Business Overview

We are making steady progressin preparations for our planned
launch of the new system next year.

Yoshimasa Oba
Director
General Administration Dept.

Custody and Book-Entry Transfer System
for Stock Certificates
24 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Looking ahead to transition to dematerization of stock
certificates, we are streamlining transaction procedures.
Under the depository and book-entry transfer
system for stock certificates, depository of securities is centralized in JASDEC, Japan’s only central
securities depository. The settlement of securities is
processed through book-entry transfer in accounts
at JASDEC or participants, without handling ofactual stock certificates.

With dematerialization of stock certificatesin January 2009, (see the Special Feature on“Dematerialization” which starts on page 12), a
new book-entry transfer system starts. Under the
new system, stock certificates will no longer bedeposited or withdrawn, but instead, ownership ofstocks shall be determined by electronic records
in the computer system of JASDEC and accountmanagement institutions.

Stock Certificates
Number of Eligible Issuing Companies/Shares in Custody(Companies)

Number of companies

4,000
2,654

2,565

3,000

2,804

3,626

3,616

3,498

3,366

3,287

3,228

3,116

2,977

3,666

3,758

3,952

3,838

3,948

2,000
1,000
0

Custody balance
Number of uncertificated shares
Custody ratio (%)(Million shares)

400,000
300,000
200,000

21,908100,0004
030,4448

684,443 108,064

Uncertificated partof shares incustody

23

6,663

17,961 30,581

44,05954,22673,58595,557 105,490

100
80

157,756

34

29

84

81

77

64

58

42
17

281,914 303,382 320,090

72
54

13

228,201 262,128

129,774 157,074

61,747

46,91914,108

191,562 203,181

173,456

192,117

128,577

211,037

Uncertificatedpart of shares incustody

60
40
20
0

(FY)

Uncertificated shares in custody are ones that JASDEC has offered not to possess shares certificates to issuing companies.

Deposits and Withdrawals
Number of shares deposited
Number of shares withdrawn
Withdrawals to deposit ratio (%)(Million shares)

60,00044,17546.5

40,00053,21745,38036,23440.1

42.3

12,510(FY)

21,72745,83837,348

9,649

12,328
7,491

53.0

60

35,912
31,52530,775
20,771

31.9

33.0

28.5

40,55751.2

34,97621.4

10,52480

49,84033,78625,875

38.6
19.8

14,52420,00069.0
37,49427.6 20,025

20,553

056,21547,325

15,913
15.1
6,907

21.6

16,7

40.2
24,611
14,445 20.8

5,135

5,321

40
18,331
16,708

20

3,820
0

Note: The number of shares indicated by the dotted line excludes the amount in shares deposited primarily because of a stock split, stocks for transfer, share exchanges, or as a result of a merger.
(Not available prior to fiscal 1999.)

Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

25

Custody and Book-Entry Transfer System for Stock Certificates

Ahead of dematerialization of stock certificates,
we inaugurated book-entry transfer system forexchange traded funds (ETFs) in January 2008. ETF
is an investment trust that tracks stock price index, andis traded on stock exchanges. Composition of ETFs
requires a notification to specify index to be linked with.
In accordance with increased such notification, new
ETFs have been introduced, and the numbers of ETFs
are increased. The convenience of ETF transactions,improved by the book-entry transfer system, has also
contributed to their growth.

In fiscal 2007 ended March 31, 2008, along withpreparations for the new system, we were working to
improve the efficiency of administrative operations in
the current system and expand our services.
Part of our efforts to enhance efficiency, especiallyfor exchange of information between JASDEC andissuing companies, includes the use of a JASDEC
site set up within the Target which has been used
for data distribution to participants. Through the
JASDEC site, JASDEC began providing information toissuing companies from December 2007, and issuing
companies are able to submit various applications
to JASDEC from February 2008. This enables us tocreate a secure and efficient framework for sending andreceiving information, thereby reducing the burden of
administrative operations at issuing companies.

Book-Entry Transfer for Stock CertificatesParticipants and Accounts (as of March 31, 2008)
Participants by category

Number of accounts by category

Life &
non-life insurancecompanies
7 (3%)

Securities financecompanies
7 (1%)
Stock exchanges &others29 (4%)

Life &
non-life insurancecompanies
9 (1%)

Securities finance companies
3 (1%)
Stock exchanges& others
14 (5%)

Banks, etc.
35 (12%)

Total
companies

Total

Banks, etc.
181 (26%)

Securities
companies
227 (79%)286

Securities
companies
476 (68%)702

accounts

Note: “Banks, etc.” include The Norinchukin Bank, Tokyo Shoken Shinyou Kumiai, andTokyo Bankers Association. “Stock exchanges & others” include Japan Securities Dealers
Association, Japan Securities Clearing Corporation, JASDEC DVP Clearing Corporation, three
securities agents and three tanshi companies (which offer short-term credit brokerage services)Book-entry transfers(Billion shares)

Stock exchanges, etc.
Non-exchange transaction deliveries (NETDs)

800

727.6
632.4
514.1

600
400
107.6
122.7
91.9
51.3
32.2

200
0

638.1

125.7

125.9

148.9

151.5

170.6
51.1

75.6

(FY)

26 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

113.0

205.0
248.3

192.8

205.2
279.0

442.7

239.2
308.9

355.0
225.8

312.0

338.6

421.1

373.9

378.1

Convertible Bonds (CBs)/Corporate Bonds with Subscription Warrants to New
Shares account balance and number of issues
Balance in custody
Number of issues(Billion yen)

(Issues)

4,302

5,000

300

2,604
207
1,689

2,000

158

1,540

117

1,545
116

146

1,000

0

1,550

1,408

1,559

115

1,537

115

1,530 1,453
114
114

1,460

1,451
103

103

1,460
104

1,459
104

200

1,451
104

1,408

102

96

96

100

Apr. May

(FY)

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. Feb.

0

Mar.

Exchange Traded Fund (ETF) account balance and number of issues
Account unit balance
Number of issues(Million units)

5,000(Issues)

38

38

40

4,000
1,993
3,000

1,708
18

1,627

1,927

16

14

2,000

2,010

2,073

14

2,098

2,226

2,091

1,951

1,934

1,901

14

14

14

14

15

15

1,940

1,966

2,016

2,029

17

17

17

17

30
17

2,010

20
10

1,000
0

Apr. May

(FY)

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. Feb.

0

Mar.

Real Estate Investment Trusts (REITs) account balance and number of issues
Account unit balance
Number of titles 6,785(Thousand units)

10,000(Issues)

43

8,000

6,875

7,602
44

5,177

43

7,027
43

7,168

7,150
43

43

7,185
43

7,303

7,485

7,487

7,487

7,546

7,602

43

44

44

44

44

44

60
44

34

3,450

6,000

6,914

40

2,359
18

4,000

14

20

2,000
0

Apr. May

(FY)

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. Feb.

0

Mar.

Number of inquiries to the Securities Information Tracing System (SITRAS) (daily average)(Number of inquires)

160,572

200,000

67,81786,709100,000

68,22678,53460,71667,73582,57569,04070,731

63,16063,56379,06463,65485,57074,61760,91950,0000(FY)

Apr. May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. Feb. Mar.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200827

Business Overview

Providing necessary funds toexactly where needed. Acting a corerole in the Japanese economy.

Hiroshi Ikegami
Director
Bond and Commercial Paper Dept.

Book-Entry Transfer System for Corporate Bonds andCommercial Papers
28 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

For more seamless and secure financing
In March 2003, we launched a book-entry transfer
system for dematerialized commercial paper (CP)and for corporate bonds in January 2006. In eachsystem, custody procedures—issuance, transfer(trading), and redemption—proceed based on thebalance recorded in transfer account books. In addition, all transactions related to issuance, transfer
and redemption of CP and corporate bonds, can beprocessed through the Bank of Japan’s Financial
Network System by DVP settlement system. By
linking the book-entry transfer system with our
PSMS (pre-settlement matching system (see page43)), we realize straight-through processing (STP),
which fully automates the entire process—including trade matching, and fund securities settlement.

Regarding participation in the JASDEC Bookentry Transfer System, we set up a multilayer holding structure for account management institutions(AMI) to address diverse needs of participating
investors and financial institutions. Direct AMI can
open an account directly at JASDEC, and indirect
participation is possible by opening an account at
an AMI. Another option for indirect participationis through the opening of an account at an indirect
AMI.
Interest payments inherent to corporate bonds
are made to holders of the rights indirectly, paid
into their accounts, after being passed on frompaying agents to AMI acting as the recipients, inaccordance with the multilayered structure.

Flowchart for book-entry transfer for Corporate Bonds (in the case of DVP)
Trade

Seller(provider)

Buyer(recipient)

JASDEC
Affirmation of trade

Affirmation of trade

Affirmation

Notice of settlement
matching status

Settlement matching
Settlement matchingsystemNotice of settlement
matching status

Settlement
parties

Settlement
Notice of recording

Notice of recording

parties

Securities transfers
Book-entry transfer systemfor corporate bonds

Securities transfer
noticeSecurities transfer
noticeNotice of receipt
completion

Payment instruction
Payment request

Fund
settlementcompany

Notice of receipt
completion

Bank of Japan
Payment instruction

Fund
settlementcompany(as of the end of March 2008)

Japan Securities Depository Center, Inc. ANNUAL REPORT 200829

Book-Entry Transfer System for Commercial Papers

Supporting finance activities of corporate entities, with a balance exceeding ¥20 trillion.
Commercial paper (CP) was originally drawn asa promissory note by operating companies as ameans for procuring short-term funds. The risks
involved in transfer and deposit of notes for large
amounts, as well as burden of documentary stamptax, have prompted requests for an electronic
book-entry system that eliminates the needs forpaper certificates. Thus, it became our first fully
electronic book-entry transfer system for dematerialized CP. Since the launch of the system five years
ago, all CP issued in Japan has been handled in thissystem. As of March 31, 2008, the total amountof CP using the system and the balance for the CP
reached ¥20 trillion (the record was a balance of¥23 trillion at the end of 2007) and 5,759 issues,
respectively, and the use of the system continues togrow. In October 2007, JASDEC began handling
CP for real estate investment trusts (REIT CP).
To improve market transparency, JASDEC
actively discloses information of settlement figures.
With regard to CP, the balance by issuer category
on a weekly basis has been disclosed in January
2008.

Balance of commercial paper by issuer category (Weekly)(Million yen)

Issuers(as of the end ofmonth/week)

Total
Numberof issues

AccountbalanceSecurities companies
Numberof issues

Accountbalance

Note:
SPCs include SPCs set up overseas
Others include securities finance companies, insurance companies, investment firms,
and Foreign companies (excluding SPCs).

30 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Banks
Numberof issues

AccountbalanceBusiness companies
Numberof issues

Accountbalance

SPCs
Numberof issues

Accountbalance

OthersNumberof issues

AccountbalanceParticipants of book-entry transfer for CP (as of the end of March 2008)
Issuing/
payingagents20

Issuers473
companies

Indirect
AMIs
11Participants(Direct AMIs)
67

JASDEC

Participants(CP holders)Fund settlement corporations 146

CP
Account balance and number of issues
Account balance
Number of issues(Trillion yen)

30

5,848

18.6

20

6,129

19.0

5,759
20.3

6,114

19.5

5,840 6,066
20.0

5,892

21.1

5,865 6,055

21.8

21.8

5,890

5,875

21.3

21.3

21.8

6,146
22.7

5,859 5,764

5,759(Issues)
7,000
6,000

22.4

22.1

20.3

5,000
4,000
3,000

10

1,314
257

2,000
4.9

1,000

1.4
0

(FY)

Apr. May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. Feb. Mar.

0Working to further enhance system security
Settlement amount of issuance, transfer, andredemption of CP handled by JASDEC’s bookentry system exceeds ¥5 trillion per day, andmore than ¥10 trillion at the end of each month.
To achieve a higher level of security and prevent
disruptions of system operation in natural disasters
and other emergencies, we have established abackup center, along with our Business Continuity
Plan. We will continue making strenuous efforts tofurther enhance the security of our systems.

To ensure transparency and fairness of theCP market, we will upgrade the level of settlement
statistics data, as well as expand the products of
securities to help the market grow and respond touser requirements.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200831

Book-Entry Transfer System for Corporate Bonds

Completing conversion of already-issued corporate bonds to thebook-entry transfers system, the balance exceeded ¥240 trillion.
The book-entry transfer system handles various
types of bonds, regardless of whether through public offerings or private placements. They include
corporate bonds, municipal bonds, bonds issued byinvestment firms, specified bonds issued by special
purpose companies (SPCs) and others, bonds ofspecial corporations, such as semi-government
and local government bodies, and Samurai bonds(yen-denominated bond issued by non-Japanesecompanies in Japan). Two years have passed since
the system was introduced, and the number ofbonds handled totaled 72,817 issues as of the endof March 2008, with the transaction balance of¥241 trillion. Conversion to a book-entry transfer
system for bonds issued prior to the introductionof the new book-entry transfer system (physicalbonds and registered bonds) was completed by theend of 2007, and nearly all outstanding bonds havebeen managed in the new system. Currently, almost
all of corporate bonds newly issued in Japan are
handled in this system.
With regard to Samurai bonds, issuance washalted in early 2006 over concerns that U.S. withholding tax would be imposed on Samurai bonds
issued by U.S. companies. However, imposition of
the U.S. withholding tax was avoided, and issuance
was resumed in January 2007, thereby marking thelargest issuance of Samurai bonds since 2000.
At the end of 2007, a new tax exemption

system of municipal bonds was introduced for nonresidents. As a long-awaited incentive for foreign
investors to invest in Japanese bond market, tax
exemption to nonresidents on the interest accrued
for corporate bonds has been requested. But the
tax exemption only for the interest on municipal
bonds was approved. As of the end of March 2008,¥100 billion worth of the approximately ¥60 trillion
worth was applied to this tax exemption system.
In May 2007, we conducted a survey toassess the convenience of the book-entry systemfor corporate bonds for users. According to thesurvey results, 60-70% of bond issuers recognized
reductions in costs for issuance and administration.
The majority of direct AMIs also indicated lower
costs for transfers as well as reduced burden of
administrative procedures involved in book-entry
transfer and payment of interest/repayment ofprincipal. In addition, the majority of agents anddirect AMIs gave high marks to the pre-settlement
matching system. We also received requests andsuggestions for enhancing the convenience of thesystem. We will use this feedback to make steady
improvements.

New issuances of Samurai bonds(Billion yen)

3,000

Samurai bonds issued by U.S. companies
Other Samurai bonds
Book-entry transfer for
corporate bonds commenced

2,000

1,174

1,018

513
415
0

(FY)

32 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

U.S. withholding tax
system impediment

287

1,000
503

601

Impedimentremoved/Function
halted on overseas
money markets

541

1,194

1,453

Book-entry transfer system for Corporate Bonds participants (as of the end of March 2008)
Issuing/
payingagents206

Issuers
2,262 companies
andorganizations

Participants(Direct AMI)
85

JASDEC

Indirect
AMI
379

Participants(Bondholders)

Indirect
AMI
7

Fund settlement corporations 14

Corporate Bonds
Outstanding balance and number of issues
Outstanding balance
Number of issues(Trillion yen)300

72,817(Issues)
65,81966,419 67,469

198.3

203.6

68,079 68,824

70,682 71,009

71,513 72,287 72,400 72,488

72,817

242.4

241.0

80,00065,456
241.0

200

181.3

208.4

212.8

217.9

224.7

230.8

237.4

240.8

242.1

60,00040,000100

19,27020,000
6.4

0

(FY)

Apr. May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan. Feb.

Mar.

0Working to enhance convenience, security and efficiency of our
book-entry transfer systems
We will continue our efforts to ensure the smooth
operation of the book-entry transfer system forcorporate bonds and improve convenience, security
and efficiency for further expanding corporate andmunicipal bonds markets. To promote globalization of Japan’s financial capital market, we will

expand the system for offering tax exemptions tononresidents. We will also collaborate to upgrade
infrastructure for the Asian securities market,
including expansion of the Asian bond market byproviding JASDEC’s system know-how.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200833

Business Overview

Trust us to protect yourvaluable assets

Shinji Suzuki
Director
Investment Trust Dept.

Book-Entry Transfer System for Investment Trusts
34 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

A faster, safer approach to investment trusts
Book-entry transfer system for investment trusts
is an electronic computer system of managing
beneficial rights of investment trusts*1.
Under the system, launched on January 4,
2007, beneficial certificates issued to beneficiaries
are dematerialized, and beneficial rights arerecorded electronically in the accounts of transfer
account books. This facilitates prompt creation,
extinction and transfer of beneficial rights, andlowers costs of issue and custody of physicalcertificates as well as risks of loss, theft or fraud.
In the transfer account books managed by
JASDEC, beneficial rights of investment trusts arerecorded in two kinds of sub accounts for JASDEC
participants (Account Management Institution(AMI), namely securities companies, banks orother fund distributors*2). One is “Self account” forbeneficial rights held by JASDEC participants. The
other is “Customer account” for the aggregate number of beneficial rights held by the beneficiaries
who have opened the accounts with AMI.
Beneficial rights held by respective

beneficiaries whose beneficial rights are recordedin customer accounts, are recorded in transfer
account books managed by AMI (“multilayer
structure”). AMIs are able to open accounts inother AMIs, not in JASDEC. They are called
indirect AMIs.
When orders are placed by investors withAMIs and fund distributors, AMIs make electronic
applications to JASDEC through the trustors (issuers of the investment trusts), enabling that bookentry transfer, creation or extinction of beneficial
rights shall be recorded in transfer account books
held at JASDEC and AMIs.
*1 “Investment trust managed by trustor”: A contract based investment
trust with three parties of trustor, trustee company (trust bank, etc)
and the beneficiary (investor in the investment trust). It accounts for alarge share of total investment trusts in Japan.
*2 Entities who open accounts on behalf of other persons.

Basic model of book-entry transfer system for investment trusts
Investors

Flow of funds
Flow of data

(Beneficiary)

Private vendor financial network systems/Fax

Issuers

Fund
distributors(Trustors)(securities firms,
banks, insurancecompanies, etc.)

AMI

Fund settlement
corporations
Participant ofBank of Japanfinancial network
systemJASDEC

Trustees

Bank of Japan
Japanese Bankers
Association financial
network system

Fund settlement
corporations
Participant ofBank of Japanfinancial network
systemJapan Securities Depository Center, Inc. ANNUAL REPORT 200835

Book-Entry Transfer System for Investment Trusts

Strong support from users
as fund settlement corporations of the Bank ofJapan financial network system, which handles
DVP settlement. Fund settlement systems in thebook-entry transfer system for investment trusts
include DVP settlement (using the Bank of Japanfinancial network system) and non-DVP settlement(using the Japanese Bankers Association financial
network system for online fund settlement among
financial institutions).
In the case of DVP settlement, JASDEC
links the book-entry of beneficial rights with fundsettlement on the computer system to eliminate thetime gap between fund settlement and subscriptionof rights, thereby reducing settlement risk. Use of
the DVP settlement, which involves less settlement
risk, has been increasing steadily among systemusers. In fiscal 2007, 23% of transactions used
DVP settlement. By value, the percentage rose to59%.

Since the system launched on January 4, 2007,nearly all trusts in the category of “investment
trusts managed by trusters” are handled by thesystem. At the end of fiscal year 2007 (ended
March 31, 2008), total number of the investment
trusts rose to 5,603 (3,091 publicly-offered and
2,512 privately-placed investment trusts), up 519
from the end of the previous fiscal year.
The account balance of principal also
increased to ¥105 trillion (¥75 trillion in publiclyoffered investment trusts and ¥30 trillion in
privately-placed investment trusts), an increase of¥12 trillion. All of 78 issuing and 12 trustee companies involved with investment trusts managed
by truters are now using the system. The numberof JASDEC participant companies (direct AMIs)
who have opened accounts with JASDEC and thenumber of indirect AMIs reached 186 and 701,
respectively.
45 institutions are participating in the system

Book-Entry Transfer for Investment Trusts
Account balance and number of funds
Account balance
Number of issues (as of the end of term or month)(Trillion yen)

150

5,084

5,603

5,114

105.9
93.1

94.8

5,141
96.9

5,204
99.3

5,224

5,277

101.4

102.2

5,325

5,367

5,424

5,466

5,501

5,556

5,603

103.2

103.9

104.8

105.6

106.1

106.2

105.9

(Funds)
6,000

100

4,000

50

2,000

0

Apr.

(FY)

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

0

Note: Transactions of less than 1 trillion shares are rounded to the nearest 1 trillion.

Account balance is sum of principal

Purchase and Redemption Transaction (Daily average)(Transactions)
8,000

Purchase
Redemption

6,000

5,254
5,249
4,953
4,765

5,487
4,995
4,780
4,319

5,738
5,729
5,385
5,232
5,081

4,839
4,774

4,901
4,788
4,816
5,366
5,041
4,816
5,601
5,407
5,310
5,275
5,122
4,753
4,723

4,000

2,000

0

(FY)

Apr.

36 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Book-entry transfer for Investment Trusts
Participants(as of March 31, 2008: Numbers in parenthesis show the numbers at the start of system)

Issuers 78 (73)

Trustees 12 (12)JASDECJASDEC Participants 186 (179)Fund settlement corporations 45 (45)Participants in Bank of Japan financial network system

Designated fund distributors

383 (369)
Indirect AMIs 701 (657)

Indirect AMIs

JASDEC Participants
Banks andinsurancecompanies
116 (16%)

Total

701

Others8 (4%)
Financial institutions
for smallbusinesses*
8 (4%)

Total

Securities
companies
95 (14%)

Investment trust
management companies
6 (3%)
Banks andinsurancecompanies
44 (24%)186

Financial institutions
for small businesses*
490 (70%)

Securities
companies
120 (65%)*Sinkin banks, Credit cooperatives, Agricultural cooperatives, Labor banks, etc.

For further improvement of the system
By the Amendment of the Trust Law enacted on
September 30, 2007, consolidation (merger) ofinvestment trusts became possible. JASDEC set up
practical procedures for the merger, and, on thisbasis, the operation rules have been amended. In
addition, amendment of the Law Concerning Bookentry Transfer of Corporate Bonds and Stocks, etc.,
has enabled the split and merger of beneficial rights
in 2009, and JASDEC has set up an outline of theprocessing methods and published it.
In fiscal year 2008 (ending March 31, 2009),

ahead of the amended Law Concerning Book-entry
Transfer of Corporate Bonds and Stocks, etc., weare taking necessary measures, such as adding
functions to computer system and amending
operational rules, to make the split and merger ofbeneficial rights available. And also by analyzing
results of a questionnaire survey to system users
carried out in February 2008, JASDEC continues
further efforts to improve the book-entry transfer
system for investment trusts.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200837

Business Overview

Providing secure and reliable
services

Joji Okuma
Director
Business Administration Dept.
JASDEC DVP Clearing Corporation

DVP Settlement Services for NETDs
38 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Improving the security and reliability of non-exchange transactiondeliveries (NETDs)
DVP Settlement Services for NETDs means transfer and settlement for non-exchange transactiondeliveries. Transactions using the DVP settlement
services for NTEDs largely consist of trading byinstitutional investors of Japan and overseas for the
trading of Japanese stocks and other securities.
Up to now, in non-exchange trades, transfers
and fund settlement have generally been separately
processed, and exposed to principal risk — the riskthat a counterparty who delivers securities does notreceive the payment, and vice versa. DVP transfer
system reduces these risks by linking stock-certificate
transfers with payments on the system, thereby
achieving secure and reliable settlement. When
JASDEC also facilitates STP (Straight-throughprocessing) which electronically automates all theprocesses related to administrative procedures.
The DVP transfer system has been operated
since May 2004 by JASDEC DVP Clearing
Corporation (JDCC), a wholly-owned subsidiaryof JASDEC. Participants who are in JASDEC’s
securities custody and book-entry transfer systemand prefer the DVP system have to register forparticipation in the DVP system, as well as receive
the approval from JDCC. To manage risks ofparticipants rigorously, JDCC requests participants
to provide, as collateral, assets with carrying value
exceeding the total amount of accounts payable(assured assets), and sets a limit for the total of
accounts payable reflecting financial records ofeach participant (Net Debit Cap).
The DVP Settlements for NETDs are
conducted by the gross-net type DVP model.
Securities are transferred on gross basis from theseller’s account to buyer’s account through JDCC’s
accounts. Meanwhile, payment is done as a lumpsum on a net transaction basis at each settlementday, through a current account held with JDCC
under the Bank of Japan financial network system.

Reducing principal risk by using the DVP settlement method(as of March 31, 2008)

Delivery of securities
SellerTransfer of securities and payment carried out separately

Buyer

Payment of settlement amount
Use of DVP settlement
Account delivery through JDCC
Seller’s
account

Securities
certificate data

Account of
JASDEC DVP Clearing Corp.

Securities
certificate data

Buyer’s
account

Stock-certificate delivery and payments are linked on the system, enabling secure and reliable settlement

Provision/receipt of funds through current accounts at the Bank of Japan
Seller’s
account

Funding data

Account of
JASDEC DVP Clearing Corp.

Funding data

Buyer’s
account

DVP system is a system that links the delivery of stocks with payments, enabling secure settlement.

Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

39

DVP Settlement Services for NETDs

As DVP system becomes widespread, number of users increases
The DVP settlement services for NETDs mainly
covers securities handled by JASDEC under its
depository and book-entry transfer system. In
fiscal 2007, a regulatory framework was set up
for handling Japanese Deposit Receipts (JDR)
and commodity ETF products in the DVP transfer
system.
In March 2007, JASDEC compiled a reporton “Recommendations for central counterparties”
suggested by the Committee on Payment andSettlement Systems (CPSS) of the Bank forInternational Settlements and the special committeeof the International Organization of Securities
Commissions (IOSCO). Last August, the English
version was released. The report demonstrates thatJDCC satisfies global standards of transparency,

risk management systems and financial fundamentals for clearing counterparty.
At the end of fiscal year 2007 (ended March
31, 2008), participants in the DVP service totaled
60 companies (16 banks and 44 securities companies). As the system become widely used, average
daily volume of transfers under the system in fiscal
2007 increased by 6,524 year on year basis to87,185. As JDCC gained economies of scale fromvolume growth, ¥12 for every ¥30 spent commission per DVP transfers was returned to participants
as rebates from the commission revenues in fiscal
2007. In April 2008, commission per transaction
using the DVP settlement was lowered by ¥5 to¥25.

DVP Settlement for NETDs
Transactions (Daily average)(Transactions)Non-DVP transactions
DVP transactions

200,000

67,25559,660150,000

100,000
80,661

87,18571,22370,74563,18462,461

82,63164,241

87,69061,78083,76680,28966,294

69,18872,14170,18974,82760,48892,84787,33097,40287,49986,95096,922

86,21074,53750,000

0

(FY)

Apr.

May

Jun.

Jul.

DVP transactions are the number of transfers executed (transfer from DVP participants to JASDEC DVP Clearing)

40 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

DVP Settlement for NETDs
Fund settlement (Daily average)
Total of payments
Total value of net settlement payments
Rate of reduction (Total value of net settlement payments/Total of payments × 100)

(Billion yen)

2,500

40.0

2,000

1,684

1,804

1,923

2,041

1,974

1,961

1,911

1,794

1,741

1,747
1,539

1,742

1,646

30.0

1,525

1,500
20.0
1,000

11.0

10.2

9.5

11.5

10.4

227

186

9.7

10.7

9.0

13.4

10.3

11.6

10.2

8.8

196

202

167

153

10.0

500
0

10.4

184
(FY)

184

176
Apr.

183
May

Jun.

Jul.

198
Aug.

177

165
Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

203
Mar.

0

Securities covered: stock certificates, convertible bonds, investment securities, preferred securities, beneficiary certificates of investment trusts
Total of payments is the total amount used for execution of security transfers
Total value of net settlement payments is the total amount used for account settlement on a net transaction basis

Dematerialization of stock certificates will increase
convenience for users
With dematerialization of stock certificates inJanuary 2009, further increase in use of the DVP
for NETDs is expected. JDCC is taking this opportunity to further increase customer convenience. On
top of launching the services for foreign stocks andother instruments previously not covered by thesystem, we will address transforming statementsof balances of collateral deposited by DVP participants with JDCC into electric records.
For cash entrusted as collateral (deposits
received for clearing), with the dematerializationof stock certificates, any increase or decrease insums provided by participants will be reflected on
the same day, instead of the following day, andredemption of the collateral will be also processed
immediately upon participants’ request. We willcontinue promoting efficiency of fund operations
for participants.
With regard to frameworks for amount of
payment limit under the net settlement system
by individual participants, we are examining
appropriate standards, based on discussions withparticipants, and interest-rate levels.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200841

Business Overview

The world’s fastest PSMS

Shunichiro Unno
Deputy Director
Business Planning Dept.

Pre-Settlement Matching System (PSMS)
42 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Providing matching services through advanced technology
Matching services are needed for institutional
investors’ transactions as the wide range oforganizations such as investment trust managementcompanies, investment advisory companies, securities companies and trust banks are involved andthe huge amount of transaction data is exchanged
among them. In the past, matching was done manually by faxes or telephone calls. Now, the process
is being computerized and automated. JASDEC
provides matching services using the highly
advanced computer systems named Pre-Settlement
Matching System (PSMS).
For domestic transactions, PSMS provides
both trade matching service and settlement matching service. The former service is used between
investment trust management companies/investment advisory companies and securities companies
to reconcile the contents of each trade such as
traded securities, price, volume, date and otherdetails. The latter service is used between trustbanks and securities companies to reconcile theaccount numbers and other details before they settle
the trade. In the trade matching, data sent fromboth sides are matched centrally on PSMS (central
matching), which is faster and more accurate thanthe prevailing overseas method in which data goesback and forth between the parties involved. In
the settlement matching, settlement instructions
are automatically generated and matched in PSMS
using a Standing Settlement Instructions Databasein which account numbers and other details havebeen preregistered and the matched settlement
instructions are automatically sent to each transfer
system at the same time.
With transactions by non-residents, settlement
instructions sent by sub-custodians which arereceived from global custodians are centrally
matched with corresponding data sent by securities
companies on PSMS.

PSMS (for non-resident transactions)
Overseas
Order

GlobalcustodiansJapan

Settlement instruction

Settlement instruction

Settlement instruction

Subcustodians

Notice ofmatching status

Investment
managers

Securities
companies

Notice ofexecution
Matching

Settlement instruction

Order

Notice ofexecution

Pre-settlement Settlement instruction Securities
matching
companies
systemNotice ofmatching status
Request for DVP transfer

Linkage with book-entry transfer systems for Stocks and CBs,
Corporate Bonds and CPs (excluding Japanese Government Bonds)

Notice ofexecution

Order

Stock
exchanges

Japan Securities Depository Center, Inc. ANNUAL REPORT 200843

Pre-Settlement Matching System (PSMS)

Input/output transactions hit record daily highFor securities clearing and settlement, three days
after a trade (T+3 settlement) is currently thenorm. JASDEC’s goal is completion of matchingon the day of the trade (T+0 matching), to enable
settlements on the following day of the trade(T+1 settlement). As for the domestic trades atpresent over 99.9% of the trades are matched on
T+0 by adopting central matching. With open-end
investment trusts, it is necessary to calculate the net
asset value day by day, so T+0 matching greatly
facilitates their management.
Since launching PSMS in September 2001,
JASDEC has been increasing the range of asset
class and services PSMS covers. In October
2007, we launched matching services for stock

lending/borrowing transactions. By expanding therange of system users, we have made this service
available not only to financial institutions but also
to industrial companies if they are qualified as designated investors under the Financial Instruments
and Exchange Act.
In line with our expansion of the range ofasset class, services and system users, the numberof users has been increasing annually. In fiscal
2007, the number of input/output transactions roseto the all-time record high (daily average basis) of
1,337,934. As of March 31, 2008, users numbered
525.

Centralized matching method for three parties (domestic transactions)
Securities exchanges
Notice of execution

Investment
trust management/
advisory
companies

Order

Order
Notice of execution
Allocation

Pre-settlement
matching system
Investment instruction
Notice of matching status

Trade report

Trade matching
Notice of matching status

Investment instruction and trade report

Notice of trade report affirming status

Affirmation/
Disaffirmation

Notice of trade reportaffirming status

SSI

Trust banks

Notice of matching status

Settlement
matching

Notice of matching status

Request for DVP transfer

Linkage with book-entry transfer systems for Stocks and CBs,
Corporate Bonds and CPs (excluding Japanese Government Bonds)

44 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Securities
companies

Total number of PSMS input/output instructions using the PSMS system (Daily average)(Thousand)

1,500

1,362
1,154

1,236

1,465

1,421
1,313

1,321

1,312

Apr.

May

Jun.

1,372
1,250

1,245

1,435

1,463

1,408

1,308

1,200
900
600
300
0

(FY)

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Note: Total of the number of inputs of contract-type matching data and PSMS data relayed by the user and the number of transactions of data (outputs) reported to the user as a result of matching processes.

International Standardization
The internationalization of securities markets is
proceeding rapidly. We have created a system
tailored to meet unique needs in Japan, but which
also works in conformity with international
standards. In future, to improve market participants’ efficiency and increase the number of theparticipants, we believe it will be necessary toconsider creating a system which lends itself tointernational standards at all times and also havedirect connection overseas. In fiscal 2007, JASDEC
launched a project to achieve full conformity withinternational standards.
With regard to message formats, introduction of ISO20022, which is the next generation
format to replace the current ISO15022, is underdiscussion globally. JASDEC became a memberof a group of the International Organization forStandardization where ISO20022 is discussed, andas such we ensure that conditions prevailing inJapan are reflected in it. With regard to networks,
our aim is to introduce the SWIFT network which
is widely used overseas while running existing systems in parallel, enabling users to choose between
them.
Introduction of the SWIFT network will, we
believe, enable smooth overseas connectivity, further increasing users’ convenience and the numberof the participants. By expanding the range of asset
class and services handled by PSMS and steadilybuilding conformity with international standards,
we are contributing to still greater efficiency inJapan’s securities markets.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200845

Business Overview

Providing worry-free settlements
for foreign share transactions

Kazuhiro Nishimukai
Director
International Dept.

Custody Services for Foreign Stocks
46 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Serving convenient, safe and reliable settlement for foreign stocks
from dividend-payment handling bank. JASDEC
also undertakes necessary procedures regarding
dividend taxation for local tax authorities to ensure
reduced tax rates under taxation agreements withthe countries concerned.
Voting rights at general meetings of shareholders can also be exercised by the beneficial
shareholders through instructions issued to
JASDEC.
JASDEC thus provides infrastructure andservices necessary for reliable settlement for trading activities of foreign stock certificates, smooth
exercise of shareholder rights and error-free receipt
of dividends and other payments.
We plan to introduce new systems andservices in January 2009, including a highly
convenient system for foreign stocks which enablestransfer settlements using DVP for NETD as wellas provides participants’ dividend payment data.

In addition to Japanese stock certificates listed on
the domestic stock exchanges, since April 2006,
JASDEC has offered services of custody, transfer
and ownership rights processing for foreign stocks.
Generally, foreign stock certificates aredeposited with central securities depositories orcustodians in each country where issuing companies were established. Settlements of transactions at
the stock exchanges in Japan are conducted throughtransfer accounts among participants in JASDEC.
JASDEC entrusts dividend payments torelevant share-handing service organizations.
Information of shareholders (beneficial shareholders) at the record date for dividend is transferredto share-handling service organizations by the
JASDEC participants through JASDEC. Basedon the information, the share-handling service
organizations calculate the amount of dividends,
and, following the calculation results, dividends
are paid directly to the beneficial shareholders

Overview of the new system relating to foreign stocks (effective in January 2009)
Foreign stocks
Share-handling services organization (trust banks)

Notice ofbeneficial
shareholders

Beneficial
shareholder
reportDividend
information

Overseas
CSDs/custodian banks

Stockexchange
DVP

Dividend
information

Shareholder notice host(handling of information concerningbeneficial shareholders, dividends etc.)

Collateralmatching

Japan Securities Clearing Corporation

Notice ofbalance

Account transfer host (settlement)

Standard
non-DVP
transfer

Standard
DVP transfer

Foreign stock(communication
server with foreign
CSDs/banks)

Local
custody/transfer

AMIs (Securities firms and banks)

Beneficial shareholders of foreign stock certificates etc.

Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

47

Custody Services for Foreign Stocks

Supporting smooth implementation of triangular share exchange
In January 2008, Citigroup Inc. (Citigroup)of the United States acquired Nikko Cordial
Corporation through a triangular share exchange*,
following liberalization of such transaction by anamendment of the Corporate Law in May 2007.
This was the first case in which two companies
listed on Japanese securities exchange wereinvolved in a cross-border share exchange. Afteran announcement of the share exchange in October
2007, JASDEC held meetings with all parties
involved and discussed mechanisms ensuring thesmooth implementation. In the triangular merger,
JASDEC focused on the fast and efficient transaction of share exchange through JASDEC, by allotting shares of Citigroup to shareholders of Nikko
Cordial, as well as recording the shareholders’entries in the Citigroup’s Book of Shareholders.

At the end of March 2008, the total number of foreign stocks handled by JASDEC was 31. In recent
years, foreign companies have come to regard
Japan as a major market for their financing. There
have been listings only on the Tokyo or Osaka
securities exchanges (no overseas listing), and also
listing in Japan of ETFs (Exchange-Traded Funds)
for overseas stocks. We expect further diversification of products and increase of trading volume forforeign stocks handled by us.
Considering these situations, JASDEC isdeveloping business alliances with other central
securities depositories (CSDs), which have similarfunctions to JASDEC in overseas markets. In
November 2007, we entered into a business alliance with Korea Securities Depository, targetingcustody business relating to listing of Koreanstocks on the Japanese securities exchanges. Basedon this partnership, we launched services for ETF
of the South Korean stocks in the same month. In
addition, in March 2008, we made amendment ofrules to enable custody services for foreign securities ETFs.

*A merger through exchange of stocks, in which shareholders of thetarget company are entitled to receive shares of the parent company of thesurviving entity. In a triangular merger, the target company becomes awholly-owned subsidiary of the surviving company, which the acquiring
company forms as a subsidiary company.

Foreign stocks
Number of issues/Balance in accounts(Thousand shares)
150,000

Balance in accounts
Number of issues(Issues)
40

32

31

31

111,656
100,00031

31
110,585

109,929

98,271

92,86830
20

50,00010
0Nov.

48 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Dec.

Jan.

Feb.

Mar.

0

Number of shares deposite/Withdrawal
Number of shares deposite
Number of shares withdrawal(Thousand shares)

70,0009,020

67,346
16,4996,217

29,801

21,9596,161 4,807

4,730

2,500

5,899

2,221
1,888

2,000
1,403
1,500

1,103

1,000

0

(FY)

506

333

227

500

118

76

Apr.

May

Jun.

Jul.

Aug.

349
46

318
69

Sep.

Oct.

496
217
Nov.

Dec.

337

448

332

Jan.

Feb.

Mar.

Note: Transactions of less than 1 thousand shares are rounded up/down to the nearest thousand shares.

Account transfer
Non-exchange transaction transfer
Exchange transaction transfer(Thousand shares)

50,00049,995
16,10938,34815,493

11,489
8,665

8,000

6,817
5,820
5,074

6,000

4,569

4,461

4,000

2,988

2,825

4,119

3,589

3,286
1,918
1,170 1,306

2,000

1,574

1,354

Oct.

Nov.

3,556
2,994
2,358

3,387

Dec.

Feb.

2,445 2,151

430
0

(FY)

Apr.

May

Jun.

Jul.

Aug.

Sep.

Jan.

Mar.

Note: Transactions of less than 1 thousand shares are rounded up/down to the nearest thousand shares.

Promoting system reform and preparations for new system rollout
In fiscal 2008, we are proceeding with preparations
for system reform and launch of operations fora new system in January 2009. In addition, toincrease investment opportunities for investors inJapan, we continuously work to provide a broadarray of products.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200849

International Relations

Co-host for 9th Conference of CSDs
JASDEC seeks and maintains strong partnerships
with central securities depositories (CDSs) aroundthe world. With overseas CDSs, JASDEC sets
up business relationships to deposit foreign stock
certificates. But that is not all. Collaborative
arrangements with overseas CSDs — exchange of
information and opinions concerning approaches toglobal issues in securities clearing and settlement,
compilation of the case studies, and transmissionof the know-how — have major significance forour operations. CSDs around the world thus meet
regularly at global or regional conventions forfurther communications.
In April 2007, JASDEC, Japan Securities
Clearing Corporation (JSCC), Korea Securities
Depository (KSD) and Taiwan Depository &Clearing Corporation (TDCC) co-hosted the 9th
Conference of CSDs in Seoul, South Korea. 216
participants from 97 CSDs and depository-related
institutions around the world gathered. The conferences are held once every two years. At the 9th

Conference, opinions on various topics, such as
promoting DVP and STP and new business ideas,
were actively discussed.
In September 2007, the Asia-Pacific CSD Group(ACG), consisting of CSDs and other organizationsin the Asia-Pacific region, held its 11th General
Meeting in Beijing. The general meeting of ACG
is held once every year. JASDEC drew strong
interest from overseas CSDs for its presentation on
demanterialization of stock certificates planned in
January 2009.
In November 2007, JASDEC hosted the Asian
region convention of the International Securities
Services Association (ISSA) in Tokyo. ISSA isan organization of institutions such as custodianbanks, clearing organizations, central depositories,
stock exchanges, securities companies, and asset
managers.

The First CSD Interim Meeting in Tokyo

MOU signing ceremony with CDC Pakistan

International Relations
50 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

With Mr. Muhammad Hanif CEO of CDC

Expanding partnerships with CSDs around the world
In April 2008, JASDEC hosted the first Interim
CSD Meeting. The interim meeting, of which
JASDEC proposed to hold during the previous
year’s CSD general meeting, is held in years when
there is no CSD general meeting, as a forum forrepresentatives of regional CSD associations. At
the Meeting, representatives of CSD groups fromfive regions around the world gathered. At a timeof rapid change in securities markets, this event
served as an important forum for exchange of
opinions and information.
In April, JASDEC signed an informationexchange cooperation agreement Memorandum ofUnderstanding with Central Depository Company
of Pakistan Ltd, in Tokyo. To date, JASDEC

signed similar agreements with DTCC, TDCC,
KSD and SD&C.* In addition, in May, JASDEC
signed cooperation agreements in Mumbai with
Central Depository Services (India) Limited andNational Securities Depository Limited of India.
To strengthen our capacity to distribute a broad
range of information, including updates on ourbusiness activities, we launched a quarterly publication of “JASDEC NEWSLETTER” in English
and Japanese in July 2008.
To further development of our products andservices, JASDEC has a lot to learn from overseas
experts. JASDEC will continue to actively seek
partnerships with CSDs around the world.
*DTCC (2003): U.S. Depository Trust and Clearing Corporation
TDCC (2004): Taiwan Depository & Clearing Corporation
KSD (2005): Korea Securities Depository
SD&C (2005): China Securities Depository and Clearing
Corporation limited

Japan Securities Depository Center, Inc. ANNUAL REPORT 200851