1. Consultation Conclusions on a Proposed Operational Model for a Scripless Securities Market Mr. Stewart Shing Executive Vice President and Head of Clearing Division Hong Kong Exchanges and Clearing Limited 31 May 2004

2. 2/32 Contents  Purpose of Consultation Conclusions  Consultation Results  HKEx Responses u The Issuer Register Model u Progressive Approach on Implementation u Implications for the Market u Conclusions and Proposed Way Forward

3. 3/32 Purpose of the Consultation Conclusions u HKEx published a Consultation Paper on 24 October 2003  The Consultation Conclusions summarised  Comments received  HKEx responses  HKEx recommendation Way forward for scripless initiative in Hong Kong

4. 4/32 Consultation Results (1/3) Others are an individual and an anonymous respondentsTotal: 26 Submissions

5. 5/32 Consultation Results (2/3) u Supportive of the scripless initiative in principle  Nearly half of the respondents  Concerns over certain features of the originally proposed model  Fragmentation of the Register Of Members (“ROM”)  Removal of the immediate credit policy  Registrar Participantship  Shareholder Reference Number (“SRN”)

6. 6/32 Consultation Results (3/3)  Other concerns  Cost implications  Timing of implementation

7. 7/32 HKEx Responses (1/3) u The Split Register Model originally proposed  Feasible and generally sound  Modifications desirable in response to market concerns

8. 8/32 HKEx Responses (2/3) u On fragmentation of ROM/removal of immediate credit  CCASS not as a “sub-register” and maintained on a nominee basis Issuer Register Model

9. 9/32 HKEx Responses (3/3) u On Registrar Participantship  Coordination in form of agreement  Open to other suggestions u On SRN  Currently under review by Federation of Share Registrars u On cost and timing  Progressive Approach

10. 10/32 The Issuer Register Model ROM (Issuer Register) - Register of Members (“ROM”) - Boundary of ROM - Names on ROM Registrars HKSCC Uncertificated Shareholders Certificated Shareholders Omnibus Client Account## Investor Participants CCASS Participants# Stock Segregated Accounts with Statements - Person/institution/account HKSCC Nominees* * HKSCC Nominees will dematerialise part of its shareholdings and also become an uncertificated shareholder, in addition to being a certificated shareholder, on the Issuer Register # Excluding Investor Participants ## Details of the beneficiary owners are kept by CCASS Participants

11. 11/32 Key Features (1/3)  Dematerialisation  Optional Investors may continue to hold certificates

12. 12/32 Key Features (2/3)  Share Registrars  Roles and functions largely the same  The Issuer Register maintained  ROM One for each listed company Shareholdings  certificated shareholdings + uncertificated shareholdings

13. 13/32 Key Features (3/3)  CCASS  Clearing and settlement operations largely the same  Immediate credit maintained Not as a “sub-register”

14. 14/32 Progressive Approach on Implementation u Initial Phase  Dematerialisation programme Starting with CCASS Depository u Further Development  Electronic linkage between CCASS and individual share registrars For deposits and withdrawals of uncertificated shares

15. 15/32 Initial Phase (1/5)  CCASS Depository (1/4)  Dematerialisation (i) Locally incorporated Hong Kong-listed companies 1.6 million certificates (16% of market cap.) Jumbo and odd lots 550,000 certificates (15% of market cap.)

16. 16/32 Initial Phase (2/5)  CCASS Depository (2/4)  Dematerialisation (ii) Overseas incorporated Hong Kong-listed companies 4.4 million certificates (18% of market cap.) Depending on overseas jurisdictions

17. 17/32 Initial Phase (3/5)  CCASS Depository (3/4)  Share deposits and withdrawals by Participants Physical scrip accepted

18. 18/32 Initial Phase (4/5)  CCASS Depository (4/4)  HKSCC Nominees Shareholding information of CCASS Participants (except for Investor Participants) Available to public subject to a fee

19. 19/32 Initial Phase (5/5)  Market intermediaries and investing public  As an option when share registrars ready

20. 20/32 Further Development u Main enhancement  Electronic linkage Between CCASS and individual share registrars u Other enhancements  Depending on market needs

21. 21/32 Implications for the Market (1/2) u Minimal impact on operations for market intermediaries  Limited changes to market structure u Minimal up-front development costs  Share registrars/CCASS System changes Electronic linkage

22. 22/32 Implications for the Market (2/2) u Dematerialisation fee  To be determined by share registrars in consultation with SFC u CCASS fees  To be reviewed in consultation with SFC

23. 23/32 Conclusions and Proposed way Forward (1/8) u Conclusions (1/4)  Removal of scrip is an important and unavoidable development Higher efficiency Lower costs More shareholder transparency

24. 24/32 Conclusions and Proposed way Forward (2/8) u Conclusions (2/4)  Issuer Register Model largely the same as currently One ROM for each listed company Immediate credit policy maintained Certificated and uncertificated shareholdings

25. 25/32 Conclusions and Proposed way Forward (3/8) u Conclusions (3/4)  A progressive approach allowing Investing public and market participants Time to get used to the scripless environment Market forces to determine pace for further development

26. 26/32 Conclusions and Proposed way Forward (4/8) u Conclusions (4/4)  Market perception Issuer Register Model workable and acceptable Federation of Share registrars Consumer Council Brokers associations CCASS Custodian Participants Support to take the proposal forward SFC

27. 27/32 Conclusions and Proposed way Forward (5/8) u Proposed Way Forward (1/4)  Enabling legislation Introduction to legislature in the next legislative session  Dematerialisation of CCASS Depository 550,000 jumbo and odd lots certificates 12 to 18 months after legislation

28. 28/32 Conclusions and Proposed way Forward (6/8) u Proposed Way Forward (2/4)  Continue discussions with SFC and Federation of Share Registrars Electronic linkage Handling of overseas incorporated Hong Kong-listed shares Dematerialisation fee CCASS fee review

29. 29/32 Conclusions and Proposed way Forward (7/8) u Proposed Way Forward (3/4)  Working closely with SFC and other stakeholders Investor education

30. 30/32 Conclusions and Proposed way Forward (8/8) u Proposed Way Forward (4/4)  Goals with the scripless initiative To gain general market support To serve as basis for Hong Kong to move forward

31. 31/32 COMPLIMENTS  Respondents to the HKEx Consultation Paper  The following groups which gave comments in the discussion of the Issuer Register Model and the implementation approach SFC Federation of Share Registrars, Consumer Council Brokerage community CCASS Participants

32. THANK YOU