JAPAN SECURITIES DEPOSITORY CENTER, INC.

Rapid Progress in Dematerialization

Annual Report

2007
For the year ended March 31, 2007
Uses soybean ink inconsideration of the environment

Printed in Japan on recycled paperCorporate Information
As of June 30, 2007
Contents

Revenues by Operations

1 Financial Highlights

Year ended March 31, 2007

2 President’s Message
4 Rapid Progress in Dematerialization
12 International Activities
14 Corporate Governance

DVP settlement services for NETDs¥1,318 million

16 Business Overview

Bonds

21 Financial Statements
33 Report of Independent Auditors
34 Board Members and Auditors
36 History
37 Corporate Information

Depository and book-entry transfer for foreign stocks
Other services¥151 million¥2,056 million
Pre-settlement matching services¥1,951 million

Book-entry transfer for CP¥550 million
Book-entry transfer for
Corporate Bonds¥1,057 million
Book-entry transfer forinvestment trusts¥303 million

Custody¥5,564 million

Book-entry
transfer¥12,944 million

December 6, 1984

January 4, 2002

The Japan Securities
Depository Center(JASDEC) established as a
not-for-profit foundationin line with the November
1984 enforcement of the
Law Concerning Central
Securities Depository andBook-Entry Transfer ofStock Certificates andOther Securities (the CSD
Law).

The Japan Securities
Depository Center, Inc.,
incorporated as a stockcompany.

June 17, 2002
Assumed all the businessesof the Japan Securities
Depository Center, in
accordance with the CSD
Law.

October 9, 1991

June 6, 2003

Commenced businessas Japan’s only central
securities depository
for stock certificates.

Established JASDEC DVP
Clearing Corporation(JDCC) to undertake
clearing services related tothe delivery-versuspayment (DVP) settlement
system for non-exchangetransaction deliveries(NETDs).

January 4, 2002

DATE OPERATIONS BEGAN

June 17, 2002

CAPITAL¥4.25 billion

COMMON STOCK ISSUED

8,500 shares

NUMBER OF SHAREHOLDERS

189

NUMBER OF EMPLOYEES

180 (As of March 31, 2007)

REGISTERED HEAD OFFICE

1-1, Nihombashi-Kayaba-cho 2-chome
Chuo-ku, Tokyo 103-0025, Japan
Phone:

EquityNotes: 1. Refund of fees amounted to ¥3,339 million for the year ended March 31, 2007.
2. Book-entry transfer services for investment trusts began in January 2007, and theamount shown represents revenues generated from the start of operations until
March 31, 2007.

EstablishedJapan Securities Depository Center, Inc.

DATE OF INCORPORATION+81-3-3661-0139

Facsimile: +81-3-3661-0186

37 Organization Structure

Corporate
Structure

COMPANY NAME

Our Mission
In view of our duty to serve the public, our mission as agroup is to provide a highly secure, efficient and easy-touse infrastructure for securities clearing and settlement,
which in turn contributes to functional improvement of
the securities market.
Toward this end, we advocate dematerialization ofmarketable securities and have already realized bookentry transfer systems for dematerialized commercial
paper (CP), Corporate Bonds* and investment trusts. We
are currently focusing on preparations for the dematerialization of stock certificates. Other management priorities
include efforts to promote straight-through processing(STP) using enhanced system functions and our presettlement matching system (PSMS), wider use of depository services for stock certificates, and more extensive
application of such systems as the DVP settlement system
for NETDs.
To achieve these goals, we will build and replacesystems, in line with our medium-term management
plan, and strive to cement a stronger foundation forimproved stability and reliability in our business activities. We will also endeavor to make our services moreconvenient for overseas investors using our clearing andsettlement systems and we will reinforce ties with international counterparts to foster cooperation mutually beneficial to both sides.

E-mail:international@jasdec.com

Website:http://www.jasdec.com

OPERATIONS OFFICESTokyo Office

1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Osaka Office

6-10, Kitahama 1-chome, Chuo-ku, Osaka 541-0041

Nagoya Office

3-17, Sakae 3-chome, Naka-ku, Nagoya 460-0008

Fukuoka Office14-2, Tenjin 2-chome, Chuo-ku, Fukuoka 810-0001

Sapporo Office14-1, Minamiichijo-Nishi 5-chome, Chuo-ku, Sapporo 060-0061

SUBSIDIARY COMPANY
Company NameJASDEC DVP Clearing Corporation

Date of Incorporation

June 6, 2003

Commenced Operations

May 17, 2004

Capital¥310 million

Registered Head Office

1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Organization Structure
As of June 30, 2007
● M EETING OF S HAREHOLDERS● B OARD OF A UDITORS● B OARD OF D IRECTORS● P RESIDENT & CEO● Compliance Office● General Administration Department● Corporate Planning Department● Business Administration Department● Bond and Commercial Paper Department● Investment Trust Department● International Department● Business Planning Department● First System Department● Second System Department● Tokyo Operations Office* For clarity, “Corporate Bonds” in this report refers to general bonds covered by the book-entry transfer system for Corporate Bonds, i.e., corporate
bonds, municipal bonds and investment company bonds, specified corporate bonds prescribed in the Law Concerning Liquidization of Assets, rights
represented by bonds issued by corporations under a special law and rights represented on bond certificates issued by any government or by companies in foreign countries (excluding those viewed as bonds with subscription rights), such as Samurai bonds and Shogun bonds.

● Osaka Operations Office● Nagoya Operations Office● Fukuoka Operations Office● Sapporo Operations Office37

Financial Highlights

Thousands of
US dollars

Thousands of yen

CONSOLIDATED
For the years ended March 31, 2006 and 2007

2006

2007

2007

¥21,745,176¥22,559,853$191,477

Income from operations

4,855,929

4,671,951

39,653

Net income

3,121,382

2,651,958

22,508

Total assets¥68,517,382¥56,037,333$475,618

Net assets

14,352,092

16,689,350

141,651

Net cash provided by operating activities

8,467,571

6,041,058

51,273

Common stock

4,250,000

4,250,000

36,071¥365,197.98¥311,995.13

For the year:
Operating income

At year end:

Per share (yen and US dollars):
Net income—primary

$

2,648

Note: The amounts stated in US dollars in this report are translated, solely for convenience, at ¥117.82=US$1, the exchange rate prevailing on March
31, 2007.

AT A GLANCE
As of March 31, 2007

SHARES IN CUSTODY

303

billion shares

1,012

billion shares

The number of shares in custody reached 303.3 billion.

SHARES TRANSFERRED BY BOOK ENTRY

Of the 1,012 billion shares transferred by book entry, non-exchange trade transfers accounted for638 billion shares, or 63.1% of the total.

NUMBER OF ELIGIBLE ISSUING COMPANIES

3,952

companies

We handle the stock certificates of all publicly traded companies in Japan.

CUSTODY RATIO

81.4 %The percentage of shares in custody represents 81.4% of the entire domestic stock market. Our
custody ratio for convertible bonds—that is, corporate bonds with subscription rights to newshares—reached 99.3%.

AGGREGATE MARKET VALUE OF SHARES IN CUSTODY¥464

trillion

The aggregate market value of shares in custody stood at ¥464,005 billion, up 2.9%, from a year
earlier.

TOTAL VALUE OF DVP SETTLEMENT SERVICES FOR NETDS¥45

trillion

DVP settlement services for NETDs represented a value of ¥45,442 billion.
Delivery versus Payment (DVP) This system simultaneously attaches specific conditions to the delivery of and payment for securities. International standards, recommended by the Group of 30 and other organizations, require the application of a DVP settlement
system to all securities settlements to eliminate settlement risk

1

President’s Message

Yoshinobu Takeuchi, President and Chief Executive Office, at CSD 9 Conference“JASDEC seeks to create the book-entry
transfer systems of an enhanced
securities clearing and settlement
structure in Japan.”

T he JASDEC Group has consistently endeavored topromote system reform as it pertains to higher levels ofsafety, efficiency and convenience in securities clearing
and settlement. The Company has approached this taskwith three key objectives in mind. The first is to reinforce corporate governance. The second is to encourage
wider use of DVP as a means of minimizing principal
risk in clearing and settlement operations, as well as
greater application of a proprietary matching system as
the cornerstone of STP. And the third is to expand therange of eligible securities accepted for custody and topromote dematerialization thereof.
In regard to corporate governance, JASDEC
always undertakes business activities that put users
before all else and seeks to strengthen monitoring capabilities through unwavering adherence to such structures as the internal auditing system.
To restrict principal risk, the Company initiateda DVP settlement system for NETDs in May 2004 andsimultaneously linked it with PSMS. Currently, clearing
and settlement through this system represents morethan 60% of all book-entry transfers for NETDs, andparticipants view the system as an important clearing
and settlement tool.
As for efforts to expand the volume of eligible
securities accepted, JASDEC introduced a book-entry2transfer system for commercial paper (CP) in March
2003 and has marked a steady increase in the volume of
CP in custody. In January 2006, the Company debuted
a book-entry transfer system for Corporate Bonds. Laterthat year, in May, the Company began accepting stock
certificates and other securities of foreign-registeredcompanies listed on domestic securities exchanges, andas of March 31, 2007, had been granted custody of suchsecurities by 11 organizations and 30 issues listed inJapan. More recently, in January 2007, the Company
inaugurated a book-entry transfer system for investment
trusts that electronically records the subscription, transfer and redemption of beneficiary rights associated withinvestment trusts.
The Company is currently focusing efforts on
dematerialization of stock certificates, which will markthe final stage of the fundamental reform of securities
clearing and settlement in Japan.

“JASDEC is moving preparations fordematerialization of stock certificatessteadily toward implementation in
January 2009.”

Efforts directed toward dematerialization of stock certificates in fiscal 2006, ended March 31, 2007, included
the release of an information manual for the system in
May 2006 and the announcement of specifications for
system connection in October 2006. The Company also
conducted information meetings all over Japan.
In fiscal 2007, ending March 31, 2008, thePresident’s Message

JASDEC is aggressively working to build
new book-entry transfer systems

Company will maximize its efforts to devise practicalconversion procedures, to define the fee structure, andto promote system development for dematerialization ofstock certificates
The custody ratio under the prevailing system iswell into the 80-percentile range, but a higher level isneeded to facilitate conversion of paper stock certificates
into dematerialized form. To achieve this task, JASDEC
must promote greater awareness of new book-entry services for dematerialization of stock certificates amongissuers, brokers and investors.
At the same time, system safety has become anissue of growing priority, paralleling the focus on marketable securities and respective conversion to dematerialized form. With the Bank for International Settlements’Lamfalussy Standards in mind, JASDEC spearheaded
the establishment of a backup center for the Group backin September 2000; and to reinforce information systemmanagement still further, JASDEC formulated its own
security policy, based on such international standards as
BS ISO/IEC17799 for information security management.
Complementing these concrete actions, theGroup takes a proactive approach to system development that includes improving system capabilities toensure stable operation of existing systems and further
convenience for users.

“Maintaining cooperative ties withoverseas CSDs is a key management
priority.”

Most recently, in April 2007 JASDEC and Japan
Securities Clearing Corporation (JSCC) joined Korea
Securities Depository (KSD) and Taiwan Depository &Clearing Corporation (TDCC) in cohosting the 9th
Conference of Central Securities Depositories in Seoul,
Korea. The overall theme was “CSDs Facing the Future:
Challenges and Opportunities through Harmonization
and Globalization,” with an introductory panel discussion and individual sessions on related topics. The panel
discussion fostered an animated exchange of opinions,while the individual sessions prompted new ideas andperspectives, culminating in a truly successful event for
all those who attended.
In addition to conferences such as these, the JASDEC Group seeks to promote greater harmonization
with counterparts abroad through such mechanisms as
memorandums of understanding.
The Group will continue to stress basic management policies designed to ensure highly transparent
business activities that place system users before all else,
and to underpin the provision of services that are safeand exceedingly cost efficient. This emphasis willachieve two objectives: raise custody ratios within theGroup, and expedite securities clearing and settlement
reform in Japan.
On behalf of the Board of Directors and employees of JASDEC, I ask for the continued support of users,
participants and investors as we work toward our statedgoals.
June 2007

I n recent years, JASDEC has enthusiastically participated in international activities with other central securities depositories (CSDs). In November 2006, forexample, the Company sent representatives to the 10th
General Meeting of the Asia-Pacific CSD Group in
Karachi, Pakistan.

Yoshinobu Takeuchi
President and Chief Executive Officer3Rapid Progress in
Dematerialization

4

Domestic securities clearing and settlement reform has madeprogress toward the final goal: dematerialization of stock certificates. As the organization responsible for the infrastructureof securities clearing and settlement in Japan, the JASDEC
Group is tackling several issues that will lead to the improved
safety, efficiency and convenience of inherent systems.

MEDIUM-TERM THEMES

such areas as stock splits and consolidation of investment trust beneficiary rights.

The JASDEC Group will concentrate on the following

Expanding Function of PSMS

themes.

J ASDEC has taken a proactive approach in
Progress in Dematerialization

DEMATERIALIZATION OF STOCK CERTIFICATES
Working toward implementation of a new
book-entry transfer system for stock certificates inJanuary 2009, JASDEC is currently involved in discussions to fine-tune administrative processes and practicalconversion techniques and define an appropriate fee
structure, all based on a system outline for dematerialization of stock certificates. The Company will also executesystem development, rooted in fundamentals, and run
related checks in addition to performing required conversion and general tests.

O PERATION OF B OOK -E NTRY T RANSFER S YSTEMS FOR
CP, CORPORATE BONDS AND INVESTMENT TRUSTS, AND
ENHANCED CONVENIENCE TO USERS JASDEC seeks toensure stable operation of book-entry transfer systems
for CP and Corporate Bonds. The execution of activities
to raise awareness of dematerialization is an ongoing
pursuit that fosters wider use of these systems forenhanced circulation of securities.
The Company will strive to ensure stable operation of the recently launched book-entry transfer system
for investment trusts and institute necessary responses,
especially function upgrades to relevant systems, as
required, to further improve convenience for users inproviding a matching function for stock lending and is currently considering extended
capacity for PSMS to facilitate this focus.

Enhanced Promotional Activities

To generate increased familiarity with the idea of dematerialization of stock certificates and other securities,
JASDEC will utilize mass media—particularly television,
radio and newspapers—to develop enterprising promotional activities in cooperation with participants. By
encouraging investors and issuers to grant custody ofstock certificates to the Company, JASDEC will raise its
custody ratio and thereby facilitate the conversion of
paper certificates into dematerialized form.
Reinforcing Custody Function

STRONGER SYSTEM INFRASTRUCTURE Based on the formation of a medium- to long-term plan for systems—
including the system for dematerialization of stock
certificates, as well as system replacement, transfer of
information to our data center and other aspects related
to systems—JASDEC will strive to build an infrastructure featuring higher levels of safety, efficiency and convenience. This will ensure stable settlement and clearing
operations.

5

Rapid Progress in Dematerialization

TOUGHER INTERNAL CONTROLS JASDEC will enhance

STRONGER TIES WITH OVERSEAS COUNTERPARTS JAS-

internal controls to ensure the integrity of financial data,
improve information security, safeguard personal information, and work toward the establishment of a structure that supports uninterrupted operations in the eventof an emergency.

DEC will forge stronger ties with counterpart organizations abroad and create networking opportunities withother CSDs, primarily by building on the profile raised
through activities of the Asia-Pacific CSD Group and therecent cohosting of the 9th Conference of Central Securities
Depositories.
Activities to date are described on the following
pages.

Dematerialization of

Stock Certificates
For Implementation January 2009

DEMATERIALIZATIONOF STOCK CERTIFICATES
IN JAPAN
On June 9, 2004, the Stock Settlement Rationalization
Law—legislation to partially amend an existing law concerning book-entry transfer of corporate bonds andother securities—was introduced in Japan to streamline
settlement procedures for trades of stocks and othersecurities. This legislation allows the stock of non-stockissuing companies to be handled by the book-entry
transfer system for stock certificates. All listed companies will be required to stop issuing stock certificates asof a date—the date of enforcement—determined by government ordinance, within five years of the date that the
aforementioned legislation was announced.
The date of enforcement for conversion of stock
certificates to dematerialized form will be established bygovernment ordinance at a later time, but all parties with6

a vested interest have agreed to set January
2009 as the target for commencement of dematerialization of stock certificates. The prevailing bookentry transfer system for stock certificates will beabolished and immediately supplanted by the new bookentry transfer system. When stock certificates undergo
dematerialization, all names and corresponding numbers of shares will be electronically recorded in accounts
opened by account management institutions for participants (clients), based on the new book-entry transfer
system. Such records will show stockholdings.

Basic Structure of the New System● Under the new book-entry transfer system, the owner-ship of stocks shall be determined by entries in theledger book of transfer accounts and shall be transferred by account transfer.
● Twice a year, in principle, the central securities depository—namely, JASDEC—will give to issuers of sharesin custody information regarding shareholders

Structural Differences between the Dematerialized and Current Systems

Dematerialized Book-Entry
Transfer System

Current System
Issuing Company

Issuing Company

Book of Shareholders

Book of Shareholders

Book of Beneficial
Shareholders

Re-registration
Request

Notice of Beneficial
Shareholders

Depository

Notice of Shareholders

Book-Entry Transfer Institution

Account Management
Institution (AMI)

Participant (P)

P

AMI

AMI

AMI

AMI

Certificate
holderCustomer(C)

C

C

Book-Entry Delivery

Participant
(P)

P

P

P

P

Book-Entry Delivery

7

Rapid Progress in Dematerialization(general shareholders’ notification), based on entries
in the ledger book of transfer accounts. This service issimilar to the one for beneficial shareholder notification under the current depository and book-entry
transfer system. It differs, however, in that issuers may
request the central securities depository to extend a
general shareholders’ notification at any time, provided that the reason for such a request is justified.
● Issuers will update their respective lists of shareholders, based on the aforementioned general shareholders’ notification. Under the prevailing securities
custody and book-entry transfer system, two lists ofshareholders’ ownership interests are maintained forstock certificates in the custody of the central securities depository: the shareholders’ registry with thename of the CSD, and the beneficial shareholders’ registry with the names of actual shareholders. The new
system, however, will consolidate management ofshareholders’ ownership interests into theshareholders’ registry alone, and only thenames of actual shareholders will berecorded therein.
● When issuers undertake corporate actions,such as stock splits, bonus issues and mergers, the CSD and the account management
institution, following notification from the issuer, will
undertake procedures that automatically revise therecord of shareholders’ accounts.
● When shareholders wish to exercise minority andsingle-unit shareholder rights on shares in custody,
they need to instruct their respective account management institution to notify the issuer of entries in theledger book of transfer accounts. The CSD will thennotify the issuer (specific shareholder notification) andwithin a specified period thereafter, shareholders may
exercise rights.
● When the reason is justifiable, an issuer can request
the CSD or an account management institution to provide information on record in the ledger book oftransfer accounts.

8

Concrete System Outline

JASDEC has explored various aspects of the new system, including practical procedures and techniques, tofacilitate implementation and use.
● The new system will handle listed stock, subscription
rights to new shares, corporate bonds with subscription rights to new shares, beneficiary ownership andpreferred capital contribution, as well as unlisted subscription rights for new shares of stock and corporate
bonds with unlisted subscription rights to new sharesof stock, as long as specific criteria are satisfied.
● JASDEC will use information, such as shareholders’names, addresses and number of shares, which theCompany receives from account management institutions for preparing general shareholders’ notifications,specific shareholder notifications and responses torequests for data on the ledger book of transfer accounts.
● JASDEC will introduce DVP to eliminate settlement risk occurring when shares and corporate bonds with subscription rights to newshares are newly issued.
● JASDEC will disclose on a daily basis foreign shareholder ratios on stock in companies
in such industries as broadcasting and aerospace,
where shareholdings by foreigners are limited to a certain percentage.
● JASDEC will establish a registered account method fortaking in shareholders’ dividends. The Company will
also consider a pro-rata allocation method based on
the number of shares.
System configuration is progressing well. In May
2006, JASDEC released a general information manualfeaturing an outline of book-entry transfer systems forstocks and other securities—the foundation on which
the new system is built—and conducted information
meetings all over Japan to reinforce the content of themanual. In October 2006, the Company announced
specifications for system connection, detailing the link
between user systems and book-entry transfer systems
for stocks and other securities.
JASDEC is working closely with representatives
from relevant industries and authorities and will continue to promote discussions and system development
efforts.

Pre-Settlement Matching Services
In September 2001, JASDEC launched PSMS to electronically match information related to stock trades.
Since then, the system has been successively expanded to cover such transactions as government bonds andstock-exchange-traded futures and options. In May 2004, coinciding with the start of the DVP settlement
system for NETD, the Company linked PSMS to the book-entry transfer system, thereby facilitating, if
trades are confirmed, automatic routing of DVP transfer request data to the book-entry transfer account tobring DVP settlement to a neat conclusion.
In February 2005, JASDEC added PSMS for domestic government bond repos and gensaki on thepremise of debt assumed by the Japan Government Bond Clearing Corporation; and in January 2006, theCompany began providing a pre-settlement matching function for Corporate Bonds and CP.
Preparations are moving steadily ahead toward commencement of a pre-settlement matching function for stock lending in October 2007.

Tripartite Center Matching type (without using investment instruction distribution service)(In the case of stock trading)
Order
Notice of Execution
Allocation

Investment
Managera.
Trade Reporta.
Investment Instructionb.
Notice of Matching
Statusc.
Investment Instruction
and Trade Reportd.
Notice of TR
Affirming Status

Trade
Matchingb.
Notice of Matching
StatusPSMS

d.
Notice of TR
Affirming Status

SSI

e.
Notice of Matching
StatusTrust
Bank

Broker/Dealere.
Notice ofMatching Status

Settlement
Matching

f. DVP Orderk.
Notice of Transfer
Completionh.
Notice of Participant’s
Settlement Amount

JASDEC
Book-entry
Transfer
Systemg.
Notice of Securities
Transfer Executionh.
Notice of Participant’s
Settlement Amountl. Running AccountPayment Instruction

Running Account j.
Receipt Noticei.
Payment Instruction

Bank ofJapan
Networkm.
Running Account
Receipt Notice

Pre-Settlement Matching System (PSMS) This central matching system automatically confirms the contents of trade and settlement, such as trade names/amounts, counterparties and account numbers.

9

Corporate Bonds
Main Features of the System

Eligible Securities

T he prevailing registration system requires certain

A variety of bonds is eligible, excluding Japanese

responses to the physical issue of bonds because benefi-

Government Bonds, regardless of whether the securities

ciaries have the right to request the issue of such certifi-

are public or private offerings. In addition, the system iscates. The book-entry system, however, is completely

flexibly designed and will accommodate floating-rateelectronic, and thereby eliminates costs associated with

notes and foreign-currency-denominated bonds.

issuing denominations and reduces the burden of office●

Corporate bonds

paperwork. Under our system, we revised custody pro-●

Municipal bonds

cedures—from issuance to redemption, including trans-●

Investment company bonds

fers—into a management structure, based on the●

Corporate bonds issued by mutual companies prescribed inbalance recorded in the transfer account book,and realized DVP (gross–gross formation

the Insurance Business Act●

Specified corporate bonds prescribed in the “Lawknown as BIS model 1) and STP by linking

Concerning Liquidation of Assets”

to PSMS.

●

Rights that should be represented by bond certifi-

cates issued by companies under a special law

Book-Entry Transfer Based on
Balance Management

Rights that should be represented by bond certifi-

cates issued by any government or by companies inUnder the prevailing registration system, registration

foreign countries, excluding those with the characteristics

institutions enter the denomination type and serialof bonds with subscription rights, such as Samurai Bonds

number as well as ownership in their register book.

and Shogun Bonds.

Under the new book-entry system, transfer of ownership is executed by entering the net increase or decreasein the transfer account book, thereby expediting transition in secondary markets.

10●

Notes:
1. Corporate bonds with subscription rights will become dematerialized
when stocks are dematerialized.
2. Corporate bonds issued in overseas markets, such as euro-yen bonds, areexcluded from eligibility.

Multilayer Holding Structure ofParticipation

Smooth Transition of
Outstanding Bonds

Account management institutions are positioned in the

F rom January 6, 2008, preferential tax treatment on

multilayer holding structure in order to facilitate flexi-interest income for such entities as tax-free corporations

bility of business development and to promote affilia-

will apply only to book-entry bonds; recorded bonds

tion among international institutions. In addition, underand physical bonds will no longer be eligible for prefer-the book-entry transfer system, payment of principal isential tax treatment. In response, JASDEC will maintainexecuted by the issuer’s agent paralleling the layered

efforts to promote the transition of outstanding bonds tostructure.

book-entry bond status.

Rapid Progress in Dematerialization

Trade
1

JASDEC
Trade
Party

Trade
Party

Pre-Settlement
Matching System
2

Affirmation of Trade

Affirmation/
Disaffirmation

Trade
Matching

2

Affirmation of Trade

SSI

3

Notice ofSettlement Matching
StatusSettlement
Matching

3

Notice ofSettlement Matching
StatusTransfer System
forCorporate bonds

Settlement
Party

4

Notice of Recording

9

Securities Transfer
NoticeRecord inTransfer Ledger

Security
Transfer

Settlement
Matching

Settlement
Party

4

Notice of Recording

Securities
Settlement

9

Securities Transfer
NoticeLinkedFund
Settlement
Company

8

5Settlement
Completion

Fund
Settlement Data

Fund
Settlement
Company

Fund
Settlement

6

8

Fund
Transfer

Payment Request

Notice of Receipt
Completion

Bank of Japan

Payment Instruction

7

11

12

International Activities

To promote greater harmony between our operations and those of counterpart organizations
abroad, we take an enthusiastic approach to international activities, including efforts tostandardize clearing and settlement systems and structures.
Participating in International
Conferences

N OVEMBER 2006: 10 TH G ENERAL M EETING OF
ASIA-PACIFIC CSD GROUP In November 2006, JASDEC sent representatives to Karachi, Pakistan, to attend
the 10th General Meeting of the Asia-Pacific CSD
Group, more commonly referred to as ACG, an association of CSDs in the Asia-Pacific region. A noteworthy
development at the three-day meeting, which ran from
November 8 to 10, was the unanimous approval of a
proposal made by JASDEC to create an ACG Charter.
As always, this kind of event proved ideal for
exchanging ideas and gaining new perspectives andprompted lively discussions among participants on awide range of topics, including approaches to new business and updates to the ACG web site.

April 2007—9 T H C O N F E R E N C E O F Central
Securities Depositories In April 2007, JASDEC,
JSCC, KSD and TDCC jointly hosted the 9th Conferenceof Central Securities Depositories, or CSD9, in Seoul,
South Korea. The biennial event, which ran for threedays, from April 11 to 13, was a tremendous success,bringing 216 representatives from 97 depository-related
institutions in 69 countries and territories together toexchange information and acquire new perspectives on
issues common to every market and pertinent developments that characterize the business.
The introductory panel discussion, which highlighted the overall theme of the event—“CSDs Facing
the Future: Challenges and Opportunities throughHarmonization and Globalization”—and individual sessions on related topics led to animated dialogue among
those in attendance. The conference program is presented below.
CSD9 marked the first top management meeting,an opportunity for senior representatives from CSDs
worldwide to engage in a frank exchange of opinions.
The meeting was chaired by JASDEC president,
Yoshinobu Takeuchi, and resulted in agreement on thefollowing three points.

1. To consider the creation of internal rules to guide
execution of CSD conferences.
2. To schedule biennial meetings for representatives ofthe five regional CSD groups in the year that a worldwide CSD conference is not held to facilitate opinion
exchange in response to rapidly evolving trends,
especially in securities markets around the globe.
3. To release a communiqué about CSD9 to the media.
The next conference of CSDs—CSD10—will
take place in Budapest, Hungary, in 2009.

Signing Memorandums of Understanding

Through memorandums of understanding with the following CSDs abroad, JASDEC has been able to undertake
information and personnel exchanges with counterpart
organizations and offer training sessions of mutual benefit
to all participants.
August 2003:

U.S. Depository Trust and Clearing Corporation(DTCC)

November 2004: Taiwan Securities Central Depository Co., Ltd.
(currently, Taiwan Depository & Clearing
Corporation (TDCC))
February 2005: Korea Securities Depository (KSD)
June 2005:

China Securities Depository and Clearing
Corporation Limited (SD&C)

Tackling Standardization

Standardization of securities clearing and settlement is
an important topic in every country, paralleling globalization of financial and capital markets. JASDEC always
addresses system reform with changing standardizationin other countries in mind.
Specifically, we identify developments, such asrecommendations issued by the Group of Thirty (G30),
the International Securities Services Association (ISSA)
and the Committee on Payment and Settlement Systems(CPSS) of Bank for International Settlements (BIS), andthe International Organization of Securities Commissions (IOSCO). We constantly monitor our own systems
and form decisions on the direction of new services andimprovements to existing services, based on prevailingtrends abroad.

13

Corporate Governance

PRINCIPAL POLICY ON CORPORATE
GOVERNANCE

whom are selected from eligible participants—one eachfrom a securities firm and a financial institution—and all
three auditors, including the standing auditor, are exter-

As Japan’s only central securities depository, JASDEC has

nal auditors, in accordance with prevailing legislation.

a social obligation to adhere to a basic management direc-

The Board of Auditors meets once a month.

tion that hinges on the creation of a highly secure, efficient

However, in line with auditing plans and the direction

and convenient securities clearing and settlement infra-

established by the Board of Auditors, auditors will also

structure.

attend important meetings, including those of the Board

Consequently, our principal policy on corporateof Directors, and will execute audits of directors bygovernance requires us to undertake business activities

assessing the status of services and assets to ascertain thethat satisfy the wide-ranging needs of clients who utilize

effectiveness of directors in executing respective duties.

the Group’s systems, from participants—securities compa-

To ensure the practicality of audits, auditors will

nies, financial institutions and other users of our book-

meet with the representative director and will strive toentry transfer services—to investors, and to ensure thatfacilitate communication between auditors and directors.

these activities are highly transparent and characterized byfairness and integrity. Moreover, as the organization
responsible for the infrastructure of securities clearing andsettlement in Japan, we must earn and uphold a solid reputation for reliability.

A DDITIONAL COMMITTEES To accurately reflect theneeds of system users in our operations, we established
the Committee for Business Operations as a unit independent from other corporate structures, such as theBoard of Directors. This committee addresses pertinent

STATUS OF POLICY IMPLEMENTATION

issues related to the business of the Company, based on

MANAGEMENT STRUCTURE AND OTHER CORPORATE
GOVERNANCE SYSTEMS TO FACILITATE EXECUTIVEDECISION-MAKING, THE EXECUTION OF OPERATIONS AND
THE IMPLEMENTATION OF AUDITS

to the eight subcommittees under its control.

Corporate Structures

BOARD OF DIRECTORS The Board of Directors comprises 17 members. A key requirement of the Board of
Directors is to demonstrate a suitably balanced
approach to business, guided by wide-ranging perspectives, including user-oriented views as well as businessoriented ideas on preserving operational neutrality andimpartiality. To fully reflect the opinions of users in ourbusiness activities, nine of the 12 external directors are
selected from eligible participants in the Company. The
remaining three external directors belong to a stockissuing company, academia and the legal profession.
In principle, the Board meets once a month todecide basic management policies.

14

queries from the Board of Directors, and assigns topics
These subcommittees are responsible for a specific segment of operations and each comprises members who are actually involved in these operations.
JASDEC applies results raised by each subcommittee tovarious operational issues that will facilitate early realization of securities clearing and settlement system
reform in Japan.
To foster greater operational transparency, JASDEC, when appropriate, posts summaries of these discussions and other information on its web site.
As a key instrument of progress in the infrastructural development of the securities market, we strive foran extremely high level of fairness and integrity in our
activities. To this end, we established the Advisory
Committee, which enables the president to see the bigger
picture regarding the administration of a securities clearing and settlement system by accessing the extensive
knowledge of experts in financial and securities systems.

BOARD OF AUDITORS JASDEC maintains a corporate

JDCC, a wholly owned subsidiary, maintains a

auditor system. As of publication of this annual report,

business philosophy similar to that of JASDEC. JDCC

the Board of Auditors comprises three members, two of

set up the Committee for DVP Operations to study per-

Corporate Governancetinent issues regarding operations and works to reflect

from accounting auditors on auditing plans and thethe needs of users of the DVP settlement system forresults of audits.

NETDs in its services. In addition, the company pro-

Two certified public accountants executevides JASDEC’s Board of Directors with updates on

accounting audits for JASDEC: Hiroyuki Yamasaki andissues deemed pertinent by it own Board of Directors to

Tsutomu Nobuta (designated partners under Article 34,

ensure consistency in the activities of the two companies.

Paragraph 10-4 of the Certified Public Accountant Law).

A summary of other corporate governance sys-

They are employed by Misuzu Audit Corporation (for-tems and the business structure at JASDEC is presented

merly, ChuoAoyama PricewaterhouseCoopers andbelow.

renamed Misuzu Audit Corporation on September 1,2006), a network firm of PricewaterhouseCoopers, andInternal Controls and Risk
Management System

execute accounting audits, including checks of financial
documents, based on the Corporation Law.

J ASDEC established the Compliance Office and is

Mr. Yamasaki and Mr. Nobuta have audited

steadily reinforcing its internal audit structure. In addi-

JASDEC’s accounts for six consecutive years and twotion, the Company set up the Risk Management

years, respectively. They are assisted in their accounting

Committee, chaired by the president, and monitors theaudit by nine certified public accounts, junior accoun-status of various risks on a regular basis. Reports on thetants, and other assistants including system engineers.

status of risk management, including activities by desig-

No items of particular regard, such as serious

nated committees, are given to the Board of Directors, as

irregularities or instances of illegal behavior, have beennecessary.

found through the execution of accounting audits.

Audits by Corporate Auditors and the
Accounting Firm

Directors’ and Corporate Auditors’
Limit of Liability

In regard to audits by corporate auditors, the standing

To fully demonstrate the skills involved in successfully

auditor routinely attends important meetings, such as

executing the duties of a director and a corporate audi-

those of the Board of Directors and the Executive

tor and to retain top-level personnel, limits have been

Committee, comprising managing directors, and exam-

set on liability for damages incurred by directors andines internal memos requiring executive approval. The

corporate auditors.

standing auditor will also perform audits, in accordancewith auditing plans and the auditing direction estab-

Resolutions on Election/Dismissal of
Directors

lished by the Board of Auditors, and provide the othercorporate auditors with updates on the progress of such

The election of directors by resolution at the generalactivities at the meeting of corporate auditors, which is

meeting of shareholders shall be conducted in the pres-scheduled to take place monthly.

ence of shareholders representing no less than one-third

Nonstanding auditors attend Board of Directors’of voting rights held by eligible shareholders, and direc-

meetings and check on the status of duties executed bytors shall be elected upon the majority vote of said

directors. They also assess the level of duties executed

shareholders.

by directors, based on several sources, including

The dismissal of directors by resolution at the

updates from the standing auditor on auditing activities.

general meeting of shareholders shall be conducted in

JASDEC assigns staff specifically to assist corpo-

the presence of shareholders representing no less thanrate auditors in their audits.
Corporate auditors also investigate accounting
audits in close cooperation with the Company’s

one-third of voting rights held by eligible shareholders,and directors shall be dismissed on a vote of no less than
two-thirds of voting rights held by said shareholders.

accounting firm. This effort includes hearing reports

15

Business Overview
For the the year ended March 31, 2007

BASIC DATA FOR STOCK CERTIFICATES
BOOK-ENTRY TRANSFER
Participants and Accounts
Participant firms open accounts at JASDEC and deposit the certificates they wish to consign. Such firms include securities companies, banks, trust banks, insurance companies, securities finance companies and stock exchanges.
As of the end of March 2007, the number of participants stood at 286, and the number of accounts stood at 485.
Stock exchanges
and others 16

PARTICIPANTS BY
CATEGORY(As of March 31, 2007)

NUMBER OF ACCOUNTS BY
CATEGORY(As of March 31, 2007)

Securities financecompanies 3Life and non-life
insurance companies 7

Banks
37

Stock exchanges
and others 34
Securities financecompanies 4Life and non-life
insurance companies 9
Banks 181

Securities
companies 223

Securities
companies
257

Total 485

Total 286

Notes: 1. Clients of participant firms do not deposit certificates directly with JASDEC. Rather, they utilize JASDEC’s services through the accounts they establish
at participant firms.
2. The category “Banks” includes The Norinchukin Bank, Tokyo Syoken Shinyoukumiai and Tokyo Bankers Association, Inc.
3. The category “Stock exchanges and others” includes Japan Securities Dealers Association, Japan Securities Settlement & Custody, Inc., Japan Securities
Clearing Corporation, JASDEC DVP Clearing Corporation, Japan’s three securities agencies and Japan’s three money market dealers.

Issuing Companies 3,952
As of March 31, 2007, all publicly traded companies in Japan have consented to JASDEC handling their stocks.

Eligible Securities
ELIGIBLE SECURITIES (As of March 31, 2007)
Stocks

303,382 million shares

Preferred investment securities

270,534 units(3,952 issues)(1 issue)Beneficiary certificates of ETFs

1,927,476 thousand units(14 issues)

Certificates of REITs

6,784,524 units(43 issues)CBs¥1,540,599 million(117 issues)

Note: JASDEC accepts securities described in the CSD Law. Consent of the issuing company is also a prerequisite. Currently, eligible securities are domestic
securities, including stocks, convertible bonds (corporate bonds with subscription warrants to new shares), beneficiary certificates of exchange-tradedfunds (ETFs), certificates of real estate investment trusts (REITs), and preferred investment bonds of financial institutions established by cooperative associations, which are listed on stock exchanges.

16Business Overview

REVENUES BY OPERATIONSFiscal 2006 Review
Backed by economic recovery in fiscal 2006, ended March 31, 2007, stock trading remained brisk, exemplified byaverage daily stock trading volume exceeding two billion shares on the Tokyo Stock Exchange. Other favorable conditions, highlighted by an upward trend in stock prices and the return, albeit temporary, of the Nikkei Stock Averageback to the 18,000 level, triggered an increase in account transfers through the Group’s securities depository and bookentry transfer systems.
Consequently, operating income grew 3.7%, to ¥22,559 million. But operating expenses rose 5.9%, to ¥17,887
million, leading to a 3.8% drop in income from operations, to ¥4,671 million, and a 15.0% decline in net income, to¥2,651 million.
Refund of fees amounted to ¥3,339 million, down 50.8%, for the year ended March 31, 2007.

Stock Certificates
Account Transfer Operations

The number of shares in the transfer account—that is, combined exchange trade and non-exchange trade deliveries(NETDs)—averaged 84.3 billion a month, primarily because brisk stock trading sustained energetic momentum inaccount transfers from the previous fiscal year. However, JASDEC recorded a decline in fees, primarily owing to a 10%
reduction in rates per transfer, effective from April 2006. Consequently, income related to account transfer operations,particularly services for stock certificates, corporate bonds with subscription warrants to new shares and ETF beneficiary certificates, retreated 22.0%, to ¥12,944 million.

Custody Operations

As of March 31, 2007, the custody balance comprised 303.3 billion shares of stock certificates, ¥1,540.5 billion in corporate bonds with subscription warrants to new shares, and 1,927 million units of ETF beneficiary certificates. As aresult, income related to custody operations, particularly services related to stock certificates, corporate bonds with subscription warrants to new shares and ETF beneficiary certificates, amounted to ¥5,564 million, up 7.6% year-on-year.

Deposits and Withdrawals

The withdrawals to deposits ratio settled at 21.6%, asof March 31, 2007.

(Years ended March 31)

Number of Shares Deposited
Number of Shares Withdrawn
Withdrawals to Deposit Ratio

Billion shares

%

60

40

45

30

30

20

15

10

0

FY2002

FY2003

FY2004

FY2005

FY2006

33.7

34.9

45.8

30.7

24.6

9.6

7.4

6.9

5.1

5.3

28.5%

21.4%

15.1%

16.7%

21.6%

0

Note: The ratios above are calculated based on the number of shares deposited, excluding shares deposited by stock splits, and shares withdrawn, excluding
shares by stock transfer and merger.

17

Business Overview

CustodyA s of March 31, 2007, the number of shares in

Billion shares
320

%
100

240

75

160

50

80

25

JASDEC’s custody stood at 303,382 million and represented 81.4% of all outstanding shares issued by companies listed on stock exchanges in Japan.

0

FY2002Custody Balance
Ratio of Custody Balance to Shares Issued in Japan
Ratio of Immobilized Shares in Custody

FY2003

FY2004

FY20050

FY2006

203.1

228.2

262.1

281.9

303.3

58.1%

64.1%

71.7%

77.4%

81.4%

51.9%

56.3%

60.2%

61.5%

63.3%

Note: Immobilized shares are shares in custody that have been replaced by jumbo certificates, based on set criteria, to reduce administrative costs associatedwith custody and minimize risks, such as the physical loss of stock certificates.

Book-Entry Transfer

Of the number of shares transferred between accounts

Billion shares

%

800

80

600

60

400

40

200

20

by book-entry transfer in fiscal 2007, the number ofshares pertaining to ETFs represented 373,934 million
and the number of shares pertaining to NETDs
accounted for 638,080 million.

0

NETD Transfers
Exchanges Trade Transfers
Ratio of NETD Transfers to Total Transfers

FY2002

FY2003

FY2004

FY2005

FY2006

355.0

442.7

514.0

632.4

638.0

225.7

311.9

338.6

421.1

373.9

61.1%

58.7%

60.3%

60.0%

63.1%

0

Beneficial Shareholder Notification

In fiscal 2006, beneficial shareholder notification services covered 612,022 million shares and 96,469 thousand cases.

Million cases

Billion shares

100

800

75

600

50

400

25

200

0

Number of Cases
Number of Shares

FY2002

FY2003

FY2004

FY2005

FY2006

54.7

61.2

73.9

89.1

96.4

430.2

448.1

532.6

571.7

612.0

0

Foreign Stocks

Regarding foreign stocks entrusted to JASDEC by participants in Japan, the number of organizations rose to 11 and thenumber of issues increased to 30. As a result, income related to depository and book-entry transfer services for foreign
stocks came to ¥151.2 million.
18

Business Overview

Other Securities Operations

An overview of other securities operations conducted in fiscal 2006 is presented below.
(a) Convertible Bonds (CBs) / Corporate Bonds
with Subscription Warrants to New Shares(b) ETFs(Thousands of units)(Millions of yen)

Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues¥ 681,016
829,704
1,540,599
709,311
5,912,741
117(c) Preferred Investment Securities of Financial
Institutions

Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues

1,870
591
270,534
44,44670,452
1

2,075,069
7,697,989
14(d) REITs(Number of units)(Number of units)

Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues

967,771
668,934
1,927,476

Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues

1,688,609
81,301
6,784,524
7,262,106
13,772,116
43

Dematerialized Commercial Paper
A s of March 31, 2007, book-entry transfer for dematerialized commercial paper (CP) had been extended to 439
issuers, an increase of 40 companies from a year earlier, and the number of issues reached 6,129, an increase of 281.
The account balance stood at ¥18.9 trillion, up ¥343.1 billion, and the number of issues, transfers, and redemptions
reached 249,223, up 58,227. The total value of issues reached ¥1,223.6 trillion, up ¥328.8 trillion, and ¥4.9 trillion per
one business day. As a result, income related to book-entry transfer services for dematerialized CP reached ¥550 million, up 95.4%.

Dematerialized CP Account Balance (Month-end)
Trillions of yen

8,000

18

6,000

12

4,000

6

2,000

0

Outstanding Amount
Number of Issues

Number of Issues

24

FY
FY
FY
FY
Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.
2002 2003 2004 2005 2006
2007
0.01 1.4
4.8 18.6 19.1 18.7 18.3 18.6 19.5 19.5 19.2 19.4 20.0 19.9 19.9 18.9
3 257 1,314 5,848 5,863 5,457 5,421 5,290 5,390 5,809 5,632 5,446 5,866 5,679 5,655 6,129

0

19

Business Overview

Corporate Bonds
As of March 31, 2007, book-entry transfers for Corporate Bonds had reached 65,456 issues, an increase of 46,186
from a year earlier, the account balance stood at ¥181.3 trillion, up ¥174.9 trillion, and the number of issues, transfers,
and redemptions was 251,033, an increase of 227,182. The total value of issues during fiscal 2006 reached ¥134.6 trillion, up ¥119.3 trillion. As a result, income related to book-entry transfer services for Corporate Bonds amounted to¥1,057 million, up 292.9%.

Corporate Bonds Account Balance (Month-end)
Trillions of yen

Number of Issues

200

80,000150

60,000100

40,00050

20,0000 Pre-April

Outstanding AmountTransition of Outstanding Bonds
Number of Issues

Apr.
May
Jun.
Jul.
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
2006
2007
2006
6.4
15.4
19.1
21.6
25.1
27.5
51.3
74.9
93.9 125.4 181.3
12.5
9.7
—
1.2
2.4
2.5
2.6
2.7
23.4
43.7
60.7
1.1
1.1
89.2 141.0
19,270 23,712 26,145 28,898 41,833 43,498 47,275 48,091 50,343 55,984 60,350 61,672 65,4560Investment Trusts
As of March 31, 2007, book-entry transfers for investment trusts (which commenced on January 2007) had reached5,084 issues, the account balance stood at ¥93,083.2 billion, and the number of transfers was 591,220. As a result,income related to book-entry transfer services for investment trusts reached ¥303 million.

DVP Settlement Services for NETDs
Maintaining the trend set in the previous fiscal year, the number of transfers for DVP for NETDs averaged about
80,000 a day during fiscal 2006. However, JASDEC implemented a reduction in fees on DVP settlement, from ¥35 perassumed obligation to ¥30. As a result, income related to DVP settlement services for NETDs decreased 12.8%, to¥1,318 million. JASDEC also instituted a rebate on DVP settlement fees in fiscal 2006.

PSMS Services
In fiscal 2006, as in fiscal 2005, stock trading was brisk, sustaining steady use of JASDEC’s PSMS. The Company implemented fee reductions of about 10% on equities and derivatives and 30% on bonds, effective April 2006. Consequently,
income related to PSMS amounted to ¥1,951 million, a 2.7% decrease from a year earlier.

Other Services
Income related to other services declined 23.8%, to ¥2,056 million, in fiscal 2006.
20

Consolidated Balance Sheets
Japan Securities Depository Center, Inc.
As of March 31, 2006 and 2007

2006

2007

$ (thousands)(Note 4)2007

¥ 1,839,815
3,625,987
202,807
49,970,274
183,106
55,821,992¥ 2,824,047
3,455,111
154,648
34,715,413
286,80941,436,030$ 23,969
29,325
1,312
294,6472,434
351,689776,667
4,138,412—
4,915,079(3,163,263)
1,751,816

823,700
5,481,521
790,457
7,095,680(3,957,153)
3,138,527

6,991
46,524
6,709
60,224(33,586)
26,6389,679,743
611,745
10,766
10,302,254

8,816,461
1,915,654
11,676
10,743,792

74,82916,25999
91,188464,904
35,456140,958
641,320¥68,517,382

435,50259,829223,650
718,982¥56,037,333

3,696
507
1,898
6,102
$475,618¥ 1,826,047
1,555,985
129,554—240,382
49,970,274
302,698
54,024,942¥ 1,923,856
938,458
180,870
20,3006,842
34,715,413
1,399,711
39,185,453$ 16,328
7,965
1,535
172
58
294,647
11,880332,587

79,50860,840140,348
54,165,290

114,40948,120
162,529
39,347,982

971
408
1,379
333,966

4,250,000
4,250,000
5,852,092
14,352,092
14,352,092¥68,517,382

4,250,000
4,250,000
8,189,350
16,689,350
16,689,350¥56,037,333

36,071
36,071
69,507
141,651
141,651$475,618¥ (thousands)

AssetsCurrent Assets:
Cash and cash equivalents
Accounts receivable—trade
Deferred income taxes (Note 10)
Designated assets for clearing funds (Note 3)
Other current assets
Total Current Assets
Property and Equipment:
Buildings
Tools and furniture
Construction in Progress
Less: Accumulated depreciation
Total Property and Equipment
Intangible Assets, Net:
SoftwareConstruction in progress (software)
Other intangible assets
Total Intangible Assets
Investment and Other Assets:Long-term refundable lease deposits
Long-term prepaid expenses
Deferred income taxes (Note 10)
Total Investment and Other Assets
Total Assets

Liabilities
Current Liabilities:
Accounts payable—trade
Income taxes payable
Accrued employees’ bonuses
Accrued executives’ bonuses
Consumption tax payable
Deposits received for clearing funds (Note 3)
Other current liabilities
Total Current Liabilities
Long-term Liabilities:
Accrued employees’ retirement benefits (Note 8)
Accrued executives’ retirement benefits
Total Long-term Liabilities
Total Liabilities
Net Assets
Shareholders’ Equity:
Common stock
Authorized: 10,000 shares
Issued: 8,500 shares
Capital surplus
Retained earnings
Total Shareholders’ Equity
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes are an integral part of these statements.

21

Consolidated Statements of Income
Japan Securities Depository Center, Inc.
For the years ended March 31, 2006 and 2007

2006

2007

$ (thousands)(Note 4)
2007

Operating Income¥21,745,176¥22,559,853$191,477

Operating Expenses:
Executives’ compensation and bonuses
Salaries and bonuses
Severance costs for employees (Note 8)
Executives’ retirement benefits
Maintenance for systems
Outside services
Registration fees
Depreciation and amortization
Rent
Advertisement
OthersTotal Operating Expenses
Income from Operations

142,293
1,433,418
39,86020,3704,734,433
2,539,628
2,202,171
3,732,944
416,600
420,613
1,206,912
16,889,247
4,855,929

198,609
1,772,775
62,3974,850
5,087,273
2,623,715
1,645,092
3,871,462
459,776
601,997
1,559,951
17,887,901
4,671,951

1,685
15,046529
41
43,17822,268
13,96232,8593,902
5,109
13,240151,823
39,653125

138,936—(38,377)(28,500)

330
—
(325)
(241)

(8,876)(19,273)(26,489)(185,093)
113(267,435)
4,404,515

(75)
(163)
(224)
(1,570)0(2,269)37,383

1,787,090(34,532)¥ 2,651,958

15,167(293)$ 22,508¥ (thousands)

Other Income (Expenses):
Interest income
0
Operational revenue on the designated assets
for clearing funds
508Interest expenses (Note 7)(31,457)
Commitment fees
(38,095)
Commission fees—
Fees for fund operation of designated assets
for clearing funds(9,609)Loss on disposal of property and equipment(35,548)
Loss on disposal of intangible assets(6,445)
Nonrecurring depreciation of property and equipment (Note 9)—
Others, net
226
Total
(120,420)
Income before Income Taxes
4,735,509
Income Taxes (Note 10)
Current
Deferred
Net Income

1,752,475(138,348)¥ 3,121,382

U.S. dollars(Note 4)Yen

Per Share (Note 15):
Net income—primary
Dividends
Weighted-average number of common stock shares
outstanding (in shares)
The accompanying notes are an integral part of these statements.

22¥365,197.98
35,000¥311,995.13
40,000$2,648
339

8,500

8,500

—

Consolidated Statements of Shareholders’ Equity
Japan Securities Depository Center, Inc.
For the years ended March 31, 2006 and 2007
¥ (thousands)

Balance as of March 31, 2005
Cash dividends
Bonuses to executives
Net income for the year
Balance as of March 31, 2006
Cash dividends
Bonuses to executives
Net income for the year
Balance as of March 31, 2007

Number ofcommon stock
sharesCommonstock

Capitalsurplus

8,500
—
—
—
8,500
—
—
—
8,500

¥4,250,000———
4,250,000———¥4,250,000¥4,250,000———
4,250,000———¥4,250,000

Retainedearnings

Total
shareholders’equityTotal net
assets¥2,960,609 ¥11,460,609 ¥11,460,609(212,500)(212,500)(212,500)(17,400)(17,400)(17,400)
3,121,382
3,121,382
3,121,382
5,852,092 14,352,092 14,352,092(297,500)(297,500)(297,500)(17,200)(17,200)(17,200)
2,651,958
2,651,958
2,651,958¥8,189,350 ¥16,689,350 ¥16,689,350$ (thousands) (Note 4)

Balance as of March 31, 2006
Cash dividends
Bonuses to executives
Net income for the year
Balance as of March 31, 2007

Number ofcommon stock
sharesCommonstock

CapitalsurplusRetainedearnings

Total
shareholders’equity

8,500
—
—
—
8,500

$36,071———$36,071$36,071———$36,071$49,669 $14,352,092 $14,352,092(2,525)(2,525)(2,525)
(145)
(145)
(145)
22,50822,50822,508$69,507 $ 141,651 $ 141,651

Total net
assets

The accompanying notes are an integral part of these statements. The Consolidated Statements of Changes in Net Assets for the fiscal year ended
March 31, 2005 and 2006, are presented under the new standard.

23

Consolidated Statements of Cash Flows
Japan Securities Depository Center, Inc.
For the years ended March 31, 2006 and 2007
¥ (thousands)
2006

Cash Flows from Operating Activities:
Income before income taxes¥ 4,735,509
Depreciation and amortization
3,732,944
Nonrecurring depreciation of property and equipment—
Increase in accrued employees’ bonuses
14,355
Increase in accrued executives’ bonuses—
Increase in accrued employees’ retirement benefits
27,259
Increase (decrease) in accrued executives’ retirement benefits
5,580Interest income(0)Interest expense
31,457
Foreign exchange loss—
Loss on disposal of property and equipment
35,548Loss on disposal of intangible assets
6,445
Decrease in accounts receivable—trade430,490(Decrease) increase in accounts payable—trade(455,858)(Increase) in other assets(15,916)
Increase (decrease) in other liabilities
136,111
Executives’ bonuses(17,400)
Subtotal
8,666,527
Interest and dividends received
0Interest paid
(18,151)
Income taxes paid
(257,216)
Income taxes refunded
76,412Net Cash Provided by Operating Activities
8,467,571¥ 4,404,515
3,871,462
185,093
51,316
20,30034,900(12,720)(125)—
91
19,273
26,489170,875
52,306(134,823)(253,334)(17,200)
8,418,423
125—(2,377,489)—
6,041,058$ 37,383
32,859
1,570
435
172
296
(107)
(1)
—
0
163
224
1,450
443
(1,144)(2,150)(145)
71,451
1—(20,178)—
51,273

Cash Flows from Investing Activities:
Payments for purchases of property and equipment
Proceeds from sales of property and equipment
Payments for purchases of intangible assets
Payment of guarantee money deposits received
Proceeds from refund of guarantee money deposits
Net Cash Flows Used in Investing Activities(255,017)—(2,908,309)(19,399)
64,151(3,118,574)(1,564,250)
75(3,224,463)(33,578)
62,980(4,759,235)(13,276)
0(27,367)(284)
534(40,394)

Cash Flows from Financing Activities:
Repayment of short-term debt
Cash dividends paid
Net Cash Flows Used in Financing Activities(4,500,000)(212,500)(4,712,500)—(297,500)(297,500)—(2,525)(2,525)

Effect of exchange rate changes on cash and cash equivalents
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year—
636,497
1,203,318¥ 1,839,815(91)
984,231
1,839,815¥ 2,824,047

(0)
8,353
15,615$ 23,969

The accompanying notes are an integral part of these statements.

24

2007

$ (thousands)(Note 4)2007

Notes to the Consolidated Financial Statements
Japan Securities Depository Center, Inc.

1.
Basis of Presenting the Consolidated Financial Statements

The accompanying consolidated financial statements have been prepared from the accounts maintained by Japan
Securities Depository Center, Inc (“the Company”) and its subsidiary in accordance with the provisions set forth in the
Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International Finance ReportingStandards. Certain items presented in the consolidated financial statements filed with the Director of the Kanto Local
Finance Bureau in Japan have been reclassified for the convenience of readers outside Japan.

2.
Summary of Significant Accounting Principles(1) Consolidation
The consolidated financial statements include the accounts of Japan Securities Depository Center, Inc. and its
wholly-owned subsidiary, JASDEC DVP Clearing Corporation (hereafter, “JDCC”) which is the only subsidiary of
the Company. JDCC operates under a fiscal year ending on March 31, which is the same as that of the Company.
(2) Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments, with original maturities of three months or less,which are readily convertible to known amounts of cash and are so near maturity that they present only an
insignificant risk of changes in value because of changes in interest rates. Cash and cash equivalents in consolidated balance sheets and consolidated statement of cash flows are identical in the financial statements.
(3) Property and equipment
Depreciation for buildings, excluding improvements, is computed on the straight-line method. Depreciation forother capital assets is computed on the declining-balance method.
The main estimated useful lives are as follows:
Buildings
3–49 years
Tools and furniture
2–15 years(4) Software cost
Costs of software for internal use are capitalized and amortized on the straight–line method over the estimated useful life of five years. Software regarding physical stock certificates, which is to be made redundant after dematerialization of stock certificates, is estimated to be useful until January 2009, the date which all interested parties haveset as the target for the commencement of dematerialization.
(5) Accrued bonuses
Accrued employees’ bonuses represent liabilities estimated as of the balance sheet dates. Accrued executives’bonuses are reported based on the estimated amount of payment as of March 31, 2007.
Effective from the year ended March 31, 2007, the Company has applied the “Accounting Standard for
Directors’ Bonuses” (ASBJ Statement No. 4 issued on November 29, 2005, by the Accounting Standards Board ofJapan). This effect was to decrease operating income and income before income taxes by ¥20,300 thousand ($172
thousand) compared with the corresponding amounts which would have been recorded if the previous method
had been applied.
(6) Severance indemnity benefits
The Company has a severance indemnity plan covering all employees who meet the eligibility requirements of theCompany’s retirement regulations. The Company records accrued employees’ retirement benefit costs based on theamount that would be payable if all eligible employees voluntarily terminated their employment with the Company
at the balance sheet date.
Retirement benefits payable to directors and statutory auditors are accrued as accrued executives’ retirement
benefits at the amount computed based on the Company’s internal rules and regulations on these benefits. The
executives’ retirement benefits plan was abolished on June 20, 2006. Accrued executives’ retirement benefits are25

Notes to the Consolidated Financial Statements

scheduled amounts for payment discontinued retroactive to the time of plan abolishment for those executives who
had been in service since the plan was applied. Payments are applied only for the period of service up to June 20,
2006.
(7) Finance leases
In the normal course of business, the Company enters into lease agreements. Finance lease agreements, except for
those agreements where the ownership of the leased assets is transferred to the Company, are accounted for as
operating leases.
(8) Accounting standard for impairment of non-current assets
On August 9, 2002, the Business Accounting Council in Japan issued “Accounting Standard for Impairment of
Non-current Assets”. The standard requires that non-current assets be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of assets may not be recoverable. An impairment loss isrecognized in the Statement of Income by reducing the carrying amount of impaired assets or a group of assets to
the recoverable amount to be measured as the higher of net selling price and value in use. However, earlier adoption was permitted for fiscal years beginning April 1, 2004 and for fiscal years ending between March 31, 2004 andMarch 30, 2005. The Company has applied this new standard as well as “Guidance for Accounting Standards for
Impairment of Non-current Assets” (the Accounting Standards Board of Japan issued Financial AccountingStandards Implementation Guidance No. 6, October 31, 2003) for the fiscal year ended March 31, 2006. The
Company’s profit and loss are not influenced by this standard.
(9) Accounting standard for presentation of Net Assets in the Balance Sheet
Effective from the year ended March 31, 2007, the Company has applied “Accounting standards for presentation of
Net Assets in the Balance Sheet (Accounting Standards Board of Japan Statement No. 5)”, and “Implementation
Guidance for Accounting Standards for Presentation of Net Assets in the Balance Sheet (Accounting Standards ofJapan Guidance No. 8)”, both issued by the Accounting Standard Board of Japan on December 9, 2005.
The amount corresponding to the conventional “Shareholders’ equity” in the balance sheet is ¥16,689,350
thousand ($141,651 thousand).
“Net assets” in the balance sheets for this year is presented according to the revision of “Regulations Concerning
the Terminology, Form and Presentation Methods of Consolidated Financial Statements” dated April 25, 2006.
Furthermore, the Company presented its net assets in the balance sheets using the new presentation as of March
31, 2005 and 2006.
(10) Consumption taxes
The consumption taxes withheld by the Company and its subsidiary on sales and the consumption taxes paid by
the Company and its subsidiary on its purchases of goods and services are not included in the amounts of the relevant accounts in the accompanying statements of income. The consumption taxes withheld and paid are recorded
as an asset or a liability, as the case may be, and the net balance is shown in the balance sheets.
(11) Appropriation of retained earnings (for the fiscal year ended March 31, 2006)
Under the Japanese Commercial Code (currently, Companies Act) and the Articles of Incorporation of theCompany, the appropriation of retained earnings (including year-end cash dividend payments proposed by the
Board of Directors) are approved at the shareholders’ meeting, which must be held within three months of the endof each financial year. The appropriation of retained earnings reflected in the accompanying consolidated financial
statements represents the results of appropriations which were applicable to the immediately preceding financial
year, approved at the shareholders’ meeting and disposed of during that year. Year-end cash dividends are paid toshareholders on the shareholders’ register at the end of each financial year.
The payment of bonuses to executives is made out of retained earnings instead of being charged to income forthe year, and constitutes a part of the appropriations cited above.

26

Notes to the Consolidated Financial Statements

3.
Assets and Liabilities Held for Sound Settlement System Operation and Management

In order to secure the Delivery Versus Payment (“DVP”) for Non-Exchange Transaction Deliveries (“NETDs”) settlement
system, JDCC, a consolidated subsidiary of the Company, receives cash or securities as collateral from the DVP participants whom JDCC officially acknowledges as a party who undertakes securities obligations in accordance with the provisions set in JDCC’s general provisions in accordance with Article 156, Paragraph 7-1, of the Securities Exchange Law(Law No. 25, 1948).
JDCC manages cash and securities entrusted by the DVP participants as clearing funds defined in Article 156-11 of
the Securities Exchange Law separately from other assets in accordance with Article 7 of the cabinet ordinance related tosecurities clearing agencies (Cabinet Ordinance No. 76, 2002).
(1) Participant fund specified assets and participant funds under management
Under the DVP for the NETDs settlement system, when JDCC accepts obligations from DVP participants, the DVP
participants involved in the transactions make JDCC responsible for payment obligations and the content thereof.
JDCC requires each DVP participant to establish a participant fund in excess of the necessary amount set forth
in JDCC’s general provisions to ensure that the respective obligations of DVP participants are covered. The aggregate amount of participant funds entrusted to JDCC as of March 31, 2006 and 2007 was ¥15,000,000 thousand($127,312 thousand). In the event a DVP participant defaults on the required payment obligations of the DVP for
the NETDs settlement system, JDCC shall take deposits from the participant fund of this DVP participant to fulfill
its obligations to other DVP participants.
The participant funds entrusted to JDCC will be managed as money trusts, in line with the stated general provisions of JDCC.
The evaluation technique applied to money trusts will be the cost basis for investments with no market value, a
process corresponding to that used for other marketable securities.
Assets and liabilities pertaining to participant funds are expressed as line items for this purpose, with assets
indicated as designated assets for clearing assets, and liabilities indicated as deposits received for clearing funds.
(2) Collateral securities
Under the DVP for the NETDs settlement system, DVP participants are able to entrust marketable securities listed
in JDCC’s general provisions (hereafter, “collateral securities”) to ensure that obligations to JDCC are met.
When a DVP participant fails to meet its obligations to JDCC, JDCC is authorized to dispose of the entrusted
collateral securities by selling them in securities markets or through other methods deemed appropriate by JDCC.
As of March 31, 2006 and 2007, the market value of collateral securities entrusted to JDCC was ¥140,341,857
thousand and ¥141,106,397 thousand ($1,197,643 thousand), respectively.

4.
US Dollar Amounts

Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥117.82=US$1,
the rate of exchange as of March 31, 2007, has been used in translation. The inclusion of such amounts is not intended
to imply that Japanese yen have been or could be readily converted, realized or settled in U.S. dollars at this or any
other rate.

5.
Commitment Line and Overdraft Contracts

To ensure agile and stable fund-raising, the Company concludes commitment line agreements (¥12,000,000 thousand($101,850 thousand) in total) and overdraft contracts (¥5,000,000 thousand ($42,437 thousand) in total) with threebanks. To prepare for a possible deficiency of funds due to a default by DVP participants, JDCC has concluded commitment line agreements (¥45,000,000 thousand ($381,938 thousand) in total) with three banks, as part of a liquid fundfor completing fund settlement on the required day. The Company did not utilize them for the year ended March 31,
2007.

27

Notes to the Consolidated Financial Statements

6.
Lease Transactions

Finance lease transactions, other than those in which the ownership of the leased asset is transferred to the lessee, areaccounted for as operating leases. Certain key information (in equivalent data) on such lease contracts of the Company
for the periods ended March 31, 2006 and 2007, is as follows:¥ (thousands)

Tools and furniture:
Acquisition cost
Accumulated depreciation
Net book value$ (thousands)

2006

2007

¥ 267,272(148,786)¥ 118,486¥ 267,272(202,929)¥ 64,343

2007$ 2,268(1,722)$ 546

The scheduled maturities of future lease payments, including the portion of interest thereon, on such lease contracts as of March 31, 2006 and 2007, are as follows:¥ (thousands)

Due within one year
Due over one year
Total

$ (thousands)

2006

2007

¥ 54,803
66,247¥121,050¥50,985
15,261¥66,247

2007

$432
129
$562

Finance lease charges as well as depreciation and interest amounts (in equivalent data) for the years ended March
31, 2006 and 2007, are as follows:¥ (thousands)

Finance lease charges
Depreciation (in equivalent data)
Interest (in equivalent data)$ (thousands)

2006

2007

¥56,132
53,9092,421¥56,377
54,142
1,574

2007

$478
459
13

Note: Methods applied in computation of the equivalent data are as follows.
Depreciation: Straight-line method with zero residual value over the lease contract period.
Interest: Computed as the difference between the lease obligations and the acquisition cost, allocated for the lease contract period based on theinterest rate method.

7.
Debts and Other Borrowings

Short-term debts comprised loans from banks with a weighted-average interest rate of 1.675% per annum and fully
repaid during the year ended March 31, 2006. The Company does not have any debts or borrowings at March 31, 2006
and 2007.

8.
Accrued Severance Indemnities for Employees

Accrued employees’ retirement benefits on March 31, 2006 and 2007, represented the amount that would be payablefor the Company if all eligible employees voluntarily terminated their employment at the balance sheet dates. Severance
costs for employees charged to income for the years ended March 31, 2006 and 2007, amounted to ¥39,860 thousandand ¥62,397 thousand ($529 thousand), respectively. The Company has adopted a defined benefit pension plan as wellas lump-sum retirement allowance plan.

9.
Nonrecurring Depreciation of Property and Equipment

Nonrecurring depreciation of property was caused by depreciation, as a result of the decision to remove a self-power
generator at the main computer site.

Buildings

28¥ (thousands)$ (thousands)

2007

2007

¥185,093$1,570Notes to the Consolidated Financial Statements

10.
Income Taxes

The Company and its subsidiary are subject to a number of different income taxes which, in the aggregate, indicate anominal statutory tax rate in Japan of approximately 40.6% for the years ended March 31, 2006 and 2007.
Reconciliation between the nominal statutory income tax rate and the effective income tax rate in the consolidated statements of income for the year ended March 31, 2006, is as follows:
2006

Nominal statutory income tax rate
Adjustments:
Permanent nondeductible difference
Equal proportion of inhabitant taxes
Income tax credit on investment in IT
Other, net
Effective income tax rate

40.6%
0.2
0.1
(7.0)
0.1
34.1%

The above table is omitted for the year ended March 31, 2007, since the difference between a nominal statutory
tax rate and effective income tax rate is less than 5% of the nominal statutory tax rate.
Breakdown of Deferred Tax Assets¥ (thousands)

Deferred tax assets:
Accrued bonuses
Enterprise tax payable
Unpaid social insurance premiums
Business facility tax
Accrued retirement benefits to employees
Accrued retirement benefits to executives
Excess depreciation of fixed assets
Excess deferred asset depreciation for tax purposes
Deferred tax assets$ (thousands)

2006

2007

¥ 52,599
140,503
6,569
3,135
32,28024,701
66,195
17,781¥343,766¥ 73,433
68,527
9,171
3,515
46,45019,536
137,528
20,135¥378,299

2007

$ 623
581
77
29
394
165
1,167
170
$3,21011.
Consolidated Statements of Changes in Net Assets(1) Outstanding Stock
Type of stocks

2006

Increase

Decrease

2007

Ordinary share

8,500

—

—

8,500

(2) Treasury Stock
Not applicable.
(3) Stock Subscription Rights and Other Securities
Not applicable.
(4) Dividends
1. Payment of dividends
Resolution

Ordinary General Shareholders’Meeting (June 20, 2006)

Type of stocks

Total ofdividends¥ (thousands)

Dividend per
share¥

Ordinary Share¥297,500¥35,000

Record date

Effective date

March 31,2006

June 21,2006

29

Notes to the Consolidated Financial Statements

2. Dividends for which record date is for the year ended March 31, 2007 and for which effective date will be for theyear ending March 31, 2008
Resolution

Ordinary General
Shareholders’ Meeting(June 21, 2007)

Type ofstocks

Revenue ofdividends

Ordinary
Share

Retained
Earnings

Total ofdividends¥ (thousands)

Dividend Per
share¥¥340,000¥40,000

Record date

Effective date

March 31,2007

June 22,2007

12.
Stock Option

Not applicable.

13.
Segment Information(1) Business segment
The Company operates a single business unit, the central securities custody and book-entry transfer system.
(2) Geographic information
The Company has no overseas consolidated subsidiaries and no overseas branches for the years ended March 31,
2006 and 2007.
(3) Overseas sales
The Company does not have any overseas sales for the years ended March 31, 2006 and 2007.

14.
Related Party Transactions

The material transactions of the Company with related companies or individuals, excluding transactions with the consolidated subsidiary that are excluded from the consolidated financial statements, and other than those disclosed elsewhere in these financial statements, for the years ended March 31, 2006 and 2007, are as follows:(1) Directors
As of March 31, 2006
Title
Name

Director

Director

Toshitsugu Shimizu(Note 2 (1))

Fumiyuki Akikusa(Note 2 (2))

Account¥ (thousands)Ending balance

Business

Transactions

AmountDirector of the Company,
President and CEO of Japan
Securities Settlement &Custody, Inc.

Outsourcing¥2,357,861

Use ofequipment
Director of the Company,
Interest on
Managing Director of The
borrowings
Bank of Tokyo–Mitsubishi, Ltd. (Note 2 (4))
Commitment
fee

¥63

—

—

¥7,243

Short-term
debt¥1,925,000¥3,744—

Account
payable—trade¥88,369—

Notes: 1. The transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. Terms and conditions(1) These amounts include transactions with Japan Securities Settlement & Custody, Inc. (JSSC) for the period from April 1, 2005, to
March 31, 2006.
(2) These amounts include transactions for the period from April 1, 2005, to June 21, 2005, because Fumiyuki Akikusa resigned fromthe Board of Directors of the Company, and ending balance is the amount as of June 21, 2005.
(3) The terms and conditions of the above transactions are on an arm’s-length basis.
(4) Interest on borrowing is determined based on the market interest rate from banks.

30

Notes to the Consolidated Financial Statements

As of March 31, 2007
TitlesName

Director

Toshitsugu Shimizu(Note 2 (1))

Director

Koichiro Miyahara(Note 2 (2))¥ (thousands)Ending balance

Business

Transactions

AmountAccount

Director of the Company,
President and CEO of Japan
Securities Settlement &Custody, Inc.
Director of the Company,
President and CEO of Japan
Securities Settlement &Custody, Inc.

Outsourcing¥622,184($5,280thousand)Account
payable—trade¥217,764($1,848thousand)Outsourcing¥1,776,408($15,077
thousand)Account
payable—trade¥123,113($1,044thousand)

Notes: 1. The transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. Terms and conditions(1) These amounts include transactions for the period from April 1, 2006, to June 30, 2006, because Toshitsugu Shimizu resigned fromthe Board of Directors of the Company on June 20, 2006, and ending balance is the amount as of June 30, 2006.
(2) These amounts include transactions for the period from July 1, 2006, to March 31, 2007, because Koichiro Miyahara was assigned to
the Board of Directors of the Company on June 23, 2006.
(3) The terms and conditions of the above transactions are on an arm’s-length basis.

(2) Principal shareholder and its subsidiaries
As of March 31, 2006

¥ (thousands)

CapitalPrincipal
business

Relationship
Percentage
Directors Businessof ownership holding
relationshipwith voting
concurrent
rightspositions

Name of company

Address

Japan Securities
Clearing Corporation(Subsidiary ofother affiliates)
Japan Securities
Settlement &Custody, Inc.
(Subsidiary ofother affiliates)

Chuo-ku, ¥1,700,000 ClearingTokyo
securities—

Chuo-ku, ¥300,000 Custody &Tokyosettlementof securities

—

Three

One

Descriptions

Amount oftransactions(Note 1)

Commission Commission ¥4,656,889
incomeincomeOutsourcing Outsourcing ¥2,357,861

Descriptions(Note 2)Endingbalance

Accounts¥564,292

receivable—
trade
Accounts¥88,369

payable—trade
Use ofequipment

¥63

—

—

Notes: 1. These transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. The terms and conditions of the above transactions are on an arm’s-length basis.
As of March 31, 2007

¥ (thousands)

Principal
business

Relationship
Percentage
Directors Businessof ownership holding
relationshipwith voting
concurrent
rightspositions

Name of company

Address

Capital

Tosho System
Service Co. Ltd.
(Subsidiary ofother affiliates)

Koto-ku,Tokyo¥100,000 Design &development ofsoftware—Japan Securities
Clearing Corporation(Subsidiary ofother affiliates)
Japan Securities
Settlement &Custody, Inc.
(Subsidiary ofother affiliates)

Chuo-ku, ¥1,700,000 ClearingTokyo
securities—

One

Chuo-ku, ¥300,000 Custody &Tokyosettlementof securities

—

One

—

Amount oftransactions(Note 1)

Descriptions(Note 2)

¥1,456,738($12,364
thousand)payable—trade

Outsourcing Outsourcing ¥2,398,593($20,358
thousand)payable—trade

Descriptions

Purchase of Purchase ofsoftware,softwaremaintenanceof systems,
etc.

Endingbalance

Accounts¥19,316($163
thousand)Other¥8,221account($69
payablethousand)Commission Commission ¥3,877,255 Accounts¥462,939
incomeincome($32,908 receivable—($3,929
thousand) trade
thousand)Accounts¥123,113($1,044thousand)

Notes: 1. These transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2 The terms and conditions of the above transactions are on an arm’s-length basis.

31

Notes to the Consolidated Financial Statements

15.
Net Income per Share

The basis for calculating earnings per share for the years ended March 31, 2006 and 2007, is as follows:¥ (thousands)

Net income as reported in the consolidated statements of income
Directors’ bonuses through the appropriation of retained earnings
Net income pertaining to common stock shareholders
Weighted-average number of common stock shares
outstanding (in shares)$ (thousands)

2006

2007

¥3,121,382
17,200¥3,104,182¥2,651,958—¥2,651,958$22,508—$22,508

2007

8,500

8,500

—

16.
Subsequent Events

Acquisition of Stocks of Affiliated Company:
On February 23, 2007, the Board of Directors of the Company resolved to acquire 20% of the outstanding stock of
TOSHO SYSTEM SERVICE CO., LTD. (TSS) to make TSS the Company’s affiliated company. On May 15, 2007, theCompany concluded a purchasing contract with Tokyo Stock Exchange, Inc., and acquired 400 shares of TSS on May
18, 2007.
(1) The Purpose of Share Acquisition
The Company’s system operations are based on its recognition that a secure and efficient system is necessary for implementing services of a Central Securities Depository (“CSD”) as a matter of public infrastructure. Since the system’s
importance is expected to further increase as the scope of the Company’s business services is going to expands andbecomes more sophisticated, the Company has decided to strengthen relations with TSS by acquiring its stock, and tofurther improve the safety and efficiency of system operations.
(2) Overview of TSS
Company Name: TOSHO SYSTEM SERVICE CO., LTD.
Capital: ¥100,000 thousand ($848 thousand)Business: (a) Designing, development, maintenance, sales and selling agent services of computer software, and also
information processing in trust(b) Administration, operation and maintenance services of computer systems(c) Dispatching service of system engineers(d) Consulting service of IT, quality management systems and the like(d) Leasing, sales and selling agent services of computer equipment(e) Telecommunications service specified in the Telecommunications Services Law

32

Report of Independent Auditors
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF JAPAN SECURITIES DEPOSITORY CENTER, INC.

We have audited the accompanying consolidated balance sheets of Japan Securities Depository Center, Inc., and its
subsidiary as of March 31, 2006 and 2007, and the related consolidated statements of income, changes in net assets,
and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Japan Securities Depository Center, Inc., and its subsidiary as of March 31, 2006 and2007, and the consolidated results of their operations and their cash flows for the years then ended in conformity withaccounting principles and practices generally accepted in Japan.
As described in Note 2. (5), effective for the year ended March 31, 2007, Japan Securities Depository Center, Inc., andits subsidiary changed their accounting policy for Accrued executives’ bonuses.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of readers, have been translatedon the basis set forth in Note 4 to the accompanying consolidated financial statements.

Misuzu Audit Corporation
Tokyo, Japan
June 21, 200733

Board Members and Auditors
As of June 30, 2007

BOARD OF DIRECTORSPRESIDENT & CEO

MANAGING DIRECTOR

Yoshinobu Takeuchi

Shoji Murata

President, JASDEC DVP
Clearing Corporation

34

MANAGING DIRECTORMANAGING DIRECTORMANAGING DIRECTOR

Shigeru Omae

Seikichi Ihara

Yoshinori Seyama

Managing Director,
JASDEC DVP Clearing
Corporation

Managing Director,
JASDEC DVP Clearing
Corporation

Managing Director,
JASDEC DVP Clearing
Corporation

DIRECTORDIRECTORDIRECTOR

Kunihisa Hama

Ryusaburo Harasawa

Junichi Kitamura

LawyerManaging Director,
The Bank of Tokyo–Mitsubishi UFJ, Ltd.

Managing Director,
Head of Operations,
Nikko Citigroup Limited

DIRECTORDIRECTORDIRECTOR

Shigeyuki Maeda

Eisuke Marumori

Kenichi Miki

Professor of Law,
Professional School of Law (Law School),
Professional Course in Law,
Gakushuin University

Managing Executive Officer,
Mizuho Trust & Banking,Co., Ltd.

Executive Officer,
Daiwa Securities SMBC Co., Ltd.

Board Members and Auditors

DIRECTORDIRECTORDIRECTOR

Hironaga Miyama

Miyuki Nagahara

Takashi Sato

Senior Executive Officer,
Tokyo Stock Exchange, Inc.

Managing Director,
Head of Operations,UBS Securities Japan Ltd.

Managing Executive Officer,
Mizuho Corporate Bank, Ltd.

DIRECTORDIRECTORDIRECTOR

Masaru Takei

Yusuke Yamada

Teruo Watanabe

Managing Director, Tokyo
Electric Power Company

Executive Managing Director,
Nomura Securities Co., Ltd.

Director and First Senior Executive Officer,
Mitsui Asset Trust andBanking Company, Limited

AUDITORSSTANDING AUDITOR

AUDITOR

AUDITOR

Akemi Sasaki

Takeshi Kusakabe

Koichi Miyata

Auditor, JASDEC DVP Clearing
Corporation

Advisor,
Shinko Securities Co., Ltd.

Managing Director,
Head of Treasury Unit,
Sumitomo Mitsui Banking
Corporation

35

History

May 1984

The Law Concerning Central Securities Depository and Book-Entry Transfer of Stock Certificates and Other
Securities (CSD Law) was passed, and enforced in November 1984.

Dec. 1984

Japan Securities Depository Center (JASDEC) was founded as a not-for-profit foundation under a permit grantedby the Minister of Finance and the Minister of Justice (competent ministers).

May 1985

JASDEC was designated as a depository under the CSD Law by the competent ministers.

Oct. 1991

JASDEC began offering its depository services for stocks listed on the Tokyo Stock Exchange.

Jun. 1993

The U.K. Securities and Futures Authority approved JASDEC as an eligible foreign custodian.

Aug. 1993

The U.S. Securities and Exchange Commission issued a no-action letter to exempt JASDEC from Section 17(f) of
the Investment Company Act of 1940 and Rule 17f-5(c)(2)(iii).

Jun. 1997

The Association of German Banks approved JASDEC as an eligible foreign custodian.

Sep. 2000

JASDEC constructed a back-up center in Osaka.

May 2001

JASDEC launched its system for delivery-versus-payment (DVP) settlement of exchange trades in Tokyo andOsaka.

Sep. 2001

JASDEC implemented the Pre-Settlement Matching System (PSMS) for domestic trades by domestic institutional
investors.

Jan. 2002

Japan Securities Depository Center, Inc., was established.

Jun. 2002

All central custody and book-entry transfer business was transferred to the new, incorporated entity and theformer entity was dissolved.
The Association of German Banks approved the new incorporated entity as an eligible foreign custodian.

Jan. 2003

The Law Concerning Book-Entry Transfer of Corporate Bonds, etc. became effective and JASDEC was designatedas a transfer institution under the law.

Mar. 2003

JASDEC launched the Securities Information Tracing System (SITRAS) for lost stocks.
JASDEC inaugurated its Commercial Paper book-entry system.

36

Jun. 2003

JASDEC established JASDEC DVP Clearing Corporation (JDCC) to undertake clearing services related to DVP settlement services for non-exchange transaction deliveries (NETDs).

Aug. 2003

JASDEC signed a memorandum of understanding with The Depository Trust & Clearing Corporation of theUnited States.

Apr. 2004

JDCC acquired a licence for a securities clearing agency, enabling it to undertake securities obligations.

May 2004

JASDEC commenced DVP settlement services for NETDs.

Jun. 2004

The Law for Partial Amendments to the Law Concerning Book-Entry Transfer of Corporate Bonds and Other
Securities for the purpose of streamlining the settlement for trades of stocks and other securities waspromulgated.

Nov. 2004

JASDEC signed a memorandum of understanding with Taiwan Securities Central Depository Co., Ltd. (currently
Taiwan Depository & Clearing Corporation (TDCC)).

Feb. 2005

JASDEC signed a memorandum of understanding with Korea Securities Depository (KSD).

Jun. 2005

JASDEC signed a memorandum of understanding with China Securities Depository and Clearing Corporation
Limited (CSD&C).

Jan. 2006

JASDEC inaugurated its book-entry transfer system for Corporate Bonds.

Apr. 2006

JASDEC inaugurated its depository and book-entry transfer system for foreign stocks.

Jan. 2007

JASDEC inaugurated its depository and book-entry transfer system for investment trusts.

Corporate Information
As of June 30, 2007
Contents

Revenues by Operations

1 Financial Highlights

Year ended March 31, 2007

2 President’s Message
4 Rapid Progress in Dematerialization
12 International Activities
14 Corporate Governance

DVP settlement services for NETDs¥1,318 million

16 Business Overview

Bonds

21 Financial Statements
33 Report of Independent Auditors
34 Board Members and Auditors
36 History
37 Corporate Information

Depository and book-entry transfer for foreign stocks
Other services¥151 million¥2,056 million
Pre-settlement matching services¥1,951 million

Book-entry transfer for CP¥550 million
Book-entry transfer for
Corporate Bonds¥1,057 million
Book-entry transfer forinvestment trusts¥303 million

Custody¥5,564 million

Book-entry
transfer¥12,944 million

December 6, 1984

January 4, 2002

The Japan Securities
Depository Center(JASDEC) established as a
not-for-profit foundationin line with the November
1984 enforcement of the
Law Concerning Central
Securities Depository andBook-Entry Transfer ofStock Certificates andOther Securities (the CSD
Law).

The Japan Securities
Depository Center, Inc.,
incorporated as a stockcompany.

June 17, 2002
Assumed all the businessesof the Japan Securities
Depository Center, in
accordance with the CSD
Law.

October 9, 1991

June 6, 2003

Commenced businessas Japan’s only central
securities depository
for stock certificates.

Established JASDEC DVP
Clearing Corporation(JDCC) to undertake
clearing services related tothe delivery-versuspayment (DVP) settlement
system for non-exchangetransaction deliveries(NETDs).

January 4, 2002

DATE OPERATIONS BEGAN

June 17, 2002

CAPITAL¥4.25 billion

COMMON STOCK ISSUED

8,500 shares

NUMBER OF SHAREHOLDERS

189

NUMBER OF EMPLOYEES

180 (As of March 31, 2007)

REGISTERED HEAD OFFICE

1-1, Nihombashi-Kayaba-cho 2-chome
Chuo-ku, Tokyo 103-0025, Japan
Phone:

EquityNotes: 1. Refund of fees amounted to ¥3,339 million for the year ended March 31, 2007.
2. Book-entry transfer services for investment trusts began in January 2007, and theamount shown represents revenues generated from the start of operations until
March 31, 2007.

EstablishedJapan Securities Depository Center, Inc.

DATE OF INCORPORATION+81-3-3661-0139

Facsimile: +81-3-3661-0186

37 Organization Structure

Corporate
Structure

COMPANY NAME

Our Mission
In view of our duty to serve the public, our mission as agroup is to provide a highly secure, efficient and easy-touse infrastructure for securities clearing and settlement,
which in turn contributes to functional improvement of
the securities market.
Toward this end, we advocate dematerialization ofmarketable securities and have already realized bookentry transfer systems for dematerialized commercial
paper (CP), Corporate Bonds* and investment trusts. We
are currently focusing on preparations for the dematerialization of stock certificates. Other management priorities
include efforts to promote straight-through processing(STP) using enhanced system functions and our presettlement matching system (PSMS), wider use of depository services for stock certificates, and more extensive
application of such systems as the DVP settlement system
for NETDs.
To achieve these goals, we will build and replacesystems, in line with our medium-term management
plan, and strive to cement a stronger foundation forimproved stability and reliability in our business activities. We will also endeavor to make our services moreconvenient for overseas investors using our clearing andsettlement systems and we will reinforce ties with international counterparts to foster cooperation mutually beneficial to both sides.

E-mail:international@jasdec.com

Website:http://www.jasdec.com

OPERATIONS OFFICESTokyo Office

1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Osaka Office

6-10, Kitahama 1-chome, Chuo-ku, Osaka 541-0041

Nagoya Office

3-17, Sakae 3-chome, Naka-ku, Nagoya 460-0008

Fukuoka Office14-2, Tenjin 2-chome, Chuo-ku, Fukuoka 810-0001

Sapporo Office14-1, Minamiichijo-Nishi 5-chome, Chuo-ku, Sapporo 060-0061

SUBSIDIARY COMPANY
Company NameJASDEC DVP Clearing Corporation

Date of Incorporation

June 6, 2003

Commenced Operations

May 17, 2004

Capital¥310 million

Registered Head Office

1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Organization Structure
As of June 30, 2007
● M EETING OF S HAREHOLDERS● B OARD OF A UDITORS● B OARD OF D IRECTORS● P RESIDENT & CEO● Compliance Office● General Administration Department● Corporate Planning Department● Business Administration Department● Bond and Commercial Paper Department● Investment Trust Department● International Department● Business Planning Department● First System Department● Second System Department● Tokyo Operations Office* For clarity, “Corporate Bonds” in this report refers to general bonds covered by the book-entry transfer system for Corporate Bonds, i.e., corporate
bonds, municipal bonds and investment company bonds, specified corporate bonds prescribed in the Law Concerning Liquidization of Assets, rights
represented by bonds issued by corporations under a special law and rights represented on bond certificates issued by any government or by companies in foreign countries (excluding those viewed as bonds with subscription rights), such as Samurai bonds and Shogun bonds.

● Osaka Operations Office● Nagoya Operations Office● Fukuoka Operations Office● Sapporo Operations Office37

JAPAN SECURITIES DEPOSITORY CENTER, INC.

Rapid Progress in Dematerialization

Annual Report

2007
For the year ended March 31, 2007
Uses soybean ink inconsideration of the environment

Printed in Japan on recycled paper