1. - 1 - Presentation On AMS/3 (I) Overview (II) Functions & Capacity (III) Standards (IV) Preparation for Rollout

2. - 2 - (I) Overview

3. - 3 - Overview AMS/3 provides a reliable trading system for investors, Exchange Participants and market participants. AMS/3 provides a trading infrastructure which connects investors, Exchange Participants and the central markets through eCommerce facilities. AMS/3 can bring benefits and business opportunities to the Hong Kong securities market.

4. - 4 - AMS/3 consists of five major components: Host, Trading Terminal, Multi-Workstation System (MWS), Open Gateway (OG) and Order Routing System (ORS).

5. - 5 - After its full implementation, AMS/3 will bring the following benefits to investors, Exchange Participants and the market. To Investors Enable investors to have access to the central market through additional channels via Exchange Participants  Place trading requests anywhere and anytime via Internet and mobile phone  Allow efficient access to trading request processing status Benefits

6. - 6 - To Exchange Participants Increase Exchange Participants’ order throughput per trading right Allow improvement of operational efficiency  reduce manual work to handle investors’ trading requests, answering enquiries about order status  better order management for traders Benefits of AMS/3

7. - 7 - To Exchange Participants Allow for more efficient risk management through electronic investor authentication and built-in credit control function Benefits of AMS/3

8. - 8 - To Hong Kong Improve the Hong Kong securities market’s competitiveness  higher market accessibility and trading efficiency will help attract more market participation  provide market infrastructure of higher trading capacity  allow multiple-market trading platform and flexible trading hours  set the path for the future implementation of straight- through processing Benefits

9. - 9 - To Hong Kong A market accessible by global investors  contribute to the globalisation of Hong Kong securities market  strengthen Hong Kong’s position as a major international financial centre Benefits

10. - 10 - (II) Functions & Capacity

11. - 11 - Comparison of AMS/3 and AMS/2 Functionalities Trading Method Market Model Automatching Single Market AMS/2 - Automatching - Single price auction - Allow for other new trading methods - Automatching - Single price auction - Allow for other new trading methods Order types Limit Order - Limit order - Enhanced limit order - At auction order - Others - Limit order - Enhanced limit order - At auction order - Others Multiple Market Trading Request By phone/in person - By phone/in person - Over the Internet or by mobile phone - By phone/in person - Over the Internet or by mobile phone AMS/3

12. - 12 - Comparison of AMS/3 and AMS/2 Functionalities Order Modification and Order Status Enquiry Order Confirmation Straight-through Processing Done by EPs N/AN/A AMS/2 - Done by EPs - Investors can initiate through Internet or phone - Done by EPs - Investors can initiate through Internet or phone - Done by EPs - Sent to investors automatically by email, pager or mobile phone - Done by EPs - Sent to investors automatically by email, pager or mobile phone Trading platform established to set the path for the future implementation of straight- through processing AMS/3

13. - 13 - Component AMS/2 Capacity AMS/3 Capacity (1) Host Handle 75 transactions per second Handle 200 transactions per second (2.88 million orders per day based on 4 hours of trading) (2) Network - Host End (3) Network - Broker End Total data transmission throughput 1,600Kbps 9.6Kbps per trading right Total data transmission throughput 18,000Kbps 12Kbps per trading right Comparison of AMS/3 and AMS/2 System Capacity

14. - 14 - Comparison of AMS/3 and AMS/2 System Capacity (4) Open Gateway (OG) (5) Multi-Workstation System * (MWS) (7)Order Routing System (ORS) (6) Order Throughput in addition to first terminal * 8 workstations can be connected to an MWS server. Component N/A 2.5 seconds per order per terminal (EPs may have second and third terminals) AMS/2 Capacity Hardware capacity: 12 transactions per second Max. 12 transactions per second and 6 transactions per second if risk management function is on 40 transactions per second 1 second per order AMS/3 Capacity

15. - 15 - AMS/3 Host AMS/3 Host system is designed to be scalable, meaning that the system capacity could be expanded by adding hardware like CPU, memory, disc, etc and the software reconfiguration of AMS/3. AMS/3 Network If market needs warrant, AMS/3 Network expansion involves addition of network hardware and reconfiguration of routers and Internet Protocol addresses for the entire network. Scalability Paths

16. - 16 - ORS ORS is designed to be scalable to support future transaction growth. Its capacity can be further expanded by adding ORS server and security hardwares. OG & MWS OG vertical scalability is currently limited by the security hardware (for message encryption / decryption) of 12 orders per second. Upgrade direction will either be installing new encryption devices or, if technically feasible, to adopt software encryption mechanism. Scalability Paths

17. - 17 - Throttle Rate Throttle rate is the number of orders that can be submitted to the Host System from OG within a specific period of time. Rationales of adopting throttle control : As a flood control mechanism which is common to systems of this type, to ensure fair and orderly operation of the market To ensure OG-Host traffic flow will not exceed the planned capacity of AMS/3 As a reference of SEHK to plan, measure and manage trading capacity and upgrade activities

18. - 18 - Throttle Rate The throttle rate under AMS/3 is defined as 1 second per transaction per trading right. The order throughput of AMS/2 is 2.5 seconds per terminal. Some Exchange Participants may have installed two off-floor trading terminals (second and third terminals) per trading right.

19. - 19 - (III) Standards

20. - 20 - Substantial resources required for:  Project planning and system development  Training, installation and roll-out activities for about 500 broker firms, as well as information service providers and software vendors Resources Involved In AMS/3 Implementation

21. - 21 - Resources Involved In AMS/3 Development Project Steering Group formed by senior executives of the Exchange from the business and IT areas Andersen Consulting, the project manager, has acted as the System Architect and is responsible for User Acceptance Testings Compaq supplies and installs host computer system and OG PCCW-HKT responsible for MWS, ORS and network development team Involve over 1,000 man months, and 140 external consultants at its peak. 50 staff from various departments e.g. IT, Trading and Information Services

22. - 22 - The Exchange is committed to ensuring the highest quality and service standards of AMS/3. Critical problems identified in each test must be solved before moving to the next step. The Exchange has appointed two expert consultants to conduct separate review on system security and overall system readiness for launch in order to ensure that proper and the highest testing standards have been achieved. Standards

23. - 23 - Before AMS/3 market rehearsals, various testing activities have been performed to ensure readiness at individual component, system and operational levels. These items were covered as follows : Production Readiness Test User Acceptance Test AMS/3 Day-0 Rehearsal Programme Functional Test Volume Stress Test Fail-over and Recovery Test Security and Operation Control Test Functional Test Volume Stress Test Fail-over and Recovery Test Security and Operation Control Test Production Environment Shakedown Production Fallback (e.g. Fallback to Backup Site ) Connectivity Test Network Operations Setup Market Contingency Plan Rehearsal (e.g. Fallback to AMS/2) Production Environment Shakedown Production Fallback (e.g. Fallback to Backup Site ) Connectivity Test Network Operations Setup Market Contingency Plan Rehearsal (e.g. Fallback to AMS/2)

24. - 24 - Production readiness tests had been conducted in the past 10 consecutive weeks. 10 pilot MWS brokers, 41 pilot BSS brokers, selected terminal brokers and all information vendors participated. Themes of the tests include: production environment shakedown, production fallback, connectivity, network operations setup, fallback to AMS/2, and volume stress, etc. Technical issues encountered during the fallback test from primary site to backup site. The issues had been resolved. Production Readiness Test

25. - 25 - (IV) Preparation for Rollout

26. - 26 - Preparation for Rollout A series of broker activities were held to familiarise brokers with AMS/3

27. - 27 - The Exchange’s various initiatives to get the market prepared for AMS/3 rollout: Raising public/market awareness  market consultation before system development  AMS/3 web corner  press release and presentation to news media  AMS/3 newsletter  other investor education initiatives Preparation for Rollout

28. - 28 - Support for Exchange Participants  seminars  product brochures  site visits  terminal training /computer based training Preparation for Rollout

29. - 29 - Support for Information Vendors to facilitate their connectivity to AMS/3 Support for BSS Suppliers  release technical specifications to support their in-house system development  briefing sessions, including technical briefings after production readiness tests to share experience for ensuring that their systems are capable for handling high throughput Help desk to handle telephone and email enquiries Preparation for Rollout

30. - 30 - Next Step: Market Rehearsals Four consecutive weeks from 2 September - 23 September Aim to familiarise all Exchange Participants (including 10 pilot MWS and 41 pilot BSS) with new trading environment  New functionalities  Operation of Trading Terminals, MWS and OG  Volume stress (3 times of historical peak)  AMS/3-to-AMS/2 fallback Preparation for Rollout

31. - 31 - Details of the Market Rehearsal (MR) Scenarios and Calendar are as follows :

32. - 32 - Day 0 Rehearsal Programme General AMS/3 terminal operation rehearsal following completion of terminal training for 1,800 traders Compulsory participation and reporting of rehearsal status by Exchange Participants Real-life trading procedure

33. - 33 - Day 0 Rehearsal Programme General Briefings will be provided to all Exchange Participants on Market Rehearsal arrangements Rehearsal programme will be closely monitored and reviewed by the Exchange and the SFC, and Exchange Participants are requested to participate in compliance with stated requirements and guidelines Rehearsal programme consists of Normal Trading, Volume Stress, Fallback to AMS/3 backup site, and Fallback to AMS/2

34. - 34 - Day 0 Rehearsal Programme Normal Trading Rehearsal Repeated rehearsals for each session for all on-floor and off- floor terminal users Script-free, but with guidelines to ensure realistic “real-life” practice (For example: order quantity NOT greater than 10 board lots, and order price should be within +/- 32 spreads against opening price), and Exchange Participants are requested to follow the guidelines or else will be suspended from the rehearsal Include normal administrative activities (For example: new listings, suspension of trading for individual stocks, and trading and issuers’ news announcements)

35. - 35 - Day 0 Rehearsal Programme Volume Stress Rehearsal Two runs of two 45 minutes sessions of volume stress test at 3 times historical peak for ~ 350,000 orders and 250,000 trades per each 45 minutes session Exchange Participants are required to key in 3 orders per minute using off-floor terminals, and on-floor terminals will be reserved for computer-assisted generation of traffic to meet the target stress

36. - 36 - Day 0 Rehearsal Programme Fallback Rehearsal AMS/3 to AMS/3 backup site (normal contingency fallback) AMS/3 to AMS/2 ("3 to 2" fall back, special contingency fallback for the first two weeks)

37. - 37 - DAY 0 Rollout depending on market needs Auction Trading New Order Types - Enhanced Limit Order Terminal Delivery MWS Multi- Terminal Mode Delivery plus OG Delivery DAY 0 + 2 month DAY 0 + 3 month Rollout depending on market needs ORS Internet Delivery ORS Mobile Delivery Pilot Rollout 10 sets of MWS terminals Day 0 Month 2 Month 1 1st Batch Rollout 50 MWS, ~30 BSS Month 3 ……… 10 MWS 30~40 BSS 50 MWS 30 BSS Terminals 2nd Batch Rollout 50 MWS, ~40 BSS xx MWS xx BSS 50 MWS 40 BSS 3rd Batch Rollout Day 0 + 3 weeks DAY 0 + 3 weeks Activate 30-40 BSS plus OG Delivery Pilot BSS Rollout AMS/3 Rollout Schedule

38. - 38 - AMS/3 Rollout Schedule Day 0 Day 0 + 3 months Day 0 + 3 weeks Day 0

39. - 39 - Preparation for Rollout Rollout strategy - implementation by phases to manage implementation risks and preparation for progressive market readiness. The Exchange aims to identify any possible market and system issues related to the system rollout in market rehearsals. The Exchange will determine if other readiness activities will be required after four weeks of market rehearsals.

40. - 40 - On Day 0 (To be decided after satisfactory Market Rehearsals results) AMS/3 will operate in terminal mode. Other functions and open accessibility will be activated in phases.