Cross-border Linkage of KSD 1 December 6, 2002 Almaty, Kazakhstan James J.W. KIM

Cross-border Linkage of KSD 2 Topics  Changing Global Trends of Cross-border Settlements  Cross-border Linkage of KSD  For domestic & foreign investors Cross-border Clearing Network  For domestic & foreign companies Custodian for the underlying shares of ADR & GDR Depository for Korean DR Cross-Listing of the original shares

Cross-border Linkage of KSD 3 Global Trends in International Financial Markets Cross-border Linkage by CSDs Cross-border Linkage by CSDs  Development of Information Technology  ATS, ECN  Standardization of trade and settlement system => STP  Preference for high risk & high return assets  Increasing demand for long-term portfolios  Demand for anonymous transactions  Competition and M&A between exchanges  Linkage between financial institutions  Increase in international portfolios  U.S.: 59 billion USD  Europe: 56 billion EUR  Increase in cross-border investments due to deregulation  Privatization of pension funds  T+1 settlement Client NeedsDeregulation IT Revolution Liberalization of capital market

Cross-border Linkage of KSD 4 New Trends in Cross-border Securities Settlement Model Global Custodian Issuer Registrar Client CSDICSD Sub-custodian Decentralized International Securities Custody / Settlement Model Decentralized International Securities Custody / Settlement Model Issuer Registrar Client Local CSD ICSD Domestic CSD Integrated CSD Linkage Model Integrated CSD Linkage Model

Cross-border Linkage of KSD 5 Advantages of CSD Linkage Issuer Registrar Client Local CSD ICSD Domestic CSD Integrated CSD Linkage Model Integrated CSD Linkage Model Easy Access to foreign clearing / settlement systemCost-down through the economies of scaleMinimization of settlement risks

Cross-border Linkage of KSD 6 Single Gateway Cross-border linkage of KSD Korean Securities Market Foreign Investors Foreign Securities Market Domestic Issuing Co. Foreign Issuing Co. Korean Securities Market Domestic Investors Foreign Securities Market

Cross-border Linkage of KSD 7 Cross-border Settlement Service for Domestic Investors  Global Custody - General Investors : Mandatory - Institutional Investors : Optional  Cross-border Clearing Network (CCN) - 42 Countries covered - Sub-Custodian: Euroclear, Clearstream Bank, State Street Bank, BNY, BNYC - Communication: SAFE21, SWIFT, Sub-Custodian’s proprietary S/W

Cross-border Linkage of KSD 8 Cross-border Settlement Service for Domestic Investors  Home Trading System for American shares (April 2002) => STP Settlement Buy/Sell Order Order / Trade Confirmation Trust of Clearing / Settlement Settlement Instruction / Confirmation Settlement Domestic Investors Domestic Securities co. Settlement Instruction / Confirmation American Securities co. BNYCI NYSE / NASDAQ / AMEX NSCC

Cross-border Linkage of KSD 9 Cross-border Settlement Service for Domestic Investors In mil. USD

Cross-border Linkage of KSD 10 Custody Service for Foreign Investors  Direct participation: Disintermediation  Total Assets under Custody (Sep. 30, 2002) - Equity : 34 million shares for 7 clients Securities Custody Cash Management Linked with FX banks Standing Proxy Securities Lending & Borrowing Tri-party Repo FAX SWIFT Telex Core ServicesValue Added ServicesCommunication

Cross-border Linkage of KSD 11 Cross-border Linkage for Domestic & Foreign Companies  Custodian Services for the Underlying Shares of ADR & GDR  Depository Services for Korean DR  Cross-Listing of the Original Shares

Cross-border Linkage of KSD 12 Custodian Services for the Underlying Shares of ADR & GDR  For domestic companies which issue ADR or GDR  Custody Agreement  Bank of New York  Citibank N.A.  Deutsche Bank Trust Company  JP Morgan Chase  Korean Companies issued ADR & GDR: 41 issues  Market Share of KSD in Korea: 97% (40 issues)  Total Custody Shares: 475 million shares (Million Shares)

Cross-border Linkage of KSD 13 Custodian Services for the Underlying Shares of ADR & GDR Q New Issues (Million USD) 1,1451, ,8911,9913,8012,954 DR Conversion (Thousand Shares) ,34254,648117,72637,065 Right Issues (Thousand Shares) -1305,20815,23220, Bonus Issues (Thousand Shares) -3,39932, Stock Dividend (Thousand Shares) ,5992,2071,447  Performance of DR business by KSD

Cross-border Linkage of KSD 14 Depository Services for Korean DR  For foreign companies which issue Korean DR  KSD acts as an Issuing Organization and Depository under the regulation of Financial Supervisory Commission (Regulation on Securities Issuance and Disclosure) & the regulation of KSD (Regulation on KDR Issuance of KSD)  Mandatory designation by Issuing Companies  Agreements  Deposit Agreement with Issuing Companies  Custody Agreement with Foreign Custodians

Cross-border Linkage of KSD 15 Depository Services for Korean DR Issuer Custodian FSC Lead Manager KSE Investors Securities Report Underwriting Agmt. etc Deposit Agmt Ordinary Shares Custody Agmt. DR Subscription & Delivery Underwriters DR Issue Listing

Cross-border Linkage of KSD 16 Enforcement Decree & Ordinance Enforcement Decree & Ordinance Structures of Regulations on KDR Enforcement Decree & Ordinance Securities & Exchange Act Regulation on Securities Issuance And Disclosure Regulation on Securities Issuance And Disclosure Listing Rules of KSE Listing Rules of KSE Regulation on KDR Issue of KSD Regulation on KDR Issue of KSD Foreign Exchange Rules Foreign Exchange Act

Cross-border Linkage of KSD 17 Cross-Listing of the original Shares  KSD-JSSC Linkage (December, 2001) TSE JSSC Issuing Company (KOREA) (JAPAN) Participant Listing Application Stock Deposit Clearing & Settlement of Listed Stocks Notification of Deposit JSSC

Cross-border Linkage of KSD 18 Conclusion  Supporting improvement of the convenience of the domestic and foreign clients  Reduction of transaction costs Continuous efforts by CSD Continuous efforts by CSD Formation of laws and regulations supporting cross-border linkage by regulatory bodies Formation of laws and regulations supporting cross-border linkage by regulatory bodies Successful Establishment of Cross- Border Linkage Successful Establishment of Cross- Border Linkage