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

2 Macro Factors Reshaping the Global Financial Market  Globalisation  Technological advances

3 The New Financial Landscape u real-time, any-time trading u ready access to investment information u transparent and liquid secondary market u best price available u low transaction costs u one-stop trading & settlement u a level playing field A buyers’ market driven by investors’ needs

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

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

6 u Demutualisation and merger formally completed on 6 March 2000 u Company limited by shares u Listed on the Stock Exchange in June 2000 to broaden ownership u Operates all cash and derivatives markets and clearing houses

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

8 Enhancement of the Market Infrastructure u A Steering Committee on the Enhancement of Financial Infrastructure (SCEFI) chaired by the Chairman of the Securities and Futures Commission u To Study and Recommend the Necessary Improvements to the Financial Infrastructure of Hong Kong

9 SCEFI Recommendations InitiativesObjectives 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 toUpgrade CCASS Architecture to Enable Message- Open Architecture Ready based Interface, Gateway and Open Access Achieve Single Clearing ArrangementImplement Single Clearing Arrangement Building Blocks, such as Consolidated Clearing Account Structure, Unified Money Settlement, Portfolio- based Risk Management Enable Straight Through ProcessingImplement the Straight Through Processing Building Blocks, such as TFM, TRS, CBI Consolidate Derivatives ClearingProvide A Single Clearing Platform for Derivatives Into A Single PlatformProducts Realise Scripless Securities Market Convert Hong Kong To A Scripless Securities Market

10 Post Merger Systems Infrastructure (2000)TradingClearing SecuritiesAMS/3 (N)CCASS Stock OptionsTOPSTOPS FuturesHKATS (N)OCC Derivatives Trading Integration (August 2001) TradingClearing SecuritiesAMS/3CCASS Stock OptionsHKATSTOPS FuturesHKATSOCC Derivatives Clearing Integration (2002) TradingClearing SecuritiesAMS/3CCASS/3 (N) Stock Options & FuturesHKATSDCASS (N) (N) : new or upgrade

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

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

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

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

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

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

17 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.

18 Securities Markets STP Why STP? uSettlement Risk Reduction uSettlement Cost Reduction uMarket Efficiency How STP? uInformation Exchange Standards (ISSO 15022) uUniform Technology Infrastructures uMarket Participants Cooperation

19 Q & A