PROFILE
Growing in step with the securities industry andsupporting its future development
In June 1951, Japan Securities Finance Co., Ltd. (JSF) launched its loaning
operations, dealing with funds and stock certificates needed by securities
companies for delivery and settlement of margin transactions.
This margin loan business can be transacted solely by securities financecompanies licensed in accordance with the Financial Instruments andExchange Law.
As Japan’s largest securities finance company designated by the Tokyo,
Sapporo, Fukuoka, and JASDAQ Stock Exchanges, JSF is contributing
significantly to improving the fairness of stock price formation and liquidityof stocks in the secondary equity markets.

CONTENTS
Financial Highlights

1

Message from the President

2

Our Business Development

7

Our Business Field

8

Corporate Governance15

Risk Management

17

Business Results

21

Financial Section

24

Independent Auditors’ Report

42

Outline of the Corporate Group

43

Corporate Data

44

FINANCIAL HIGHLIGHTS

Japan Securities Finance Co.,Ltd. and Consolidated Subsidiaries

2009(April 1, 2008 March 31, 2009)2008(April 1, 2007 March 31, 2008)

Thousands of
U.S. dollars
2009(April 1, 2008 March 31, 2009)

¥

¥

$

Millions of yen

Consolidated financial results

Operating revenues
Net income (loss)
Net assets (period end)

44,300(7,503)
107,233

50,582(1,300)111,304

Yen

2009

450,982(76,382)
1,091,652
U.S. dollars
2009

2008

Amounts per share¥

Net income (loss)		
Net assets(80,33)
1,158.32¥$(13.15)
1,125.72(0.82)
11.79

Note:U.S. dollar amounts in this annual report are translated from Japanese Yen, for convenience only, at the rate of ¥98.23=US$1, the approximate         exchange rate at March 31,2009.

Operating revenues

Net income（Millions of yen）

55,00043,52445,00035,0006,000

50,58250,00040,000（Millions of yen）

36,14544,30037,226

0

05

06

07

(1,300)(7,503)08

09-2,00020,00015,000-4,00010,0005,000-6,000
05

06

07

08

09

Net income per share

Shareholders' equity per share

（Yen）

54.08

48.93

40.00

05

06

（Yen）

1,400

42.09

20.00
0

4,156

2,000

25,000

60.00

4,953

4,000

30,000

0

5,519

07

1,276

1,200

(13.15)(80.33)

08

09

1,205

1,244

1,125

1,158

08

09

1,000
800

-20.00600-40.00400-60.00200-80.00

0



05

06

07

MESSAGE FROM THE PRESIDENT

Minoru Masubuchi
President

It is my sincere hope that the Annual Report 2009 for the fiscal year ended March 31, 2009 will be ofuse to shareholders, investors and other supporters of Japan Securities Finance Co., Ltd.
BUSINESS REVIEWof the Tokyo Stock Exchange was 2,029 million shares,
down 164 million shares from the previous fiscal year.
The average daily trading value fell 1,001.8 billion yen to1,877.1 billion yen.

Business Environment
During the fiscal year under review, business conditionsin the Japanese economy worsened further as theconfusion on global credit markets sparked by the
US financial crisis exerted a severe impact on the real
economy.

The outstanding balance of standardized margin
buying on the Tokyo market declined from over 1,600
billion yen in early April to over 1,300 billion yen in early
May, but then recovered to above 1,700 billion yen at theend of June. The balance turned back to a declining trend
from July as individual investors refrained from margin
buying amid the stock market slump, while many soldoff holdings under the sudden decline in stock prices.
The outstanding balance of standardized margin buying
closed the fiscal year above 600 billion yen, the lowest
level in 11 years and 4 months (the lowest level sinceNovember 1998). Meanwhile, the outstanding balanceof standardized margin selling rose from over 600 billion
yen at the start of the fiscal year to over 800 billion yen
in May, but then turned to a decline and bottomed out
at above 400 billion yen in October. The outstandingbalance of standardized margin selling subsequently

On the stock market, the Tokyo Stock Price Index(TOPIX) started the fiscal year at 1,230 points and rose
to 1,430 points in early June. However, the market thenturned soft because the outlook for the global economy
became increasingly unclear. The decline accelerated
as the failure of a leading US financial institution in
September intensified financial uncertainty worldwide.
Stock prices continued dropping thereafter on worries
over deteriorating business conditions and poor corporate
performance. The TOPIX fell below 700 points in midMarch, posting the lowest level since the collapse of the
bubble economy, and closed the fiscal year at 773 points.
The average daily trading volume on the First Section

MESSAGE FROM THE PRESIDENT

losses of 951 million yen (non-operating costs), inpart from impairment costs on software owned by anequity method affiliate. With devaluation losses oninvestment securities, the consolidated net loss was
7,503 million yen.

recovered to close the year at above 600 billion yen.
Turning to the bond markets, the yield on newly
issued 10-year Japanese government bonds (JGBs)
started the fiscal year at 1.356% and rose to 1.875% in
mid-June on concerns over worldwide inflation fromskyrocketing crude oil and raw materials prices. The yieldthen turned to a declining trend from growing concerns
over the worsening economic environment, and fell to
1.163% at the end of December following the two-time
reduction of policy rate by the Bank of Japan. The JGB
yield has remained flat since January, and closed the fiscal
year at 1.342%.

OUTLOOK FOR NEXT FISCAL YEAR

Earnings Outlook
The slowdown in the international economy whichbegan from the confusion on global financial andsecurities markets is expected to continue for the time
being.

Under these conditions, the outstanding balanceof standardized margin buying remains dull, and thecompany projects that the outstanding balance ofmargin loans will decline somewhat from the previous
year. The interest on loans is expected to decline
because of this decreased balance combined with adecline of loan rates. In contrast, the outstandingbalance of standardized margin selling is holding
firm, and the company anticipate an increase in theoutstanding balance of stock loans with increased feeson lending securities.

Business Results of the JSF Group
Under these circumstances, the total value ofoutstanding loans extended by JSF Group companies
during the fiscal year averaged 806.8 billion yen, down
692.1 billion yen from the previous year.

The consolidated operating revenues declined
12.4% year-on-year to 44,299 million yen becauseof a decrease of interest rates on loans for margintransactions. The consolidated operating expenses
were down 4.4% to 37,690 million yen. Whilefunds procurement costs declined, there were 6,132
million yen of devaluation losses on collateralized debt
obligations and 2,217 million yen of sales losses on
stocks and investment trusts owned by JSF Trust andBanking Co., Ltd., a subsidiary of JSF. General andadministrative expenses rose 29.6% to 11,406 million
yen as credit costs increased (2,725 million yen wasadded to the allowance for doubtful accounts).

With regard to consolidated subsidiaries, JSF Trustand Banking Co., Ltd. and Nihon Building Co., Ltd.
are expected to turn profitable. Both companies posted
losses the previous fiscal year because of losses from therevaluation of securities. The equity method affiliate,
JBIS Holdings, Inc. and its subsidiaries are expected tomaintain firm profits overall.

As a result of these developments, JSF Group
posted consolidated operating losses of 4,797 million
yen. Consolidated recurring losses totaled 5,479
million yen including equity method investment

MANAGEMENT POLICY

Basic Management Policy
As an institution specializing in the securitiesfinance business, JSF has a mission, while always
maintaining a keen awareness of our public role,
to contribute to the development of the securities
industry by proactively meeting the diverse needs of
securities and financial circles and working to boost
the long-term interests of securities market users andparticipants. Based on this corporate philosophy, ourbasic management policy is as follows.

As a standard which reflects a business performance,
JSF has established a dividend policy under which thecompany returns on its profits so that the dividend
payout ratio (non-consolidated) is about 40%.
In conformity with our fundamental policy ofsetting the dividend payout ratio on a non-consolidated
basis at about 40%, JSF will take account both of
dividend payout ratio and dividend on equity (DOE) on
a consolidated basis.

(1) While maintaining a keen awareness of our
influence on securities markets and investors
and other social responsibilities, implement
exhaustive compliance, corporate governanceand risk management, and establish solidsocial credibility through sound business
operations.
(2) Retain solid equity capital to secure thefinancial health and management stability
that society demands of the company as a
firm engaged in the margin loan business,
which constitutes part of securities market
infrastructure, and provide stable and longterm return of profits to shareholders bycomprehensively considering revenues
environment or investment plans, etc.
(3) A d v a n c e s y s t e m a t i c a n d o p e r a t i o n a l
improvements to strengthen competitivenessin the margin loan business, strive to expand
securities-related services by Japan Securities
Finance and its Group companies, andfurther solidify the profit base of JSF Group.

Management Strategy
1.First Mid-term Management Plan (FY2006-FY2008)[Management Target]
The First Mid-term Management Plan set a target of
12 billion yen in non-consolidated recurring profitsby the final year of the plan, fiscal 2008. The planassumed an average annual margin loan balance of
1,600 billion yen and an increase of approximately
0.50% percentage points in short-term interest rates
from the time when the plan was announced.

From the second half of the plan period,
however, the stock market turned soft and themargin loan balance slumped, then the economic
environment surrounding the company also greatly
diverged from the plan’s assumed levels. For thosereasons, in May 2008, JSF decided to change theplan target to 3.4 billion yen in non-consolidated
recurring profits. The actual performance for the
fiscal year, which was the final year of the plan, fiscal
2008, was 3.8 billion yen.

Basic Policy on Profit Sharing
JSF regards the stable and long-term return on its
profits to its shareholders as an important priority. The
company follows a basic dividend payments policy,
with a view to strengthen its capital base and its internal
reserves, taking account of its business performance.

[Strategy Achievement Status]i) Strengthen Competitiveness in Margin Loan
Business
To improve the convenience of margin loanbusiness, the company worked to secure shareMESSAGE FROM THE PRESIDENT

lenders and to expand the range of subject
securities. During the plan period, the numberof loanable issues was increased by 81 issues to
1,715 issues.
ii) Promote Loans to Individual Investors
To respond to the large-lot funding needsof company owners and other customers,
JSF formed business alliances with multiple
securities companies concerning the mediationof secured loans on securities (loans which use
securities as collateral) and worked to increase
the outstanding loan balance.
iii) Strengthen Funds Procurement Capabilities
The company worked to lower funds
procurement costs by revising the borrowing
terms from banks and other funds providers,
and to reduce costs overall.
iv) Actively Address Securities Settlement Systems
Reforms
The company successfully completed all
operating systems adjustments, beginningwith the handling of stock collateral, as
needed to respond to the introduction of adematerialization of stock certificates.
v) Reinforce Compliance, Corporate Governanceand Risk Management Systems
Sincerely reflecting on the business
improvement order issued by the Financial
Services Agency (FSA) in December 2007, JSF
has positioned compliance as a prerequisite
to operations, established a ComplianceDepartment, and revised the related corporate
regulations.
The company also introduced an executive
officer system and worked to achieve more
efficient management and faster operations by
reducing the number of corporate directors.

vi) Advance Group Strategies
JSF established JBIS Holdings, Inc. throughthe management integration of Japan
Information Processing Service Co., Ltd. (JIPS)
and Japan Securities Agents, Ltd. (JSA), andotherwise reorganized the capital relations
among JSF Group companies.
2.Second Mid-term Management Plan (FY2009-FY2011)
Moving forward from the results of the First Midterm Management Plan, JSF devised the following
strategies for the Second Mid-term Management
Plan, in accordance with the basic management
policy presented above.
[Business Strategies]i) Increase the Number of Loanable Issues
Increase the number of loanable issues toimprove the convenience of margin loan andstrengthen competitiveness.
ii) Increase the Use of Loans for Negotiable
Margin Transactions
Work to improve the use of loans fornegotiable margin transactions to increase theoutstanding balance and a market share ofloans for negotiable margin transactions.
iii) Respond to Diverse Funding Needs of Securities
Companies, Etc.
Implement new financing with flexible lending
methods and conditions in order to increaseloans to securities companies, etc.
iv) Increase Securities Lending Business Revenues
Aim to expand revenues by developing newcustomers to increase the outstanding balanceof securities lending, introducing more flexible
general stock lending transaction formats, andexpanding transaction methods in the bondlending business.

companies in fields where synergies can be
expected, for the provision of more replete
securities-related services by JSF Group as awhole.

[Reinforcing Management Foundations]i) Improve Business Management System
While strongly recognizing our social
responsibility as an institution specializing inthe securities finance business, boost and ensure
the awareness of compliance by officers andemployees, and work further to strengtheninternal audit functions. Also, strengthen risk
management to secure management stability
and financial health as the risk accompanying
a financial business becomes more diverse andcomplex.
ii) Upgrade Business Continuity Plan
Work to improve the business continuity
plan during large-scale disasters and otherunexpected contingencies to maintainthe function of margin loan business,
which constitutes part of securities market
infrastructure.
iii) Build Up Effective Organization and Advance
Human Resources Development Strategy
Build up a lean and effective organization that can
respond flexibly to changes in the external
environment such as the reorganization ofexisting stock exchanges or the expansion of
PTS (proprietary trading system) markets.
Advance the training of personnel with highlevels of expertise, and work to utilize humanresources effectively via personnel exchanges
among JSF Group companies.
iv) Reinforce Funds Procurement Foundation
Reinforce the funds procurement foundationand otherwise strengthen the ability to raise
funds for the stable supply of low-interest funds
to securities markets and to make the company’s finances more secure.
v) Strengthen Group Company Ties
Actively strengthen ties among JSF Group

Future Challenges (Strategy)
While the global economic slowdown sparked by
confusion on international financial and securities
markets has prompted the mobilization of earnest fiscal
and monetary policies in each nation, the economic
outlook is still uncertain. As a company which conducts
business in financial and securities markets, JSF expects
our management environment to remain harsh for sometime.

Sincerely reflecting on the business improvement
order issued by the Financial Services Agency (FSA)in December 2007, JSF has moved forward with thereorganization of internal controls system, involving
the entire company, and submitted an improvement
report to the FSA. Also, while a consolidated subsidiary,
JSF Trust and Banking Co., Ltd. posted net losses fortwo consecutive years, mostly from losses on portfolio
investments, all the securitized products and other assets
owned by the trust bank which suffered large pricedeclines due to market fluctuations were sold off or
written off during fiscal 2008.
Following these developments, all officers
and employees of JSF are acting as one with fresh
appreciation of the company’s mission to contribute to
the development of securities markets. We have adopted
this mission with renewed dedication as the key pillar
for the Second Mid-term Management Plan, which
begins from fiscal 2009.
Based on this management philosophy, we haveidentified the following key management policies:MESSAGE FROM THE PRESIDENT

gaining the trust of society, retaining the solid equity
capital that society demands of the company as aprovider of securities market infrastructure, andproviding stable and long-term return of profits toshareholders. As concrete measures to achieve thesepolicies, JSF is responding to the diversification of listed
products on stock exchanges and otherwise working toposition the company’s competitiveness in the marginloan business as a cornerstone of our operations, while
also aiming to promote loans for negotiable margintransaction and to increase the revenues of securities
lending business.

Based on the labor savings in operations for delivery
or custody of stock certificates after the introduction of adematerialization of stock certificates from this January,
JSF is working to build up lean and effective operations
or organization by reviewing a branch structure andrevising a procedure of secured loan on securities.
At a subsidiary, JSF Trust and Banking Co., Ltd.,
sincerely reflecting on the past developments and goingback the origin of business foundation, focus operations
on trust business, pay greater heed to risk management,
and otherwise realize solid operations.

Minoru Masubuchi
President

OUR BUSINESS DEVELOPMENT

Services for securities companies and financial institutions
Funds loan
Loans for margintransactions

Loan funds needed to settle standardized margintransactions

Stock loan
Loan stock needed to settle standardized
margin transactions

General stock lending

Bond services

Loans for negotiablemargin transactions

Lending stock needed to settle stock trading

Brokerage between borrowers and lenders in bondborrowing and lending market

Loan funds needed to settle negotiable margintransactions

Bond financing

Loan funds needed in bond underwriting, trading, etc.

General loans

Loan working funds, etc., to securities companies

Secured loans on securities for individual and corporate investors

Bond financing

Direct loans
Direct loans to customer

General loans

Safekeeping
deposited loans
Loans on securities in safekeeping account, withincredit line set before

Peripheral services

Securities custody

Custody services for securities owned byinstitutional investors, etc.

Government bonddebt servicing

Designated by the Bank of Japan, repayment services
for principal and interest on government bonds

OUR BUSINESS FIELDLOANS FOR MARGIN TRANSACTIONSWhat is Margin Transactions?
In margin transactions, an investor trades stocks after(1) depositing a certain amount of collateral (margin
requirements) with a securities company and (2)borrowing funds for purchasing stock or stock for sale.
Margin transactions help investors to expand their trading
volumes by enabling them to purchase stock which value
is in excess of their available funds, or to sell stock thatthey do not own. Thus, margin transactions broaden andstrengthen stock trading and contribute to the smooth
circulation of stocks and the fair stock prices formation.

above, an investor can use margin transactions as a meansfor hedging. In other words, in the event that, although
an investor expects that the stock price in hand may
decline, the stock is not to be sold for some reasons, suchas that convertible bond is within its convertible period
or that it is a publicly-offered stock just purchased, theinvestor can avoid loss with hedging sale by using margintransactions.
There are two types of margin transactions, standardized
margin transactions and negotiable margin transactions.
In standardized margin transactions, terms of repayment
are determined by stock exchanges, and a securities
company can borrow funds for purchasing and stock forsale needed to settle transactions from a securities financecompany (loans for margin transactions).
In negotiable margin transactions, which is limited tocases in which a securities company can procure funds
and stock to be lent to customers by internal matching(Note) or external procurement without borrowing froma securities finance company, the condition of margintransactions may be decided freely in negotiations
between a securities company and its customer.

Margin transactions is used, for example, when an
investor considers that the stock price of a certain issue
will rise or decline sharply in a short period of time.
・When it is expected that the stock price will rise, aninvestor borrows funds for purchasing stock froma securities company (margin buying), and if
the stock price rises as expected within a term of
repayment (6 months), the investor sells the stock,
repays the funds borrowed (reversing transaction)and receives the margin. The investor may also
receive the stock (actual receipt) by procuring funds
separately and depositing it with a securities company.

(Note) This is a system of appropriating purchased stock received
from buy side as collateral to sell side's stock for sale withina c o m p a n y o r, c o n v e r s e l y, o f a p p r o p r i a t i n g s e l l s i d e ' sproceeds of sale to buy side's funds for purchasing stocks.

・Conversely, when it is expected that the stock pricewill decline, an investor borrows stockfrom a securities company and sells them (margin
selling). If the stock price declines as expected
within the term of repayment (6 months), theinvestor buys back the stock, returns it to a securities
company and receives the margin. The investor
may also receive the equivalent money to stock
sold by procuring stock separately and offering
them to a securities company (actual delivery).
Apart from the purpose of obtaining margins as describedWhat is Loans for Margin Transactions?
Loans for margin transactions is a system in which asecurities finance company receives a certain amountof margin (margin requirements) from a securities
company, who is a general trading participant of stock
exchanges (3) and lends funds or stock necessary for
margin transactions (4). This is executed through theclearing facilities of stock exchanges. Loans for margintransactions is authorized only for the securities financecompanies with a license given by the Prime Minister.
We, Japan Securities Finance Co., Ltd. conduct loans for
margin transactions through the stock exchange in Tokyo,
Sapporo, Fukuoka, and JASDAQ.

JSF receives loan applications for each issue from asecurities company on the trading date of standardized
margin transactions (5).To execute the loan, JSF, inplace of the securities company, delivers funds or stock
to clearing facilities of stock exchanges (6). The stock
purchased (collateral stock for loans) or proceeds fromsale (collateral money for stock loans) are received by JSF(7), and then each collateral is appropriated.

Standardized margin transactions and Loans for margin transactions

Standardized margin transactions

Loans for margin transactions

Securities company

Loan funds for purchasing
stock or stock to sell(2)Deposit collateral for margintransaction(3)JSF

Customer

Deposit brokerage margin(1)Loan funds for purchasing stock
or stock to sell(4)Receive purchased stockor sale proceeds
(6)

(7)

Stock exchange
clearing facilities

10

Japan Securities Finance

Submit application(5)Place trade order

OUR BUSINESS FIELD

Handling of over-lent issues
JSF usually appropriates stock received as collateral forloans to stock loans. However, should the outstanding
stock loans exceed the outstanding loans, it is necessary
to procure the stock needed for settlement by bidding
with securities companies or institutional investors suchas life and non-life insurance companies, banks and othersources. The highest bidding rate becomes the lending
rate (Premium Charges) of that issue. This premium
charge is applied to all users of standardized margintransactions, and should be collected by all sell sides andpaid to all buy sides or successful bidders.

In case of Premium Charge may apply
Standardized margin transactions

Loans for margin transactions

Issue A
7,000shares
Funds loan application

2,000
shares5,000shares

7,000shares
Amount matchedwithin each firm

5,000
sharesMargin selling Margin buying
balancebalance2,000shares

Securities company A
Stock loanbalance

Margin loanbalanceJSF

10,000shares
Stock loan application
7,000
sharesStock procurement through bidding
3,000shares

Amount matchedwithin each firm

Stock loan application for bidding
Margin selling Margin buying
balancebalanceSecurities company B

Securities companies / Institutional investors

11

BOND SERVICES

In bond borrowing and lending transactions, a lenderlends bonds to a borrower, and after mutually agreed
period, the borrower repays the lender with bonds of thesame type and quantity. JSF serves as a broker between
borrowers and lenders.

that matches the needs of both lender and borrower,
maintaining high confidentiality of information to ensure
the complete privacy of both parities, and transferring
all counterparty credit risk to JSF. The arrangement also
contributes to creating fair and stable market by publicly
disclosing indication via QUICK, Bloomberg, and otherinformation services.

The bond borrowing and lending transactions market
was established in May 1990 for the purpose of covering
bonds sold short, and was followed in April 1996 by the
introduction of REPO (cash-collateral bond borrowing
and lending transactions). JSF was the first company inJapan to be authorized to offer such brokerage services,because JSF can link securities industries and financial
industries on neutral ground and is well versed inhandling of bond transactions.

Transaction types
REPO transactions
JSF borrows bonds after depositing cash collateral with alender and then lends bonds after receiving cash collateralfrom a borrower. This transaction can be either a Special
Collateral transaction that specifies an issue or a General
Collateral transaction that does not specify an issue.

JSF receives applications from both parties and, on
their behalf, lends and borrows bonds on the basis ofloan agreement. This type of arrangement has several
advantages, including helping to form a transaction

Ordinary bond borrowing and lending transactions
JSF, in principle, borrows bonds without collateral froma lender and then lends bonds after receiving collateralfrom a borrower.

Types of bond transactions

Borrowing rate

Lending rate

Cash collateral

Cash collateral

Borrower

Bonds

Securities collateral

Borrower

LenderInterest

Interest

JSF(Fund rasing)

Bonds(Fund investment)

REPO transactions

Ordinary transaction(securities-collateral transaction)

Lender

Bonds

Bonds

Borrowing rate

Lending rate

12

OUR BUSINESS FIELD

GENERAL STOCK LENDING

This business lends stock needed to settle trades tosecurities companies. A securities company would use
General Stock Lending when it has no stock on hand,for the purpose of hedge sale of convertible bonds orarbitrage transactions with spots and futures, and soforth. JSF has done its utmost to increase the number of
eligible issues and shares for brokerage services since thebusiness was launched in 1977.

JSF procures stock for lending from institutional
investors such as life and non-life insurance companies.
JSF also receives stock in advance for quick stock lending.

In February 2002, we implemented offer-bid
borrowing and lending transactions (e Stock Lending)by expanding the online network that is linked withsecurities companies, so as to include institutional
investors, such as life and non-life insurance companies.

Mechanism of stock lending business
Stocks(deposit)

Stocklenders
Institutional
investors

Stocks(lend)

JSF
Borrowing fee

Collateral deposit
Lending fee

13

Securities
companies

LOANS FOR NEGOTIABLE MARGIN TRANSACTIONSWhat is Loans for Negotiable Margin Transactions?
Loans for negotiable margin transactions is a system
which lends the necessary funds for securities companies
to purchase stocks in negotiable margin transactions onbehalf of its customer (3), receiving stock purchased (1)and certain margin requirement (2) as collateral for loans
Conditions of loans

Loanable stock Issues
In principle, loanable stock issues are those listed on
stock exchange. (However, they can be limited to those
we admit available.) Newly listed stocks can be acceptedfrom the 1st day of its listing.

Interest rate
The interest rate on loans is determined individually
between JSF and securities companies.
Collateral
JSF receive stock purchased in negotiable margintransactions and certain margin requirement as collateralfor loans. Margin requirement can be substituted by acertain ratio of cash or by securities.

Loan Period
In principle, the due date of loan is the day following thelending date, but it can be extended to the deferment
deadline for repayment of negotiable margin transactions
for securities companies.

Negotiable margin transactions and Loans for negotiable margin transactions
Negotiable margin transactions

Loans for negotiable margin transactions

Place an order for negotiablemargin buying

JSF

Loan funds forpurchasing stocks

Deposit margin requirement (2)Loan funds (3)Deposit stock as collateral (1)Payment for the purchaseReceive purchased stock

Stock exchange
clearing facilities

14

Japan Securities Finance

Customer

Deposit margin requirement

Securities company

Application

OUR BUSINESS FIELD

BOND FINANCING

The aim of bond financing is to contribute to smooth
underwriting, circulation and fair price formation inbond markets. This business offers low-interest loans

by using government and other bonds as collateral toprovide funds required by securities companies in bondoperations.

GENERAL LOANS

This business loans working funds required by securities
companies by using stocks, bonds, and other securities as

collateral, and aims to respond quickly and flexibly to theneeds of securities companies.

SECURED LOANS ON SECURITIES FOR INDIVIDUAL AND CORPORATE INVESTORSJSF provides individual investors with direct loans
keeping securities as collateral, mediated loans and safe

keeping deposit loans. JSF provides corporate investors,
separately, with loans secured by securities.

Secured loans on securities for individual
Direct loans

Customers

JSF

Securities
companies
Deposited securities

15

Safe keeping deposit loans

CORPORATE GOVERNANCE
BASIC CONCEPT OF CORPORATE GOVERNANCE
As an institution specializing in the securities finance business, Japan Securities Finance has a mission, while always
maintaining a keen awareness of our public role, to contribute to the development of the securities industry by proactively
meeting the diverse needs of securities and financial circles and working to boost the long-term interests of securities
markets users and participants. The company believes gaining the firm trust of society through sound business operations
is our most important management directive.
・Establishment of compliance system
・Establishment and implementation of risk management policies
・Active invitation of outside directors (three directors, two auditors)
・Attendance of corporate auditors at internal meetings and instigation of necessary checks
・Internal audit by the Audit Department, which is independent from other departments
Furthermore, from the perspective of ensuring management transparency, we are committed to making active andtimely disclosure of management information that goes beyond legal requirements via our website.

Corporate Governance System Structure

Decision Making ofManagement
General Meetingof Shareholders

Inspection System
Board ofAuditors

Audit

Board of Directors

External
Financial
AuditorBusiness
Operation
Audit

President
Management Committee
Compliance
Committee

Executive Officers
Meeting
Audit
Department

Audit
Subsidiaries

Compliance Department
Executive Officers in Charge

Management
Administration& Report. etc.

Personnel in chargeof compliance

Mutual CheckBusiness
Departments
and branches, etc.

Risk Management
Department

Affiliates

JSF Group
Company

16

External Reporting
Contact Desk

Consultation and Report for Compliance

ReportCorporate
Auditors

All Department
and branches ,etc.

CORPORATE GOVERNANCECOMPLIANCE SYSTEM

The following details our compliance system and consulting and reporting system in regard to compliance.

The company's compliance system centers on our Board of Directors, the Management Committee, the Compliance
Committee and the Compliance Department.The situation regarding internal compliance is constantly studied by theCompliance Department and the results are regularly reported to the Board of Directors and the Management Committee.
The Compliance Committee deliberates important matters concerning compliance. The Compliance Department
makes all possible efforts to promote and thoroughly establish compliance through such measures as urging managers andemployees alike to take faithful and honest actions based on clear ethical standards.
In addition, the company takes the initiative in the promotion of the establishment and strengthening of overall groupcompliance system.

Consulting and reporting system regarding compliance
In order to strengthen the compliance system, the company has its external consulting and reporting contact desk by
lawyers, in addition to the Compliance Committee, the Compliance Department and personnel in charge of compliance.
This external consulting and reporting contact desk guarantees the complete anonymity of any person consulting
or reporting matters regarding the company, thereby reducing the psychological burden on those persons and making
consulting and reporting easier.

Consulting and Reporting
Board of Directors
Management Committee
Compliance Committee

Deliberation of thecountermeasure(Chairman : Executive officer in charge ofCompliance Department)

Compliance Department

ReportPersonnel in charge ofcompliance

External reporting contact desk
Consult & report

Consult & report

Consulting & Reporting personnel(Managers and employees)

BUSINESS CONDUCT GUIDELINESi) As an institution specializing in securities-related financing, the company recognizes its social responsibility andits public mission. It aims to establish firm trust through sound business operation.
ii) The company will comply strictly with relevant rules and regulations. It will conduct its business activities in afair and reliable manner, in accordance with social norms.
iii) In the interests of its shareholders, the company will maximize its communications with a broad spectrum ofsociety and will disclose information on the management of the organization in a fair and positive manner.

17

RISK MANAGEMENTRISK MANAGEMENT
Basic Policies in Risk Management
With environmental changes such as financial deregulation and globalization as well as striking advances in information
technologies, risks which financial institutions face have become diversified and more complicated. Accordingly, risk
management has become more important in the management of financial institutions than ever before.
In this situation, in order to increase profitability while maintaining sound management, we have positioned risk
management at the highest priority and has established basic policies in risk management at our Board of Directors.
More precisely, we have established basic policies for risk management: "Keeping all employees informed ofcompany's emphasis on risk management", "Proper management of each category of risk", "Promotion of integrated risk
management", "Establishing a system of mutual checks and balances", and so forth.
Methods for Risk Management
We classify expected risks broadly into 5 categories and then set these categories as management objectives: credit risks,market risks, liquidity risks, processing risks, and system risks. Among these categories, for credit risks and market risks, weare striving to secure profits while quantitatively grasping the risks and controlling them within proper levels as feasible forour management vitality (integrated risk management).
On the other hand, for liquidity risks, processing risks and system risks, we are taking preventive measures against
occurrences of these risks by executing proper management according to risk characteristics.

INTEGRATED RISK MANAGEMENT
Integrated risk management is a method to quantify various risks with unified methodology and to manage the total
amount of risks within the realm of management vitality. For credit risks and market risks, after allocating risk capitalto each risk operation department by risk category within the realm of our own capital, we quantify risks with themethodology of Value at Risk (VaR) and manage the calculated volume of risks within the range of that allocated risk
capital. With corresponding to BaselⅡ regulation enforced in March 2008, operational risks, which consists of processing
risks and system risks, is measured by basic method and we allocate risk capital amounts on it.
Allocated amounts of risk capital are determined as final at the Management Committee, with prior deliberation at
regular "Risk Capital Meeting" in every March.
Each risk operation department controls the risks within the realm of the allocated risk capital. Risk Management
Department, which is independent of risk operation departments, quantifies the risks, monitors risk operation conditions,and reports to board members.
In case a possible rise for a risk may exceed the allocated amount of the risk capital, an extraordinary "Risk Capital
Meeting" will be held to deliberate responses to the case and then consult the Management Committee

Risk Capital
Risk capital is capital necessary to cover losses caused by risks generated from business operation.
Value at Risk (VaR)
VaR is the maximum expected loss on an asset calculated with a certain period (holding period) and a certain probability(confidence level). This is calculated based on data in the past with statistical method. In our company, VaR is calculated
based on confidence level of 99% and holding period of 1 year.
Risk Capital Meeting
This is a meeting to deliberate issues such as allocated amount of risk capital and so forth. The meeting is organized by the
managers of Risk Management Department (chairperson), Planning Department, Treasury Department, and all the otherbusiness departments concerned.

18

RISK MANAGEMENTManagement Committee
This is a committee to deliberate important matters concerning business execution. The committee is organized bydirectors who serve as the executive officers concurrently.

Risk Management System
Board of Auditors,
Corporate Auditors

Board of Directors
President

Management

Management
Committee
Executive Officers Meeting

ALM
Committee

Risk Operation Sector

Executive Officer in charge of
Risk Management
Department and lnformation
Systems PIanning Department

Executive Officer incharge of Department
and Branch

Executive Officer
in charge of Audit
Department

Risk Capital
Meeting

Liquidity
Risk

MarketRisk

CreditRisk

SystemRisk

Processing
Risk

Treasury
Department

Risk
Management
Department

Risk
Management
Department

lnformation
Systems
Planning
Department

Each
Department
andBranchTreasury
Department

・Treasury
Department
・Margin
Loan
Department

・Loan
Department
・Margin
Loan
Department
・Treasury
Department
・Branches

Each
Department
andBranchEach
Department
andBranch19

Internal Audit Sector

Risk Management
Department

Audit Department

Risk Management
SectorRisk
Categories

Integrated Risk
Management Sector

Meeting

Executive Officer incharge of Treasury
Department

CREDIT RISK MANAGEMENT
Credit risks are the risks to suffer losses by decreasing or losing the values of the assets due to credit events such asdeterioration in the financial standing of counterparty.
We try to sustain and improve the soundness of the assets by strictly managing overall credit risks.
More precisely, Risk Management Department assesses credit risks according to in-house ratings, and quantifies
and manages credit risks using a default rate for each in-house rating. Furthermore, to complement management by
quantification, we implement stress tests. On the other hand, for credit control, apart from screening client companies
and loan transactions by the Risk Management Department, each risk operation department sets and manages amounts
for transaction limitation for each client. In addition, each department implements rigid self-assessment of those assets forwhich they hold jurisdiction.
Additionally, for each loan transaction, as a general rule, we take adequate collateral. By implementing a daily marking
to the market of the relevant collaterals, we suppress occurrences of impaired loans. In a case where a borrower falls into
bankruptcy, by selling off collateral securities and so forth, we collect receivables in an expeditious manner.

In-house Rating System
We introduced a rating system which segmentalizes credit ratings of client companies into 6 ranks, based on ratings byexternal credit rating agencies, quantitative assessment of financial standing, obligor classifications used in self-assessment,
and so forth. With this system, we assess the levels of credit risks properly, quantify credit risks, and set up amount fortransaction limitation.
Stress Tests
Since VaR is statistical estimated figure, it cannot include possible losses, which can be caused by extreme market
fluctuation such as Black Monday or economic crisis (stress event). In this situation, to be prepared for unforeseeable
circumstances, we implement stress tests to calculate amount of losses in a case of occurrence of stress event based on datain the past or on hypothetical scenarios and assess the soundness of our financial management.

MARKET RISK MANAGEMENT
Market risks are risks to suffer losses caused by fluctuations of values of possessed assets (bonds, stocks) due to fluctuationsof various market risk factors such as interest rates and prices of securities.
In our company, Risk Management Department quantifies and manages market risks, and to complement
management by quantification, it implements stress tests. Furthermore, to validate the reliability of the market risk
quantification model we are adapting, we are also implementing back testing to compare the calculated VaR with actual
profits and losses.

LIQUIDITY RISK MANAGEMENT
Liquidity risks are risks to suffer losses caused by failures of raising necessary funds or by procurement of funds withunusually high interest rates or risks caused by halt of transactions due to market disruptions or by forced transactions withunusually unfavorable prices.
In our company, the Treasury Department has jurisdiction over the management of liquidity risks and attempts todiversify procurement methods and to secure stable suppliers. As for cash flow management, while we are implementing
development of cash flow projection, grasping the amount which can be procured or liquidity of assets, and paying
attention to concentrated settlement dates for large capital, we have a system to report to our management with daily cash
20

RISK MANAGEMENT

flow status. Furthermore, to be prepared for unforeseeable circumstances, we take measures to supplement liquidity such as
possessing a certain amount of government bonds with high liquidity.
In addition, at the "ALM Committee” held in every quarter, we develop cash flow projection based on forecasts ofloans outstanding, deliberate policies for ALM (Asset Liability Management) such as revenue management for assets andliabilities of the company as a whole and thus report to the Management Committee.

ALM Committee
This is a committee to deliberate ALM such as development of fund management plans and revenue management for
assets and liabilities of the company as a whole. The committee is organized by the executive officer in charge of Treasury
Department, and managers of Treasury Department (chairperson) and all the other departments concerned.

PROCESSING RISK MANAGEMENT
Processing risks are risks to suffer losses from failed processing due to negligence, accidents or fraud by officers andemployees.
In our company, each department and branch has jurisdiction over the management of processing risks. To lessen
processing risks, through facilitation of regulations and manuals and also through trainings, all employees are familiarizedwith proper handling of operational work. In addition, by ensuring that each department and branch implements its
own voluntary inspection on a regular basis, we endeavor to prevent occurrence of accidents and improve our businessprocessing system.

SYSTEM RISK MANAGEMENT
System risks are risks to suffer losses due to system defects such as failures or malfunction of computer systems or due tounauthorized use of computer systems.
In our company, the Information Systems Planning Department holds jurisdiction over management of system risks.
To ensure stable operation of our computer systems, the department takes preventive measures for occurrence of system
failures such as duplicating networks and equipment and so forth. To develop and operate our computer systems safely
and effectively, all operation procedures are clarified and our monitoring system is facilitated. In addition, concerning
protection of our own information assets (information and information systems), necessary regulations are consolidated
and all officers and employees are familiarized with handling of the information assets. Furthermore, to minimize theeffects of system failures, measures are taken such as facilitation of various handling manuals, implementation of drills, andso on.

INTERNAL AUDITING SYSTEM
In our company, the Audit Department, which is independent from other departments, implements strict internal auditingof overall business operation on management status of each category of risk along with regulatory compliance status andvalidates the appropriateness and efficacy of our internal control system in each department.

21

BUSINESS RESULTS
The consolidated operating revenues declined
12.4% year-on-year to 44,299 million yen becauseof a decrease of interest rates on loans for margintransactions. The consolidated operating expenses
were down 4.4% to 37,690 million yen. Whilefunds procurement costs declined, there were 6,132
million yen of devaluation losses on collateralized debt
obligations and 2,217 million yen of sales losses on
stocks and investment trusts owned by JSF Trust andBanking Co., Ltd., a subsidiary of JSF. General andadministrative expenses rose 29.6% to 11,406 million
yen as credit costs increased (2,725 million yen wasadded to the allowance for doubtful accounts).

As a result of these developments, JSF Group
posted consolidated operating losses of 4,797 million
yen. Consolidated recurring losses totaled 5,479
million yen including equity method investment
losses of 951 million yen (non-operating costs), inpart from impairment costs on software owned by anequity method affiliate. With devaluation losses oninvestment securities, the consolidated net loss was
7,503 million yen.

Breakdown of JSF group operating revenues

Loans for margin transactions

Interest on loans
Interest on collateral money for securities borrowed
Fees on lending securities
Bond financing and general loans
Securities lending
Stocks
Bonds
Trust banking
Interest on loans
Trust charges
Real estate leasing
Other businessTotal operating revenues

22

2009
(April 1, 2008 March 31, 2009)
Amount(¥ million)

2008(April 1, 2007 March 31, 2009)
Amount(¥ million)

19,638
3,899
1,992
13,278
1,275
4,848
462
4,386
8,780
3,348
209
1,091
8,664
44,29923,156
10,581
1,683
10,383
1,428
6,297
848
5,448
10,844
3,833
198
1,118
7,736
50,582

BUSINESS RESULTS

Loans for Margin Transaction
In the margin loan business, the average outstanding balance of loans for margin transactions during the fiscal year
declined 580.8 billion yen year-on-year to 336.3 billion yen while loan rates declined from February, resulting in a huge
drop of interest on loan. On the other hand, while the average outstanding balance of stock loans for margin transactions
during the fiscal year decreased by 194.8 billion yen to 396.1 billion yen, the fees on lending securities rose from theprevious year due to the increased number of over-lent issues. As a result, the overall operating revenues of margin loanbusiness totaled 19,638 million yen, down 15.2% from the previous fiscal year.
Average balance of loans

Average balance of stock loans（Billions of yen）

1,800

1,638

1,600
1,400
1,200

（Billions of yen）

800

600

1,099

500

917

1,000

651

591

538

396

400

800

300

600

336

400

200
100

200
0

724

700

1,444

05

06

07

08

0

09

05

06

07

08

09

Bond Financing and General Loans businessIn the bond financing and general loans business, although loans to individuals increased through alliances with securities
companies, the outstanding balance of loans for negotiable margin transactions to financial instruments business operators
declined. As a result, the average outstanding balance of bond financing and general loans during the fiscal year declined
25.0 billion yen to 51.8 billion yen (including 14.2 billion yen in loans for negotiable margin transactions). Consequently,
the operating revenues of the bond financing and general loans business declined 10.7% to 1,275 million yen.
Securities Lending BusinessIn the securities lending business, the demand for special collateral transactions (bond lending in which issues are specified)
was dull in the bonds department, while the demand for stock borrowing to avoid fails in delivery declined in the generalstock lending department. As a result, the operating revenues of the securities lending business were down 23.0% to 4,848
million yen.

23

BUSINESS RESULTS

Average balance of bond financing and general loans

Trading volume of bond lending（Billions of yen）

90

79

80

（Billions of yen）

76

40

203,408

200,000

70
50

246,586

250,000

45

51

46

175,075

150,000

30

100,000

20
20

129,668
82,57750,000

10
0

05

06

07

08

0

09

05

06

07

08

08

Trust Banking BusinessIn the trust banking business, operating revenues declined 19.0% to 8,780 million yen. Because the average outstanding
loan balance during the fiscal year declined by 38.1 billion yen to 410.8 billion yen and the interest on collateral money forsecurities borrowed also declined.
Other BusinessIn other businesses, revenues rose 12.0% to 8,664 million yen, mostly due to increasing coupon income on JGBs.

24

FINANCIAL SECTIONCONSOLIDATED BALANCE SHEETSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Balance Sheets As of March 31, 2009 and 2008

Assets2009

Millions of yen

Thousands of
U.S. dollars(note 2)
2009

2008

Current assets:¥

Cash (note 3)
Call loans

2,957

¥

4,629

$

30,1037,000

24,00071,261

2,697,283

1,980,835

27,458,852

Short-term loans receivable (note 16)503,071

1,131,385

5,121,358

Securities lent

460,437

431,517

4,687,336

Securities in custody (note 16)

23,0008,751

234,144

Securities in deposit (note 16)

94,263

256,732

959,615

Deferred tax assets (note 10)

537

301

5,467

1,042,223

900,506

10,610,027

Other current assets (note 16)

33,382

4,984

339,835

Allowance for doubtful receivables(2,820)(839)(28,708)

4,861,333

4,742,801

49,489,290

Buildings and structures

7,996

8,111

81,401Tools, furniture and fixtures

1,350

1,201

13,743

Land

3,316

3,316

33,758

Leased assets

27

–

275

Construction in progress

112

219

1,140

12,801

12,847130,317(5,836)(5,735)(59,412)

6,965

7,112

70,905

1,612

2,546

16,411

422,115

335,042

4,297,211

107

4,818

1,089

Other investments and other assets

1,928

1,562

19,627

Allowance for doubtful receivables

(782)

(43)

(7,961)

423,368

341,379

4,309,966¥ 5,293,278¥ 5,093,838$ 53,886,572

Short-term investments (notes 4 and 16)

Collateral money for securities borrowed (note 16)

Total current assets
Property, plant and equipment:

Accumulated depreciation
Net property, plant and equipment
Intangible assets, net
Investments and other assets:

Investments in securities (notes 4, 5 and 16)
Deferred tax assets (note 10)

Total investments and other assets
Total assets
See accompanying notes to consolidated financial statements.

25

Liabilities and Net Assets
Current liabilities:
Call money (notes 8 and 16)
Short-term borrowings (notes 8 and 16)
Commercial paper (note 8)
Payables under repurchase agreements(notes 8 and 16)
Accrued income taxes (note 10)
Collateral money received for securities lentCollateral securities deposited
Securities borrowed (note 16)
Securities lent opposite account
Other current liabilities (note 8)
Total current liabilities

2009

Millions of yen

2008

Thousands of
U.S. dollars(note 2)2009¥ 1,387,800
1,676,310
15,000637,882103
791,540
244,307332,260
1,134
47,144
5,133,480¥ 1,857,600
894,91068,000341,943
1,371
1,029,100
508,588
184,262
4,149
37,565
4,927,488$   14,128,067
17,065,153
152,7036,493,759
1,049
8,058,027
2,487,091
3,382,470
11,544479,935
52,259,798

48,500
505
99
2,585
876
52,56551,000
445
99
2,757
745
55,046

493,739
5,141
1,008
26,316
8,918
535,1225,186,045

4,982,534

52,794,920

10,00010,000101,802

5,182
92,472(649)

5,182
106,874(440)

52,754
941,382(6,607)

107,005

121,616

1,089,331

85
143
228

(10,455)
143(10,312)

865
1,456
2,321

107,233

111,304

1,091,652¥ 5,293,278¥ 5,093,838$   53,886,572

Non-current liabilities:

Long-term borrowings (notes 8 and 16)
Deferred tax liabilities (note 10)
Deferred tax liabilities for land revaluation (note 7)
Liabilities for retirement and severance benefits (note 9)
Other non-current liabilities (note 8)
Total non-current liabilities
Total liabilities
Stockholders’ equity:

Common stock (note 11):
Authorized 200,000,000 shares;issued 93,700,000 sharesin 2009 and issued 99,704,000 shares in 2008
Additional paid-in capital (note 11)
Retained earnings (note 12)
Treasury stock, at cost; 646,977 shares in 2009
and 831,013 shares in 2008
Total Stockholders’ equity
Valuation and translation adjustments:

Net unrealized gain (loss) on other securities (note 4)
Gain on revaluation of land (note 7)
Total valuation and translation adjustments
Total net assets
Commitments and contingencies (note 18)

Total liabilities and net assets

26

FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF OPERATIONSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Operations For the years ended March 31,
2009 and 2008
2009¥

Millions of yen

Thousands of
U.S. dollars(note 2)
2009

2008

$

44,300¥ 50,582

Operating expenses

37,69039,437

383,691

Operating profit

6,610

11,14567,291

11,407

8,799

116,125(4,797)

2,346(48,834)

Interest income

9

9

91

Dividend income

173

137

1,761

Interest expenses

(1)

(1)

(10)

(951)

255

(9,681)Gain on transfer of investment in an affiliate

–

1,038

–

Loss on devaluation of investments in securities

(487)

–

(4,958)

Impairment loss (note 6)

(210)

–

(2,138)Loss on change in equity

(0)

(965)

(0)

Other, net

33

85

336

(1,434)558(14,599)(6,231)

2,904(63,433)

Current

1,646

3,322

16,756

Deferred

(374)

882

(3,807)

1,272

4,204

12,949Operating revenues

General and administrative expenses (note 13)
Operating income (loss)

450,982

Other income (deductions):

Equity in earnings (losses) of affiliates

Income (loss) before income taxes
Income taxes (note 10):¥

Net loss
See accompanying notes to consolidated financial statements.

27(7,503)¥(1,300)$(76,382)

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Changes in Net Assets For the years ended
March 31, 2009 and 2008
Commonstock(note 11)

Balance at March 31, 2007
Changes arising during year:

Stockholders’ equity
Additional
Retained
Treasurypaid-inearnings
stock
capital(note 11) (note 12)¥ 10,000 ¥Millions of yen
Valuation and translation adjustments
Net unrealized Gain on
Total net
Total
Total
loss on other revaluation
assetsof landsecurities(note 4)(note 7)

5,182 ¥111,252 ¥     (457) ¥125,977 ¥ (3,244) ¥143 ¥ (3,101) ¥122,876(2,683)(2,683)(2,683)
Cash dividends(1,300)(1,300)(1,300)Net loss
(395)
(395)
(395)
Decrease resulting from exclusionof an affiliate
(5)
(5)
(5)
Purchase of treasury stock22
22
22
Decrease in treasury stock held byan affiliate(7,211)(7,211)(7,211)
Net changes other thanstockholders’ equity(4,378)17(4,361)(7,211)(7,211) (11,572)
Total changes during the year－－－
10,0005,182 106,874(440) 121,616(10,455)
143(10,312) 111,304
Balance at March 31, 2008
Changes arising during year:(2,222)(2,222)(2,222)
Cash dividends(7,503)(7,503)(7,503)Net loss(4,886)(4,886)(4,886)
Purchase of treasury stock(4,677)
4,677––
Retirement of treasury stock
10,540
10,540
10,540Net changes other thanstockholders’ equity(14,402)(209) (14,611)
10,540
10,540(4,071)
Total changes during the year－－－
85 ¥     143 ¥Balance at March 31, 2009
¥ 10,000 ¥ 5,182 ¥  92,472 ¥     (649) ¥107,005 ¥228 ¥107,233

Commonstock

Balance at March 31, 2008
Changes arising during year:

Cash dividends
Net loss
Purchase of treasury stock
Retirement of treasury stock
Net changes other thanstockholders’ equity
Total changes during the year
Balance at March 31, 2009

Thousands of U.S. dollars(note 2)
Valuation and translation adjustments
Net unrealized Gain on
Total net
Total
Total
loss on other revaluation
assetsof landsecurities

Stockholders’ equity
Additional
Retained
Treasurypaid-inearnings
stock
capital$ 101,802 $   52,754 $1,087,997 $  (4,479) $1,238,074 $ (106,434) $    1,456 $  (104,978) $1,133,096(22,620)(76,382)(47,613)(49,741)
47,613(22,620)(76,382)(49,741)–
107,299

107,299(22,620)(76,382)(49,741)–
107,299–– (146,615) (2,128)
107,299–
107,299(41,444)$ 101,802 $   52,754 $   941,382 $  (6,607) $1,089,331 $865 $    1,456 $     2,321 $1,091,652

See accompanying notes to consolidated financial statements.

28

FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Cash Flows For the years ended March 31,
2009 and 20082009

Cash flows from operating activities:

Millions of yen

Income (loss) before income taxes¥   (6,231)
Adjustments to reconcile income (loss) before income taxes
to net cash provided by operating activities:
Depreciation and amortization
1,644
Impairment loss
210
Losses relating to short-term investments and investments
7,867
in securities
Allowance for doubtful receivables
2,721
Decrease in liabilities for retirement and severance benefits(172)
Interest and dividend income(27,126)
Interest expenses
15,939Equity in (earnings) losses of affiliates
951
Loss on change in equity
0
Gain on transfer of investment in an affiliate–
Decrease in short-term loans receivable
628,314
Decrease in call loans
17,000(Increase) decrease in collateral money for securities borrowed (141,716)
Decrease in call money(469,800)
Increase in borrowings
781,400
Increase in payables under repurchase agreements
295,939
Decrease in commercial paper(53,000)
Decrease in collateral money received for securities lent
(237,560)
Increase (decrease) in collateral money received for loan
6,007
transactions
Purchase of short-term investments(8,804,956)
Proceeds from sale/redemption of short-term investments
7,997,059
Other, net(16,282)
Sub total(1,792)
Interest and dividend received
27,185Interest paid
(16,389)
Income taxes paid
(2,928)
Income taxes refunded103
Net cash provided by operating activities
6,179

2008

Thousands of
U.S. dollars(note 2)
2009

2,904

$    (63,433)

1,576
–
7,219

16,7362,138
80,088113(234)(35,439)
21,211(255)
965(1,038)897,248
106,200
1,018,688(333,800)
92,380245,204(42,000)(920,069)(23,558)

27,700(1,751)(276,148)
162,2629,681
0–6,396,356
173,063(1,442,696)(4,782,653)
7,954,800
3,012,715(539,550)(2,418,406)
61,153(7,675,531)
6,647,268(13,476)(4,424)34,920(21,072)(5,006)–
4,418(89,636,119)
81,411,575(165,754)(18,243)276,748(166,843)(29,808)
1,049
62,903

(45)
–
(255)
(347)
(93)
(740)

(740)
40
(269)
(981)
(8)
(1,958)(458)–(2,596)(3,532)(947)(7,533)

Dividends paid to stockholders
Purchase of treasury stock
Other, net
Net cash used in financing activities(2,222)(4,885)(4)(7,111)(2,683)(6)–(2,689)(22,620)(49,730)(41)(72,391)

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year

(1,672)
4,629

(229)
4,858

(17,021)47,124¥      2,957¥      4,629$     30,103¥  Cash flows from investing activities:

Purchase of investments in securities
Proceeds from sale/redemption of investments in securities
Capital expenditures
Purchase of intangible assets
Other, net
Net cash used in investing activities

Cash flows from financing activities:

Cash and cash equivalents at end of year (note 3)
See accompanying notes to consolidated financial statements.

29

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Basis of Presenting Consolidated Financial Statements
Japan Securities Finance Co., Ltd. (the Company) and its consolidated subsidiaries maintain their books of account andprepare their financial statements in conformity with financial accounting standards of Japan.
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forthin the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in conformity withaccounting principles and practices generally accepted in Japan, which may differ in certain respects from accounting
principles and practices generally accepted in countries and jurisdictions other than Japan.
In preparing the accompanying consolidated financial statements, certain reclassifications have been made in thefinancial statements issued domestically in Japan in order to present them in a form which is more familiar to readers
outside Japan. In addition, the notes to the consolidated financial statements include information which is not required
under accounting principles generally accepted in Japan but is presented herein as additional information.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries(2 subsidiaries both for 2009 and 2008).
All significant intercompany accounts and transactions have been eliminated in consolidation.
Investments in affiliates are accounted for by the equity method.
The Accounting Standards for Consolidation require the control or influence concept for the consolidation scopeof subsidiaries and affiliates. Under the control or influence concept, a company in which the parent company or its
consolidated subsidiaries, directly or indirectly, are able to exercise control over operations is fully consolidated, anda company over which the parent company and/or its consolidated subsidiaries have the ability to exercise significant
influence is accounted for by the equity method.
The difference between the cost and the underlying net assets at the date of investments in subsidiaries or affiliates isallocated to identifiable assets and liabilities based on fair market value at the date of investments.
The unallocated portion of the difference, which is recognized as goodwill or negative goodwill, is amortized over 5 years.
Net Wing Securities Co., Ltd. (“Net Wing”), formerly named Nihon Kyoei Securities Co., Ltd. which was an affiliateof the Company accounted for by the equity method, established a joint holding company named M&N Holdings Inc.
(“M&N”), with Maruwa Securities Co., Ltd. (“Maruwa”) by transfer their shares on October 1, 2007. As a result of theshares exchange, Net Wing has not been an affiliate, and the investment in Net Wing was accounted for by the equity
method during the time Net Wing was an affiliate. Difference between the carrying amount of Net Wing and the fairvalue of M&N is recorded as gain on transfer of investment in an affiliate.
(c) Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all highly liquid investments with insignificant
risk of changes in value which have maturities of generally three months or less when purchased to be cash equivalents.
(d) Short-term Investments and Investments in Securities

Under the Accounting Standards for Financial Instruments, securities are classified into four categories – “trading
securities,” “held-to-maturity securities,” “investments in affiliates” and “other securities.” Securities classified as “trading
securities” are stated at fair value and unrealized gains or losses are recorded in the consolidated statement of income.
Securities classified as “held-to-maturity securities” are stated at amortized cost. Securities classified as “other securities”
with fair value are stated at fair value and unrealized gains or losses, net of related taxes, are excluded from earnings andrecorded in a separate component of net assets. Realized gains or losses on the other securities are determined by themoving average method. Bond securities classified as “other securities” for which fair value is not available are stated at
the amortized cost. Equity securities classified as “other securities” for which fair value is not available are stated at themoving-average cost.
Floating rate Japanese government bonds held by the Company and certain consolidated subsidiaries were previously

30

FINANCIAL SECTION

evaluated based on their market prices. From the year ended March 31, 2009, based on our determination that theirmarket prices cannot be deemed fair value due to the market situation where the number of transactions is extremely
small, such bonds have been valued based on reasonable estimates which are obtained from information vendors inaccordance with the “Practical Solution on Measurement of Fair Value of Financial Assets” (ASBJ Practical Issue Task
Force (PITF) No. 25, October 28, 2008). The pricing model used by the information vendors is forward pricing model,
and the price determinant variables are the spot rate for Japanese government bonds and the swaption volatility.

(e)Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is provided principally by the declining-balance method
based on the estimated useful lives.
The estimated useful lives are as follows:
Buildings and structures 3–50 years
From the year ended March 31, 2008, pursuant to an amendment to the Corporation Tax Law, the Company andits domestic consolidated subsidiaries changed the estimated residual value of property, plant and equipment which was
acquired on or after April 1, 2007 from 5% of the acquisition cost to ¥1. The effect of this change was immaterial.
From the year ended March 31, 2008, pursuant to an amendment to the Corporation Tax Law, property, plant andequipment acquired on or before March 31, 2007 which were depreciated to the allowable limit (95% of the acquisitioncost) in a particular business year can be further depreciated down to ¥1 evenly over five years starting from the following
business year. As a result of the change, both operating income and income before income taxes decreased by ¥11 million.
(f) Intangible Assets
Intangible assets are carried at cost less amortization. Software development expenses are deferred and amortized by thestraight-line method over estimated useful lives (5 years). Intangible assets other than software are deferred and amortizedby the straight-line method at rates based on the estimated useful lives of the respective assets.
(g) Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided at an amount of uncollectible receivables based on historical loss ratios
and an amount that takes into consideration the possibility of specific liabilities.
(h) Retirement and Severance Benefits
The Company and its consolidated subsidiaries have retirement benefit plans covering substantially all employees.
Under the Accounting Standards for Retirement and Severance Benefits, provisions have been made in theaccompanying consolidated financial statements based on the present value of the projected future retirement andseverance benefits attributable to employee services rendered by the end of the year, less amounts funded undercontributory and noncontributory pension plans.
(i) Leases
Financial lease transactions without title transfer were formerly accounted for as operating leases. On March 30, 2007, the
ASBJ issued ASBJ Statement No.13, “Accounting Standard for Lease Transactions,” which revised the former accounting
standard for lease transactions issued on June 17, 1993, and ASBJ Guidance No.16, “Guidance on Accounting Standard
for Lease Transactions,” which revised the former guidance issued on January 18, 1994. From the year ended March
31, 2009, the Company adopted the revised accounting standards. The revised accounting standards require that all
finance lease transactions shall be capitalized. Leased assets related to finance lease transactions without title transfer are
depreciated on a straight-line basis, with the lease periods as their useful lives and no residual value. Regarding financeleases transactions without title transfer for which the starting date for the lease transactions is prior to the initial fiscal year
in which these new accounting standards apply, the Company and its domestic consolidated subsidiaries have continued
recognize lease payments as expenses.
The effect of this change on operating loss and loss before income taxes is immaterial.

31

(j) Income Taxes
The Accounting Standards for Deferred Income Taxes require that deferred income taxes should be accounted for under
the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequencesof events that have been included in the financial statements or tax returns. Under this method, deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled, and the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(k) Directors’ Bonus
Directors’ bonuses are accounted for as an expense when such bonuses are accrued.
(l) Reclassifications
Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to thepresentation used as of and for the year ended March 31, 2009.

(2) FINANCIAL STATEMENT TRANSLATIONThe consolidated financial statements are expressed in Japanese yen. However, solely for the convenience of the reader,the consolidated financial statements as of and for the year ended March 31, 2009 have been translated into United States
dollars at the rate of ¥98.23=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market on March 31,
2009. This translation should not be construed as a representation that the amounts shown could be converted into U.S.
dollars at such rate.

(3) CASH AND CASH EQUIVALENTS

A reconciliation between “Cash” in the accompanying consolidated balance sheets and “Cash and cash equivalents” in theaccompanying consolidated statements of cash flows as of March 31, 2009 and 2008 are as follows:2009¥ 2,957¥ 2,957

Cash
Cash and cash equivalents

32

Millions of yen

2008¥ 4,629¥ 4,629$$

Thousands of
U.S. dollars
2009

30,10330,103

FINANCIAL SECTION(4) SHORT-TERM INVESTMENTS AND INVESTMENTS IN SECURITIESNo trading securities are held as of March 31, 2009. Balance sheet amount of trading securities as of March 31, 2008 were¥422,450 million, and net unrealized loss which were charged to income were ¥276 million.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity securities as ofMarch 31, 2009 and 2008 are summarized as follows:

March 31, 2009
Government bond securities
Corporate bond securities
Other securities
March 31, 2008
Government bond securities
Corporate bond securities

March 31, 2009
Government bond securities
Corporate bond securities
Other securities

Balance sheet amountMillions of yen
Gross unrealized gain
Gross unrealized loss¥

39,873
11,00022,93973,812

¥

15
9,100
9,115

¥

¥
¥
¥

¥

¥

232
2
4
238

¥

－
124
124

¥

¥

¥

－
183
110
293

¥

－
－
－

¥

Balance sheet amountThousands of U.S. dollars
Gross unrealized gain
Gross unrealized loss$$

405,915
111,982
233,523
751,420

$

$

2,362
20
41
2,423

$
$

Fair value

−
1,863
1,120
2,983

¥

¥

40,105
10,81922,83373,757
15
9,224
9,239
Fair value$$408,277
110,139
232,444
750,860

Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities with fair value
as of March 31, 2009 and 2008 are summarized as follows:
March 31, 2009

Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

March 31, 2008

Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

March 31, 2009

Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

Millions of yen
Gross unrealized gain
Gross unrealized loss

Balance sheet amount

¥

828

¥

2,898,808
128,9703,770¥ 3,033,104¥

Acquisition cost

¥

1,556

4,691

1,821,788
24,417
37,115¥ 1,888,011
Acquisition cost$

15,84029,510,414
1,312,939
38,380$ 30,877,573

33

¥

11

¥

3,867
251
4
4,950

¥

1,515
46
13
1,585

¥

2,129

¥

856

¥

1,805
－
10
3,944

¥

15,948129
1,075
18,0081,807,645
24,28836,050¥ 1,873,947

Thousands of U.S. dollars
Gross unrealized gain
Gross unrealized loss

Balance sheet amount

$

8,429

$

39,3672,555
41
50,392$

112$

15,423468
133
16,1362,373

2,901,160
129,175
3,761¥ 3,036,469
¥

$

5,964

24,15729,534,358
1,315,026
38,288$ 30,911,829

The Company recognized impairment losses on other securities with fair value of ¥6,064 million ($61,733 thousand) and¥6,587 million for the years ended March 31, 2009 and 2008, respectively.
Securities classified as other securities for which fair value is not available are unlisted equity securities amounting to¥2,314 million ($23,557 thousand) and ¥2,314 million as of March 31, 2009 and 2008, respectively.
Projected future redemption of other securities with maturities and held-to-maturity securities as of March 31, 2009 issummarized as follows:
Due within one year

Bond securities:

Government bond securities
Corporate bond securities
Other securities¥ 2,628,353
67,9301,000¥ 2,697,283

Government bond securities
Corporate bond securities
Other securities

Due after ten years

¥

¥

¥

37,92970,34519,998¥ 128,272¥

49,4791,900
5,619
56,998

Thousands of U.S. dollars
Due after one year
Due after five years
through five years
through ten years

Due within one year

Bond securities:

Millions of yen
Due after one year
Due after five years
through five years
through ten years$ 26,757,131
691,541
10,180$ 27,458,852$$ 503,706
19,34257,202$ 580,250

386,124
716,125
203,584$ 1,305,833¥

225,272－－
225,272

Due after ten years$ 2,293,312－－$ 2,293,312

For the years ended March 31, 2009 and 2008, proceeds from sale of other securities are ¥3,762,993 million ($38,307,981
thousand) and ¥4,785,032 million, the gross realized gains are ¥807 million ($8,215 thousand) and ¥831 million, and thegross realized losses are ¥2,242 million ($22,824 thousand) and ¥1,970 million, respectively.
On December 31, 2008, floating rate Japanese government bonds, Euro-Yen bonds and corporate bonds held bycertain consolidated subsidiaries which were previously classified as other securities were reclassified as held-to-maturity
securities in accordance with “Tentative Solution on Reclassification of debt Securities” (ASBJ Practical Issue Task Force(PITF) No. 26, December 5, 2008). The subsidiaries have been experiencing difficulty in selling the debt securities at thefair value for a certain period of time because of an extreme diminishment of the market liquidity of the securities due toan unexpected and significant change in the market environment.
Reclassified amount from other securities to held-to-maturity securities are as follows:
Millions of yen
Balance sheet
amountFair value¥

Government bond securities
Corporate bond securities
Other securities¥

40,0901,902
22,83364,825
Fair value$

Government bond securities
Corporate bond securities
Other securities$

34

408,124
19,363
232,444
659,931¥¥39,8581,900
22,93964,697

Thousands of U.S. dollars
Balance sheet
amount$$405,762
19,342
233,524
658,628

Net unrealized
loss on othersecurities

¥
¥

513
301
1,049
1,863

Net unrealized
loss on othersecurities

$
$

5,223
3,064
10,67918,966

FINANCIAL SECTION(5) INVESTMENTS IN AFFILIATES

The aggregate carrying amount of investments in affiliates as of March 31, 2009 and 2008 are ¥6,803 million ($69,256
thousand) and ¥8,052 million, respectively.

(6) IMPAIRMENT OF LONG-LIVED ASSETSFor the year ended March 31, 2009, a subsidiary reviewed its long-lived assets for impairment and, as a result, recognized
an impairment loss as follows:
Location

Chuo-ku, Tokyo

Usage

Dealing system

Classification

Other assets

The dealing system was written down to a recoverable amount and the amount was recognized as impairment loss of ¥210
million ($2,138 thousand) because the division which used the dealing system was closed.

(7) LAND REVALUATIONAs of March 31, 2002, the Company revaluated its land at fair value, pursuant to the Enforcement Ordinance for the Law
Concerning Land Revaluation and its amendments (the “Law”). According to the Law, net unrealized gain is reported ina separate component of net assets, net of related taxes, and the related deferred tax liabilities are reported in liabilities asdeferred tax liabilities for land revaluation.

(8) DEBTThe composition of debt and the weighted average interest rate on debt as of March 31, 2009 and 2008 are as follows:

March 31, 2009

Short-term borrowings
Current portion of long-term borrowings
Current portion of lease liabilities
Long-term borrowings
Lease liabilities
Call money
Commercial paper
Payables under repurchase agreements

Millions of yen

Thousands of U.S. dollars

Weighted average rate

¥ 1,673,810
2,500
548,50020
1,387,800
15,000637,882¥ 3,765,517$ 17,039,703
25,45051493,739204
14,128,067
152,7036,493,759$ 38,333,676

0.250%
0.756
－
0.951
－
0.098
0.250
0.205

Millions of yen

March 31, 2008¥

Short-term borrowings
Long-term borrowings
Call money
Commercial paper
Payables under repurchase agreements

894,91051,0001,857,600
68,000341,943¥ 3,213,453

35

Weighted average rate

0.672%
1.046
0.552
0.684
0.662

(9) RETIREMENT AND SEVERANCE BENEFITSThe Company has defined benefit retirement and pension plans, which consist of tax qualified noncontributory pension
plan and unfunded retirement and severance plan that provide for lump-sum payment of benefits, and a defined
contribution plan, which is a noncontributory funded contract-type corporate pension plan.
The consolidated subsidiaries have defined benefit retirement and pension plans, which consist of unfunded retirement
and severance plan that provide for lump-sum payment of benefits and welfare pension plan, and a defined contribution
plan, which is a noncontributory funded contract-type corporate pension plan. Regarding the welfare pension plan,
one subsidiary has joined Zenkoku Jutakuchi Kaihatsu Kosei Nenkin Kikin which was established as a multi-employer
noncontributory fund. The welfare pension plan consisted of two tiers, the substitution portion of Japanese Welfare
Pension Insurance and the corporate portion, and the plan assets of such welfare pension funds cannot be specificallyallocated to the individual participants nor to the substitution and corporate portions.
According to the “Partial Amendments to Accounting Standard for Retirement Benefits Part 2” (Accounting Standards
Board of Japan Statement No.14, issued on May 15, 2007), the most recent funded status of the pension plans and theratio of the company to the entire plans, and the supplementary description are required to be disclosed for corporate
pensions under multi-employer pension plans under which the required contribution is recognized as the net pension cost,
unless they are insignificant.
Funded status of the whole welfare pension plan at March 31, 2008 and 2007 was outlined as follows:
2008

Millions of yen¥ 31,483
37,939¥ (6,456)

Plan assets at fair value (1)Benefit obligation under pension funding programs (2)(1) - (2)2007

¥ 36,998
35,890¥ 1,108

Thousands of
U.S. dollars
2008$      320,503
386,226$ (65,723)

The subsidiary’s proportion of the contribution to the aggregate pension contributions in March 2008 and 2007 are
0.32% and 0.33%, respectively.
The funded status of the pension plans as of March 31, 2009 and 2008 is outlined as follows:¥

Projected benefit obligation
Plan assets at fair value
Funded status
Unrecognized actuarial loss
Net amount recognized in the consolidated balance sheets
Prepaid retirement and severance benefits
Accrued retirement and severance benefits

¥

2009

Millions of yen(6,305)2,548(3,757)1,449(2,308)−(2,308)

Thousands of
U.S. dollars
2009

2008

$      (64,186)
25,939(38,247)
14,751(23,496)−$ (23,496)¥ (6,246)
3,064(3,182)908(2,274)−¥ (2,274)

Net periodic pension cost for the years ended March 31, 2009 and 2008 consists of the following components:

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Net periodic pension cost

¥

¥

36

2009

Millions of yen

163
123
(61)
129
354

¥

¥

2008

165
124
(87)
61
263

Thousands of
U.S. dollars
2009$ 1,660
1,252
(621)
1,313
$ 3,604

FINANCIAL SECTION

Significant assumptions of pension plans used to determine these amounts in fiscal 2009 and 2008 are as follows:
Periodic allocation method for projected benefit
Discount rate
Expected rate of return on plan assets
Period for amortization of unrecognized actuarial loss

2009

2008

Straight-line
2.0%
2.0%
15 years

Straight-line
2.0%
2.5%
15 years

Directors and corporate auditors are not covered by the plans described above. One subsidiary has unfunded defined
benefit pension plan for directors and corporate auditors. Under the plan, directors and corporate auditors are entitled to
lump-sum payments based on the current rate of pay and length of service when they leave the subsidiary. As of March
31, 2009 and 2008, the liabilities for retirement and severance benefits related to the plans were ¥277 million ($2,820
thousand) and ¥483 million which include the lump-sum payments mentioned above, respectively.
At the Board of Directors of the other subsidiary held on June 27, 2008, abolishment of retirement benefit systemfor directors and corporate auditors of the subsidiary was approved, and directors and corporate auditors were entitledto lump-sum payment up to the date of the abolishment when they leave the subsidiary. At the general meeting ofstockholders of the Company held on June 28, 2006, abolishment of retirement benefit system for directors and corporate
auditors of the Company was approved, and directors and corporate auditors were entitled to lump-sum payment up to
the date of the abolishment when they leave the Company.

(10) INCOME TAXESThe Company and its consolidated subsidiaries are subject to Japanese corporate, inhabitant and business taxes based on
income which, in the aggregate, result in a statutory tax rate of approximately 40.7% in 2009 and 2008.
The reconciliation for the year ended March 31, 2009 is not subject to disclosure because loss before income taxes arerecorded.
The reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before income taxes forthe year ended March 31, 2008 is follows:
2008

Statutory tax rate
Consolidated subsidiaries losses
Dilution loss from changes in equity interest
Valuation allowance
Expenses not deductible for tax purposes
Equity in gains (losses) of affiliates
Income not credited for tax purposes
Gain on sale of associated company
Other
Effective tax rate

40.7%
83.6
13.5
9.8
0.5
(3.6)
(3.9)
−
4.1
144.7%

37

Significant components of deferred tax assets and liabilities at March 31, 2009 and 2008 are as follows:
2009

Deferred tax assets:¥

Accrued business tax
Accrued bonuses
Liabilities for retirement and severance
benefits (employees)
Liabilities for retirement and severance
benefits (directors and corporate auditors)
Allowance for doubtful receivables
Loss on devaluation of investments in securities
Net unrealized loss on other securities
Other
Valuation allowance

Millions of yen

28
176
933

¥

Thousands of
U.S. dollars
2009

2008

105
175
917

$

285
1,792
9,498

113

196

1,150

1,210
275
620
218
3,573
(1,037)
2,536

189
934
5,334
173
8,023
(1,137)
6,886

12,318
2,800
6,312
2,219
36,374(10,557)
25,817(182)(1,791)(422)(2)(2,397)139(182)(1,595)(422)(13)(2,212)
4,674(1,853)(18,233)(4,296)(20)(24,402)
1,415$

Deferred tax liabilities:

Gain on evaluation of subsidiaries’ assets
Net unrealized gain on other securities
Gain on transfer of investments in an affiliate
Other¥

Net deferred tax assets¥

Net deferred tax assets and liabilities as of March 31, 2009 and 2008 are reflected in the accompanying consolidatedbalance sheets under the following captions:¥

Current assets - Deferred tax assets
Investments and other assets- Deferred tax assets
Non-current liabilities- Deferred tax liabilities

2009

Millions of yen

537

¥

2008

301

$

Thousands of
U.S. dollars
2009

5,467

107

4,818

1,089

(505)

(445)

(5,141)(11) COMMON STOCK

Under the Corporation Law of Japan, the entire amount of the issue price of shares is required to be designated as statedcommon stock account although a company in Japan may, by resolution of its Board of Directors, account for an amountnot exceeding 50% of the issue price of new shares as additional paid-in capital.

(12) RETAINED EARNINGS AND DIVIDENDS

The Corporation Law of Japan provides that an amount equal to 10% of distributions from retained earnings paid by
the Company and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required
when the total amount of the additional paid-in capital and the legal reserve equals 25% of their respective stated capital.
The Corporation Law also provides that additional paid-in capital and legal reserve are available for appropriations by
the resolution of the stockholders. Balances of the legal reserve are included in retained earnings in the accompanying
consolidated balance sheets.
Cash dividends charged to retained earnings for the years ended March 31, 2009 and 2008 represent dividends paidout during those years. The amount available for dividends is based on the amount recorded in the Company’s nonconsolidated books of account in accordance with the Corporation Law.

38

FINANCIAL SECTION(a) Dividends paid during the year ended March 31, 2008
The following was approved by the general meeting of stockholders held on June 27, 2007.
(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date

¥1,391 million¥14
March 31, 2007
June 28, 2007

The following was approved by the Board of Directors held on November 12, 2007.
(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date

¥1,292 million¥13
September 30, 2007
December 7, 2007(b) Dividends paid during the year ended March 31, 2009
The following was approved by the general meeting of stockholders held on June 26, 2008.
¥1,292 million ($ 13,153 thousand)¥10 ($ 0.10)
March 31, 2008
June 27, 2008(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date
The following was approved by the Board of Directors held on October 31, 2008.

¥931 million ($9,478 thousand)¥10 ($ 0.10)
September 30, 2008
December 5, 2008(a) Total dividends(b)Cash dividends per common share(c) Record date(d)Effective date(c) Dividends to be paid after the balance sheet date but the record date for the payment belongs to the year
ended March 31, 2009
The following was approved by the general meeting of stockholders held on June 26, 2009.
¥931 million ($9,478 thousand)
Retained earnings¥10 ($ 0.10)
March 31, 2009
June 29, 2009(a) Total dividends(b)Dividend source(c) Cash dividends per common share(d)Record date(e) Effective date(13) GENERAL AND ADMINISTRATIVE EXPENSES

Significant components of general and administrative expenses are as follows:
2009

Salaries
Pension cost
Provision for retirement and severance benefits (directors and corporate auditors)
Administrative and computer expenses
Depreciation

39

¥

2008

Thousands of
U.S. dollars
2009¥       3,112
267
66
1,129
1,576

$      30,398
3,645
387
11,89016,736

Millions of yen

2,986
358
38
1,168
1,644

(14) PER SHARE INFORMATION(a) Net Loss per Share
Basic net loss per share, and reconciliation of the numbers and the amounts used in the basic net loss per sharecomputations for the years ended March 31, 2009 and 2008 are as follows:
Yen

2009

¥    (80.33)

Basic net loss per share¥

Net loss
Net loss not applicable to common stockholders
Net loss applicable to common stockholders

2009¥ (13.15)

Millions of yen(7,504)－(7,504)

¥

2008

2008

¥

(1,300)−(1,300)¥$$$U.S. dollars
2009(0.82)
Thousands of
U.S. dollars
2009(76,392)－(76,392)

Number of shares(Thousands)
2009
2008

Weighted average number of shares outstanding on which basic net loss per share is calculated

98,874

93,405(b) Net Assets per Share
Net assets per share, and reconciliation of the numbers and the amounts used in the net assets per share computations at
March 31, 2009 and 2008 are as follows:
Yen

2009

¥   1,158.32

Net assets per share

2009

¥

1,125.72

Millions of yen¥   107,233－¥   107,233

Total net assets
Amounts deducted from total net assets
Net assets applicable to common stockholders

2008

2008

¥    111,304−¥    111,304$

U.S. dollars
2009

11.79
Thousands of
U.S. dollars
2009$ 1,091,652－$ 1,091,652

Number of shares(Thousands)
2009
2008

Number of shares outstandings at end of year on which net assets per share is calculated

92,57598,872(15) LEASES

Certain key information about finance lease contracts of the Company and its consolidated subsidiaries for the years ended
March 31, 2009 and 2008 are as follows, which would have been reflected in the consolidated balance sheets if financelease accounting had been applied to the finance leases currently accounted for as operating leases:(i) Acquisition cost, accumulated depreciation and net book value of leased assets, if they had been capitalized:
2009

Furniture and fixtures:
Acquisition cost
Accumulated depreciation
Net book value¥       45(29)¥       16

40

2008

Thousands of
U.S. dollars
2009¥       51(28)¥       23$      458(295)$      163

Millions of yen

FINANCIAL SECTION(ii) Lease expense and future minimum lease payments including interest expense:
2009

Lease expense
Future minimum lease payments:
Within one year
Over one year

Millions of yen

2008

Thousands of
U.S. dollars
2009¥         7¥         9$       71¥        610¥       16¥         716¥       23$       61102$      163(16) PLEDGED ASSETS

The carrying value and classification of assets owned by the Company that have been pledged to counterparties as ofMarch 31, 2009 and 2008 are as follows:
Millions of yen

2009¥ 2,649,403
80,00023,00065,352
307,434
359,390
287,578

Short-term investments
Short-term loans receivable
Securities in custody
Securities in deposit
Collateral money for securities borrowed
Investments in securities
Securities received as collateral for securities
loans for margin transactions, etc.

2008¥  1,893,319
382,659−
204,481
165,911
269,678457,669

Thousands of
U.S. dollars
2009$ 26,971,424
814,415
234,144665,296
3,129,736
3,658,658
2,927,598

Assets in the above table were pledged for the followings:
Millions of yen

2009¥1,202,900
1,103,300
451,260
307,434
10,000Call money
Short-term borrowings
Payables under repurchase agreements
Securities borrowed
Long-term borrowings

2008¥  1,515,000
295,400
341,943
165,911
10,000Thousands of
U.S. dollars
2009$ 12,245,750
11,231,803
4,593,912
3,129,736
101,802

In addition to the above, other current assets of ¥500 million ($5,090 thousand) and investments in securities of ¥9,820
million ($99,969 thousand) are deposited for the Clearing Fund of Japan Securities Clearing Corporation and Japan
Government Bond Clearing Corporation, etc. at March 31, 2009.
In addition to the above, short-term investments of ¥22,147 million, other current assets of ¥500 million andinvestments in securities of ¥15,404 million are deposited for the Clearing Fund of Japan Securities Clearing Corporation,
Japan Government Bond Clearing Corporation and the foreign exchange settlement, etc. at March 31, 2008.
The fair value of the securities received as collateral for bond borrowing and lending transaction with cash collateral andsecurities borrowed under loan for consumption agreement as of March 31, 2009 and 2008 was as follows:
2009

Millions of yen¥  584,778
428,974
50,205

Securities loaned
Securities pledged as collateral
Securities on hand

41

2008

¥ 716,575
191,789
8,751

Thousands of
U.S. dollars
2009$ 5,953,151
4,367,037
511,096

FINANCIAL SECTION(17) DERIVATIVE FINANCIAL INSTRUMENTS

One subsidiary has entered into interest rate swap agreements to manage interest rate exposures borrowings. The
subsidiary has also held interest rate swap agreements for trading purposes within a certain limit.
If interest rate swap agreements are used as hedges and meet certain hedging criteria, the difference in amounts to
be paid or received on the interest rate swap agreements is recognized over the life of the agreements as an adjustment tointerest expense.
Derivatives are subject to market risk and credit risk.
Market risk is the potential adverse financial impact of changes in values of financial instruments from fluctuations invarious market factors such as interest rates. Credit risk is the risk that a counterparty will fail to perform on an obligation
due to deterioration of financial circumstances, etc. The counterparties to the derivative transactions are financial
institutions with high credit ratings and consequently, the Company does not anticipate credit-related losses from nonperformance by the counterparties to transactions involving derivative financial instruments.
Derivative transactions have been executed and controlled in accordance with the Company’s derivative regulations.
The information relating to fair value of derivative transactions to which hedge accounting is applied is not subject todisclosure. There is no outstanding balance of derivative transactions for other than hedging purposes.

(18) COMMITMENTS AND CONTINGENCIESAs of March 31, 2009 and 2008, undrawn amount of general loan for securities companies and customers and overdraft
loan are as follows:
2009

Millions of yen¥   584,936(35,965)¥   548,971

Total credit line
Drawn amount
Undrawn amount2008¥   592,483(40,374)¥   552,109(19) SEGMENT INFORMATION(a) Industry segments
The Company has categorized its business into a single industry segment, securities finance business.
(b) Geographic segments
The Company does not have any overseas subsidiaries for the years ended March 31, 2009 and 2008.
(c) Overseas sales
Not applicable.

42

Thousands of
U.S. dollars
2009$  5,954,759(366,130)$  5,588,629

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of Japan Securities Finance Co., Ltd.
We have audited the accompanying consolidated balance sheets of Japan Securities Finance Co., Ltd. and consolidated
subsidiaries as of March 31, 2009 and 2008, and related consolidated statements of operations, changes in net assets andcash flows for the years then ended, all expressed in Japanese yen. These financial statements are the responsibility of theCompany’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 financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall 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 financial
position of Japan Securities Finance Co., Ltd. and consolidated subsidiaries as of March 31, 2009 and 2008, and theresults of their operations and their cash flows for the years then ended in conformity with accounting principles generally
accepted in Japan.
The accompanying consolidated financial statements as of and for the year ended March 31, 2009 have been translated
into United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our
opinion, the consolidated financial statements expressed in yen have been translated into United States dollars on the basis
described in Note 2 to the consolidated financial statements.

Toyo Horwath
Tokyo, Japan
June 29, 200943

OUTLINE OF THE CORPORATE GROUP(As of June 30, 2009)

Japan Securities Finance Co., Ltd.
Subsidiaries
JSF Trust and Banking Co., Ltd.

Nihon Building Co., Ltd.

Trust services
Banking services
Real estate ownership and leasing
Real estate trading and brokerage
Insurance agency services

Affiliates
JBIS Holding, Inc.

Management of subsidiaries

Japan Information Processing
Service Co., Ltd.

Information processing services
Software development and sales

Japan Securities Agents, Ltd.

Securities clearing agent
Transfer agent
PTS services

JBIS, Inc.

Consulting services
ASP services

JBIS Business Service, Inc.

Document management services
BPO services

JSF Information Technology
Co., Ltd.

Information processing services
Software development and sales

44

CORPORATE DATAJAPAN SECURITIES FINANCE CO., LTD.

Board of Directors and Corporate Auditors(As of June 26, 2009)

Address
1-2-10 Nihonbashi-Kayabacho, Chuo-ku, Tokyo 103-0025
Tel:+81-3-3666-3184
Fax:+81-3-3666-1403

Directors
President
Executive Vice President
Senior Managing Director
Managing Director

Established
July 1927

Directors

Capital¥10 billion
Branch offices
Sapporo Branch
4-5 Minami Ichijo Nishi, Chuo-ku, Sapporo 060-0061
Tel: +81-11-241-1291
Fukuoka Branch
2-14-2 Tenjin, Chuo-ku, Fukuoka 810-0001
Tel: +81-92-741-1861

Minoru Masubuchi *Hiromitsu Matsuda *Yasuhisa Hashimoto
Hiroshi Nasuno		
Hiroshi Asakura
Takashi Imai **Akira Kanno **Hiroshi Koshida **(* Representative Directors)(** Outside Directors)

Corporate Auditors
Shigeru Awashima
Ushio Mizuno *Toshio Kamiyama *(* Outside Corporate Auditors)

Web site
http://www.jsf.co.jp

Executive Officers
President
Executive Vice President
Senior Managing Director
Managing Director

Stock exchange listing
Tokyo Stock Exchange, 1st Section
Shares outstanding
93,700,000 shares (as of March 31, 2009)

Executive Officers

Number of shareholders
9,274 shareholders (as of March 31, 2009)

Minoru Masubuchi
Hiromitsu Matsuda
Yasuhisa Hashimoto
Hiroshi Nasuno		
Hiroshi Asakura
Teiichi Takatori		
Masao Iguchi
Tomoyoshi Sugaya
Toshihiko Ishide
Ichiro Kasahara

Transfer agent
Japan Securities Agents, Ltd.
1-2-4 Nihonbashi-Kayabacho, Chuo-ku, Tokyo 103-8202
Tel: +81-3-3668-9211
Rating Information
Long-term Rating(As of the end of July, 2009)
Short-term Rating

A
AAAA-

A-1
a-1+
J-1+

Standard and Poor’s (S&P)
Rating and Investment Information, Inc. (R&I)
Japan Credit Rating Agency (JCR)45

ORGANIZATION
General Meetingof Shareholders
Board of Auditors
Board of Directors(Chairman)
President

Management committee
Executive Officers Meeting
Compliance
Committee

Executive Officers in Charge

Audit Department
Compliance Department

Risk Management Department

ALM Committee

General Affaires Department

Risk Capital Meeting

Accounting Department

System Committee

Planning Department
Treasury Department
Margin Loan Department
Loan Department
Settlement & Custody Department
Information Systems Planning Department

Sapporo Branch
Fukuoka Branch46