Special Feature
The Dematerialization of Stock Certificates

A New Era Begins
for Stock Trading

2009.1
Leading the Way to the Future

10In January 2009, a new Book-entry Transfer System for Stocks,etc. (hereinafter referred as to “the new system”) started. Under
the new system, stock certificates of all outstanding shares
listed on Japanese stock exchanges were dematerialized andconverted to electronic records. It replaced the depository andbook-entry transfer system (hereinafter referred as to “theformer system”) that has supported the settlement of securities
transactions in Japan since 1991. This change is referred to asthe dematerialization of stock certificates.
It is now approximately five years since the promulgation of“the Law for Partial Amendments to the Law Concerning BookEntry Transfer for Corporate Bonds and Other Securities for thePurpose of Streamlining the Settlement for Trades of Stocks
and Other Securities” in 2004, which required the replacementof paper stock certificates with electronic records. During theseyears, JASDEC promoted the preparation of an orderlytransition to the new system in cooperation with related parties.
We continued to upgrade our business functions, including
improved efficiency of administrative work and service
enhancements in the former system. Meanwhile, theSubcommittee for Dematerialization of Stock Certificates was
set up to review practical transition procedures to the newsystem, and JASDEC formulated plans for the new system, setup procedures for administrative transactions, conducted systemdevelopment as well as operational tests, and requested
shareholders to promptly deposit their stock certificates withJASDEC. As a result of these efforts, a smooth transition to thenew system was successfully accomplished.
The dematerialization of stock certificates will help bringgreater security, usability and efficiency to the Japanese stockmarket. In addition, with recent increased cross-border trading,it will make the market more attractive and reliable for overseas
investors and participants to invest in, and strengthen Japan’sinternational competitive position.
In this special-feature article, we give an overview of thenew system, and explain the benefits of the electronic recordkeeping system.

An Overview of Dematerialized Book-Entry Transfer System for Stocks, etc.
Under the new dematerialized Book-entry Transfer System for
Stocks, etc., paper stock certificates issued by all Japanesecompanies listed on Japanese stock exchanges were abolished andbecame invalid. They have been replaced by electronic records
registered and managed by computer systems within accounts
opened at JASDEC or account management institutions (AMIs)
such as securities companies and banks. Instead of stock certificates,
records in computer systems represent share ownership. Transfer ofshareholders’ rights is also processed electronically based on therecords in the accounts. This dematerialization system applies not
only to stock certificates, but also to share options, bonds with shareoption, investment units, preferred equity investments, andExchange Traded Funds (ETFs).
When starting the new system on January 5, 2009 (hereinafterreferred to as the “enforcement date”), the total number of issues
handled was 3,986.* The number of companies participating in thenew system, including JASDEC participants, indirect AMIs andfund settlement corporations, was 420. Under the new system,
foreign financial institutions designated by competent ministers canalso take part in the system. As of the enforcement date, 21 foreign
financial institutions were participating as indirect AMIs.

* Excluding Exchange Traded Funds (ETFs) for which JASDEC’s Book-entry Transfer System was implemented in January 2008.

Former Depository and Book-Entry
Transfer System

New Dematerialized Book-Entry
Transfer System

Issuing company

Issuing company

Book of shareholders

Book of shareholders

Request for registration ofname transfer

Book ofbeneficial
shareholders

General Shareholders Notification

Notice of beneficial shareholders

Request for registration of
title transfer

JASDEC
Ledger of Account transfer
participants’accounts

Stocks(deposits)

JASDEC
Ledger ofparticipants’accounts

Request forwithdrawal

Stocks(deliveries)

Transfer
Account

Transfer AccountDirect AccountManagement Institution(securities companies, banks, etc.)Stocks(Hold own stock
certificates orentrusts them tosecurities companies)

Shareholders outside
the depository
and book-entry
transfer system

Shareholders outside
the depository
and book-entry
transfer system
Stocks(deposits)

Customers(beneficial shareholders)

TransferAccountDirect AccountManagement Institution(securities companies, banks, etc.)

Customers(beneficial shareholders)
Indirect AccountManagement Institution
Request forwithdrawal

Stocks(deliveries)

Customers(beneficial shareholders)(Indirect AMI)

Participants(Shareholders)Participants(Shareholders)Participants(Shareholders)

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S pe c i a l Featur eThe Dema ter ializ at ion of St ock Ce rt ificat e s

The Main Benefits of Dematerialization
Elimination of Paper Certificates Reduces Costs and Risks
The dematerialization of stock certificates, etc. offers a numberof benefits for all related parties, including issuing companies,
shareholders, securities companies and banks. Firstly, it reduces
costs and risks associated with paper certificates. Issuing
companies no longer have to bear costs of issuance as well as
management of paper certificates, and shareholders will have norisks of loss and theft. Additionally, the risk of trading forgedcertificates is removed. Dematerialization also eliminates theneed to deliver paper certificates for securities traded, leading todramatic reductions in effort, time, and cost for securities
transactions.

Centralized Management of Shareholder Data Brings Greater Processing Efficiency for Issuing Companies
Secondly, under the new system, JASDEC centralizes
management of shareholder information to streamline issuing
companies’ clerical workload. For instance, when a shareholder
utilizes two or more AMIs, under the former system, theadministrator of the shareholder registry of each issuing
company had to conduct name identification for the purpose of
making correct entries in the shareholder registry and registryof beneficial shareholders. Under the new system, JASDEC
carries out name identification of shareholders for all issuing
companies, and based on the results, provides General
Shareholders Notification to issuing companies (oradministrators of the shareholder registry) for entry in theshareholder registry. Furthermore, the time taken by JASDEC
under the new system to send notifications to issuing companies
is reduced by half to three business days from the record date.
This greatly contributes to administrative efficiency and cost
reduction for issuing companies. In addition, under the newsystem, issuing companies are able to request JASDEC to send
shareholder information at any time subject to reasonablegrounds, and to utilize up-to-date shareholder data for effective
IR activities such as special benefit programs for shareholders
on a quarterly basis.
For shareholders, meanwhile, in the event that they intend topresent proposals at a general shareholders’ meeting, they areentitled to exercise their rights as minority shareholders byrequesting JASDEC through their AMIs which maintain theregistry of their data to notify the issuing company of thenumber of shares they hold. The exercise of rights as minority
shareholders is possible, even if they are not recorded in theshareholder registry of the issuing company. Issuing companies,
for their part, can request JASDEC to provide information on
specific shareholders to determine whether or not they areshareholders.

Diversification in Services for Dividend ReceiptThirdly, services for dividend receipt have been diversified.
Before the dematerialization, shareholders had to designatebank accounts to receive dividends for each issue, or submit
dividend warrants mailed from issuing companies to financial
institutions or post offices within a specified period. However,under the new system, once shareholders inform securities
companies of their designated bank account before dividend

12J a p a n Securi ti es Depo si to ry C enter, Inc. A nn ual R e p ort 2 0 0 9payment, all dividends payable on shares they hold will betransferred to the designated account. Additionally, dependingon the balance of the accounts at securities companies as of therecord date, shareholders can receive dividends through suchsecurities companies. The same dividend services are available
for beneficial rights of Exchange Traded Funds (ETFs)
beneficiaries.

Sp e cial Fe at ure

The De mat e rializat ion of St ock Ce rt ificat e s

Urging Investors to Deposit Certificates with JASDEC toAchieve Full Dematerialization
Smooth and efficient depositing of stock certificates in JASDEC was acritical issue for the dematerialization of stock certificates. However, asof the end of March 2008, the number of shares in JASDEC’s custodystood at 84.3% of all outstanding shares listed on Japanese stock
exchanges, and approximately 46 billion shares of stock certificateswere yet to be deposited with JASDEC, of which approximately 13billion shares were kept by individual investors on hand, and 12 billion
shares were held by business corporations. Leading up todematerialization, there were concerns that these stock certificates would
not be deposited.
To encourage shareholders to promptly deposit certificates, adematerialization campaign had been conducted, primarily by theReform Promotion Center for Securities Clearing and Settlement System(a body set up jointly by JASDEC, the Tokyo Stock Exchange, Inc., andthe Japan Securities Dealers Association). In the campaign, newspaper
advertisements, television commercials, posters, pamphlets and so on
were used to publicize the issue of dematerialization among shareholders.
To avoid trouble caused by shareholders rushing to deposit their stockcertificates at the last minute before dematerialization, as well as apossible overload of clerical work for JASDEC and related parties,
JASDEC strengthened cooperation in ensuring the prompt deposit ofstock certificates with securities companies and banks that would beacting as deposit intermediaries for JASDEC.
As a result of these efforts, the percentage of shares in custody at theend of December 2008 rose to 91.1% of all outstanding shares, and theratio (excluding immobilized shares) reached 94.9%. Thus, JASDEC
managed to introduce dematerialization without major problems.
Stock certificates kept in hand without being deposited with JASDEC
became invalid by dematerialization, but the management of stock
ownership of the certificates is transferred to special accounts opened byissuing companies for these shareholders, primarily throughadministrators of shareholder registry, and their ownership rights areprotected. However, with certain exceptions such as requests for thepurchase of shares representing less than one unit, transactions of theshares held in the special accounts are not permitted. Shareholders arealso required to follow certain procedures for the transfer of the stocks toordinary accounts opened at AMIs.

Seeking Further Reform to Enhance Functions of SystemIn April 2009, JASDEC reorganized two subcommittees — theSubcommittee for Existing Business to review improving operational
processes of the former system, and the Subcommittee for
Dematerialization of Stock Certificates to study operational practices fordematerialization of stock certificates — into three subcommittees for
specific products to examine further improvement of the new system: theSubcommittee for Stocks, the Subcommittee for Bonds with Stock
Options and the Subcommittee for ETFs.
Dematerialization of stock certificates promises greater security,usability, and efficiency for the securities markets. Under the newsystem, JASDEC is committed to the provision of a stable and reliable
operational environment. JASDEC will carry out further improvement ofthe system reform in cooperation with related parties including
shareholders, issuing companies, and AMIs while focusing on businessinitiatives to meet the ongoing needs and requirements of users. In
addition, JASDEC is accelerating efforts to enhance its ability to perform
as the world’s most advanced and user-friendly central securities
depository. JASDEC will contribute to revitalizing Japan’s securities
market and further enhancing its international status.

Outline of Greneral Shareholders Notification

Issuing company
Book ofshareholders
Comparison by shareholder
reference code

Notification
data after
nameidentification

Stock balancedata after
nameidentification

Data transfer

JASDEC
Notification
dataInterlink

Data edit

Name
identification

Participant
information

Account Management
Institution (AMI)

Participant
information

Account Management
Institution (AMI)

Participant
information

Account Management
Institution (AMI)

Information of the
Number of Shares

Paper document

Participants(Shareholders)Information of the
Number of Shares
Information of the
Number of Shares

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