Asian Financial Services Technology Conference Exchanges & Technology Lawrence Fok Deputy Chief Operating Officer Hong Kong Exchanges & Clearing Limited 11 September 2001

Macro Factors Reshaping the Global Financial Market Globalisation Technological advances

The New Financial Landscape A buyers’ market driven by investors’ needs 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

The New Financial Landscape (cont.) Issuers’ preference the most liquid market the largest pool of investors competitive compliance costs a level playing field

Market Reforms for Hong Kong 1999/2000 Budget Speech of the Financial Secretary Demutualisation and Merger of Hong Kong’s Exchanges and Clearing Houses Enhancement of the Market Infrastructure

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 and clearing houses

Cardinal Principle To act in the interest of the public, having particular regard to the interests of the investing public. - Merger Ordinance -

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

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 Securities Market

Post Merger Systems Infrastructure (2000) Trading Clearing Securities AMS/3 (N) CCASS Stock Options TOPS TOPS Futures HKATS (N) OCC Derivatives Trading Integration (August 2001) Trading Clearing Securities AMS/3 CCASS Stock Options HKATS TOPS Futures HKATS OCC Derivatives Clearing Integration (2002) Trading Clearing Securities AMS/3 CCASS/3 (N) Stock Options & Futures HKATS DCASS (N) (N) : new or upgrade

Target Clearing Infrastructure Product Specific Clearing Processing CCASS for Securities DCASS for Derivatives

CCASS Upgrade Project (CCASS/3) Features Functional Architecture Upgrade Multi-Market Structure Variable Settlement Cycles (T+x) Extended Trading Hours

CCASS Upgrade Project (CCASS/3) Features Technical Architecture Upgrade Database Segmentation Middle-Tier User Access Options Browser API SWIFT (GSTPA) New CCASS Network (FinNet)

Derivatives Clearing and Settlement System (DCASS) Integrated Clearing System for Futures and Stock Options A Seamless Trading and Clearing Derivatives Platform OM SECUR – Clearing OM Click - Trading

Common Risk Management System Integrated Risk Profiles Cross Product Assessment Cross Participants Analysis Real/Time Monitoring

Common Risk Management System Common Collateral Pool Multi-Currency Cash Non-Cash Securities Consolidated Pay and Collect

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.

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

Q & A