INVESTOR ACCOUNT SERVICE IN CCASS The 8 th

INVESTOR ACCOUNT SERVICE IN CCASS The 8 th ACG Cross Training Seminar Hong Kong Securities Clearing Company Limited 27 – 28 June 2006

Agenda 1. Background 2. Admission Requirements 3. Scope of Services 4. CCASS Service Fees 5. Benefits 6. Stock Segregated Account with Statement Service 2

Background Profile of HKSCC • 1989 - incorporation of HKSCC Hong Kong Securities Clearing Company Ltd • 1992 - recognised as clearing house and became operator of CCASS Central Clearing And Settlement System A computerised book-entry clearing and settlement system for transactions in securities listed on the Stock Exchange of HK • May 1998 - introduced Investor Account Service • Mar 2000 - became a wholly owned subsidiary of HKEx 3

Background HKSCC Participantship • Brokers (433) • Clearing Agency (1) • Custodians (37) • Stock Lender (0) • Stock Pledgee (6) • Investor Participants ( ~14, 700) Figures as of 31 May 2006 4

Background Investor Account Service • May 1998 - introduce for individual and corporate investors in HK • Dec 1999 - accept BVI incorporated companies • Jun 2006 - open for Macau residents and corporations 5

Background Investor Account Service Three common options for shares custody in HK: Keep physical certificates Entrust with a Broker Entrust with a Custodian Bank There is another option: Entrust with HKSCC 6

Background Investor Account Service A Safe alternative…. . Legal protection for shares deposited with HKSCC …. . No need to worry about loss of physical certificates 7

Admission Requirements Individual Investor Accounts • HKID / Macau Resident ID Card Holder aged 18 or above Joint Individual Investor Accounts • HKID Card Holders aged 18 or above • Up to a maximum of 4 Investors per account 8

Admission Requirements Corporate Investor Accounts • Corporations incorporated in HK under the HK Companies Ordinance, or by any legal entity incorporated in HK under HK Law • Overseas Corporations incorporated in the British Virgin Islands (BVI) under the International Business Companies Act (IBC Act) • Corporations incorporated in Macau under the Commercial Code of Macau 9

Admission Requirements • Maintain a correspondence address in Hong Kong / Macau • Maintain a HKD Designated Bank Account for CCASS money settlement purpose 10

Scope of Services Nature of Investor Account • NOT mandatory • A depository account for share custody • Purchases and sales of stocks made by Investor Participants (“IP”) and the resulting settlements will continue to be handled by CCASS Broker or Custodian Participants 11

Scope of Services Transaction Flow 3 Order Matching 5 AMS/3 4 Transactions transmit to CCASS Broker CCASS ISI 8 settlement 9 IP’s Designated Bank 7 Input Trade Order Affirm ISI 10 Money Settlement 6 Input ISI Broker’s Designated Bank 1 Place Order Broker Designated Bank IP A/C 2 Order Matching Result Money Settlement IP 12

Scope of Services • Stock transfer and settlement • Custodial services • Nominee services 13

Scope of Services Stock Transfer What is ISI ? • Investor Settlement Instructions (“ISI”) are used to initiate stock transfer and money settlement electronically through CCASS between IP and Broker, Custodian or Stock Pledgee Participants 14

Scope of Services Money Settlement Electronic money settlement between CCASS and Participants: CCASS generates the following instructions for money settlement Electronic Payment Instruction (EPI) Direct Debit Instruction (DDI) / Direct Credit Instruction (DCI) To process the money settlement of an ISI between an IP and a Broker/ Custodian Participant To process the money settlement between an IP and CCASS e. g. dividend payment / fees 15

Scope of Services Money Settlement for ISI Three payment options are available for ISI transactions: • Free of Payment (FOP) • Delivery versus Payment (DVP) • Realtime Delivery versus Payment (RDP) 16

Scope of Services Money Settlement Free of Payment (FOP) • Money settlement is to take place outside CCASS and HKSCC is not involved • IP should arrange with their counterparties if money settlement is required outside CCASS 17

Scope of Services Money Settlement (DVP) Delivery versus Payment (DVP) • Shares settled in advance to money settlement • An EPI will be generated and funds settled through the overnight interbank clearing • Receipt of payment must be monitored by both delivering and receiving parties 18

Scope of Services Money Settlement (RDP) Realtime Delivery versus Payment (RDP) • Shares will be put on-hold in the delivering Participant’s stock account • CHATS payment instruction will be generated • If payment is confirmed, the shares will be delivered to the receiving party immediately; Otherwise, the shares will be released back to the delivering party 19

Scope of Services Custodial Services • IP can deposit or withdraw physical share certificates into or from CCASS • Shares deposited in CCASS are reregistered under the name of HKSCC Nominees Limited • Shares withdrawn from CCASS are required to be re-registered to the name of IP 20

Scope of Services Nominee Services Receive Corporate Documents Entitlement Distribution & Election Subscription Voting 21

Scope of Services Nominee Services • Receive corporate information directly from listed issuers, e. g. annual reports and notices • HKSCC will collect benefit entitlements for IPs and distribute to their stock / designated bank accounts electronically 22

Scope of Services Nominee Services • HKSCC will credit the entitlement in relation to corporate actions (such as rights subscription, open offer / takeover, etc) directly to stock / designated bank accounts of IPs • Choose to attend corporate meetings in person, appoint representatives to attend meetings or appoint HKSCC to vote for them 23

Scope of Services Others • HKSCC will send statements and provide enquiry function to IP about the corporate actions and deadlines, such as subscription, voting & dividend election requiring their action • Apply for initial public offering (IPO) and tender electronically via CCASS and have HKSCC credited allotted shares into their stock accounts and refunds to their designated bank accounts directly 24

Scope of Services - optional Short Message Services (SMS) include: • Investor Settlement Instructions (ISIs) • Announcement summary and deadline for dividend election and voting instructions • EIPO and tender announcements • Rejected transactions such as Direct Debit Instruction 25

Scope of Services Communicating with CCASS Internet System IP a/c - 1 IP a/c - 3 Stock a, b, c…. IP a/c - 2 Stock a, b, c…. CCASS Phone System Counter Service 26

CCASS Service Fees HKSCC charges IP the same fees as it charges other CCASS Participants (subject to adjustments in minimum and maximum fees, where appropriate) Stock Custody Fee • $0. 012 per board lot or odd lot • minimum fee of $20 and maximum fee of $3, 000 • per month 27

CCASS Service Fees Dividend/Interest Collection Fee • 0. 12% of the cash amount of dividend/interest • minimum fee of $10 and maximum fee of $500 • per stock/debt in one currency on the same day ISI Stock Settlement Fee • 0. 002% of the gross value for each ISI transaction • minimum fee of $2 and a maximum fee of $100 • each transaction 28

Benefits k y toc stod S u C ee in es • Stock Deposit om vic • Stock Withdrawal N er S • Electronic Share Transfer • Electronic Money Settlement • Receive Corporate Documents • Entitlement Distribution & Election • Subscription • Voting r s he vice Ot er S • e. IPO • SMS Alert Message 29

Benefits • Control over the movement of shares deposited in CCASS • Receive records of shareholdings in CCASS • Enjoy better legal protection of shareholdings in CCASS • Enjoy a variety of communication channels 30

Stock Segregated Account with Statement Service (SSA) • Investors has to open SSA via brokers / custodians • SSA is owned by brokers / custodians • No legal relationship between HKSCC and SSA holders • Stock in custody of and movement is controlled by brokers / custodians 31

Stock Segregated Account with Statement Service (SSA) • A service enabling investors to reconcile their stockholdings and trading records kept by their brokers or custodians with statements issued by HKSCC • Receive corporate communications direct from share registrars 32

Thank You 33