cross-border linkage of ksd 1 december 6, 2002 almaty, kazakhstan james j.w. kim

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Cross-border Linkage of KSD


December 6, 2002

Almaty, Kazakhstan

James J.W. KIM

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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

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Global Trends in International Financial Markets

Cross-border Linkage by

CSDs

Cross-border Linkage by

CSDs

Development of Information Technology

ATS, ECN Standardization of trade and

settlement system => STP

Preference for high risk & high return assets

Increasing demand for long-term

portfolios

Demand for anonymous transactions

Competition and M&A between exchanges

Linkage between financial institutions

Increase in international portfolios

U.S.: 59 billion USD Europe: 56 billion EUR

Increase in cross-border

investments due to deregulation

Privatization of pension funds

T+1 settlement

Client Needs

Deregulation

IT Revolution

Liberalization of capital market

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New Trends in Cross-border Securities Settlement Model

Global Custodian

Issuer

Registrar

Client

CSDICSD

Sub-custodian

Decentralized International

SecuritiesCustody /

Settlement Model

Decentralized International

SecuritiesCustody /

Settlement Model

Issuer

Registrar

Client

Local CSDICSD

Domestic CSD

Integrated CSD

LinkageModel

Integrated CSD

LinkageModel

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Advantages of CSD Linkage

Issuer

Registrar

Client

Local CSDICSD

Domestic CSD

Integrated CSD

LinkageModel

Integrated CSD

LinkageModel

Easy Access to foreign clearing / settlement system

Cost-down through the economies of scale

Minimization of settlement risks

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Single Gateway

Cross-border linkage of KSD

Korean Securities

Market

Foreign Investors Foreign Securities

Market

Domestic Issuing Co.

Foreign Issuing Co.

Korean Securities

Market

Domestic Investors

Foreign Securities

Market

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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

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Home Trading System for American shares (April 2002) => STP Settlement

Buy/Sell Order Buy/Sell OrderOrder / Trade Confirmation

Trust of Clearing / Settlement Settlement Instruction

/ Confirmation

Settlement

Domestic Investors

Domestic Securities co.

Settlement Instruction / Confirmation

American Securities co.

BNYCI

NYSE / NASDAQ /

AMEX

NSCC

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0

500

1000

1500

2000

2500

3000

3500

4000

1994 1995 1996 1997 1998 1999 2000 2001 20023Q

Total Market ValueIn mil. USD

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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

Core Services Value Added Services Communication

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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

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Custodian Services for the Underlying Shares of ADR & GDR

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 0

50

100

150

200

250

300

Citibank BNY DBTC JPMC

(Million Shares)

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Custodian Services for the Underlying Shares of ADR & GDR

1995 1996 1997 1998 1999 2000 20012002 3Q

New Issues(Million USD)

1,145 1,159 702 496 5,891 1,991 3,801 2,954

DR Conversion(Thousand Shares)

- - - - 67,342 54,648 117,726 37,065

Right Issues(Thousand Shares)

- 130 5,208 15,232 20,614 - 134 -

Bonus Issues(Thousand Shares)

- 3,399 3 2,254 - - - -

Stock Dividend(Thousand Shares)

- 291 86 266 35 1,599 2,207 1,447

Performance of DR business by KSD

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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

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Depository Services for Korean DR

IssuerIssuer

CustodianCustodian

FSCFSC

Lead ManagerLead Manager

KSEKSE

InvestorsInvestors

Securities Report

Underwriting Agmt. etc

Deposit Agmt

Ordinary Shares

Custody Agmt.

DR Subscription & Delivery

<Overseas> <Domestic>

UnderwritersUnderwriters

DR Issue

Listing

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Enforcement Decree & Ordinance

Enforcement Decree & Ordinance

Structures of Regulations on KDR

Enforcement Decree & Ordinance Enforcement Decree & Ordinance

Securities & Exchange ActSecurities & Exchange Act

Regulation on Securities Issuance And DisclosureRegulation on Securities Issuance And Disclosure

Listing Rules

of KSE

Listing Rules

of KSE

Regulation on

KDR Issue of KSD

Regulation on

KDR Issue of KSD Foreign Exchange RulesForeign Exchange Rules

Foreign Exchange ActForeign Exchange Act

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Cross-Listing of the original Shares

KSD-JSSC Linkage (December, 2001)

TSETSE

JSSCJSSC

Issuing Compan

y

Issuing Compan

y

(KOREA) (JAPAN)

ParticipantParticipantParticipantParticipant ParticipantParticipantParticipantParticipantParticipantParticipant

ListingApplication

Stock Deposit

Clearing &Settlementof Listed Stocks

Notification of Deposit

JSSCJSSC

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Conclusion

Supporting improvement of the convenience of the domestic and foreign clients

Reduction of transaction costs

Continuous efforts by CSD

Continuous efforts by CSD

Formation of laws and regulations

supporting cross-border

linkage by regulatory

bodies

Formation of laws and regulations

supporting cross-border

linkage by regulatory

bodies

Successful Establishment

of Cross-Border Linkage

Successful Establishment

of Cross-Border Linkage

cross-border linkage of ksd 1 december 6, 2002 almaty, kazakhstan james j.w. kim

Documents

csds crossborder linkage

crossborder investments

exchanges linkage

global trends of cross

settlement risks

korean dr crosslisting

usd slide

kim slide