UNITED STATES RULE l if -ÇC~'; J(/ / I

Agency decision

Ask Donna

What actually matters in this document.

Text

ACT X(l/I ~40

SEION

UNITED STATES RULE l if -ÇC~'; J(/ / I

. I t

SECURITIES AND EXCHANGE =MMJSSION PULIC .... ~

WASHINGTON. D.C. 20549 AVATT.ABI "71L=i ~~A : _

DIVISION OF

INVESTMENT MANAGEMENT

July 13, 1995

Ms. Susane Chan, General Counsel

Mr. Suren D. Gangai, Principal Legal Adviser

Hongkong Securities Clearing Company Limited

12/F Chinachem Exchange Square

1 Hoi Wan Street

Quarry Bay, Hongkong

Dear Ms. Chan and Mr. Gangai:

Thank you for your letter of May 10, 1995 regarding the

proposed changes to the operations of Hongkong Securities

Clearing Company Limited ("Hongkong Clearing"). You state that

Hongkong Clearing will terminate the Depository Contract now in

place with Hongkong and Shanghai Bank Corporation Limited

("Hongkong Bank") and implement its own "in-house" depository

operations.

Based on the information contained in your letter and the

appendices, particularly your representation that Hongkong

Clearing's in-house depository operations will provide the same

functions and similar operational procedures as those services

previously provided by Hongkong Bank, it does not appear that any

amendment is necessary to our no-action response to Hongkong

Clearing under Rule 17f-5(c) (2) (iii) of the Investment Company

Act of 1940. 1./

If we can be of any additional assistance in this matter,

please contact me at (202) 942 - 0660.

Sincerely,

(j tt.v- 0 ; ~~~"'

JOhn V. 0' Hanlon

Special Counsel

1./ Hong Kong Securities Clearing Company Limited (pub. avail.

Sept. 8, 1992).

HONGKONG CLEANG

~m~Ji

HONG KONG SECURITIES ClEARING COMPANY LIMITED W m: q::9 #.. ~ ~ ~ PJ

10 May 1995

Mr Thomas Harman

Chief Counsel

Investment Management Division

US Securities & Exchange Commission

450 Fifth Street, N. W.

Washington DC 20549

U.S.A.

Dea Mr Haran,

Re: Elgible Foregn Custodian and Hongkong Cleag's CCASS Cetr Desitory

I refer to our letter of the 5th March 1992 and supplementa letters of 29th May, 24th June,

29th June, 23rd July, 28th July and 7th September 1992 and the supporting materials

requesting your assurace that Hongkong Securities Cleang Company Limited (Hongkong

Cleang) quaifies as an eligible foreign custodian pursuant to sub-paragraph (c)(2)(iii) of

Rule 17f-5 under the Investment Company Act of 1940 and the subsequent grant of the "no

action letter" dated 8th September 1992 (your ref No. 92-170-cc) (File No. 132-3), and write

to inform you that Hongkong Cleang is in the procss of developing its own "in-house"

depository operations with the view to terminating the Depository Contract now iil place with

Hongkong and Shanghai Banking Corpration Limited (the "Hongkong Bank") as detaled

in my sad letters.

You may recl that Hongkong Cleang had for a period of three yeas appointed Hongkong

Bank to operate the CCASS Central Depository on behalf of Hongkong Cleaing, which

appointment is due to expire on the 1st June 1995.

Because Hongkong Cleag proposes to commence direct in-house operations of the CCASS

Central Depository from Januar 1996, the Depository Contract with Hongkong Bank has

been extended for a period of six months until 31st December 1995 with an option to extend

for further six months until June 1996.

Enclosed as Apdi A is an overview of the current operations and the proposed in-house

depository ;'operations, while Appdi B provides a detaled description of the proposed

operations of the in-house depc'litory.

In order to ensure a smooth transition and tran.~fer of operations from Hongkong Bank to

Hongkong Cleang and to avoid any loss of continuity, we would be obliged if you would

advise us of any formalities we have to comply with to ensure that Hongkong Clearing's

status as an eligible foreign custodian is continued and that the "no action letter" of the 8th

12/F CHINACHEM EXCHANGE SQ1ARE. 1 HOI WAN STREET. Q1ARRY BAY. HONG KONG. TEL 25970888 FAX 2579 0116

wìt!I~ß.ìiií~m-'jI!UliH!!:5ë~IlJlT=. 'iU¡i 2597 0888 flÄ 25790116

e HONG KONG SECURITIES CLEARING COMPANY LIMITED Wm:q::9#..~~~PJ

Page 2

Mr Thomas Harman

10 May 1995

Eligible Foreign Custodian and Hongkong Cleang's CCASS Centr Depository

September 1992 wil continue to apply to the in-house operations from Januar 1996.

I have enclosed herewith, for information, a copy of our latest Interim Report.

Should you require any furter information please do not hesitate to contact either of the

undersigned.

Yours sincerely,

. ~

Suzae Chan (Ms)

Suren D Gan ai

General Counsel

Principal Legal Adviser

Legal & Secretaal Services Deparment

Chief Executive Office

\SG\ci\801.

encl

Appdi A

CUR AN PROPOED IN-HOUSE DEPITORY OPERTIONS OVEVI

Curt Dqtoiy Qption - Hongkong Ba beg the aptor

An overview of the current operations

To fulfi its duties and functions, Hongkong Cleang retaned Hongkong Bak as its agent

for the operation of the CCASS Depository, the centr depository. To meet its contract\I

obligations Hongkong Bank established a speific organtional unit to provide depository

and nominee services for CCASS. At present, there are approximately 150 staff assigned

to the unit. However, the pe record was around 180 staf when the volume of depository

activities reached the level of nealy 9,00 trsactions per day recntly.

The depository and nominee services computer system (CDS) employed by Hongkong Bank

is a modification of their custodian and nominee system. The scope of functions covers vault

inventory management, defective seurities databas maintenance and trcking, the keeping

of audit trls on deposit and withdrawal activities and corprate events actioning.

To faciltate accurate and timely communication with CCASS, an electronic link with back-up

argement has been established between Hongkong Cleang and Hongkong Bank for fies

trsmission purpses.

For the purpse of confidentiality, CCASS parcipants' information is only disclosed to

Hongkong Bak ona nee-to-know basis.

Lotion of the CCASS De,psitory

The CCASS Depository and the Common Nominee Services operation unit is situated

at Basment Levell and 2, 1 Queen's Road Centr, Hong Kong at the main office

of Hongkong Bak. A vault constrcted within the confines of the existing vault at

Basement Level 2 is use for sae-keeping of share certficates for CCASS. Counter

servces are provided at Bament Levell. Tota floor area including the vault

occupied by the operation unit is around 17,00 squae feet.

Back-up premises and facilties for the CCASS Depository and Nominee operations

are provided by Hongkong Bak. If, for whatever reason, the usua premises and

facilitieS' beme unavailable, such back-up premises and facilties wil be made

avaiiâble

by Hongkong Bak for use by parcipants.

i/Services provided by Hongkong Bank

Deposit

(SG\ci\803A)

- 1

Hongkong Bak undertes to provide, on each business day, facilties for the deposit

of seurities into the CCASS Depository by or on behalf of parcipants. The services

include :

sight checkig deposit vouchers, share certificates and the trsfer dees to .

make sure that they are in goo order before the parcipants' CCASS stock

accounts are credited with the number of shares deposited, via CCASS

termnals instaled at the counters, and then followed with detal checking;

capturing certificate numbers into the CDS system for defective secunties

trcking;

sending the majority of the shares deposited by paricipants to registras for

immediate registrtion into the name of HKSCC Nominees Ltd (HKSCC

Nominees). Some certficates are kept under "street name" (SN) to cater f9r

withdrawal requests until book-close (the record date for entitlements).

Withdrawal

Hongkong Ba is obliged to provide, on each business day, facilties for the

withdrawal of securities from the CCASS Depository by or on behalf of paricipants.

To car out its duties, Hongkong Bak:

inspets withdrawal vouchers submitted by CCASS parcipants for appropriate

authorization, delivers share certficates to parcipants at the counters and

debits parcipants' stok accounts in CCASS via CCASS terminals. .

Telephone withdrawal pre-advice service is available to paricipants to reduce

the turnaround time required for physica withdrawal of secunties;

causes an endorsement to be made on the trsfer dee of the share

certficates so withdrawn if the withdrawal is made for trde settlement

purpses as required by the Hong Kong Inland Revenue Deparment.

Safe-k~pine of seurities

Hongkong Bak maintans two vaults for sae-keeping of share certificates for

CCASS.

The main vault keeps the majority of share certficates, which are denominated as

jumbo rertficates for storage purpses and registered in the name of HKSCC

Nominees.

/,The working vault contans scrip in board lots and odd lots for fulfillng day-to-day

" 'withdrawal requirements. Some of the scrip are kept in SN.

(SG\ci\803A)

- 2

Nominee services

Hongkong Bank is also appointed by Hongkong Cleang to assist in the provision of

nominee services to paricipants in respet of seurities held in CCASS.

Hongkong Cleang, with the support from Hongkong Bank, monitors all corprate

actions or activities affecting securities kept in CCASS and informs paricipants of all

such actions and activities which require parcipants to tae action in order to

parcipate in them.

The duties and functions provided by Hongkong Ban in nominee services include:

Anouncementlcommuni~tion

To bring the relevant matters to the attention of the parcipants concerned or

to arge for the distrbution of copies of relevant corprate communications

to parcipants;

Voting

To send advice to paricipants, to 'obtan instrctions from them and to vote

on their behalf; .

Entitlements/actions (not requinng the exercise of discretion), such as

dividend payments, issues of bonus shares

To caculate the entitlements accrued to parcipants, to collect the entitlements

and to distribute them to parcipants;

Entitlements/actions (requiring the exercise of discretion), such as rights

issues, tae-overs offers

To send advice to parcipants, to collect instrctions from them and to tae

action on behalf; and

Unclaimed entitlements

To procss claims made by parcipants on unclaimed benefits by inspeting

relevant documents.

Obseon~ ,~e the curt o.tion

Còhsiderable management effort is expended by Hongkong Cleang and Hongkong

i/Bak in coordinating the two systems, such as

reconcilng and synchronizing the CDS records with CCASS records;

(SG\ci\803A)

-3

developing enhancements to Hongkong Bak's operational procures and

cater for new business requirements. Negotiations and possib.lY

systems to

duplicative enhancement costs are normally required; .

assuring that Hongkong Cleang's policies are caed out on a timely basis

according to the working procures of the CCASS Depository which are

governed by estàblished procura manuals.

. ere are certn limitations and constrnts in Hongkong Ba's system, in paricular

the current depository. and nominee services systems are a modified version

of the Hongkong Ba's original custodian and nominee services systems

which were develope some time ago. For many functions, supplementa

manual operations are required, for example, to handle new and speial

corprate activities.

the size and trsmission schedule of the interface fies with CCASS are

constrned by Hongkong Bank's computer operation and system capacity.

Certn resource ineffciencies exist in the utiization of the CCASS's system, in

parcular

some of the CCASS job flows at day-end are dependent upon the interface

fies trsmitted from Hongkong Bank; CCASS's day-end batch processing

schedule is thus prolonged due to the different, and not easily reconciled,

operational cycles.

The pOOse in-house CCASS I)sitory Qption

An overview of the proposed in-house depository operations (new model)

The new model is a modification of the current model designed to ~rovide the same functions

and similar operational procur~~qalnng with an expandedpe_of functions and improved

integrauon of operatfons. A deta description of the operational features of the new model

Q) r:-';

is set out iÌfpemlix ø:

Apar from operating the CCASS Depository at a Dew 1nr-in, the vÕhe of CCASS

Depository a.tivitiesi-le., deposit and withdrawal trsactions, is expeted to fail-me

becuse parcipants have now buU-l-p_substatiaJ holdings of stock I-1Ventory in CCASS.

At the end of Decmber 1993, share quatity under CCASS custody accounted for

approximately 28 % of the tota shares issued by liste companes. With the introduction of

direct stock -admission into CCASS (of intial public offerings) in ealy 1994 and other

policies,iota stock under CCASS custody has continued to increa. As a result, the

volu~ of the CCASS Depository trsactions in the future is reanably expected to be

smaler than the current one.

(SG\ci\803A)

- 4

Ba on operational experience, however, it is envisaged that the volume of nominee

services operations will grow significatly, at leat in the same proportion as the increase in

number of new stocks admitt into CCASS.

.~..

The new model wil be operated by o~perational unit using o~__~~~e.r system apd set

of erocures. It is expeted that many of the constrnts found in the current model would

be resolved. The design of the new model also taes into consideration the operational

experience gained and the lessons leaed from situations encountered in the past three yeas.

Enhancement

In respet of depository services, major enhancements are incorprated into the new

model, namely:

improvement of the internal control by the introduction of magnetic card

trsaction overrding mechanism at the counters and instalation of bar code

scning system for trcking certficate detals;

improvement of the inventory management system by capturing the following

information

the amount of shares sent for registrtion into the name of HKSCC

Nominees or being kept in vault in SN;

detals of new certficates returned from registrs;

optimal board lot level requirement; and

online trcking of defective securities.

mechanisation of the withdrawal pre-advice services.

In respet of nominee services, the major enhancement under the new model is the

mechanisation of the communication with parcipants by makng use of the CCASS

terminals to despatch to pacipants information and advice of corprate events and

to recive instrctions from paricipants on corprate activities which require them

to tae action.

Lotion

Since most CCASS parcipants are locte in the Centra and Admiralty districts of

Hong Kong, the in-house CCASS Depository is to be locted at Vicwood Plaz in

Centr. Based on the expetations of the demands on the future operations, the tota

floor area required for depository operations and vault space wil be approximately

17,00 square

feet.

M~l)wer

/~,io operate the CCASS Depository under the new model, an additional headçQun.t9f

103 staff

would be requir~, 86 of which would be to service the day-to-day

1"~..____.,~_.. ". n"._."' __ .'.__ .___- ...__r

(SG\ci\803A)

-5

from other deparments currently

operations, the remainig would be supportg staff

servicing CCASS and the current operations. Some of the required staff are in place

due to Hongkong Cleang's original nee to supervise and administrate the agency

relationship with Hongkong Bak, and to provide nominee services to supplement

those not covered by Hongkong Bak. Consequently, most of the senior managers

of Hongkong Cleang's depository operations have been in place for several yeas.

Except of some systems support staff, most of the staf to be recruited are for clerical

positions.

System development

syste

To facilta~.w-iodel, a new software

is being develope by Andersen

Consulting aecording to HonE-kong Clean~'~Jequirements. Andersen Consulting

was the contrctor for the development of the original CCASS software. The

additional softare for depository functions wil be fully integrated with the existing

CCASS software, database and network.

Backup Facilities

The CCASS svst~ has fully redunda!!L off-site hardw.M~~-ioftwa~tase

strctur~d data archives. In addition, the existing customer services centre for

HKSCC RegisfrasLtâ;which includes teller windows, necssa CCASS terminals

and strong room, wil be reserved if off-site backup operation of the vault and

counters becomes necssa.

Legal

Given there are few modifications in the operations under the new model, Hongkong

Cleang's Legal Deparment wil sek. recnfirmlltinn that Hongkong Cleang's

Authorize Deposiry.status-eferr.. by thp. SFr and similar designtions by

overse authorities, such as SEC in the U.S.A. and SFA in toe U.K., is not affected.

Each of these insiltiQi1s~wiif-.be.:ntëtnfrme..igRation staus.

Risk implications and relate ma

Market risk. credit risk and defective seurities risk

Given that Hongkong Cleang's liabilty for defective securiti~sßlsettlement of

trdes remains the sa11e__und~r-Jhe__newmodel, Hongkong Cleang wil not have

additi~ná1 exposure in the area of market risk, credit risk and defective securities

risk.

Oprational risks and measures taen

(SG\ci\803A)

-6

Physica risk

This relates to losses arsing from physical storage of share certificates in the

vault and in trsit, losses of certficates by theft or physica damage of share

certficates.

To address this risk, proper internal control procures, such as appointment

of a seurity company to overse trsporttion of certificates to and from

registrs, full segregation of duties, physica access control and provision of

timely management reports, wil be in place. In addition, a vault 5,00

square feet in size, with a 2" thick door and 4" thick walls, with fire and

burglar resistat matenals up to the ceilng and inside panels of secunty steel

fencing is under constrction for the storage of share certficates. The vaùlt

wil be clad in secure materials on six sides, such cladding meets the

Austrian Stadard (which is equivalent to or exceeing insurance

underwriters' criteria and which is also equivalent to the UL Class 2 Burglar

Stadard). Hongkong Cleang has engaged Guardforce Limited, a leading

security services firm to manufacture and instal the vault at Hongkong

Cleang's premises. Regular and surprise physical stock counts wil be

caed out and checked against the underlying records for correctness.

Potential risk exposure wil be covered by physica all risk insurance cover.

Clerica errors and negligence

Hongkong Cleang may suffer loss due to clerica errors or negligence in the course

of operating the depository and nominee services. Segregation of duties and makerchecker procures wil be established to minimize possible errors that might be made

during daly operations.

To cover for the potential risk exposure arsing from clerical errors or negligence, the

existig Comprehensive Crime Insurace policy, which presently covers the current

operations, wil be re-assesse to ensure that Hongkong Cleang is suffciently

insured.

Merts of the new model

The merits of operating the whole rage of depository and nominee services by Hongkong

Cleang are as follows:

the service stadad provided to CCASS parcipants ca be further rased by meas

of dtr~t management and control;

tlé extr effort spent on cordinating, synchronizing and reconciling records

/ ¡generated by two systems ca be saved;

a more effective use of CCASS system resources becuse the dependency on interface

(SG\ci\803A)

-7

fies trsmitt from Hongkong Bak ca be eliminate;

modification of operating procures and system enhancements ca be adopted to

cater for market demand.

internal policies ca be caed out freely without the constrants and involvement of

a third pary.

staff resources ca be allocte more efficiently by avoiding duplication of functions

between organizations, cross trning and development of staff for contingency and

back-up purpses.

(SG\ci\803A)

- 8

Appdi B

DESCRON OF TH OPERTION OF TH IN-HOUSE DEPSITORY OPERATION

Desitoiy Sece

Counter section

a. Deposit

Slight check deposit voucher and certficates before inputting the

trsaction.

Check voucher detals against machine validation (by supervisor).

Supervisor ca validate trsactions by magnetic card. Having

initialled the voucher, a copy is given to the parcipant's courier.

Withdrawal

Parcipants input withdrawal instrctions via their CCASS terminals.

Vault Section to extrct withdrawal instrctions from CCASS terminals

and extrct certficates.

Upon recipt of certficates from Vault Section, check that the

certificate detals conform with the attached system printout. .

Retreve withdrawal instrctions detals and authorie the transaction

upon despatch of certficates to the authorized representative after his

identity has been checked.

Keep nof-yet-collected certficates in vault at day-end. Obtan the

certficates from the vault next morning to await collection.

Furter procssing of stock deposits

Check detals of certficates and trsfer documents to make sure that

they (a) agree with the detas on the deposit voucher; and (b) are in

goo order.

Retreve trsaction via terminal to input certficate detals, i.e.,

certficate numbers and denomination. Some job steps wil become

redundant with the bar coe scning system in operation. .

...

I' "

In genera, for operational convenience, a deposit trasaction, which

may involve numerous certficate, has to go though registration.

However, the system wil cater for the ca when par of the shares

deposited for one trsaction nee to be kept as SN shares while the

rest have to be registered into CN name. '

For those share certficates which are in the procss of registrtion, the

system wil be able to record the date and the denominations of new

shares returned following registrtion. Such information wil be used

(SG\ci\803B)

- 1

for compilng the estimate board lot level requirement for inventory

management purpse.

Bad-titled certficates wil be deteted during online processing at the

time of deposit. On the following working day, check report to

inspet if any previous day's deposits involve bad-titled certficates.

In addition, call over procures wil be applied (i.e., one person reads

aloud and another person checks report) in respet of deposit

trasactions to ensure correctness of data input.

d. Rectification of errors

Input a void trsaction to reverse an erroneous trasaction if the

mistae is spotted on the same day (before online function is cut oft).

Input an adjustment trsaction to increase/decrease a parcipant's

share quantity if the mistae is spotted after the trsaction day (after

online function is cut oft). In addition to the present information, the

detals must include:

date on which the original trasaction was input. If applicable, .

the system wil adjust the parcipant's entitlement quantity.

whether the original trsaction was a deposit transaction. If

so, the parcipant's cumulative deposit quantity wil be

adjusted accrdingly.

detas of reaon for adjustment.

Trasfer section

Certficates to be sent to registras

Prepare for corprate events such as benefit entitlement, stock

conversion and corprate action.

newly deposited certficates recived from Counter Section

warts to be convert, rights to be taen up and open offer

to be accpted (bas on parcipants' electronic conversion

requests that have been consolidate by Nominee Section).

stocks subject to corprate action, e.g., consolidation, splitting,

compulsory offer (bas on instrction from Nominee Section).

Prepare trsfer multi-set (to which copies of the deposit vouchers are

attached) or conversion multi-set. A copy each of the multi-set is

given to the registr and Vault Section. The Trasfer Section keeps

...

two copies for furter procssing. The denomination required is

obtaned from Vault Section.

Send certficates to registrs by next day. Exceptions are (a) stocks

on send ex-al date or last subscription day are sent for registration

on sae day; and (b) stocks handled by inactive registrars are sent for

registrtion once a week.

(SG\ci\803B)

-2

File trsfer recipts in collection date order.

Certficates returned from registrs

Check trsfer recipt fie on a daily basis.

Collect from registrs on due date (except for inactive registras

which wil be visited once a week).

Check the returned certficates against detals on trsfer/conversion

multi-set, fill in the new certficate numbers on the multi-set.

Update detals of new certificate to system by manual input. Obtan

a system printout to verify correctness of input.

Pass the certficates, a copy of the trsfer/conversion multi-set aÌd

system printout to Vault Section.

c. Procssing Withdrawal

Cause HKSCC Nominee Ltd's chop (se) on trsfer documentation

on behalf of sellng brokers, if applicable.

Retreve trsaction via terminal to input or sca certificate detals,

Le., certficate numbers and denomination. Obtan system printout.

Aftr seond check, pass certficates to Counter Section. The printout

with certficate detals is attched.

Vault section

a. Deposited shares to be directly filed

Recive deposited certficates from Counter Section. Copies of deposit

vouchers and system printout of certficate detals are attached.

Aftr checkig, fie certficates to main vault or working vault.

b. Deposite shares to go through registrtion

Recive new ceficates from Trasfer Section. A copy of the relevant

trsfer multi-set (on which the certficate numbers are entered) and a system

printout are attched.

After checking, file certficates to main vault or working vault.

c. Withdrawal

'B on withdrawal instrctions extrcted from the system, extract

certficates from working vault and, if insufficient, from main vault. Keep

recrd of stock movements between the two vaults.

(SG\ci\803B)

For CN shares, complete trsferor's par on trsfer documentation and

arge to cause trsferor's signature (machine or manua).

-3

d. Corprate events

For stock conversions and corprate actions, extrct relevant stock from vaults

and pass to Trasfer Section for registrtion argement.

File a copy of the conversion multi-set for recncilation.

Receive new certficates from Trasfer Section. A copy of the relevant

conversion multi-set (on which the certficate numbers are entered) and a

system printout are attched.

After checking, file certficates to main vault or working vault.

Review the denomination of certficates and decide whether jumbolized lot or

registrs.

board lot should be requested from

Update newly recived bad title certficates information to system. Bad-titled

certificates are detecte during the day end batch processing. On the

following working day, check report to determine whether any previous

deposits involve bad-titled certficates.

Common nomiee sece

Genera Procedures for COI:rate Events

a. Make diar entres of announcements from newspapers into the Corporate

Announcement worksheet and check with recrds from Stock Exchange of Hong

Kong Limited.

Input the detals of Corprate Announcement into the host computer, to enable the

system to caculate parcipants' entitlements.

c. Check the Outstading Corprate Announcement Report against worksheets to ensure

that records are matched.

d. If it is a corprate event requirng parcipats' action (e.g., entitlement election,

rights, cash offer, corprate voting), prepare, through the CCASS terminals, an

electronic advice detalig the corprate event and, if applicable, the availaWe

options. Parcipants ca then elect for entitlement, request for stock conversion or

speify votig instrctions through CCASS terminals. Declartion is also made

through the terminals.

e. The system then caculates each parcipant's entitlement and then posts preliminar

receivable items to the parcipant's entitlement statement.

f. J'ereater, any adjustment to the shareholdings, if applicable, that immediately affect

//. the parcipant's entitlement and adjustment entres are posted by system to the

i parcipant's entitlement statement automaticaly.

g. For rights tae-up, wart conversion, open offer, co-ordination is necessa with

(SG\ci\803B)

- 4

the Trasfer Section to lodge the provisional allotment letters or share or warant

certficates for registrtion/conversion before last registrtion day.

Holdings and entitlements are confirmed with registr:

On the first book-close day, send proforma to registr.

On day before the payable day, confirm by telephone.

i. Upon recipt of entitlements, check the amount stated in cheque and the amount of

scrip entitlement against the entitlement confirmation from registr.

j. Users confirm that an entitlement has been received; thereafter:

the system posts the respetive entitlement to the parcipant's entitlement

account.

the system then informs parcipants of the entitlements through automatically

generated broadcast messages.

k. The system provides on-line enquiry functions for the current stock balances of every

stock, each including breadowns of holdings, in vault and in trsfer.

Other features

Benefit entitlement

the system handles cash dividends with currency option - distribution of

money in currencies other than HK$.

the system alows Hongkong Cleang the option to collect dividend collection

fee or not.

Any adjustment to shareholdings and electe options ca be processed on the

payable day.

Entitlement options requeste by parcipants are consolidated for reply to

registr.

Hanlig rights

Upon reciving electronic instrctions from parcipants who want to subscribe

for the shares, the system debits the rights holdings of the account of the

paricipant and debit the subscription money from paicipant's money ledger.

Excess rights ca be taen up by parcipats without paent holding. '.

the system refunds to parcipants the par of the subscription money for which

the excess rights application is not succssful and credits parcipant's account

~ith the succssfully subscribed shares.

c. Watt conversion and taeover offer

/ .: Electronic wart conversion advices are generated by the system one month

before last conversion date.

(SG\ci\803B)

-5

Upon reiving electronic instrctions from parcipants who want to subscribe

the shares, the system debits the wart holdings of the account of the

parcipant and debits the subscription money from parcipant's money ledger.

For cash offers, the ad valorem stamp duty is deducted from the net procees.

the system handles

registered warts (i.e., the reivables are known when a conversion

request is lodged); and

covered warts (i.e., the recivables are unknown when a conversion

request is lodged)

d. Handling corprate actions

Handling the splitting, consolidation and exchange of shares

the system caculates new shareholdings after users have entered the

corprate action coè and ratio.

New holdings information is posted back to the parcipants' stock

accunts by system.

Handling Stock Code Conversion for bad titled certficates

the system changes automaticaly all the files contaning records

assoiate with the stock coe.

e. Compulsory offer and pnvatisation

the system caculates new shareholdings balances afer users have entered the

corprate action coe and ratio.

New holdings information is poste back to the paricipants' stock accounts

and/or money ledgers by the system. .

Delete holdings after compulsory offer

Original share holdings are cleaed from the system automatically once

the event has become effective.

f. Corprate voting

Parcipants vote on each of the motions.

The results of the voting of all the parcipants, through electronic voting

forms, is consolidated by the system.

The consolidate parcipants' election is use to fill in a proxy form to be

submitted to registr for CN's voting.

Benefits unclaimed

, Ány claims for unclaimed benefits are checked to se whether they are in

respet of CN registered share certficates that have not been registered by tÌ1e

/¡ .

trsferee by the record date.

the system faciltates the checking of whether the benefit entitlement has been

received from registr and not yet paid to parcipants.

If accepte, the system credits the parcipant's money ledger for cash

ISG\ci\803B)

-6

dividend, credits the parcipant's stock account and debit Hongkong

Cleang's unclaimed entitlement account.

Contrl sece

Perform stock recncilation on a daily basis.

Perform physica stock count on a periodic basis. A full count of each stock wil pe

performed once a yea on a rotation basis.

Check all corprate announcements input by the Common Nominee Section to ensure

correctness.

Microfim documents for all sections and destroy the original documents afterwards.

,:/

(SG\ci\803B)

- 7

+8587-690 H( SEaRITY CLll

031 PØ3

;r 24'£1 gai Al al QJODI~ El Slla ?S

JUN 24 '92

17:26

P.l

The Chas. Manhattn Bank, N.A.

One exChnge Square. 4O..

Central, Hog Kong

Tel: 841.-421

Telex! 83830 CHASM HX

o CHASE

PBI Securities (HK) Ltd

Pax &256828

Attention i The Manager,

Seouri ties Settlement Dépt.

23 June 1992

Dear Sir,

As the CeABS implementation is around tho corner, we want

your awareness that due to Hong Kon~ Secur1~iet Cl.arinq Co

Ltd is still waiti~q a "no action letter" be granted by the

US Seourities and Exchan;i Ccmmiasion.in réspect of the rule

1 '7f5 of the Investment Company Act Of 1940 which hinders our

.pertic1pat1on and £ettlement activities inside CCASS,ve will

stick to t.he current. prac't1cie - settle all the trades

phY8ioally outside ceAse until further no't1c:e.

Thank you for your kindly attention.

Fer further 'clarification, please fêel free to contact the

undersigned on 8414726 er Johnny Mak on 8414213.

oak' &

AssiGtant Manaçer

Custodian Services Dept.

Incorporated with limited lIabilily under th laws 01 the Unite States or America

Âi"

~L~~

"":.!, ,;

HONG KONG SECURITIES CLEARINÇ COMPANY LIMITED

INTERIM REPORT 1994-95

CORPORA TE INFORMATION

as at 22 Febrry 1995

Board of Directors

CHA Cho Chak, John

C.RE" L.V,O" J.P.

(Chairman)

LECKIE Stuart Hamilton, J ,P.

Appointed by the Financial Secretaiy

LEEJor Hung, Dannis

The Stock Exchange of Hong Kong Limited

LAM Haw Shun, Dennis

LI Kai Cheong, Samson

The Bank of East Asia, Limited

(First Deputy Chairman)

The Stock Exchange of Hong Kong Limited

ROBERTS Michael David

CHA Yuk Shee

The Stock Exchange of Hong Kong Limited

(Deputy Chairman)

TROOP Steven Geoffey

Appointed by the Financial Secretaiy

The Hongkong and Shanghai Banking Corpoi-ation

WILSON Ian Ramsay

Limited

(Deputy Chairman)

WITTS Richard Arthur

Standard Chartered Bank

The Stock Exchange of

AU Siu Kee, Alexander, J.P,

Hang Seng Bank Limited

CHA Tat Cheong, Joe

The Stock Exchange of Hong Kong Limited

CHOW Man Yiu, Paul

The Stock Exchange of

Hong Kong Limited

YAP A. Donald, J,p,

Appointed by the Financial Secretaiy

YU Wai Keung

The Stock Exchange of Hong Kong Limited

ZHOU Zhenxng

Bank of China

EBSWORTH Wiliam Robert

Appointed by the Financial Secretary

HECKIGER Richard Andrew

Chief Executive

HECKIGER Richard Andrew

Hong Kong Securities Cleai-ing Company Limited

Company Secretary

HO Pak Cho, Denis Morgie

LAM Big Chee, Eva

Appointed by the Financial Secretary

HUI Chiu Chung, Stephen

The Stock Exchange of

Hong Kong Limited

Registered Offce

12/F., Chinachem Exchange Square

1 Hoi Wan Street

KWONG Che Keung, Gordon

Quarr Bay

The Stock Exchange of Hong Kong Limited

Hong Kong

LA! Kwok Kuen, Daniel

Auditors

The Stock Exchange of

Hong Kong Limited

KPMG Peat Marwck

HONG KONG SECURITIES CLEARING COMPANY LIMITED

INTERIM REPORT 1994-95

HONG KONG SECURIl

" ,//

INTERIM REPORT

I am pleased to present the interim report of Hong Kong Securities Clearing Company

Limited for the first six months of the financial year, 1 July 1994 to 30 June 1995.

During the six month pc

trades, An average of 31,

shares with a market valu

Financial

period, an average of 10,(

The company reported an unaudited surlus, after providing for tax, of $67 milion for

at $10,4 bilion were sett

the six months ended 31 December 1994, compared with $94 million for the same period

in 1993,

Daily average trade nettn

On 1 July, an additional discount on settement charges was introduced, increasing the

settement due day, risin¡

settement effciency of c(

discount on settement charges to 30 per cent. At the same time, some other fee saving

The company continued

advantages for partcipants were also introduced.

the period under review.

Revenue, after discounts, amounted to $183 milion, compared with $224 million last

year. Expenses, including amortisation of development expenditure and depreciation,

amounted to $104 millon, compared with $103 millon for the same period last year.

Premises expenses, depreciation and amortsation increased substantially because of the

acquisition of a new mainframe computer and the installation of the new computer

In September, the comp

facilities had previously h

centre followed the inst;

CCASS operations. The

production centre in 1994. These increases were offset by decreases in legal and

New disciplinary procedi

responsibilities of particil

action against a parcipai

professional fees, interest expense and depository expenses,

Stock admission and participation

At the end of the period under review, 760 listed securities had been admitted for clearing

The company adopted it

and settement in CCASS, compared with 681 on 31 December 1993, There were 562

previously been regula

tee

partcipants (544 in 1993) comprising 496 stockbrokers, 63 custodians and three stock

New settlement priori

transactions, Under the

pledgees.

Following amendments to its Listing Rules, the Stock Exchange made it a requirement,

with effect from 1 December, for new listings of equity securities including derivatives,

to have been granted admission to CCASS on their first dealing date.

priority. The new criterÜ

Operations

distributed overnight, Th

The period under review saw a reduction in Stock Exchange trading tuover, compared

the previous financial ye

settement and depositor;

and higher capital liquid

By the end of the period i

both with the same period last year and the first six months of 1994.

historical reports.

4' ,(01

HONG KONG 5ECURIT1E5 ClEARIN'G COMPANY LIMITED

ERIM REPORT 1994-95

INTERIM REPORT 1994-95

INTERIM REPORT

During the six month period, CCASS handled 99,25 per cent of all Stock Exchange

trades, An average of 31,079 Stock Exchange trades involving more than 851 million

shares with a market value of $3.5 bilion, were processed daily in CCASS, In the same

rities Clearing Company

994 to 30

June 1995,

period, an average of 10,098 settement instrctions, involving 1.3 bilion shares valued

~or tax, of $67 million for

at $10,4 bilion were setted daily in CCA~S,

Lillion for the same period

Daily average trade nettng effciency for the period was 73.99 per cent and daily average

settement effciency of continuous net settement stock positions was 94,53 per cent on

settement due day, rising to 99,72 per cent on the next settement day,

itroduced, increasing the

Ile, some other fee saving

The company continued to expand its operational capacity and scope of servces during

the period under review.

ed with $224 million last

iditure and depreciation,

In September, the company established its own computer back up centre, Back up

he same period last year,

facilities had previously been provided by a contractor. The opening of the new back up

bstar -\ .. because of the

centre followed the installation of a new upgraded mainframe computer to servce

CCASS operations, The original computer became the back up computer.

on G iew computer

( decreases in legal and

New disciplinary procedures came into effect in July, which more clearly defined the

responsibilities of partcipants, and the circumstances which would warrant disciplinary

action against a partcipant.

,ltion

)een admitted for clearing

ier 1993. There were 562

The company adopted its own detailed rules for isolated trade settement, which had

previously been regulated by the Stock Exchange Rules,

lIstodians and three stock

New settlement priority criteria were introduced for settlement instruction

transactions, Under the new criteria, partcipants will benefit from better cash flow

ge made it a requirement,

ties including derivatives,

and higher capital liquidity as higher value transactions wil have higher settement

priority. The new criteria wil also help improve overall settement effciency,

ing date,

By the end of the period under review, 254 partcipants had arranged to receive reports

distributed overnight. The overnight report distrbution system was introduced during

ading turnover, compared

the previous financial year. It allows participants to perform critical tasks, such as

settement and depository activities, at the start of a business day, rather than collect

)f 1994.

historical reports.

,. /

ii' .l

HONG KONG SECURITIES CLEARING COMPANY lIMlTED INTERIM REPORT 1994-9)

AND

INTERIM REPORT

On 31 December 1994, the company's subsidiary, HKCC Registrars Linúted was the

Hong Kong share registrar for 15 China incorporated compaIes and two Hong Kong

issuers of covered warrants.

The CCASS Depository

the end of

the period under review, almost 133.2 bilion shares (1993 - 92 bilion)

were

in the custody of the Depository, representig 31.98 per cent (1993 - 27.48 per cent) of

INCOME

Stock clearing and settemer

Depository, custody and no!

Registration and transfer fee

Share registration servces f,

Servce bureau fees

Other revenues (net)

Bank and other interest ince

the issued shares of listed companies whose securties had been admitted to CCASS.

The market value of the shares was $464.3 bilion (1993 - $584,1 bilion) representing

21.46 per cent of the market capitalisation of these companies (1993 - 19,26 per cent).

Fee discounts to partcipant

During the first half of the financial year, the Depository handled an average of 1,511

EXPENDITURE

deposit and withdrawal transactions daily (1993 - 3,906), involvig 65,731 share certficates

Staff expenses

Premises expenses

(1993 - 227,387).

The Depository is curently being operated satisfactorily by a contractor, The company

has announced that it will establish its own depository which is expected to become

operational in 1996.

Outlook

Since the Company's revenue is largely related to market turnover which is always

Promotion, publications ant

Maintenance and network e

Legal and professional fees

General administrative expe

Financial expenses

Depository expenses (Note

Share registration servces e

Depreciation, amortsation

on disposal of fied asset

diffcult to predict, it is not possible to make accurate projections. Nevertheless,

Hong Kong's economy remains strong and is forecast to continue to grow.

Hongkong Clearing will remain responsive to the needs of CCASS users and continue

to seek ways of reducing the risk and cost of securities clearing and settement.

Deficit on Guarantee Fund

Less : Depository developrr

SURPLUS BEFORE TA.\

TA.XATION (Notes 1&2)

SURLUS AFER TAX

John Chan Cho Chak

Retained surplus at beginni

Retained surplus at end of i

Note

Chairman

22 February 1995

Thel993 comparative.

amounting to HK$6,5

Note 2: TaxationconsistofHoi

profits for the period, ai,

arising during the pen

C;.(

.;¡ '"

ERIM

HONG KONG SECURITI.£ CLEARING COMPANY LIMITED

T 1994-95

INTERIM REPORT 1994-95

CONSOLIDATED INCOME

AND EXPENDITURE ACCOUNT

Unaudited

for the si 1fnths end 31 December 1994

Exessed in Hong Kong dollars

~gistrars Limited was the

ùes and two Hong Kong

1994

$'000

1993

$'000

Stock clearing and settement fees

Depository, custody and nOßUee servces fees

Registration and transfer fees on nominee servces (net)

Share registration servces fees

Servce bureau fees

Other revenues (net)

Bank and other interest income

160,294

27,833

31,718

2,266

216,370

18,612

9,212

2,775

108

163

1,013

3,609

226,841

827

717

248,676

Fee discounts to partcipants

(43,679)

183,162

(24,445)

224,231

37,429

13,488

171

37,882

6,852

1,184

6,810

2,628

3,343

3,513

19,809

2,116

29,510

19,298

107,270

103,486

(3,459)

103,811

103,486

SURLUS BEFORE TAXTION

79,351

120,745

TAXTION (Notes 1&2)

(12,437)

(27,050)

66,914

93,695

46,359

27,697

121,392

INCOME

~s (1993 - 92 bilion) were

:1993 - 27.48 per cent) of

~en admitted to CCASS.

N.l bilion) representing

) (1993 - 19.26 per cent).

idled an average of 1,511

EXPENDITUR

ig 65,731 share certficates

Staff expenses

Premises expenses

1,103

7,248

487

3,998

218

13,618

Promotion, publications and training

Maintenance and network expenses

conti _. The company

Legal and professional fees

:h is expected to become

General adminstrative expenses

Financial expenses

Depository expenses (Note 1)

Share registration servces expenses

Depreciation, amortsation and loss/(profit)

turnover which is always

rojections. Nevertheless,

on disposal of fied assets

Deficit on Guarantee Fund

tiue to grow.

CASS users and continue

Less: Depository development expenditure capitalised

l1g and settement.

SURLUS

AFER TAXTION

Retained surplus at beginning of period

Retained surplus at end of period

113,273

Note

The 1993 comparative figures have taken into account adjusents ofoverrovision of depository expenses

amounting to HK$6, 542,000, and the conequential increase in tax provision of HK$1 , 145,000.

assessable

estimated

Taxp,'ovidedat 16.5% (1993: 17.5%) on the

of Hong Kong Profits

consst

Note 2: Taxation

profits for the perod, and defered taxation calclated at 16. 5 % (1993: 17,5 %) on the timing diferences

ariing during the period,

~ 'j ~ c. G ~~, ~

~, '

HONG KONG SECURITIES CLEARING COMPANY LIMITED

HONG KONG SECURl1

INTERIM REPORT 1994-95

OPERATING STATEMENT

OF GUARANTEE FUND ESTABLISHED UNDER

CCASS GENERAL RULE 2501

-_.,._--~~-

Unaudited

jàr tbe six montbs ended 31 December 1994

Numbt

Tholtsands

Rrpressed iii Hoiig Kong dollars

1994 1993

$'000 $'000

-1

1,505

INCOME

Interest income on broker participants' contributions

2,361

Interest income on contribution from Hong Kong

Securities Clearing Company Limited

810

3,171

1,505

EXPENDITUR

Interest to broker participants

493

222

Insurance

1,449

1,489

Arrangement fee for standby loan facility

OPERATING SURPLUS/(DEFICIT)

OCT ~o

Funds nettng under eN

1,942

1,773

.\Ioney obligations

1,229

(268)

norated contract

arising fr()

($ billion)

Deficit transferred to the Company's Consolidated

Income and Expenditure Account

1,229

SURPLUS/(DEFICIT) FOR THE PERIOD

j1L .\lG

Retained surplus at beginning of period

207

Retained surplus at end of period

1,436

(217)

217

July

6,0

August

7.5

September

8.2

October

5.5

November

5.5

December

5,0

Funds netting effciency is the r

novated contracts are reduced to n

participant after nettng money obi

On settlement dUi;

100

JUL .WG SEP OCT ~,

" .. ~

t" .."~

INTERIM REPORT 1994-95

HONG KONG SECURITIES CLEAR1NG COMPANY LIMITED

ERIM REPORT 1994-95

"DE..

OPERATIONS HIGHLIGHTS

fir the si 11ths end 31 December 1994

Average daiy Stock Exchange trades

Number of trdes

Thousands

processed in CCASS

£::pi'essed in Hong Kong dollOl-s

(including eNS trades, isolated trades and crss trades)

1994 1993

$'000 $'000

% of totol number Number of

of Stock

shares mvo/i:ed Value of trades

Exchange trades

(billion)

($ billion)

Numer of

trades

2,361

1,505

810

3,171

1,505

July

29,033

98.79

0.8

3.3

August

35,940

99,12

0,9

4.1

September

40,664

99.47

1.0

4.6

October

25,818

99.31

0.8

3,1

November

26,891

99.34

0.8

3.0

December

27 ,686

99,49

0.8

2,8

493

222

1,449

1,489

JUL AUG SEP ocr NOY DEC

1,942

1729

Funds nettg under CNS (daily average figures)

1,773

ariingfr

Money obligations

Funds

netting

noi:ated contract

aftn' netting

ifcienry

($ billion)

(%)

July

6.0

2.0

65.77

August

7.5

2.3

69,04

September

8,2

2.4

70.80

Mone)' obligations

(268)

1,229

(217)

207

217

1,436

October

5.5

1.9

64.61

November

5.5

1.8

66.16

December

5.0

1.6

66.28

Funds nettng effciency is the rate money obligations arising from

novated contracts are reduced to a final money position for each broker

..J'J

J-J-::

JL1. AUG SEP ocr :\0\' DEC

partcipant after nettng money obligations of same stock and cross stock.

.. Money obligations arising from

novated contrcts

.: Money obligations after nettng

~ Funds netted

On settlement due da)' (S da)') Average daiy settement effciency of

100

CNS stock positions

Settlement ifcienry (%)

S doX S+i do)'

99.72

July

95,04

August

94.74

99.74

September

94.30

99.75

October

94.04

99.68

November

94.49

99,76

December

94,53

99.69

JUL AUG SEP ocr NOV DEC

i! ¡l q, !Æ.

INTERIM REPORT 1994-95

HONG KONG SECURITIES CLEARING COMPANY LIMITED'

" ,/1

OPERATIONS HIGHLIGHTS

for the sL~ months ended 31 Deæmber 1994

, .

Number ofSIs

Thrltsands

Average daiy settement instrctions (SIs)

setted in CCASS

1i. *

(both delivering and ,'ecehoing SIs are co/lnted)

.Yiimber of Sls

Sls by shiires

Sls by ,.lill1e

(billioii)

($ billoii)

li l-. ii C,B.E., J

( 3: ff )

liiIJff¡jC fjJit¡fí

July

8,427

8.9

August

10,816

1.4

11.

;ftdt f~

September

12,361

1.6

12.2

(m-i\Uff)

October

9,169

9.6

8.5

li .: 1jf

12.1

(i\iJ 3:ff)

November

9,339

December

10,453

1.4

liiIJff¡jC fjJit¡fí

dJfPi!it ~f£

jL'L A¡;G SEP OCT )-o\' DEC

¥tl f~

(i\iJ 3:ff)

ifIJiIHT

i~Hi£ j.p,

Securities under CCASS custody

Shares in billons

(balances at the end of each month)

tÆ!t HUT t¡ fí 1.' it

1;0

600

125

;00

100

400

300

200

dJfPi!it ~f£

100

fii ft ~

li *Æ ~

% afmarket

% of issued

.Harker i:a/ue capitalisation of

shares of

Number of shares

admitted

securities

admitted securities

($ billoii)

(bilioii)

July

114.0

29.04

531.9

August

116.6

29.27

558.3

21.8

119.3

29.48

555.3

21.68

September

.Harker ¡:a/iie ($ billion)

October

122.7

29.83

560.6

21.9

November

130,5

30.56

491.

21.60

December

133.2

3 1. 98

464.3

21.46

liiIJff¡jC fjJit¡fí

p. )( *1

liiIJff¡jC fjJit¡fí

~ 7j( !l

liiI rt :!.l¡1ft¡ ¡I/HI

JLL A¡;G SEP OCT )-ov DEC

. _ Number of shares ~# :\larket value

fii lÉl fJJ

dJfPi!it ~f£

~ ,a~ .p

li ilJf f¡ jC fj Ji t¡ fí

ILt; ~

li iI Jf f¡ jC fj Ji t¡ fí

~~1l

li ilJf f¡ jC fj Jí t¡ fí

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.