Hong Kong Securities Clearing Company LimitedHong Kong Securities Clearing Company Limited

June 2008 - BaliJune 2008 - Bali

1010thth ACG Cross-Training Seminar ACG Cross-Training Seminar

CSD LinkagesCSD Linkages

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AgendaAgenda

• CSD Linkages of HKSCC- Depository Trust Corporation (DTC) of the U.S.- Central Moneymarkets Unit (CMU)

• Pilot Programme

• Cross Border Securities Settlement

• Cross System Settlement

• Depository & Nominee Services (DNS)

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CSD Linkages - 1CSD Linkages - 1

Depository Trust Corporation (DTC) of the U.S.

• The US-based depository that provides clearing and settlement services to Nasdaq

• HKSCC maintains an account with DTC to facilitate the Free-of-payment (FOP) cross-border securities transfer of the Pilot Programme Securities traded in HK and the US and to hold on behalf of its participants shareholdings of these securities

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CSD Linkages - 2CSD Linkages - 2

Central Moneymarkets Unit (CMU)

• Hong Kong Monetary Authority (HKMA) established the Central Moneymarkets Unit (CMU) to provide a computerised clearing and settlement facility for Hong Kong debt securities (including Exchange Fund Notes)

• HKSCC is a Recognized Dealer and maintains an account with CMU to facilitate the Free-of-payment (FOP) cross system transfer of the debt securities traded between a CMU member of HKMA and a CCASS participant, such as Exchange Fund Notes (EFN) and to hold the shareholdings of EFN on behalf of the participants

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Pilot Programme - 1Pilot Programme - 1

• Launched in May 2000

• Nine issues of global securities listed on Nasdaq and the AMEX

• Admitted to the Stock Exchange of Hong Kong (SEHK) for trading only

• Accepted by Hong Kong Securities Clearing Company Limited (HKSCC) for clearing and settlement at Central Clearing and Settlement System (CCASS)

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Pilot Programme - 2Pilot Programme - 2

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Pilot Programme - 3Pilot Programme - 3

• HKSCC Rules for clearing, settlement, custodian and nominee services apply

• Cross Border Transfer to facilitate the selling/purchasing of Pilot Programme Securities in HK

• Settlement is achieved by adjusting the two clearing system’s book-entry record

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HKHK USUS

1. CCASS Participant submits Cross-border Transfer Instruction Form (Receive)

HKSCC DTC 2. DTC Participant inputs deliver instruction

5. Credits the account of the CCASS Participant

3. Debits the account of DTC Participant and credits HKSCC’s account

4. HKSCC checks the Activity Report to confirm the receipt of shares

Cross Border Securities Settlement - 1Cross Border Securities Settlement - 1

Selling of Pilot Programme Securities in HK

6. Settlement

__________________________

__________________________

Receive

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HKHK USUS

1. CCASS Participant submits Cross-border Transfer Instruction Form (Deliver)

HKSCC

3. Inputs Deliver Instruction to DTC

DTC

2. Debits the account of the CCASS Participant

4. Debits HKSCC’s account and credits the account of the DTC Participant5. HKSCC checks

Activity Report to confirm the delivery

Purchase of Pilot Programme Securities in HK

Cross Border Securities Settlement - 2Cross Border Securities Settlement - 2

Delivery

____________________________________________________________

Delivery

____________________________________________________________

Activity Report______________________

_________

Activity Report______________________

_________

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Cross System Settlement - 1Cross System Settlement - 1

• To facilitate cross system settlement, a linkage is established to allow FOP transfers between a CMU member of HKMA and a CCASS participant

• The CMU Terminal (CMT) is installed in CCASS Depository to facilitate stock transfer instruction

• The communications between HKSCC and CMU are mainly through CMU Terminal

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Cross System Settlement - 2Cross System Settlement - 2

Selling of the Exchange Fund Notes (EFN)

1. CCASS Participants submits Transfer Instruction Form (Receive)

Receive________________________________

Receive________________________________

2. Inputs receive instruction via CMT

CMU Terminal (CMT)

HKSCC3. Corresponding CMU member inputs deliver instruction via CMT

4. Matched

5. Completion Advice

(Debits the account of the CMU member and credits HKSCC’s account.

6. HKSCC confirms the transfer via CMT

7. Credits the account of the CCASS Participant

8. Settlement

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Cross System Settlement - 3Cross System Settlement - 3

Purchase of the Exchange Fund Notes (EFN)

1. CCASS Participants submits Transfer Instruction Form (Deliver)

Delivery________________________________

Delivery________________________________

3. Inputs deliver instruction via CMT

CMU Terminal (CMT)

HKSCC 4. Corresponding CMU member inputs receive instruction via CMT

5. Matched

6. Completion Advice(Debits HKSCC’s account and credits the account of the CMU member)

7. HKSCC confirms the transfer via CMT

2. Debits the account of the CCASS Participant

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Depository & Nominee Services Depository & Nominee Services (DNS) - 1(DNS) - 1

Deposit & Withdrawal ServicesDeposit & Withdrawal Services

Pilot Programme SecuritiesPilot Programme Securities

• HKSCC has an account with DTC to enable HKSCC to hold the shareholdings on behalf of its participants

• Physical deposit of the Pilot Programme Securities with the CCASS Depository is not available

• Participants are required to arrange with a person who has an account with the DTC and then transfer to HKSCC’s account with the DTC via Cross-Border Transfer Instruction

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Depository & Nominee Services Depository & Nominee Services (DNS) - 2(DNS) - 2

• Participants who wish to withdraw the Pilot Programme Securities are required to submit withdrawal forms to HKSCC• for processing

• The certificate is registered in the name of a beneficiary

Exchange Fund Notes (EFN)Exchange Fund Notes (EFN)

• Exchange Fund Notes are issued in scripless form, no physical depository service is provided by HKSCC

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Depository & Nominee Services Depository & Nominee Services (DNS) - 3(DNS) - 3

Major types of nominee services are offered:

Pilot Programme SecuritiesPilot Programme Securities

• Cash Dividend• Corporate Voting

Exchange Fund Notes (EFN)Exchange Fund Notes (EFN)

• Periodic Interest Payment• Redemption Upon Maturity• Corporate Voting (subject to constitutive document)

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• Cash DividendCash Dividend

– DTC will determine the entitlements of dividend payment of HKSCC under DTC account based on its holdings as of the record date

– HKSCC will maintain a corporate announcement in CCASS with the same record date to determine the entitlements of relevant CCASS Participants

– Upon receipt of the cash dividend (after deduction of the U.S. withholding taxes), HKSCC will distribute the cash amount to its participants

– Participants of HKSCC can choose either HK or US dollars

Depository & Nominee Services Depository & Nominee Services (DNS) - 4(DNS) - 4

Pilot Programme Securities

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Depository & Nominee Services Depository & Nominee Services (DNS) - 5(DNS) - 5

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Depository & Nominee Services Depository & Nominee Services (DNS) - 6(DNS) - 6

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• Corporate VotingCorporate Voting

– HKSCC does not send representative to attend meetings held outside Hong Kong

– Participants give voting instructions to HKSCC

– HKSCC submits one combined proxy form

Depository & Nominee Services Depository & Nominee Services (DNS) - 7(DNS) - 7

Pilot Programme Securities

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• Periodic Interest Payment Periodic Interest Payment $$$$$$$$– Interest is paid semi-annually

– HKSCC will distribute the interest accruing to its participants upon receipt of the interest payment

• Redemption upon MaturityRedemption upon Maturity

– Upon receipt of the redemption monies, HKSCC will cause the money to be credited to its participants

Depository & Nominee Services Depository & Nominee Services (DNS) - 8(DNS) - 8

Exchange Fund Notes (EFN)

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• Corporate VotingCorporate Voting

– Subject to the constitutive document, HKSCC will send representative to attend meetings

– Participants give voting instructions to HKSCC– HKSCC submits one combined proxy form

Depository & Nominee Services Depository & Nominee Services (DNS) - 9(DNS) - 9

Exchange Fund Notes (EFN)

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QuestionsQuestions