Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	1. Organised Market The settlement of securities trades is based on the DVP principle (® BIS Model 2). 2. Off-market trades Are conducted continuously, and are executed when posted securities transfers are approved by the KDD (FOP at present). 3. OTC Market KDD just started offering real time gross settlement of OTC trades ® BIS Model 1. Within the DVP-OTC system, both securities as well as related funds are settled on a gross basis (SWIFT network is being used). Brief description of the system: 1.Settlement instructions The »OTC-DVP« transfer order is posted in KDD's electronic transfer system by selling member and is subject to buying member's confirmation. After being confirmed, the status of securities to be transferred is changed from freely available to locked. At the same time a reference number (to be used in field 70 in SWIFT msg. type MT 100) of trade is assigned for the purpose of funds transfer. 2.Transfer of funds and securities Once the transfer order is confirmed by the buying member, the funds should be transferred via SWIFT MT 100 from the buyer's bank account to KDD's clearing account through the RTGS system operated by the central bank. After the notification that KDD's clearing account has been credited, KDD sends a new SWIFT MT 100 for the purpose of debiting its clearing account and crediting the seller's bank account. Upon receipt of a SWIFT MT 102 notifying KDD of the completion of the funds transfer, KDD approves the transfer of the securities from the seller's to the buyer's securities account.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	Yes, KDD operates a T+2 rolling settlement for all stock exchange trades.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	Yes, KDD is in a position to shorten the settlement cycle below T+2 but there are considerations against such move; the major one being the non-resident investors whose need to move their funds into the country is under strain even now as the T+2 cycle is in effect. another consideration is the payment system's reform currently in progress.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	Yes. Matching occurs on trade date and the trade details are transmitted real-time. The KDD's Clearing and Settlement members have on-line real time insight into the anticipated (gross and net) obligations in relation trades concluded.
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	Yes the depository is scrip-less. KDD runs the registry of dematerialised securities only.
6.	Does the market allow partial settlements?	No, KDD does not allow partial settlement.
7.	Can the depository accommodate same day turnarounds?	Yes: Organised market trades are settled in a single batch on T+2. As KDD re-transfers received funds to claiming (net to receive) members by 1300, it is possible for them to re-transfer received funds the same day (through to their customer). Off-market trades are settled FOP, the same day. DVP-OTC trades are settled real time.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.