ksd’s infrastructure for cross-listing of foreign companies ksd’s infrastructure for...

KSD’s Infrastructure for Cross-Listing of Foreign CompaniesKSD’s Infrastructure for Cross-Listing of Foreign Companies

October 18, 2007October 18, 2007Bishkek, KyrgyzstanBishkek, Kyrgyzstan

Jae Woong (James) KimJae Woong (James) Kim

ContentsContents

1 KSD’s International Services

2

3 Korean Stock Market

KSD’s KDR Depositary Service for Foreign Co.

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

PrimaryPrimaryMarketMarket

PrimaryPrimaryMarketMarket

Domestic Domestic CompaniesCompaniesDomestic Domestic CompaniesCompanies

국내증권시장국내증권시장국내증권시장국내증권시장DomesticDomesticMarketMarket

DomesticDomesticMarketMarket

ForeignForeignCompaniesCompanies

ForeignForeignCompaniesCompanies

국내증권시장국내증권시장국내증권시장국내증권시장OverseasOverseasMarketMarket

OverseasOverseasMarketMarket

Domestic SecuritiesDomestic SecuritiesCustody & SettlementCustody & SettlementDomestic SecuritiesDomestic Securities

Custody & SettlementCustody & Settlement

Foreign SecuritiesForeign SecuritiesCustody & SettlementCustody & Settlement

Foreign SecuritiesForeign SecuritiesCustody & SettlementCustody & Settlement

SecondarySecondaryMarketMarket

SecondarySecondaryMarketMarket

DomesticDomesticInvestorsInvestorsDomesticDomesticInvestorsInvestors

ForeignForeignInvestorsInvestorsForeignForeign

InvestorsInvestors국내증권시장국내증권시장국내증권시장국내증권시장DomesticDomesticMarketMarket

DomesticDomesticMarketMarket

국내증권시장국내증권시장국내증권시장국내증권시장OverseasOverseasMarketMarket

OverseasOverseasMarketMarket

One Single Gateway for International Securities InvestmentOne Single Gateway for International Securities Investment

KSD’s International ServicesKSD’s International Services

11

KSD’s Foreign Securities Custody for Domestic InvestorsKSD’s Foreign Securities Custody for Domestic Investors


USD USD BillionsBillions

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007.9

Global Custody Global Custody - General Investors : Mandatory- General Investors : Mandatory- Institutional Investors : Optional- Institutional Investors : Optional

Global Custody Global Custody - General Investors : Mandatory- General Investors : Mandatory- Institutional Investors : Optional- Institutional Investors : Optional

Cross-border ClearingCross-border ClearingNetwork (32 Markets)Network (32 Markets)

Cross-border ClearingCross-border ClearingNetwork (32 Markets)Network (32 Markets)

Communication Communication - SAFE21, SWIFT, - SAFE21, SWIFT, - Sub-Custodian’s Proprietary S/W- Sub-Custodian’s Proprietary S/W

Communication Communication - SAFE21, SWIFT, - SAFE21, SWIFT, - Sub-Custodian’s Proprietary S/W- Sub-Custodian’s Proprietary S/W

Custodian Custodian - Euroclear, Clearstream Bank- Euroclear, Clearstream Bank - Citibank, BNY, SSB, Pershing - Citibank, BNY, SSB, Pershing

Custodian Custodian - Euroclear, Clearstream Bank- Euroclear, Clearstream Bank - Citibank, BNY, SSB, Pershing - Citibank, BNY, SSB, Pershing

22

KSD’s Domestic Securities Custody for Foreign InvestorsKSD’s Domestic Securities Custody for Foreign Investors


++

Total Asset under Custody (Sep. 30, 2007) Total Asset under Custody (Sep. 30, 2007) : Equity 122.5 Mil. Shares for 40 Clients: Equity 122.5 Mil. Shares for 40 Clients

Core ServicesCore Services Securities CustodySecurities Custody Cash Management Cash Management Linked Linked with FX Bankswith FX Banks

Added Value ServicesAdded Value Services Standing ProxyStanding Proxy Securities Lending & Securities Lending & Borrowing Borrowing Tri-party RepoTri-party Repo

CommunicationCommunication Web-based Local Custody Web-based Local Custody System / Fax / SWIFT / TelexSystem / Fax / SWIFT / Telex

Direct A/C Opening & Direct A/C Opening & Securities Custody by CSDSecurities Custody by CSD

Direct A/C Opening & Direct A/C Opening & Securities Custody by CSDSecurities Custody by CSD

Investment Registration to Investment Registration to Financial Supervisory Service (FSS)Financial Supervisory Service (FSS)

Investment Registration to Investment Registration to Financial Supervisory Service (FSS)Financial Supervisory Service (FSS)

Corporate Actions Corporate Actions (Voting Right, Dividend, Bonus Issues, etc.)(Voting Right, Dividend, Bonus Issues, etc.)

Corporate Actions Corporate Actions (Voting Right, Dividend, Bonus Issues, etc.)(Voting Right, Dividend, Bonus Issues, etc.)

CommunicationCommunication - SAFE21, SWIFT, Local Custody System- SAFE21, SWIFT, Local Custody System

CommunicationCommunication - SAFE21, SWIFT, Local Custody System- SAFE21, SWIFT, Local Custody System

Benefits of Custody to KSDBenefits of Custody to KSD

33


For domestic companies For domestic companies that issue ADR or GDRthat issue ADR or GDR

Custody Agreement Custody Agreement – Bank of New YorkBank of New York

– Citibank N.A.Citibank N.A.

– Deutsche Bank Trust Deutsche Bank Trust CompanyCompany

– JP Morgan ChaseJP Morgan Chase

Korean Companies’ ADR Korean Companies’ ADR & GDR: 43 issues& GDR: 43 issues

Market Share of KSD in Market Share of KSD in Korea: 100%Korea: 100%

Total Custody Shares: 554 Total Custody Shares: 554 millionmillion

KSD’s Custody Services for Domestic Companies issuing ADR(GDR)KSD’s Custody Services for Domestic Companies issuing ADR(GDR)

44

Mil. Shares

Citibank,427

JPMC, 94 DBTC, 0.7

BNY, 32

KDR KDR Korean Depositary ReceiptKorean Depositary Receipt

KDR KDR Korean Depositary ReceiptKorean Depositary Receipt

KSD is the only depositary that can issue KDR in Korea KSD is the only depositary that can issue KDR in Korea pursuant to the Securities Exchange Act and its Enforcement Decreepursuant to the Securities Exchange Act and its Enforcement Decree

KSD is the only depositary that can issue KDR in Korea KSD is the only depositary that can issue KDR in Korea pursuant to the Securities Exchange Act and its Enforcement Decreepursuant to the Securities Exchange Act and its Enforcement Decree

CompaniesCompanies

3NOD3NOD

Huafeng TextileHuafeng Textile

Yonhap Tech.Yonhap Tech.

Cowell E HoldingsCowell E Holdings

French ETFFrench ETF

STX Pan OceanSTX Pan Ocean

Nepro ITNepro IT

EstablishmentEstablishment

CaymanCayman

CaymanCayman

Hong KongHong Kong

CaymanCayman

FranceFrance

KoreaKorea

JapanJapan

Issuing CountryIssuing Country

KoreaKorea

Hong KongHong Kong

KoreaKorea

KoreaKorea

FranceFrance

SingaporeSingapore

KoreaKorea

Foreign ListingForeign Listing

Non-ListingNon-Listing

Hong KongHong Kong



EuronextEuronext

SingaporeSingapore


MigrationMigration

XX

OO

XX

XX

XX

OO

OO

Listing TypeListing Type

ShareShare

KDRKDR

ShareShare

ShareShare

ETFETF

ShareShare

KDRKDR

Listing ScheduleListing Schedule

8. 17. 20078. 17. 2007

NovemberNovember

DecemberDecember

DecemberDecember

DecemberDecember

DecemberDecember

20082008

Foreign Companies’ Listing to Korean MarketForeign Companies’ Listing to Korean Market

KDR is issued by KSD based on KDR is issued by KSD based on original shares issued by original shares issued by foreign companiesforeign companies


KSD’s KDR Depositary service for Foreign CompaniesKSD’s KDR Depositary service for Foreign Companies

55

KDR IssuanceKDR Issuance

KDR KDR DistributionDistribution

KDR KDR DistributionDistribution

KoreaKoreaOverseasOverseas

Issuance of Original SharesIssuance of Original SharesIssuance of Original SharesIssuance of Original Shares

FSS

Lead Manager SubscriptionHandling Co.

Investors

Issuing Co.

Custodian KRX

Securities ReportSecurities ReportSecurities ReportSecurities Report

CustodyCustody

AgreementAgreement

CustodyCustody

AgreementAgreement

Deposit Deposit AgreementAgreement

Deposit Deposit AgreementAgreement

Listing Listing ApplicationApplication

Listing Listing ApplicationApplication

Underwriting AgreementUnderwriting AgreementUnderwriting AgreementUnderwriting Agreement

Notification ofNotification ofListingListing

Notification ofNotification ofListingListing

Issuance of Issuance of KDRKDR

Issuance of Issuance of KDRKDR

KDRKDRDepositaryDepositary(Primary Market)(Primary Market)

KDRKDRDepositaryDepositary(Primary Market)(Primary Market)

CSDCSD (Secondary (Secondary Market)Market)

CSDCSD (Secondary (Secondary Market)Market)

KSD

KSD’s KDR Depositary Service for Foreign CompaniesKSD’s KDR Depositary Service for Foreign Companies

66

SellerSeller

OverseasOverseas Custodian

SettlementSettlement

KoreaKorea

KSD

TradingTrading

KRX

* * No Changes in No Changes in KSD a/cKSD a/c


KDR Trading & SettlementKDR Trading & Settlement

SellerSeller SellerSellerBuyerBuyer

Seller’sa/c

Seller’sa/c

Buyer’sa/c

Buyer’sa/c

KSD’s a/cKSD’s a/c

77

Share Conversion into KDR

Share Conversion into KDR KDR SellingKDR Selling

SharePriceSharePrice

KDR 가격KDR 가격KDRPriceKDRPrice

Share SellingShare Selling KDR Cancellation to Shares

KDR Cancellation to Shares

KDR 가격KDR 가격SharePriceSharePrice

KDRPriceKDRPrice

KDR Conversion & CancellationKDR Conversion & Cancellation


Arbitrage Arbitrage TradingTrading

KDR Conversion & Cancellation takes 2 ~ 3 business daysKDR Conversion & Cancellation takes 2 ~ 3 business days

88

CustodianCustodian

2. Instruction of KDR 2. Instruction of KDR Receipt Receipt

1. Application of KDR 1. Application of KDR ConversionConversion

6. KDR Issuance 6. KDR Issuance &&

KDR a/c CreditKDR a/c Credit

3. Share Transfer to KSD a/c 3. Share Transfer to KSD a/c & Application of KDR & Application of KDR

ConversionConversion

5. Notification of Share 5. Notification of Share Receipt Receipt

& Request for KDR Issuance& Request for KDR Issuance

Overseas Agent

Overseas Agent

Korean Agent

Korean Agent

4. Request for 4. Request for KDR IssuanceKDR Issuance

Share Conversion into KDR: KDR Price > Share PriceShare Conversion into KDR: KDR Price > Share Price


ShareholderShareholder

99

KDR Cancellation to Share: Share Price > KDR PriceKDR Cancellation to Share: Share Price > KDR Price


CustodianCustodian

1. Instruction of KDR Cancellation 1. Instruction of KDR Cancellation 2. Instruction of 2. Instruction of Share ReceiptShare Receipt

6. Confirmation of Share 6. Confirmation of Share TransferTransfer

5. Share Transfer5. Share Transfer

4. Instruction of Share 4. Instruction of Share TransferTransfer

Overseas Agent

Overseas Agent

Korean Agent

Korean Agent

3. Request for 3. Request for KDR KDR CancellationCancellation

KDR HolderKDR Holder

7. KDR a/c Debit7. KDR a/c Debit

1010

◈ ◈ Liquidity Premium of DR Issuing CompaniesLiquidity Premium of DR Issuing Companies

33%33%

Cross-listing by listinCross-listing by listing ADRsg ADRs

Cross-listing by listinCross-listing by listing GDRsg GDRs

Non Cross-listing by lNon Cross-listing by listing ADRsisting ADRs

14%14% 224%224%


Economic Benefit of KDR IssuanceEconomic Benefit of KDR Issuance

Craig Doidge, G. Andrew Karolyi, & Renee M. Stulz, “Has New York become less

competitive in global market? Evaluating foreign listing choices over time”

(Dice Center working paper, April 23, 2007), Analysis between 1997 to 2005

http://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-9.htm

1111

http://www.cob.ohio-state.edu/fin/dice/papers/2007/2007-9.htm

4. Right Exercise4. Right Exercise1. Notification of1. Notification of

Record Date, etcRecord Date, etc

5. Right Exercise5. Right Exercise

2-1. Notification of Record Date, 2-1. Notification of Record Date, etc.etc.

6. Right 6. Right

ExerciseExercise

KDR Holders can exercise rights only through KSD (Depositary) - KDR Holder → Participant → CSD → Depositary → Custodian → Issuing Co.

KDR Holders can exercise rights only through KSD (Depositary) - KDR Holder → Participant → CSD → Depositary → Custodian → Issuing Co.

Right Exercise of KDRRight Exercise of KDR

IndirectIndirectRight ExerciseRight Exercise

DirectDirectRight ExerciseRight Exercise

KDR Holders need to cancel KDRs to shares and exercise as shareholders - Minority Shareholders Right (Shareholder’s right to proposal, etc)

KDR Holders need to cancel KDRs to shares and exercise as shareholders - Minority Shareholders Right (Shareholder’s right to proposal, etc)

CustodianCustodian

Issuing Co.Issuing Co.

DisclosureAgent

DisclosureAgent

KDR HolderKDR Holder

2. Notification of2. Notification of

Record Date, etcRecord Date, etc

3. Notification of3. Notification of

Right ExerciseRight Exercise


1212

0

250

500

750

1000

1250

1500

1750

2000

2250

Jan

-05

Fe

b-0

5

Ap

r-0

5

Ma

y-0

5

Jul-

05

Au

g-0

5

Oct

-05

No

v-0

5

Jan

-06

Fe

b-0

6

Ap

r-0

6

Jun

-06

Jul-

06

Se

p-0

6

Oct

-06

De

c-0

6

Jan

-07

Ma

r-0

7

Ap

r-0

7

Jun

-07

Jul-

07

Se

p-0

7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Korean Stock MarketKorean Stock Market

P2,014.09 P

(Oct. 2)

KOSPI

Daily Turnover

55.1% up from 2005 to 2006 year-end

KOSPI breaks previous record highs in October 2, 2007, 2,014.09P

US$ BilUS$ Bil

Index PerformanceIndex Performance

1313


(US$ Bil)

Market Cap.Market Cap.Market Cap.Market Cap.

ASX

SGX22

TSE2 4,614

1,096

384

4

14

13

HKEX 832

861

TSE 5,824

Trading ValueTrading ValueTrading ValueTrading Value

5

10

7

17

TSE 2,416

HKEX 1,173

ASX 1,829

SGX 709

Listed CompaniesListed CompaniesListed CompaniesListed Companies

HKEX7 1,714

ASX 8 1,689 KRX

16 834 KRX

13

10 1,339KRX

SGX26 180

Source: World Federation of Exchanges

Position among World Exchanges (2006)Position among World Exchanges (2006)

1414


High Investment DemandHigh Investment Demand

- Korean investors’ foreign equity investment increased dramatically

Efficient FinancingEfficient Financing

KoreaKorea Hong Kong Singapore

Market Cap. (Dec.’06) 834(16th)834(16th) 1,715(7th) 384(22th)

Trading Value (Jan.~Dec ’06) 1,339(10th)1,339(10th) 832(14th) 180(26th)

Turnover Velocity (Dec.’06) 171%(4th)171%(4th) 62%(24th) 58%(26th)

- High Liquidity

Source: World Federation of Exchanges (Dec. 2006)

(US$ Bil, %)

Abundant Liquid CapitalAbundant Liquid Capital - Over 580 bil. US$ of short-term deposits looking for investment opportunities

- KRX enjoys high liquidity compared to other competing exchanges

- Can raise more capital by issuing additional shares in the market easily

Listing Benefits of Korean Stock MarketListing Benefits of Korean Stock Market

1515


CriteriaCriteria Main BoardMain Board KOSDAQKOSDAQ

OperatingHistory

Continuous Operation for 3 years or more since establishment

EquityCapital

10 Mil USD or more 3 Mil USD or more

Total Shares Issued

1 Mil or more -

Share Ownership(Primary)

- 1,000 or more minority shareholders & - 30% or more shares held by minority shareholders*

(10% or more for large companies)

- 10% or more public offering in Korea*

- 500 or more minority shareholders & - 30% or more shares held by minority shareholders**

- 10% or more public offering in Korea**

* Exempted for secondary listings on main board

** For secondary listings on KOSDAQ, 500 or more minority shareholders & public offering in

Korea of 300,000 shares or more

Listing RequirementsListing Requirements

Listing Criteria & ProcedureListing Criteria & Procedure

1616


CriteriaCriteria Main BoardMain Board KOSDAQKOSDAQ

Sales - 30 Mil. USD or more (latest year) & 20 Mil. USD or more (3 year average)

-

Profit(Either one)

- 2.5 Mil. USD or more (latest year) & 5 Mil. USD or more (3-year total)*

- Ordinary income & no capital impairment (Latest year)

- ROE 10% or more

- 5% or more (Latest year ROE) & 10% or more(3 year ROE total)**

- Net profit of USD 2 Mil. Or more

Audit Opinion

- Unqualified & previous 2 fiscal years’ unqualified or qualified opinion (Latest year)

- Unqualified opinion (Latest year)

Others - No pending lawsuits, M&A or dishonor, no restrictions on share transferring, etc.

* No losses in operating, ordinary, net income

** For large companies, operating cash flow surplus & either ROE 3% or profit of USD 5 Mil

Listing RequirementsListing Requirements

Listing Criteria & ProcedureListing Criteria & Procedure

1717

Thank You!Thank You!

Contact: Jae Woong KIM (James)Contact: Jae Woong KIM (James)Tel: +82 2 3774 3426Tel: +82 2 3774 3426Fax: +82 2 3774 3432~5Fax: +82 2 3774 3432~5Email: Email: [email protected]

1818

mailto:[email protected]

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