-listed companies in the form of shares

Depositary role of CSD in issuing DRs in domestic market as well as 4 major

Depositary banks



Annex 1. KSD SLB System



Annex 2. KSD Tri-Party Repo Service



Globalization of Fund Services

Annex 3. KSD FundNet Service

The first case in the world a CSD established STP for the entire back-office operations of the asset management market



Annex 4. Global ETF Market Trend

Global ETF market has grown steadily since its introduction as an alternative investment instrument in 1990, and Korean ETF market has also grown accordingly

Global ETFs Market Korean ETFs Market

0

400

800

1200

1600

2000

`98 `99 `00 `01 `02 `03 `04 `05 `06 `07 `08 `09 `10 `11.6

0

1000

2000

3000

4000

5000

(Million USD) (#)

0

20000

40000

60000

80000

100000

`02 `03 `04 `05 `06 `07 `08 `09 `10 `11.7

0

20

40

60

80

100

120

(Billion Won) (#)



Thank You

hae-il jang managing director korea securities depository

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