Corporate Governance

Our Basic Policy on Corporate Governance
JASDEC fully recognizes its social obligation as the central bodyfor the provision of the infrastructure for securities clearing andsettlement, which is an important base of the capital markets.
Accordingly, JASDEC has determined a basic management
policy of providing a highly secure, convenient and efficientservice. To this end, we ensure that our system meets the needsof users, including investors, issuing companies and market

intermediaries. We also make sure that our activities promote
corporate transparency and that our business operates withfairness and accountability, in line with the public needs of ourfunction. Our commitment to corporate governance is to earn
and maintain a solid reputation for reliability as the central organization responsible for creating and operating the infrastructure
for securities clearing and settlement in Japan.

Overview of implementation of corporate governance practices
Framework for management structure and corporate governance to exercise business judgments, manage operations and implement
audits.
◇ Corporate Structure

Board of Directors

Business Operations Committee

The Board of Directors is composed of 19 members, and is basically structured to achieve a balanced approach to business withuser-oriented views, as well as business-oriented ideas on maintaining operational neutrality and fairness. To fully reflect theopinions of users in our operations, nine of the 14 external directors are selected from JASDEC participants. The remaining fiveexternal directors come from an issuing company and a relatedorganization, or from the Japan Securities Dealers’ Association,
academia and the legal profession, enabling the Board to conduct
vigorous discussions from a broad perspective in considerationof the public good. In principle, the Board meets once a month todecide basic management policies and discuss other key issues.

Separately from the Board of Directors and the Board of Auditors,JASDEC has set up the Business Operational Committee tofully reflect the needs of system users in our operations. TheCommittee examines important issues related to the businessof JASDEC, based on queries from the Board of Directors, andhas ten subcommittees under its control. Each subcommittee is
responsible for a specific segment of operations, and is composedof members who are actually involved in the field. JASDEC
applies the opinions provided by each subcommittee to various
operational issues. JASDEC discloses summaries of discussions
and other information by the committees to relevant parties for
greater operational transparency.
As the provider of key infrastructure elements for thesecurities market, we are required to operate the system with anextremely high level of fairness and accountability. To achieve
this end, we have established the Advisory Committee, whichis composed of experts in financial and securities systems. The
committee advises JASDEC’s president from a broad perspective about wide-ranging issues relating to securities clearing andsettlement system operations.
JASDEC DVP Clearing Corporation (JDCC), JASDEC’s
wholly owned subsidiary, operates in accordance with a businessphilosophy similar to that of JASDEC. JDCC has also set up acommittee for reviewing important issues regarding DVP operations to reflect the needs of users of the DVP settlement systemfor non-exchange transaction deliveries (NETDs). In addition,
JASDEC’s Board of Directors receives reports regarding issues
decided by JDCC’s Board of Directors to ensure consistency inthe activities of the two companies.
An outline of JASDEC’s management structure and corporate
governance systems is presented on the next page.

Board of Auditors
JASDEC employs the corporate auditor system for corporate
governance instead of the committee system, as provided for in
the Companies Act. The Board of Auditors is made up of threeauditors, two of whom are selected from eligible participants(one each from a securities company and a bank) and all three(including an auditor who is serving on a full-time basis) areexternal auditors.
In principle, the Board of Auditors holds a regular meeting
each month. In line with auditing plans and the basic policies
established by the Board of Auditors, auditors attend important
meetings, including those of the Board of Directors, and assess
the status of services and assets to perform audits of directors.
To ensure that audits are effective, auditors work closely withdirectors and conduct regular exchanges of opinions, including
through meetings with the representative directors.

8Japan Securities Depository Center, Inc. Annual Report 2011

Corporate Governance

Overview of JASDEC’s Management Structure and Corporate Governance Framework
Business Operations Committee

General Shareholders’ MeetingAppointments/Dismissals

Board of Auditors

Auditing(Three including one auditor
serving on a full-time basis)
Auditing

Auditors
Offce

Appointment/Supervision

Subcommittees
Consultation

Board of Directors(Five full-time, fourteen external)

Auditing

ReportingAccounting
auditors

Appointments/Dismissals

Appointments/Dismissals

Opinions, reports

ChairmanPresident & CEO
Risk Management
Committee

Monitoring

Conveying
information

Compliance Office

Stock
Bond with share option
ETF
Foreign stock
Corporate bondCP
Investment trust
PSMS (Domestic Trade)
PSMS (Non-Residents’ Trade)ISO 20022

Internalaudit

Departments◇ Risk Management System
JASDEC has set up the Risk Management Committee, chairedby the president. It takes measures to strengthen overall risk
management, and regularly monitors internal control systems forvarious risks.
◇ Internal Audits, Corporate Audits, and Accounting Audits
JASDEC has established the Compliance Office, and internal
auditing accomplished primarily through onsite surveys basedon the audit plan, to assess the effectiveness of operational procedures. For corporate audits, an auditor serving on a full-timebasis routinely attends important meetings, such as those of theBoard of Directors and the Executive Committee (comprised ofmanaging directors serving on a full-time basis) and examines
circulars intended to obtain approvals of decisions by persons incharge. The full-time auditor performs audits in accordance withthe auditing plans established by the Board of Auditors, and provides the other Corporate Auditors with updates on the progressof auditing activities at the meeting of Corporate Auditors, whichtakes place monthly.
Auditors serving on a part-time basis attend meetings of theBoard of Directors and monitor the directors’ execution of theirduties. They also assess the legality of business operations byreviewing reports on auditing activities from the full-time auditor.
JASDEC assigns staff specifically to assist corporate auditors
in their audits.
Corporate Auditors perform audits in close cooperation with
the Company’s accounting auditors. This includes hearing reports
from the accounting auditors on auditing plans and the results ofthe audits.

AdviceAdvisory Committee

JASDEC has two certified public accountants who perform
accounting audits for JASDEC in the capacity of accounting auditor under the Companies Act: Yohei Kishi and Naoto Saito (designated members of a limited liability partnership under Article 34,
Paragraph 10-5 of the Certified Public Accountants Law).
They are employed by Ernst & Young ShinNihon LLC, amember firm of Ernst & Young Global, and execute accounting
audits, including checks of financial documents, based on theCompanies Act.
It is our understanding that no items of particular regard, suchas serious irregularities or instances of illegal behavior, have beenfound through the execution of accounting audits.
◇ Directors’ and Corporate Auditors’ Limit of Liability
We expect directors and Corporate Auditors to fully demonstrate
the skills involved in successfully executing their responsibilities.
Additionally, to retain top-level professionals, we have set limits
on liability for damages incurred by directors and CorporateAuditors.
◇ Resolutions on Election/Dismissal of Directors
The election of directors by resolution at the general meeting ofshareholders is conducted in the presence of shareholders representing no less than one-third of voting rights held by eligible
shareholders, and directors are elected by a majority vote of said
shareholders.
The dismissal of directors by resolution at a general meetingof shareholders is conducted in the presence of shareholders representing no less than one-third of voting rights held by eligible
shareholders, and directors are dismissed on a vote of no less than
two-thirds of voting rights held by said shareholders.
Japan Securities Depository Center, Inc. Annual Report 20119