Interview with the President & CEO

JASDEC now
and in the future
Haruhiko KatoPresident & CEO

Q1. You have talked about a plan to replace the current system by January 2014.
Can you tell us about the main features of the system and the development schedule?

At JASDEC, based on the expected lifetime of our systemefficiency, and provide a more convenient service for users.

equipment, we plan to replace our systems by January 2014,

The main features of our new systems, along with the devel-five years after the dematerialization of stock certificates

opment schedule, are as follows.

in Japan. At the same time we will improve reliability and4

Japan Securities Depository Center, Inc. Annual Report 2011

Interview with the President & CEO• Main system features
A. Improved usability and reliability	We will take in requests regarding system and operating functions, and reflect law and tax system changes.
B. Reduced settlement risk	We will make the systems capable of handling risk
reduction schemes for SLB (Stock Lending andBorrowing) settlement.
C. Reinforced system foundations	In order to provide improved reliability and efficiency,
we will conduct a review of the system structure(open system platform, system reorganization, etc.).

Also, we aim to improve usability by developing amore logical network, such as by integrating connections for users who currently require multiple
connections for different services.
D. International standards	For our Pre-Settlement Matching System and theBook-entry Transfer Systems, we will adopt thenext-generation international standards, ISO20022.
In addition to our independent network, we aim toimprove market efficiency by enabling connections
through the SWIFT network.

Settlement infrastructure
institutions/user systems

NetworkBank of Japan (BOJ)

BOJ-NETJASDEC system
System solutions

Japan Government Bond Clearing Corporation (JGBCC)•Japan Securities Clearing Corporation (JSCC)•User
In-house system

SWIFT connection (ISO20022)
ORJEXGW connection (ISO20022)
OR
Integrated channel connection (ISO15022)
File transfer connection

SWIFTNet connection achieved

Integrated network
Integration of connections
between users and JASDEC•

Open system platform•

System reorganization•

ISO20022 compatibility•

New establishment of JEXGW

Main Center
Backup Center

Participant information network

and JASDEC in preparation for the launch of full-scale
operations in January 2014.

Requirement
definition

2011
7-121-62012
7-12

1-6

System development

2013
7-12

2014
1Officiallaunch

1-6Connection/
overall test

YearMonthDevelopment
schedule• Development Schedule
For the period until June 2011, we collated requests forchanges to system and operating functions. From July
2011 we will spend around two years developing thesystems. During that time we will distribute outlines
of system processes and specifications, and conduct
guidance seminars. From July 2013, we will conduct
connection tests, overall test, and system trial transition at users, settlement infrastructure institutions

Measures to reduce settlement risk
related to SLB transactions*Integrated channel system scheduled to bediscontinued in January 2019

Integrated web terminal
Participant information web terminal

Response to user improvement requests

Japan Securities Depository Center, Inc. Annual Report 20115

Q2: We understand that you have set up the Subcommittee for SLB (Stock Lending andBorrowing) Settlement. What are the issues that they are looking into?

At present, market participants such as securities companies,(“block” DVP/DVD)” in which all the settlements related totrust banks and other players are able to conduct securities

SLB transactions and its collateral were performed concur-lending and borrowing transactions using cash, negotiable

rently and the other was the “transactional DVP settlement

securities, etc. as collateral (“SLB transactions”). However,method” that used the DVP settlement system for Non-there has been no DVP settlement system for SLB transac-

Exchange Transaction Deliveries (NETDs). In Decembertions, so these transactions have involved settlement risk.

2010, the Subcommittee published “SLB Settlement Risk

Actually, when Lehman Brothers went bankrupt in September

Mitigation Milestone,” incorporating both methods. This

2008, the counterparties couldn’t accept their receivable

year, the Subcommittee integrated the advantages of bothcollateral from Lehman Brothers, even though they had

methods and created a new measure.

already delivered the lending stocks to Lehman Brothers. It

The features of the measure are as follows;

reinforced us the importance of mitigating the settlement risk1) Settlement scheme based on JDCC’s DVP settlement

involved in SLB transactions. Under such circumstances, in2) According to the current practice for margin calcula-Frameworks Pertaining to Financial and Capital Markets” intion, JASDEC will automatically calculate the SLB

which it noted that the strengthening of securities clearing

settlement amount related to each new lending andand settlement systems was an urgent issue.

return transaction

At JASDEC, even before the publication came out, we had3) The difference between the margin requirement that isalready offered trade matching functions for SLB transactions

calculated by the market participants according to thein our Pre-Settlement Matching System (PSMS). In addition wecurrent practice and SLB settlement amount that is calcu-

had been looking into the ways to link PSMS to the Book-entry

lated by JASDEC in 2) will be netted with the final settle-

Transfer System for Stocks, etc. and thus to realize DVP settle-

ment balance of DVP settlement services for NETDs

ment for SLB transactions. Following FSA’s publication, we4) The functions of “pledged securities” in DVP settlement

have set up “The Subcommittee for SLB settlement” in August

services for NETDs are remodeled to handle the securi-2010. The Subcommittee aimed to identify the functions neces-ties that are used as collateral in the current SLB market

sary to mitigate the settlement risk involved in SLB settlement.

The Subcommittee is currently discussing the detailed

The Subcommittee for SLB settlement (with the participa-specifications of the measure and the associated market prac-tion of representatives from nine securities companies, fivetice. The measure is slated to enter service in January 2014

trust banks, one securities finance company, and observers

when we replace our current system.

from FSA, BOJ*2, JSDA*3, and JSCC*4) considered two ways

*1 FSA: Financial Services Agency

to mitigate the settlement risks (principal risk in particular) inSLB settlement. One was the “concurrent settlement method

6services for NETDs

January 2010, FSA*1 published “Development of Institutional

Japan Securities Depository Center, Inc. Annual Report 2011

*2 BOJ: Bank of Japan*3 JSDA: Japan Securities Dealers Association*4 JSCC: Japan Securities Clearing Corporation

Interview with the President & CEO

Q3: What is your approach to Business Continuity Plan?

The fundamental aim of our Business Continuity Plan (BCP)

backup center in a remote location. The business data in theis to minimize the impact on all JASDEC’s participants andmain center is transferred to the backup center almost in real

stakeholders in the settlement infrastructure if some kindtime, and in case the main center becomes unavailable due toof disaster or compromising incident should occur. Our

disasters or system failures, the system can switch over to thesystems will enable business to continue to the greatest

backup system in about 90 minutes. We even have back-up

extent possible and will restore services rapidly if disruption

office space to host our business operations should the headis unavoidable.

office become unusable.

Specifically, we have clear BCP implementation,

During the Great East Japan Earthquake in March 2011,

operation and emergency communication procedures,

even though our head office was subjected to shaking of aa disaster strategy coordination headquarters on standby,

little less than a “5” on the traditional Japanese earthquake

and provisions in place for the delegation of authority. Our

scale of 1-7, there were no staff injuries or damage to ourBCP system includes robustly built data centers that haveoffice, and we were able to maintain our operations. We will

their own power generators and core systems with built-in

apply what we learned in this earthquake to make our busi-

redundancies. In case a really large-scale disaster or second-

ness continuity system even stronger.

ary calamity renders our main center inoperative, we have aSwitch within 90 minutes
Main Center

Backup Center

Dedicated line, ISDN, Wide Area Ethernet (Optical line)

Integrated channel
gateway(Online real-timesystem, Channel
file system)

File transfer
gateway

Integrated
web terminal

Participant
information webterminal

Japan Securities
ClearingCorporation(JSCC)

Japan Government
Bond ClearingCorporation(JGBCC)

SWIFT NetBank of Japan
Financial Network
System(BOJ-NET)

Japan Securities Depository Center, Inc. Annual Report 20117