SH-HK Connect Enhanced Pre-Trade Checking

.HRE

Shangha¡-Hong Kong Stock Gonnectì

Enhanced Pre-Trade Checking Model

Briefing to ParticipantsJanuary 2015

Agenda I{KEXæ#'*,effi

lmplementation Schedule

Existing Pre-trade Checking Model

Enhanced Pre-trade Ghecking Model

Modified Risk Management Measures for Enhanced Model

Appendix

Agenda

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What

T

is Pre-trade checking?

A mechanism to ensure EPssufficient sellable quantity whenorders

it done?

will haveplacing sell

Routeorder toSSE

CCASSReplicate

shareholding How is

O lnvestors who use custodians must transfershares from their custodians to the sellingEPs before market open

Ø CCASS will take snapshot of each DCP &GCP's SSE Securities holdings eachbusiness day and replicate to CSC tofacilitate Pre{rade Checking

@ Sell orders by an EP will be rejected byCSC if the EP's cumulative sell quantity in

that stock for the day is higher than itsstockholdings during market open

Who to ensure investors will not oversell?

r EPs' responsibility to ensure they have in

place procedures and systems to preventtheir clients from day trading and oversellingof SSE Securities

'ä3å1i'31"i'csc-I ì

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tanInstitutional lnvestor I

lnstitutional lnvestor N

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Share transfer

Shareholdin g replication

Order routing

Snapshot

SSE

r

\

EPI DCPl

)

:l"^':l*:dGhecking

Limitations of Existing Pre-trade Checking Model 'FIKÉ''

Pre-trade delivery of shares by investors from custodians to broker

Frequent movement of shares between custodians and brokers maycause operational burden and costs

r lnconvenient for investors to trade via multiple brokers

r The design is not in line with the practice of institutional investorswhere they move shares to brokers for settlement only after theirorders are executed

Solution: Develop an enhanced Pre-trade Checking Model to address ffie above limitations.The Enhanced Model is optional and will run alongside the Existing Model.

Agenda }IKEXæffi*etr

Enhanced Pre-trade Checking Model


Modified Risk Management Measures for Enhanced Modetr

lm plementation Schedule

Appendix

Enhanced Pre-trade Checking Modelr Special Segregated Accounts of Gustodians

How does it work?

SSE

CCASSEPl

Share transfer

Shareholding replication

Order routing

Snapshot

oRouteorder toSSE

As an add-on to existing model:

Custodians* upon investors' requests toopen Special Segregated Accounts(SPSA) and CCASS will generate aunique lnvestor lD. The SPSAs are forkeeping shareholding of investorsseparately

CCASS will snapshot SSE Securitiesholdings under custodians' SPSAs andreplicate to CSC to facilitate Pre-tradeChecking

lnvestors should inform its designatedEPs the assigned lnvestor lDs for Pre-trade Checking when placing sell orders

Custodians transfer shares from theSPSA to the relevant ClearingParticipants for settlement (based oni nvestors' i nstructions)

IIIIIII

Replicateshareholdinginformation toCSC on each

csc

---)......)

-l>O

to Clearíng Participants after sell order exec.rtion (Post-trade Delivery)

ØYes

@

@

Under enhanced model, investors who use custodians only transfer SSE Securiúres

Pre-tradeChecking

ustodianSPSA ISPSA 2SPSA 3

* lncluding GCPs who are non-EPs and Custodian Participants of CCASS

SPSAs Leverage on Existing SSA Accoun

Non-EP GCPs & Custodian Participants of CCASS can set up an SPSA via existing "Add Stock SegregatedAccount" function in CCASS. Any SSA set up by Custodian within the specific range "800XXXXX" will be

classified as SPSA. CCASS will generate a unique Investor lD for each SPSA.

1

80000001 611682 80000001 600002

80000002 720462

3 80000004 224462 80000003 129641

Creation of SPSA at CCASS

Sample CCASS Screen showing creation of SPSA

Must be tn "800XXXXX" format

CCASS will generate Investor lDupon successful creation of SPSACustodians / non-EP GCPs

by

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SPSA Setup Procedure

lnstitutionallnvestor

Custodían

@Create SPSA(s) and getlnvestor lD(s) in CCASS

lnput lnvestor lD for sellorders at CSC

oØo@o

Each investor can request its custodian(s) to open SPSA(s) for holding SSE securitiesCustodian opens SPSAs in CCASS online. CCASS will assign an unique lnvestor lD for each SPSAopenedCustodian will complete and return the SPSA Form to HKSCC (with the authorized signatures from both

Custodian and the designated EP)HKSCC will inform SEHK to set up the unique lnvestor lD of the SPSA and the list of designated EP(s) in CSC

Upon notification, custodian can start transferring the investor's shareholdings to the SPSA so that EP can startselling SSE securities for lnvestor from SPSA

Custodians sfrall give prior notice of not less than five business days to HKExfor adding or updating SPSA and list of designated EPs

EP1, EP2, EP3

10

SPSA Form

L

ll*dil tlneler*

fffe(tive Date: t_l_l I l_{_i/ l_l*.l [ ÐÐ I MM / YY J

I'. $PECIAI SEGRCGATED ACCOIJNÎ DITÂILS

S¡reciaf Stock Segregatecl Acccru:rt No,: l*8_Ë*û_l_û*i_l j_ì_l_l

III. DËTASL5 OI EXËCLITåN SROKËR DËSIGh¡ATEI, 8Y THE ?NWËSTÛR

Flease ¡lrorrirle cJet¿íf: of the Exclrange Partìciparrt ele:ígriateeT by the inve:tor fcr execr¿tio¡: cfCltin ¿ fr:n ¡rect leci¡rities:

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Notes:

r Custodians or non-EP GCPs are required to fill inthe SPSA number and lnvestor lD on the SpecialSegregated Account and Designated ExecutingBroker Maintenance Form ("SPSA Form"), whichwill be available on HKEx website

r To add or delete a designated Executing Broker (EP)for the investor, Custodian Participant or GCP shallgive prior notice of not less than five business davs

r Custodian Participant or GCP will be notified andthe newly designated Executing Broker (EP) canstart using the lnvestor lD on and after the effectivedate specified in the form. For delete request, theoriginally designated Executing Broker (EP) will notbe able to use the lnvestor lD to place sell order onand after the effective date specified in the form.

11

Sell Order lnput and Pre-trade Checking at CSC

Sellorder

t- - -

! orders from I

¡ lnvestor I

ttr with SPSA I

L--

: CSC will verify:i o EP A is a designated broker for the

I investor 1

| .) lnvestor t has sufficient holding in

I ¡ts accountI

I

i lf both checking pass -> Accept order

I lt eittrer checking fails -> Reject orderI

L--

Notes:

1. lnvestor can appoint20 EPs as brokerslnvestor lD

at mostfor each

2. lnvestor lD is not applicable tobuy orders

12

Securities Settlementr Post Trade Transfer for Short CNS Stock Position

How to settle CruS Se// obligation from SPSA ?Before CNS Batch Settlement Run (BSR) on T day,

For non-EP GCPs:Transfer the CNS sellquantity from SPSA toClearing Account via STl,via two new STI transferruns for SPSAI

For Custodian PaÉicipants:Transfer the CNS sell quantity fromSPSA to Clearing Participant via Sl,via two new Sl BSR2

cPl

13

Other changes to facilitate Pre-trade Gher Change of GGASS Processing Schedule

r Revise the CNS batch settlement run schedule for SSE Securities- 1"t run: 16:30 ) 17:30- 2nd run: 18:00 ) 19:00

Additional Sl matching runs- 13:45- 17:30- 19:00

Additional Sl batch settlement runs (for SPSA as delivering account only)- 17:30- 19:00

Additional ATI / STI validation- 17:30

STI batch transfer runs in two groups and additional runs- Add¡tional STI batch transfer runs at 17:30, 19:00 and 20:00 will- Existing STI batch transfer runs, including the additional run at

SPSA only

be applicable to SPSA17.30, will be applicable to non -

Refer to Appendix 1 for CCASS Repod Enhancement14

Enhanced CCASS Processing Schedule for A-share Market

CNS BSR

SI BSR

Sl Matchingrun

STIvalidation

STI Batch Transfer(exclude SPSA)

STI Batch Transfer(SPSA only)

E

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.::EHl"å,.fli",.

ATIvalidation E

f4

@

@

EE

w Only from SPSAto clearing account

A Shares TradingSessions

Market Original Function Time New Function Time

19:15 to 19:30Change Dl Requirement 18:15 to 19:30

O7:15 to 19:00

08:00 to 19:45 (for rights issue subscription)19:00 to 19:45 (for takeover offer)

Subscription lnstruction Maintenance 18:00 to 19:00

08:00 to 19:45

Other changes to fac¡litate Pre-trade Checkin g(21r Change of CCASS Funct¡on Times and Reports

1) CCASS function time changes

* lmpact to all CCASS Participants

2) New value in reports to indicate Sell Trades from SPSA

3) New CCASS Data File - Trade File of SPSA(available to Custodians / non-EP GGPs only):

Report lD Report Name Market New Value

"lo wiJl be shown in the "Origin lnd,icatod' for sell trades from SPSAFinal Clearing Statement

"1" will be shown in the "Origin lndicator" for sell trades from SPSAlntra-day Trade File

RepoÉ ID Report Name Time File Content

16

Other changes to facilitate Pre-trade Checking(3)I SI DVP

r Currently, only Free of Payment (FOP) Sl is allowed for SSE Securitiesr Delivery versus Payment (DVP) Sl for USD, HKD and RMB will be added to enhance the settlement

process of SSE Securities, settlement amount detail will be displayed in the "Enquire Money Position"function of CCASS

Time of EPI Generation for DVP Sl:

Refer to Appendix 2 for CCASS enhancement due to Sl DVP of SSE Securifresbe available by mid-January 2015

Time of Sl Settlement EPI Generation Payment Gonfirmation

Morning Sl BSR at around 07:45 17:45After 16:00

After morning Sl BSR Next Day 09:30After 20:00

17

Agenda

Ëxisting Pre-trade Checking Model



Appendix

Implementation Schedule

Modification to Existing Risk ManagementMeasures on Northbound Trades

l{I(EnfirWÈä,ffi

Pre-trade checking of holdingsunder GP

r Pre-trade stock delivery to CP

r Low risk of settlementfailure for short positions

r Risk of settlement failure

choose not to deliver stocksin SPSA to CP in certaincircumstancesl

r Pre-trade checking of holdingsunder registered custodian's SPSAaccount

For SPSA trades, pre-trade deliveryof stocks to GP is NOT required

Existing

New

19

Modification to Daily Mainland Settlement DepositRequirement

Daily Mainland Settlement Deposit Requirement:

Gurrent:

Settlement deposit rateix

(CP's daily buy turnover in SSE Securities+

Overdue short positions in SSE Securities)

Note 1: Settlement deposit rate is currently at 20%

New:

Settlement deposit ratex

(GP's daily buy turnover in SSE Securities+

Overdue short positions in SSE Securities

,- - - + - - r - -

I Oaily sell turnover from SPSA I'l

r _ _ _ _ jls_s_e_sgiriti":)_ _ _ _l

20

Modification to Monthly Mainland SettlementDeposit Requirement

Monthly Mainland Settlement Deposit Requirement :

+

Gurrent

Sum of CP's daily buy turnover* overdue short positionsin the previous month *Number of days havingbuy turnover by the CP

in the previous month

New

Number of days havingsell turnover by the SPSA

in the previous month

Gurrent

X Settlement Deposit Rate

Note:* For the day without buy turnover in SSE Secunïre s, overdue shotT positions witl be excluded from the "ELtm of CP's dailybuy turnover in SSE Securifies + overdue short poslúions /n SSE Securlies in the previous month" in calculating the MonthlyMainland Settlement Deposit requirement.

CPs who do not have SPSA selj trade will not be affected21

Galculation of MainlandRequirement - Same as

SettlementToday

Deposit

1. Mainland Settlement Deposit Requirement:

Higher of

And

2. Amount to be collected from GP:

hand

22

Galculation of Mainland Settlement Depos¡t -An Example

(20,000)

O

oo

No Special Segregated Accaunt's sellturnaver

Notes:1. MSTD = Mainland Settlement Deposit2. Refund (if any) will only be made on the 1Oth business day of the month. lf thelOth business day of the month is not a trading day in A-share market, refund will be made on nextbusiness day which is a trading day in A-share market.

Modification toPayable Report

ettlement)

Deposit

Additional field "SPSA SELL TURNOVER lN A SHARES" will be added to cater the change of:

Daily Mainland Settlement Deposit RequirementMonthly Mainland Settlement Deposit Requirement

I

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24

Agenda





Appendix

lmplementation Schedu le (Tentative)

r Expect enhanced service Iaunches in 1Q 2015*

ohnd ofFebruary /Early March2015- Rollout Test

March 2015- System Launch

oDecember 2014-Tech nical S pecification

oEarly

January 2015- Briefing Session

* Subject fo SFC's approval and the final schedule will be furfher announced via circular

26

Agenda





Appendix

Appendix 1

CCASS Report Enhancement1l Revised report qeneration time / frequencv

CSEBAOl ATI Batch lnput Control Report GLOB 09:15, 10:00, 11:30, 12:45,15:15, 17:00, 17:30,2O:0O Additional ATI batchvalidation run

CSEATOl STI Batch lnput Control Report GLOB Additional STI batchvalidation run

CSEATO2 STlActivity Report 09:15, 10:00, 12:45, 15:30, 17:O0, 17:.3O, 19:00, 20:00 Additional STI batchtransfer runs

CCLUSOl Unmatched Sl Report MAMK 08:15, 12:15, 14:15, 15:30, 17:30, 18:00, 19:30, 20:00 Additional Sl matchingruns

CSESI02 lntra-day lSl / Sl Full List 08:15, 12:15, 14:15, 15:30, 17:30, 18:00, 19:30, 20:00 Additional Sl matchingruns and Sl BSR

CSESPO4 lntra-day Settled Position Reporl MAMK 08:15, 18:00, 19:30 Revise of CNS BSR

cFtBr0l Buy-in Notification Report 19:15 Revise of CNS BSR

2) New field value to indicate sell trades oriqlnated from SPSA

Report lD Report Name Market New Value

Final Clearing Statement "l" will be shown in the "Origin lndicato/' for sell trades from SPSA

ccltD0l lntra-day Trade File "1" will be shown in the "Origin lndicator" for sell trades from SPSA

3) New CCASS Report - Trade File of SPSA(available to Custodians / GGP who are non-EP only):

Report lD Report Name Market Time File Content

Trade File of SPSA Showing detail of the sell trades from SPSA, including trade time,counterparty participant lD, execution broker firm lD, SPSA account number,to facilitate the preparation of STI / Sl by Custodian for CNS settlement

Appendix2CCASS Enhancement for Sl DVP

DVP Sl information be displayed different sections "Enquire Money Position" function

Detail of SSE Securities Sl with DVP as settlement method will be included in the following reports:r DDI / DCI / EPI Summary for Participant (CSEMA28 / CSEMS2S)r Settlement Related EPI Listing (CSEMA29 / CSEMS29)I CCASS Funding Projection Report for Participant (CSEMP02)

Money Obligation forÂ*hare Martett*ffffi

iþtAmount

3,00û,{x}- ?,000,00

tt"ffJfr *tArno¡r¡t

3,qxi.00" 2,000,00

*tffiïffi net Amount

3,00{1,00" 2,{m,m

"^ifiiffi -etlmount

3noo0,{10- r,o0Û,0û

5,ü)f¡.00" 4,00û,û0-

9,000,ü0" 3,00û.ú0-

o*mrf üetAmount

6,000,00- l,oûü.ot-

6,00ü.ffi 4,üp.0e-

t¿,ûWffi^ A,û{4.ÛS-

Re¿Gfo¡bþJßecôfrlp{,Âmount

5,00t 00

R¿caÍv¡trþ/fteccivcdÀmount

s,tsû.û0

Fece fuabþftecelveúAmount

5,o(¡s.0t

ßeæivabþ¡RsceivedAmount

4,000,00

2,000,{xl

ô,000,CIo

Reee iv¡bleJReceþodAmount

2,000,00

?,00Û.00

4,00û.00

Shows settlement amount from Sl settledon previous business day (except those Slsettled at 1"tBSR)

Shows settlement amount from Sl settled at1st BSR (i.e. 07:45) of current day

Shows settlement amount from Sl whichEPls are not yet delivered to HKICL

Shows settlement amount from Sl withsettlement date < = current CCASS date

30

Appendix 3Other Features of SPSA

Voting Delegation

SPSA holders delegate the input of voting instructions to CP and are notallowed to input voting instructions themselves

r Not available to SPSA

Nominee Services

Subscription forSMS / Email Alerts

Hard CopyStatement Services

r Not available to SPSA

31

SH-HK Connect Enhanced Pre-Trade Checking

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