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Asian Financial Services Technology Conference

Exchanges & Technology

Lawrence Fok

Deputy Chief Operating Officer

Hong Kong Exchanges & Clearing Limited

11 September 2001

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Macro Factors Reshaping the Global Financial Market

Globalisation

Technological advances

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The New Financial Landscape

real-time, any-time trading

ready access to investment information

transparent and liquid secondary market

best price available

low transaction costs

one-stop trading & settlement

a level playing field

A buyers’ market driven by investors’ needs

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The New Financial Landscape (cont.)

the most liquid market

the largest pool of investors

competitive compliance costs

a level playing field

Issuers’ preference

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Demutualisation and Merger of Hong Kong’s Exchanges and Clearing Houses

Enhancement of the Market Infrastructure

Market Reforms for Hong Kong 1999/2000 Budget Speech of

the Financial Secretary

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Demutualisation and merger formally completed on 6 March 2000

Company limited by shares Listed on the Stock Exchange in June 2000

to broaden ownership Operates all cash and derivatives markets a

nd clearing houses

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Cardinal Principle

To act in the interest of the public, having particular regard to the interests of the investing public.

- Merger Ordinance -

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Enhancement of the Market Infrastructure

A Steering Committee on the Enhancement of Financial Infrastructure (SCEFI) chaired by the Chairman of the Securities and Futures Commission

To Study and Recommend the Necessary Improvements to the Financial Infrastructure of Hong Kong

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SCEFI Recommendations

Initiatives Objectives

Build Securities and Derivatives Provide the Foundation for Implementation of Network (SDNet) Interactive/Message-based Interfaces and

Web-enabled Access, and Eventual Consolidation of All Trading and Clearing Networks

Upgrade Securities Clearing to Upgrade CCASS Architecture to Enable Message- Open Architecture Ready based Interface, Gateway and Open Access

Achieve Single Clearing Arrangement Implement Single Clearing Arrangement Building Blocks, such as Consolidated Clearing Account Structure, Unified Money Settlement, Portfolio-based Risk Management

Enable Straight Through Processing Implement the Straight Through Processing Building Blocks, such as TFM, TRS, CBI

Consolidate Derivatives Clearing Provide A Single Clearing Platform for Derivatives Into A Single Platform Products

Realise Scripless Securities Market Convert Hong Kong To A Scripless SecuritiesMarket

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Post Merger Systems Infrastructure(2000) Trading Clearing

Securities AMS/3 (N) CCASSStock Options TOPS TOPSFutures HKATS (N) OCC

Derivatives Trading Integration (August 2001)Trading Clearing

Securities AMS/3 CCASSStock Options HKATS TOPSFutures HKATS OCC

Derivatives Clearing Integration (2002)Trading Clearing

Securities AMS/3 CCASS/3 (N)Stock Options & Futures HKATS DCASS (N)

(N) : new or upgrade

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Target Clearing Infrastructure

Product Specific Clearing Processing

CCASS for Securities DCASS for Derivatives

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Multi-Market Structure Variable Settlement Cycles (T+x) Extended Trading Hours

CCASS Upgrade Project (CCASS/3) Features

Functional Architecture Upgrade

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CCASS Upgrade Project (CCASS/3) Features

Database Segmentation Middle-Tier User Access Options

Browser API SWIFT (GSTPA)

New CCASS Network (FinNet)

Technical Architecture Upgrade

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Integrated Clearing System for Futures and Stock Options

A Seamless Trading and Clearing Derivatives Platform

OM SECUR – Clearing OM Click - Trading

Derivatives Clearing and Settlement System (DCASS)

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Integrated Risk Profiles

Cross Product Assessment

Cross Participants Analysis

Real/Time Monitoring

Common Risk Management System

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Common Collateral Pool Multi-Currency Cash Non-Cash Securities

Consolidated Pay and Collect

Common Risk Management System

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Securities Markets STP

The aim of STP is to reach finality of

securities transactions within the

required market time-frames in an

automated market infrastructure.

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Securities Markets STP

Why STP? Settlement Risk Reduction Settlement Cost Reduction Market Efficiency

How STP? Information Exchange Standards (ISSO 15022) Uniform Technology Infrastructures Market Participants Cooperation

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Q & A