cross-border linkage of ksd 1 december 6, 2002 almaty, kazakhstan james j.w. kim
TRANSCRIPT
1
Cross-border Linkage of KSD
Cross-border Linkage of KSD
December 6, 2002
Almaty, Kazakhstan
James J.W. KIM
2
Cross-border Linkage of KSD
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
3
Cross-border Linkage of KSD
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 Needs
Deregulation
IT Revolution
Liberalization of capital market
4
Cross-border Linkage of KSD
New Trends in Cross-border Securities Settlement Model
Global Custodian
Issuer
Registrar
Client
CSDICSD
Sub-custodian
Decentralized International
SecuritiesCustody /
Settlement Model
Decentralized International
SecuritiesCustody /
Settlement Model
Issuer
Registrar
Client
Local CSDICSD
Domestic CSD
Integrated CSD
LinkageModel
Integrated CSD
LinkageModel
5
Cross-border Linkage of KSD
Advantages of CSD Linkage
Issuer
Registrar
Client
Local CSDICSD
Domestic CSD
Integrated CSD
LinkageModel
Integrated CSD
LinkageModel
Easy Access to foreign clearing / settlement system
Cost-down through the economies of scale
Minimization of settlement risks
6
Cross-border Linkage of KSD
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
7
Cross-border Linkage of KSD
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
8
Cross-border Linkage of KSD
Cross-border Settlement Service for Domestic Investors
Home Trading System for American shares (April 2002) => STP Settlement
Buy/Sell Order Buy/Sell OrderOrder / 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
9
Cross-border Linkage of KSD
Cross-border Settlement Service for Domestic Investors
0
500
1000
1500
2000
2500
3000
3500
4000
1994 1995 1996 1997 1998 1999 2000 2001 20023Q
Total Market ValueIn mil. USD
10
Cross-border Linkage of KSD
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 Services Value Added Services Communication
11
Cross-border Linkage of KSD
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
12
Cross-border Linkage of KSD
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 0
50
100
150
200
250
300
Citibank BNY DBTC JPMC
(Million Shares)
13
Cross-border Linkage of KSD
Custodian Services for the Underlying Shares of ADR & GDR
1995 1996 1997 1998 1999 2000 20012002 3Q
New Issues(Million USD)
1,145 1,159 702 496 5,891 1,991 3,801 2,954
DR Conversion(Thousand Shares)
- - - - 67,342 54,648 117,726 37,065
Right Issues(Thousand Shares)
- 130 5,208 15,232 20,614 - 134 -
Bonus Issues(Thousand Shares)
- 3,399 3 2,254 - - - -
Stock Dividend(Thousand Shares)
- 291 86 266 35 1,599 2,207 1,447
Performance of DR business by KSD
14
Cross-border Linkage of KSD
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
15
Cross-border Linkage of KSD
Depository Services for Korean DR
IssuerIssuer
CustodianCustodian
FSCFSC
Lead ManagerLead Manager
KSEKSE
InvestorsInvestors
Securities Report
Underwriting Agmt. etc
Deposit Agmt
Ordinary Shares
Custody Agmt.
DR Subscription & Delivery
<Overseas> <Domestic>
UnderwritersUnderwriters
DR Issue
Listing
16
Cross-border Linkage of KSD
Enforcement Decree & Ordinance
Enforcement Decree & Ordinance
Structures of Regulations on KDR
Enforcement Decree & Ordinance Enforcement Decree & Ordinance
Securities & Exchange ActSecurities & Exchange Act
Regulation on Securities Issuance And DisclosureRegulation 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 RulesForeign Exchange Rules
Foreign Exchange ActForeign Exchange Act
17
Cross-border Linkage of KSD
Cross-Listing of the original Shares
KSD-JSSC Linkage (December, 2001)
TSETSE
JSSCJSSC
Issuing Compan
y
Issuing Compan
y
(KOREA) (JAPAN)
ParticipantParticipantParticipantParticipant ParticipantParticipantParticipantParticipantParticipantParticipant
ListingApplication
Stock Deposit
Clearing &Settlementof Listed Stocks
Notification of Deposit
JSSCJSSC
18
Cross-border Linkage of KSD
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