1. Hong Kong Securities Clearing Company Limited June 2008 - Bali
10th ACG Cross-Training Seminar
CSD Linkages
Hong Kong Securities Clearing Company Limited
June Bali

2. Agenda CSD Linkages of HKSCC Pilot Programme
- Depository Trust Corporation (DTC) of the U.S.
- Central Moneymarkets Unit (CMU)
Pilot Programme
Cross Border Securities Settlement
Cross System Settlement
Depository & Nominee Services (DNS)

3. CSD Linkages - 1 Depository Trust Corporation (DTC) of the U.S.
The US-based depository that provides clearing and settlement services to Nasdaq
HKSCC maintains an account with DTC to facilitate the Free-of-payment (FOP) cross-border securities transfer of the Pilot Programme Securities traded in HK and the US and to hold on behalf of its participants shareholdings of these securities

4. CSD Linkages - 2 Central Moneymarkets Unit (CMU)
Hong Kong Monetary Authority (HKMA) established the Central Moneymarkets Unit (CMU) to provide a computerised clearing and settlement facility for Hong Kong debt securities (including Exchange Fund Notes)
HKSCC is a Recognized Dealer and maintains an account with CMU to facilitate the Free-of-payment (FOP) cross system transfer of the debt securities traded between a CMU member of HKMA and a CCASS participant, such as Exchange Fund Notes (EFN) and to hold the shareholdings of EFN on behalf of the participants

5. Pilot Programme - 1 Launched in May 2000
Nine issues of global securities listed on Nasdaq and the AMEX
Admitted to the Stock Exchange of Hong Kong (SEHK) for trading only
Accepted by Hong Kong Securities Clearing Company Limited (HKSCC) for clearing and settlement at Central Clearing and Settlement System (CCASS)

6. Pilot Programme - 2

7. Pilot Programme - 3
HKSCC Rules for clearing, settlement, custodian and nominee services apply
Cross Border Transfer to facilitate the selling/purchasing of Pilot Programme Securities in HK
Settlement is achieved by adjusting the two clearing system’s book-entry record

8. Cross Border Securities Settlement - 1
Selling of Pilot Programme Securities in HK US HK
HKSCC
DTC
1. CCASS Participant submits Cross-border Transfer Instruction Form (Receive)
2. DTC Participant inputs deliver instruction
3. Debits the account of DTC Participant and credits HKSCC’s account
5. Credits the account of the CCASS Participant
4. HKSCC checks the Activity Report to confirm the receipt of shares
_____
______
Receive
6. Settlement

9. Cross Border Securities Settlement - 2
Purchase of Pilot Programme Securities in HK HK US
3. Inputs Deliver Instruction to DTC
HKSCC
DTC
1. CCASS Participant submits Cross-border Transfer Instruction Form (Deliver)
4. Debits HKSCC’s account and credits the account of the DTC Participant
2. Debits the account of the CCASS Participant
Delivery
_____________
__________
___________
5. HKSCC checks Activity Report to confirm the delivery
Activity Report
___________
_________

10. Cross System Settlement - 1
To facilitate cross system settlement, a linkage is established to allow FOP transfers between a CMU member of HKMA and a CCASS participant
The CMU Terminal (CMT) is installed in CCASS Depository to facilitate stock transfer instruction
The communications between HKSCC and CMU are mainly through CMU Terminal

11. Cross System Settlement - 2
Selling of the Exchange Fund Notes (EFN)
CMU Terminal (CMT)
HKSCC
3. Corresponding CMU member inputs deliver instruction via CMT
2. Inputs receive instruction via CMT
4. Matched
1. CCASS Participants submits Transfer Instruction Form (Receive)
5. Completion Advice
(Debits the account of the CMU member and credits HKSCC’s account.
7. Credits the account of the CCASS Participant
6. HKSCC confirms the transfer via CMT
Receive
________________
________
8. Settlement

12. Cross System Settlement - 3
Purchase of the Exchange Fund Notes (EFN)
CMU Terminal (CMT)
HKSCC
4. Corresponding CMU member inputs receive instruction via CMT
3. Inputs deliver instruction via CMT
5. Matched
1. CCASS Participants submits Transfer Instruction Form (Deliver)
6. Completion Advice
(Debits HKSCC’s account and credits the account of the CMU member)
2. Debits the account of the CCASS Participant
7. HKSCC confirms the transfer via CMT
Delivery
________________
________

13. Depository & Nominee Services (DNS) - 1
Deposit & Withdrawal Services
Pilot Programme Securities
HKSCC has an account with DTC to enable HKSCC to hold the shareholdings on behalf of its participants
Physical deposit of the Pilot Programme Securities with the CCASS Depository is not available
Participants are required to arrange with a person who has an account with the DTC and then transfer to HKSCC’s account with the DTC via Cross-Border Transfer Instruction

14. Depository & Nominee Services (DNS) - 2
Participants who wish to withdraw the Pilot Programme
Securities are required to submit withdrawal forms to HKSCC
for processing
The certificate is registered in the name of a beneficiary
Exchange Fund Notes (EFN)
Exchange Fund Notes are issued in scripless form, no physical depository service is provided by HKSCC

15. Depository & Nominee Services (DNS) - 3
Major types of nominee services are offered:
Pilot Programme Securities
Cash Dividend
Corporate Voting
Exchange Fund Notes (EFN)
Periodic Interest Payment
Redemption Upon Maturity
Corporate Voting (subject to constitutive document)

16. Depository & Nominee Services (DNS) - 4
Pilot Programme Securities
Cash Dividend
DTC will determine the entitlements of dividend payment of HKSCC under DTC account based on its holdings as of the record date
HKSCC will maintain a corporate announcement in CCASS with the same record date to determine the entitlements of relevant CCASS Participants
Upon receipt of the cash dividend (after deduction of the U.S. withholding taxes), HKSCC will distribute the cash amount to its participants
Participants of HKSCC can choose either HK or US dollars

17. Depository & Nominee Services (DNS) - 5

18. Depository & Nominee Services (DNS) - 6

19. Depository & Nominee Services (DNS) - 7
Pilot Programme Securities
Corporate Voting
HKSCC does not send representative to attend meetings held outside Hong Kong
Participants give voting instructions to HKSCC
HKSCC submits one combined proxy form

20. Depository & Nominee Services (DNS) - 8
Exchange Fund Notes (EFN)
Periodic Interest Payment $$$$
Interest is paid semi-annually
HKSCC will distribute the interest accruing to its participants upon receipt of the interest payment
Redemption upon Maturity
Upon receipt of the redemption monies, HKSCC will cause the money to be credited to its participants

21. Depository & Nominee Services (DNS) - 9
Exchange Fund Notes (EFN)
Corporate Voting
Subject to the constitutive document, HKSCC will send representative to attend meetings
Participants give voting instructions to HKSCC
HKSCC submits one combined proxy form

22. Questions