- 1 -

Presentation On AMS/3

(I) Overview

(II) Functions & Capacity

(III) Standards

(IV) Preparation for Rollout

- 2 -

(I) Overview

- 3 -

Overview

•AMS/3 provides a reliable trading system for investors, Exchange Participants and market participants.

•AMS/3 provides a trading infrastructure which connects investors, Exchange Participants and the central markets through eCommerce facilities.

•AMS/3 can bring benefits and business opportunities to the Hong Kong securities market.

- 4 -

AMS/3 consists of five major components:Host, Trading Terminal, Multi-Workstation System (MWS), Open Gateway (OG) and Order Routing System (ORS).

- 5 -

After its full implementation, AMS/3 will bring the following benefits to investors, Exchange Participants and the market.

To Investors

• Enable investors to have access to the central market through additional channels via Exchange Participants

Place trading requests anywhere and anytime via Internet and mobile phone

Allow efficient access to trading request processing status

Benefits

- 6 -

To Exchange Participants

• Increase Exchange Participants’ order throughput per trading right

• Allow improvement of operational efficiency

reduce manual work to handle investors’ trading requests, answering

enquiries about order status

better order management for traders

Benefits of AMS/3

- 7 -

To Exchange Participants

• Allow for more efficient risk management through electronic investor authentication and built-in credit control function

Benefits of AMS/3

- 8 -

To Hong Kong

• Improve the Hong Kong securities market’s competitiveness

higher market accessibility and trading efficiency will help attract more market participation

provide market infrastructure of higher trading capacity

allow multiple-market trading platform and flexible trading hours

set the path for the future implementation of straight- through processing

Benefits

- 9 -

To Hong Kong

• A market accessible by global investors

contribute to the globalisation of Hong Kong securities market

strengthen Hong Kong’s position as a major international financial centre

Benefits

- 10 -

(II) Functions & Capacity

- 11 -

Comparison of AMS/3 and AMS/2 Functionalities

Trading MethodTrading Method

Market ModelMarket Model

AutomatchingAutomatching

Single MarketSingle Market

AMS/2AMS/2

- Automatching- Single price auction- Allow for other new trading methods

- Automatching- Single price auction- Allow for other new trading methods

Order typesOrder types Limit OrderLimit Order- Limit order - Enhanced limit order- At auction order- Others

- Limit order - Enhanced limit order- At auction order- Others

Multiple MarketMultiple Market

Trading RequestTrading Request By phone/in personBy phone/in person- By phone/in person- Over the Internet or by mobile phone

- By phone/in person- Over the Internet or by mobile phone

AMS/3AMS/3

- 12 -

Comparison of AMS/3 and AMS/2 Functionalities

Order Modification and Order Status Enquiry

Order Modification and Order Status Enquiry

Order Confirmation

Order Confirmation

Straight-through ProcessingStraight-through Processing

Done by EPsDone by EPs

Done by EPsDone by EPs

N/AN/AN/AN/A

AMS/2AMS/2

- Done by EPs- Investors can initiate through Internet or phone

- Done by EPs- Investors can initiate through Internet or phone

- Done by EPs- Sent to investors

automatically by email, pager or mobile phone

- Done by EPs- Sent to investors

automatically by email, pager or mobile phone

Trading platform established to set the path for the future implementation of straight-through processing

Trading platform established to set the path for the future implementation of straight-through processing

AMS/3AMS/3

- 13 -

Component Component AMS/2 CapacityAMS/2 Capacity AMS/3 CapacityAMS/3 Capacity

(1) Host Handle 75 transactions per second

Handle 200 transactions per second (2.88 million orders per day based on 4 hours of trading)

(2) Network - Host End

(3) Network - Broker End

Total data transmission throughput 1,600Kbps

9.6Kbps per trading right

Total data transmission throughput 18,000Kbps

12Kbps per trading right

Comparison of AMS/3 and AMS/2 System Capacity

- 14 -

Comparison of AMS/3 and AMS/2 System Capacity

(4) Open Gateway (OG)

(5) Multi-Workstation System* (MWS)

(7) Order Routing System (ORS)

(6) Order Throughput in addition to first

terminal

* 8 workstations can be connected to an MWS server.

Component Component

N/A

N/A

N/A

2.5 seconds per order per terminal (EPs may have second and third terminals)

AMS/2 CapacityAMS/2 Capacity

Hardware capacity: 12 transactions per secondMax. 12 transactions per second and 6 transactions per second if risk management function is on

40 transactions per second

1 second per order

AMS/3 CapacityAMS/3 Capacity

- 15 -

AMS/3 Host

• AMS/3 Host system is designed to be scalable, meaning that the system capacity could be expanded by adding hardware like CPU, memory, disc, etc and the software reconfiguration of AMS/3.

AMS/3 Network

• If market needs warrant, AMS/3 Network expansion involves addition of network hardware and reconfiguration of routers and Internet Protocol addresses for the entire network.

Scalability Paths

- 16 -

ORS

• ORS is designed to be scalable to support future transaction growth. Its capacity can be further expanded by adding ORS server and security hardwares.

OG & MWS

• OG vertical scalability is currently limited by the security hardware (for message encryption / decryption) of 12 orders per second. Upgrade direction will either be installing new encryption devices or, if technically feasible, to adopt software encryption mechanism.

Scalability Paths

- 17 -

Throttle Rate

Throttle rate is the number of orders that can be submitted to the Host System from OG within a specific period of time.

Rationales of adopting throttle control :

•As a flood control mechanism which is common to systems of this type, to ensure fair and orderly operation of the market

•To ensure OG-Host traffic flow will not exceed the planned capacity of AMS/3

•As a reference of SEHK to plan, measure and manage trading capacity and upgrade activities

- 18 -

Throttle Rate

• The throttle rate under AMS/3 is defined as 1 second per transaction per trading right. The order throughput of AMS/2 is 2.5 seconds per terminal. Some Exchange Participants may have installed two off-floor trading terminals (second and third terminals) per trading right.

- 19 -

(III) Standards

- 20 -

•Substantial resources required for:

Project planning and system development

Training, installation and roll-out activities for about 500 broker firms, as well as information service providers and software vendors

Resources Involved In AMS/3 Implementation

- 21 -

Resources Involved In AMS/3 Development• Project Steering Group formed by senior executives of the

Exchange from the business and IT areas

• Andersen Consulting, the project manager, has acted as the System Architect and is responsible for User Acceptance Testings

• Compaq supplies and installs host computer system and OG

• PCCW-HKT responsible for MWS, ORS and network development team

• Involve over 1,000 man months, and 140 external consultants at its peak. 50 staff from various departments e.g. IT, Trading and Information Services

- 22 -

• The Exchange is committed to ensuring the highest quality and service standards of AMS/3.

• Critical problems identified in each test must be solved before moving to the next step.

• The Exchange has appointed two expert consultants to conduct separate review on system security and overall system readiness for launch in order to ensure that proper and the highest testing standards have been achieved.

Standards

- 23 -

Before AMS/3 market rehearsals, various testing activities have been performed to ensure readiness at individual component, system and operational levels. These items were covered as follows :

Production Readiness TestProduction Readiness TestUser

Acceptance Test

User Acceptance

Test

AMS/3 Day-0 Rehearsal

Programme

AMS/3 Day-0 Rehearsal

Programme

• Functional Test• Volume Stress Test• Fail-over and Recovery Test• Security and Operation Control

Test

• Functional Test• Volume Stress Test• Fail-over and Recovery Test• Security and Operation Control

Test

• Production Environment Shakedown • Production Fallback (e.g. Fallback to Backup

Site ) • Connectivity Test• Network Operations Setup• Market Contingency Plan Rehearsal (e.g.

Fallback to AMS/2)

• Production Environment Shakedown • Production Fallback (e.g. Fallback to Backup

Site ) • Connectivity Test• Network Operations Setup• Market Contingency Plan Rehearsal (e.g.

Fallback to AMS/2)

- 24 -

•Production readiness tests had been conducted in the past 10 consecutive weeks.

•10 pilot MWS brokers, 41 pilot BSS brokers, selected terminal brokers and all information vendors

participated.

•Themes of the tests include: production environment shakedown, production fallback, connectivity,

network operations setup, fallback to AMS/2, and volume stress, etc.

•Technical issues encountered during the fallback test from primary site to backup site. The issues had been

resolved.

Production Readiness Test

- 25 -

(IV) Preparation for Rollout

- 26 -

Preparation for RolloutA series of broker activities were held to familiarise brokers with AMS/3

- 27 -

The Exchange’s various initiatives to get the market prepared for AMS/3 rollout:

•Raising public/market awareness

market consultation before system development

AMS/3 web corner

press release and presentation to news media

AMS/3 newsletter

other investor education initiatives

Preparation for Rollout

- 28 -

• Support for Exchange Participants

seminars

product brochures

site visits

terminal training /computer based training

Preparation for Rollout

- 29 -

• Support for Information Vendors to facilitate their connectivity to AMS/3

• Support for BSS Suppliers

release technical specifications to support their in-house system development

briefing sessions, including technical briefings after production readiness tests to share experience for ensuring that their systems are capable for handling high throughput

• Help desk to handle telephone and email enquiries

Preparation for Rollout

- 30 -

Next Step: Market Rehearsals

• Four consecutive weeks from 2 September - 23 September

• Aim to familiarise all Exchange Participants (including 10 pilot MWS and 41 pilot BSS) with new trading environment

New functionalities

Operation of Trading Terminals, MWS and OG

Volume stress (3 times of historical peak)

AMS/3-to-AMS/2 fallback

Preparation for Rollout

- 31 -

Details of the Market Rehearsal (MR) Scenarios and Calendar are as follows:Details of the Market Rehearsal (MR) Scenarios and Calendar are as follows:

Day 0 Rehearsal Scenarios MR#1 (Week 1)Normal Trading &Volume Stress

MR#2 (Week 2)Volume Stress & Normal Trading

MR#3 (Week 3)Fallback to BackupSite & NormalTrading

MR#4 (Week 4)3-to-2 Falback

Sat2 Sep

Sun3 Sep

Sat9 Sep

Sun10 Sep

Sat16 Sep

Sun17 Sep

Sat23 Sep

Sun24 Sep

Normal Business ScenariosBroker Trading Activities Exchange Administrative Operations Special ScenariosVolume Stress Fallback to Backup Site “3-to-2” Fallback

NonRehearsalDay

Mandatory Session? Yes Yes Yes No Yes Yes Yes N/A

- 32 -

Day 0 Rehearsal Programme

General

•AMS/3 terminal operation rehearsal following completion of terminal training for 1,800 traders

•Compulsory participation and reporting of rehearsal status by Exchange Participants

•Real-life trading procedure

- 33 -

Day 0 Rehearsal Programme

General

•Briefings will be provided to all Exchange Participants on Market Rehearsal arrangements

•Rehearsal programme will be closely monitored and reviewed by the Exchange and the SFC, and ExchangeParticipants are requested to participate in

compliance with stated requirements and guidelines

•Rehearsal programme consists of Normal Trading, Volume Stress, Fallback to AMS/3 backup site, and Fallback to AMS/2

- 34 -

Day 0 Rehearsal Programme

Normal Trading Rehearsal

• Repeated rehearsals for each session for all on-floor and off-floor terminal users

• Script-free, but with guidelines to ensure realistic “real-life” practice (For example: order quantity NOT greater than 10 board lots, and order price should be within +/- 32 spreads against opening price), and

Exchange Participants are requested to follow the guidelines or else will be suspended from the rehearsal

• Include normal administrative activities (For example: new listings, suspension of trading for individual stocks, and trading and issuers’ news announcements)

- 35 -

Day 0 Rehearsal Programme

Volume Stress Rehearsal

• Two runs of two 45 minutes sessions of volume stress test at 3 times historical peak for ~ 350,000 orders and 250,000 trades per each 45 minutes session

• Exchange Participants are required to key in 3 orders per minute using off-floor terminals, and on-floor terminals will be reserved for computer-assisted generation of traffic to meet the target stress

- 36 -

Day 0 Rehearsal Programme

Fallback Rehearsal

• AMS/3 to AMS/3 backup site (normal contingency fallback)

• AMS/3 to AMS/2 ("3 to 2" fall back, special contingency fallback for the first two weeks)

- 37 -

DAY 0DAY 0DAY 0DAY 0

Rollout depending on market needs

•Auction Trading

•New Order Types - Enhanced Limit Order

• Terminal Delivery

• MWS Multi- Terminal Mode Delivery plus OG Delivery

DAY 0 + 2 monthDAY 0 + 2 month DAY 0 + 3 monthDAY 0 + 3 month

Rollout depending on market needs

•ORS Internet Delivery

•ORS Mobile Delivery

Pilot Rollout10 sets of MWS terminals

Day 0Day 0 Month 2Month 1

1st Batch Rollout 50 MWS, ~30 BSS

Month 3 ………

10 MWS10 MWS

30~40 BSS30~40 BSS

50 MWS50 MWS

30 BSS30 BSSTerminalsTerminals

2nd Batch Rollout50 MWS, ~40 BSS

xx MWSxx MWS

xx BSSxx BSS

50 MWS50 MWS

40 BSS40 BSS

3rd Batch Rollout

Day 0 + 3 weeks

DAY 0 + 3 weeksDAY 0 + 3 weeks

• Activate 30-40 BSS plus OG Delivery

Pilot BSS

Rollout

AMS/3 Rollout ScheduleAMS/3 Rollout Schedule

- 38 -

AMS/3 Rollout ScheduleAMS/3 Rollout Schedule Day 0

Day 0 + 3 months

Day 0 + 3 weeks

Day 0

- 39 -

Preparation for Rollout

• Rollout strategy - implementation by phases to manage implementation risks and preparation for progressive market readiness.

• The Exchange aims to identify any possible market and system issues related to the system rollout in market rehearsals.

• The Exchange will determine if other readiness activities will be required after four weeks of market rehearsals.

- 40 -

On Day 0 (To be decided after satisfactory Market Rehearsals results)

•AMS/3 will operate in terminal mode.

•Other functions and open accessibility will be activated in phases.