Korea Securities Depository

Hyo-Sang Yoo

October 2, 2008

Korea Securities Depository2

KSD Overview

Central Securities Depository of Korea

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

69 shareholders including KRX, securities companies, banks, etc and 1,000 participants including securities companies, banks, insurance companies, etc. (Dec. 31, 2007)

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

43%48%

55%61%

69%

57%

52%

45%

39%

31%

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007

No. & ratio of Domestic Participants

No. & ratio of Foreign Participants

※ Participants of KSD

Korea Securities Depository3

GlobalCustodian

ICSD

CSD Linkage

Local Agent

DirectAccess

Multi CSDModel

Models for Cross-border Settlement

6 Models

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

Cross-border Securities Settlements

Korea Securities Depository4

Global custody for Korean investors

Cross-border custody, settlement and corporate action services over the 34 markets of 32 countries with 6 custodians for overseas investment by domestic investors

* Custody Network Euroclear, Clearstream, Citibank, BNY Mellon, SSB, Pershing

AmericasArgentinaCanadaChileMexicoUnited States

EuropeAustriaDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsNorwayPortugalSpainSwitzerlandUnited Kingdom

ICSDsEuroclearClearstream

AsiaAustraliaChina(Shanghai)China(Shenzen)Hong KongIndonesiaJapanNew ZealandPhilippinesSingaporeThailand

Mid EastUnited Arab Emirates

Korea Securities Depository5

※ Increasing settlements on 3 Asian markets

(Bil., USD)

※ Cross-border settlement volume

Global custody for Korean investors

Category 2005 2006 2007

China

No. of Settlement

1,312 4,044 13,468

Increasing rate

- 208% 233%

HongKong

No. of Settlement

1,417 8,676 57,660

Increasing rate

- 512% 565%

Japan

No. of Settlement

1,532 2,001 5,513

Increasing rate

- 31% 176%

Total

No. of Settlement

4,261 14,721 76,641

Increasing rate

- 245% 421%

Korea Securities Depository6

Local custody - Disintermediation

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

Korea Securities Depository7

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

Local custody - Disintermediation

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

Korea Securities Depository8

CSD Linkage

Base of CSD linkage – Local custody service

Co-listing of Korean securities on Tokyo Stock Exchange

- Kodex200 co-listed on KRX and TSE in November, 2007

- arbitrage trading between Korea and Japan

- STP through SWIFT for migration (1 BUSINESS DAY)

CSD linkage between KSD-HKMA for bond settlement

- no transaction since linkage setup (1999)

- CSD linkage SHOULD BE BASED on the MARKET DEMAND

Korea Securities Depository9

CSD Linkage

TSESelling Broker Buying Broker

JASDECJASDEC

KSD

JASDEC A/C

Custody agreement

Custody agreement

Application for listing

Selling ’ Buying

Data of trading

IssuerIssuer

JapanJapan

KoreaKorea

Stocks issuing & deposit (through brokers)

Notification of deposit (Migration)

KSD-JASDEC linkage

Selling broker Buying broker

Korea Securities Depository10

Transfer Agent Linkage - Share Migration

Share migration service by transfer agent linkage for co-listed company

- STX Pan Ocean, a Korean entity listed on SGX (July 2005) and KRX (Sep. 2007)

- Share migration demand from Singaporean shareholder and setup of transfer agent linkage

※ Transfer agent linkage model

Inefficiency for migration and risks of arbitrage trading comparing to CSD linkage

- 6 BUSINESS DAYS to migrate for arbitrage trading

Singapore T.A.

KSDSingapore

T.A.Singapore

T.A.

KSD KSDShareholder

Shareholder

MApplication for

Migration

M+1Migration

form notice

M+2Form

acceptance

M+2~5Ready to

issue

M+6Share issue

Korea Securities Depository11

Issuance of KDR and shares for foreign companies' listing in Korea

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

6 more companiesJapan

Hong KongCayman

KoreaJapan

Non-listingOX

Share or KDRNovemberDecember

※ Foreign Companies’ Listing to Korean Market

Korea Securities Depository12

Asset Management Industry Information Infrastructure

Asset Management Industry Information Infrastructure

Inadequate Asset Management Industry Infrastructure

Inadequate Asset Management Industry Infrastructure

Securities Companies

Securities CompaniesT

rustees

Tru

stees

FundAdmin

FundAdmin

IMs

IMs

InformationInformationInfrastructureInfrastructure

IMsFund Admin

Trustees Securities Companies

Obstacles to Advancement of the Securities Market

Loss of Investor Confidence Due toDecreased Transparency

High-Cost, Low-Efficiency Operation Processes

Advancement of the Securities Market Through Development of the Asset Management IndustryAdvancement of the Securities Market Through Development of the Asset Management Industry

Regained Investor Confidence With Transparent Fund Management

Regained Investor Confidence With Transparent Fund Management

Low-Cost, High-Efficiency Back-office Infrastructure

Low-Cost, High-Efficiency Back-office Infrastructure

FundNET Development (Background)

Korea Securities Depository13

InvestmentManagers

Fund Fund AssetE/R System D/S System

FundAdministrator

Distributors Broker/Dealers

Custodians/Trustees

1

32

4

5

6 5

1

3

2

4

56 7 8

7FundNet

FundNET – Operating Structure

Korea Securities Depository14

Thank You!