Cross-border Linkage of KSD December 6 2002 Almaty

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

Topics Changing Global Trends of Cross-border Settlements ã Cross-border Linkage of KSD ã Ý For domestic & foreign investors • Ý 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 2 Cross-border Linkage of KSD

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

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

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

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

Cross-border Settlement Service for Domestic Investors Global Custody - General Investors : Mandatory - Institutional Investors : Optional ã Cross-border Clearing Network (CCN) - 42 Countries covered - Sub-Custodian: Euroclear, Clearstream Bank, State Street Bank, BNYC - Communication: SAFE 21, SWIFT, Sub-Custodian’s proprietary S/W ã 7 Cross-border Linkage of KSD

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

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

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

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

Custodian Services for the Underlying Shares of ADR & GDR ã ã For domestic companies which issue ADR or GDR Custody Agreement Ý Ý ã ã ã (Million Shares) 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 12 Cross-border Linkage of KSD

Custodian Services for the Underlying Shares of ADR & GDR ã Performance of DR business by KSD 1995 New Issues (Million USD) DR Conversion (Thousand Shares) Right Issues (Thousand Shares) Bonus Issues (Thousand Shares) Stock Dividend (Thousand Shares) 1996 1997 1998 1999 2000 2001 2002 3 Q 1, 145 1, 159 702 496 5, 891 1, 991 3, 801 2, 954 - - - 130 5, 208 - 3, 399 - 291 67, 342 54, 648 117, 726 37, 065 15, 232 20, 614 - 134 - 3 2, 254 - - 86 266 35 1, 599 2, 207 1, 447 13 Cross-border Linkage of KSD

Depository Services for Korean DR ã For foreign companies which issue Korean DR ã 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) Ý ã Mandatory designation by Issuing Companies Agreements Ý Deposit Agreement with Issuing Companies Ý Custody Agreement with Foreign Custodians 14 Cross-border Linkage of KSD

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

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

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

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