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KSD Overview ※ Participants of KSD

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Presentation on theme: "KSD Overview ※ Participants of KSD"— Presentation transcript:

0 KSD and International Experiences
Hyo-Sang Yoo October 2, 2008

1 KSD Overview ※ Participants of KSD
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)

2 Models for Cross-border Settlement
Cross-border Securities Settlements Global Custodian Local Agent ICSD 6 Models Direct Access CSD Linkage Multi CSD Model These models vary by “legislation structure”, “market practices for investment” and “openness for foreign financial organization”

3 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 Americas Argentina Canada Chile Mexico United States Europe Austria Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Switzerland United Kingdom ICSDs Euroclear Clearstream Asia Australia China(Shanghai) China(Shenzen) Hong Kong Indonesia Japan New Zealand Philippines Singapore Thailand Mid East United Arab Emirates * Custody Network Euroclear, Clearstream, Citibank, BNY Mellon, SSB, Pershing

4 Global custody for Korean investors
※ Cross-border settlement volume ※ Increasing settlements on 3 Asian markets (Bil., USD) Category 2005 2006 2007 China No. of Settlement 1,312 4,044 13,468 Increasing rate - 208% 233% HongKong 1,417 8,676 57,660 512% 565% Japan 1,532 2,001 5,513 31% 176% Total 4,261 14,721 76,641 245% 421%

5 Local custody - Disintermediation
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 Foreign Investor Multi-tier structure for foreign investors Global Custodian DISINTERMEDIATION by KSD’s local custody service Local Custodian - Direct access to CSD - Custody a/c as a participant’s a/c and legal ledger KSD

6 Local custody - Disintermediation
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 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

7 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

8 CSD Linkage KSD-JASDEC linkage TSE Selling Broker Buying Broker Japan
 Data of trading  Application for listing JASDEC Selling broker Buying broker Issuer Custody agreement  Notification of deposit (Migration) Korea KSD JASDEC A/C  Stocks issuing & deposit (through brokers)

9 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. KSD Singapore T.A. Share holder M Application for Migration M+1 Migration form notice M+2 Form acceptance M+2~5 Ready to issue M+6 Share issue

10 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 ※ Foreign Companies’ Listing to Korean Market Companies Establish ment Issuing country Foreign listing Migration Listing type Listing schedule 3NOD Digital Cayman Korea Non-listing X Share Aug. 2007 Huafeng Group Holdings Hong Kong O KDR Nov. 2007 Cowell E Holdings Feb. 2008 6 more companies Japan Share or KDR November December

11 FundNET Development (Background)
Asset Management Industry Information Infrastructure Inadequate Asset Management Industry Infrastructure Securities Companies Trustees Fund Admin IMs Information Infrastructure Fund Admin Obstacles to Advancement of the Securities Market Loss of Investor Confidence Due to Decreased Transparency High-Cost, Low-Efficiency Operation Processes Advancement of the Securities Market Through Development of the Asset Management Industry Regained Investor Confidence With Transparent Fund Management Low-Cost, High-Efficiency Back-office Infrastructure

12 FundNET – Operating Structure
Investment Managers Fund Fund Asset E/R System D/S System Fund Administrator Distributors Broker/ Dealers Custodians/ Trustees 1 3 2 4 5 6 7 8 FundNet

13 Thank You!

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