Securities Finance
ANNUAL REPORT 2016

PROFILE
Growing in step with the securities industry and supporting
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 andsettlement of margin transactions.
This margin loan business can be transacted solely by securities ﬁnance companies
licensed in accordance with the Financial Instruments and Exchange Law.
As Japan’s largest securities ﬁnance company designated by the Tokyo, Sapporo, andFukuoka Stock Exchanges, JSF is contributing signiﬁcantly to improving the fairness ofstock price formation and liquidity of stocks in the secondary equity markets.

CONTENTS
Financial Highlights ･･･････････････････････････････････････････････････････････････････････････････････････ 2
Message From The President ･ ･･････････････････････････････････････････････････････････････････････････ 4
Business Review ･ ･･･････････････････････････････････････････････････････････････････････････････････････････ 5Management Policy ･･････････････････････････････････････････････････････････････････････････････････････ 10
Our Business Development ････････････････････････････････････････････････････････････････････････････ 13
Our Business Field ････････････････････････････････････････････････････････････････････････････････････ 14
Corporate Governance ･･････････････････････････････････････････････････････････････････････････････････ 21
Risk Management ･ ･･･････････････････････････････････････････････････････････････････････････････････････ 30
Financial Section ･･････････････････････････････････････････････････････････････････････････････････････････ 35
Outline Of JSF Group ････････････････････････････････････････････････････････････････････････････････････ 71
Corporate Data ････････････････････････････････････････････････････････････････････････････････････････････ 72

1

FINANCIAL HIGHLIGHTS

Thousands of
U.S. dollars*Millions of yen*
2012

2013

2014

2015

2016

2016

Operating Results:
Operating revenues￥

20,229Operating income￥

17,676￥

19,566￥

20,300￥22,035＄

195,554

3,039

1,788

2,568

3,025

2,558

22,702

779

1,778

6,211

3,520

2,645

23,481

Total assets￥ 4,931,286￥ 3,433,456￥ 3,914,388￥ 3,482,602￥ 3,249,170＄28,835,375

Net assets

115,547

118,591

135,227

137,145

142,030

1,260,479

2.56

3.45

3.45

3.94

4.37

4.37

Net income
Financial Position:

Shareholders' equity ratio (%)
Per Share Data:
Net income￥

Net assets

8.42

￥

19.10

￥

60.35

￥

33.94

￥

26.90

＄

0.24

1,245.83

1,274.67

1,260.43

1,373.94

1,467.01

13.02

14

14

14

15

16

0.14

Cash dividend* except per share amountOperating revenues

Operating income(millions of yen)(millions of yen)

3,500

25,00022,03520,00020,22919,5663,000

20,300

3,039

3,025
2,568

17,676

2,558

2,500

15,000

2,000

1,788

1,500

10,000

1,000
5,000

0

500

12

13

14

15

0

16

2

12

13

14

15

16

FINANCIAL HIGHLIGHTSNet income

Net income per share(millions of yen)

(yen)

7,000

70
6,211

6,000

60

5,000

50

4,000

40

3,520

3,000

33.9

30

2,645
1,778

2,000

60.4

26.9

20
19.1

1,000

779

10
8.4

0

12

13

14

15

0

16

Net assets per share

13

14

1,467

20

1,374
15
1,246

1,275

16

(yen)

1,500
1,400

15

Cash dividend per share

(yen)

1,300

12

14

14

14

12

13

14

15

16

1,260

10

1,200
1,100

5
1,000
900

12

13

14

15

0

16

15

16

Note: 1. Yen amounts have been translated into United States dollars, solely for the convenience of the reader, at the rate of￥112.68=U.S.$1 in effect on March 31, 2016.
2. Net income per share is calculated based on the weighted average number of shares outstanding during each
respective year. Net assets per share is calculated based on the number of shares outstanding at the end of each
respective year.
3. Shareholders’ equity ratio is calculated by using following formula.Total net assets / Total liabilities* and net assets*except for securities accounts such as Collateral securities deposited3

MESSAGE FROM THE PRESIDENT

We are in the final fiscal year of the 4th Mid-Term
Management Plan formulated in May 2014. Since thesecond half of the previous fiscal year, the surrounding
market trends and financial conditions have notnecessarily been favorable for us. Nevertheless, we aim toachieve further growth by working to deepen our margintransaction business which serves as infrastructure forthe securities market, reviewing our existing businesses,
expanding transaction services and winning newcustomers.
Based on this perspective, the Company implemented anorganizational reform in June 2016 to newly establish
a department that supervises business management
and planning sections and a department that supervises
development of new businesses and strategies for them.
Under the new organization, we will work to expand
our business base, strengthen management of businessresources, reinforce the corporate governance systemand expand IR activities. Meanwhile, we are making
Eizo Kobayashi
President

steady progress in the project to fully re-construct ourcore system targeted to start operation in January 2017.

With regard to return of profits, we reviewed out shareholder return policy in May 2015 and decided to raise the payout
ratio to the level “not lower than approximately 60% of the consolidated payout ratio.” The Company also decided to
conduct acquisition of its treasury stocks at an appropriate time, taking into account the Company’s earnings status
and stock price levels. Following this policy, we plan to deliver dividends of 16 yen per share annually for the fiscal
year ending March 2017, the same as the previous fiscal year. In addition, we have established a framework of sharebuybacks, with a ceiling of 2 million shares at the acquisition price of up to 1 billion yen.
Going forward, the Company will endeavor to further enhance its corporate value. We ask our shareholders for yourcontinued support of the JSF Group.

Eizo Kobayashi
President

4

BUSINESS REVIEW

BUSINESS REVIEWBusiness Environment

factors as arising uncertainty about the U.S. monetary

Looking back at the fiscal year ended March 31, 2016, thepolicy on top of the unstable trend of the Shanghai equity

Japanese economy continued to show modest growth duringmarket. Entering October, the stock price took an upward

the term, given improvements in corporate earnings asturn as investor sentiment picked up because of suchwell as the employment and income environments, despite

factors as IPOs of the three Japan Post Group companies

observed impacts of economic slowdowns in emerging

making a good start as well as the excessive concerns aboutcountries and resource-exporting countries.

the Chinese economic conditions easing, and temporarily
recovered to the 20,000 yen level on December 1. The

On the equity market, the Nikkei 225 stock average

figure then dropped again due to a further price decline

started the term at 19,034 yen and increased due to suchin the crude oil market and credit uncertainty of major

factors as an anticipated increase in corporate profits andEuropean financial institutions, among other factors, falling

the trend for an enhanced approach to returning profits to

below 15,000 yen for the first time in approximately a year

shareholders, recovering to the 20,000 yen level for the firstand four months on February 12, 2016 to hit the term low

time in approximately 15 years on April 22. Subsequently,of 14,952 yen. Early in March, the Nikkei 225 recovered

the average remained strong in the face of the increasingly

to the 17,000 yen level, reflecting the stronger tone of thedepreciating yen and good economic indicators in theequity markets in major countries with the anticipation

U.S., reaching the term high of 20,869 yen June 24, andthat the U.S. interest rate hike would be a moderate one.

stayed within a fixed range of roughly around 20,500 yen

Nevertheless, the increasingly depreciating yen and weakerthrough mid-August. By late August, however, the Nikkei

U.S. dollar, for which the exchange rate temporarily stood

225 plunged to a level below 18,000 yen because of suchat the 110 yen level per dollar, served to suppress a further

Nikkei Indexyen
22,00020,00018,00016,00014,000
Apr
2015

May

Jun

Jul

Aug

Sep

5

Oct

Nov

Dec

Jan
2016

Feb

Mar

Outstanding balance of Standardized Margin Transactions(billions of yen)

3.500
Margin Buying

Margin Selling

3.000
2.500
2.000
1.500
1.000
0.500
0.000
Apr
2015

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
2016

Feb

Mar

rise in the stock price, which was 16, 758 yen in closing

declined after entering the new year as personal investors

deals on March 31.

strengthened their wait-and-see attitude amid the stock pricetrend staying on a weak note, falling to the 2.1 trillion level

During this period, the average daily trading volume onby the end of March. On the other hand, the outstanding

the First Section of the Tokyo Stock Exchange was 2.343

balance of standardized margin selling, which was at aroundbillion shares, representing a year-on-year increase of 150

the 600 billion yen level at the beginning of the term,

million shares, while the average daily value traded wasincreased to the 710 billion yen level for the first time in

2.5637 trillion yen, representing an increase of 416.5 billion

approximately 6 years in late May due to new sales as share

yen compared with the previous year.

prices rose. Subsequently, however, the balance showeda downward trend due to profit-taking buyback as share

Meanwhile, the outstanding balance of standardized

prices tended downward, falling to the low for the term at

margin buying on the Tokyo market had remained at thethe 340 billion yen level by mid-February. It returned to the

2.3 to 2.4 trillion yen level since the beginning of the term

450 billion yen level through early March but then dropped

through early June. Subsequently, the figure increased dueto the 410 billion level by the end of March.

to buying on dips by personal investors as share prices
trended downward, reaching the peak for the term at the

As for the bond market, the yield on newly issued 10-

2.9 trillion yen level in mid-August. Later, the balance took

year Japanese government bonds standing at 0.374% at

a downward turn due to profit-taking selling by personal

the beginning of the term rose to 0.529% by June 2015,

investors as share prices trended upward. It further

given an increase in the interest rates in the U.S. and6

BUSINESS REVIEWEurope against the backdrop of speculation that the U.S.

(an increase of 22.1% year-on-year) due to an increaseinterest rate hike would be conducted soon and expectationin securities borrowing fees in the loans for margin

that concerns about deflation in Europe would recede.

transactions business, among other factors. General andAfterward, the yield trended downward due to such factors

administrative expenses amounted to 7,939 million yen (anas aggressive purchasing of government bonds by the Bank

increase of 1.5% year-on-year).

of Japan, declining to 0.2% by mid-January 2016. It further
dropped after the decision by the Bank of Japan on January

As a result, consolidated operating income was 2,558

29 to introduce the negative interest rate policy, remaining

million yen (a decrease of 15.4% year-on-year). Consolidated

within the negative zone in late February and thereafter andordinary income dropped to 3,349 million yen (a decrease

ending the term at -0.050%.

of 20.8% year-on-year) due to such factors as the absenceof investment in partnership for JSF Trust and Banking, aBusiness results of the JSF groupsubsidiary of JSF, which was posted in the previous fiscal

In light of these market trends, the total value of outstanding

year, despite an increase in interest income and dividendloans for the JSF group (term average) was 647.0 billion

income. Net income attributable to owners of the parent wasyen, a year-on-year decrease of 96.0 billion yen.

2,645 million yen (a decrease of 24.9% year-on-year).

Consolidated operating revenues were 22,035 million
yen (an increase of 8.5% year-on-year), due to such factors

1) Securities finance business
Loans for Margin Transactions

as increased revenue from securities lending fees inIn the loans for margin transactions business, the term

the loans for margin transactions business. Meanwhile,

average for the outstanding balance of margin loans was

consolidated operating expenses were 11,537 million yen

401.4 billion yen, representing a 26.9 billion yen year-on-

Average outstanding balance of Loans for Margin Transactions(billions of yen)

600

Margin Loans

Stock Loans

490

500

428

401

400
300
218
200

184

214

222
183

227

176

100
0

12

13

14

7

15

16

Breakdown of JSF Group operating revenues
2016

2015

( ￥ million)( ￥ million)

17,776

17,162

10,579

9,667

2,720

3,111

575

611

Fees on lending securities

6,840

5,389

Bond financing and general loans

1,753

2,107

Securities lending

2,241

2,294

Stocks

907

784

Bonds

1,334

1,509

Other business

3,201

3,094

Trust Banking Business

3,451

2,269

Interest on loans

144

186

Trust charges

627

545

Real Estate Leasing Business

807

868

Total Operating Revenues

22,03520,300

Securities Finance Business
Loans for margin transactions
Interest on loans
Interest on collateral money for securities borrowed

year decrease. In addition, due to lowering of the interest

decrease of 16.8% year-on-year).

rate on loans contracted on August 6, 2014 and thereafter,interest on loans decreased year-on-year. However, the term

Securities lending

average for the outstanding balance of stock loans was

In the securities lending business, revenues from securities

227.4 billion yen, representing a year-on-year increase oflending fees increased in the general stock lending

5.3 billion yen, and premium charges on over-lent issues

section primarily due to demand for borrowing stock

also increased. Accordingly, the increase in these revenues

aimed at avoiding failures, while revenue from interest

significantly exceeded the decline in revenues from intereston collateral money for securities borrowed decreased inon loans. As a result, operating revenues for this service

the bond lending section primarily due to a drop in thewere 10,579 million yen (an increase of 9.4% year-on-year).

transaction rate. As a result, operating revenues for thisservice combining these sections were 2,241 million yen (adecrease of 2.3% year-on-year).

Bond financing and General Loans
As for bond financing and general loans, the term averageof loans was 162.3 billion yen, representing a year-on-year

Other businessdecrease of 61.1 billion yen, due to a decrease both in loans

Other operating revenues were 3,201 million yen (anto financial instruments business operators and loans toincrease of 3.5% year-on-year), due to such factors as anindividuals and companies. This and other factors caused

increase in interest income on government bonds holdings

operating revenues for this service to be 175.3 billion yen (ain contrast to a decrease in gain on sale of government

8

BUSINESS REVIEW

bonds holdings.

currently in the process of revamping our core system
to start operations in January 2017. By introducing the2) Trust banking business

new system, we will reinforce the system aspects of ourIn the trust banking business, the term average loan

management base in order to further improve customer

balance decreased by 4.1 billion yen year-on-year to 54.5

convenience and business operations stability whilebillion yen, causing a decrease in revenue from interest on

reducing costs through streamlining of our business.

loans. However, as trust charges and gain on sale of bonds
increased, the operating revenues from this service were

In the meantime, we have been working to further

3,451 million yen (an increase of 52.1% year-on-year).

reinforce our governance system in accordance with thecorporate governance code that has been newly applied

3) Real estate leasing businessto listed companies since 2015. As part of the endeavors,

In the real estate leasing business, operating revenues

we have established the Nomination and Remuneration

amounted to 807 million yen (a decrease of 7.0% year-on-

Advisory Committee which is an advisory body to the Board

year).

of Directors in terms of nomination and remunerationof directors, etc. and comprises outside directors andFuture challenges

outside auditors by a majority. The Committee is aimed at

In May 2014, we formulated our 4th Mid-Term Management

enhancing the transparency and fairness of decision-making

Plan. Based on our corporate philosophy, which setson nomination and remuneration. Moreover, by introducing

contributing to the development of the securities market

a performance-based remuneration system, we intend toas our mission, this plan espouses management policies

further clarify the linkage of director remunerations withincluding the establishment of social trust, strengthening

the business performances and stock value of the Company.

of our revenue base, and achievement of a stable return ofprofits for all shareholders.

JSF Trust and Banking, a subsidiary of JSF, offers tailormade services as a trust bank to support the operational

Under these policies, as we conduct margin transactions

infrastructures of security companies and other institutions.

and other existing businesses, we will endeavor to accurately

It focuses on trust services centering on products aimed ataddress customers’ diverse needs by elaborately pursuing

the securities industry while striving to provide appropriate

the market trends, in an effort to expand transactions.

banking functions commensurate it’s financial strength.

Moreover, we implemented an organizational reform in June

Through these measures, it works to increase its revenues

2016 to newly establish Business Development Department

and earnings.

in charge of developing new businesses, which will work
to expand new businesses in the securities and financial

Taking these initiatives as stated above, the JSF Groupmarkets. By doing so, we aim to enhance our profitability.

will endeavor to reinforce its business performances andenhance corporate value over a medium to long term.

With regard to our system infrastructure, we are

9MANAGEMENT POLICYMANAGEMENT POLICY
Basic Management Policy
As an institution specializing in the securities financeManagement Plan
1. Fourth Mid-term Management Planbusiness, JSF has a mission, while always keen awarenessIn order to improve the convenience of loans for marginof our public role, to contribute to the development oftransactions, a system that allows applications to be madethe securities market by proactively meeting the diverse

using the Internet has been installed,

needs of securities and financial circles and working toboost the long-term interest of securities market users and[Concept]

participants. Based on this corporate philosophy, our basic

Recent years have seen major changes in the

management policy in as follows.

environment in which our company operates. Even as theinternationalization of finance and capital markets continues(1) Bearing in mind at all times our social responsibilities

to accelerate, IT systems have been introduced in Japan’s

as a securities finance company, we aim to practicemarket at a rapid pitch and Internet investors are becoming

sound business management through the exhaustivea greater presence. In this transformed environment, theimplementation of compliance, corporate governanceTokyo Stock Exchange (TSE) and Osaka Securities Exchange

and risk management to establish unshakeable(OSE) completed their merger last year, followed this year

credibility.

by the rollout of Nippon Individual Saving Accounts (NISA).
With the institutional framework for the new Comprehensive(2) We aim to retain robust equity capital to ensure the

Exchange being put in place, numerous initiatives arefinancial health and stable management society expects

underway to promote investment and strengthen theof a company that is part of the infrastructure of thefunctionality of the securities market. This period has also

securities market, while continuing to comprehensively

seen a reassessment of the financial restrictions imposed inassess the revenue environment, investment plans, andresponse to the Lehman Brothers Shock, giving rise to new

other factors to provide a stable return of profits to ourfinancial needs.

shareholders.

With the merger of TSE and OSE, JSF and Osaka
Securities Finance Company, Ltd. also merged in July 2013.

(3) We aim to work to improve the convenience of theFollowing this merger, our company will strive to effectively

margin loan business while expanding our network of

deploy our post-merger managerial resources to steadilyfinancial instruments companies and enhancing the

pursue the business strategies laid out below, even as we

financial and securities-related services offered by JSF

continue to further strengthen our business management

and its Group companies. And further, we aim to solidify

structure. By these and other measures, we will respond to

the profit base for the JSF Group as a whole throughthe changing environment and achieve even further growth

those actions.

for our business.

(4) We aim to promote further Group organizational[Business strategies]

and business management efficiency to respondi) Expanding the loans for margin transactions

expeditiously to changes in the business environment.

business as key infrastructure for the securities
marketIn light of the integration of the spot market, we aim toredouble our efforts both to accurately assess market needs
and to promote the expansion of the investor base andthe use of loans for margin transactions by increasing the10

MANAGEMENT POLICY

number of loanable issues and improving both the system

We aim to work ever harder to improve our risk

and operation of loans for margin transactions. To this end,

management in view of the increasingly diverse andwe aim to enhance our informational outreach activities

complex risks associated with financial business.

to better publicize the systems of margin transactions andii) Strengthening our business managementloans for margin transaction.

structure

Regarding loans for negotiable margin transactions,
we aim to work to accurately identify customer needs andWe aim to enhance the role and functions of our Businessexpand the business.

Promotion Meetings, and put in place a system to oversee
the implementation of business plans to ensure they areii）Responding to the diversifying needs of financial

executed properly. At the same time, we aim to implement

instruments companies and other customers

thoroughgoing cost management.

Building on our recent merger, we aim to further strengthen
our network of financial instruments companies and otheriii) Promoting human resources development

partners, respond proactively to the diversifying needs for

We aim to train the human resources needed to increase ourfunding and securities and work to expand our customer

corporate value and make possible the creation of futureloans business in collaboration with financial instruments

opportunities for long-term growth.

companies.

iii）Strengthening system infrastructure

Shareholder Return Policy

We aim to implement a complete rebuild of the business

The company considers the long-term, stable return ofsystem (JSF-Net) to achieve an even tighter fusion of

profits to shareholders to be among its most importantbusiness and IT, both to better meet customer needs, tomanagement tasks and therefore has a basic guideline of

reduce costs resulting from endeavors to improve businesspaying dividends according to results after provisioning theefficiency and to achieve more stable business operations

capital and internal reserves that it requires as a financial

through enhanced business continuity planning (BCP)

institution.

resiliency. Through these efforts, we reinforce our capacity

Our dividend policy is to return profits to shareholders

on the system side to support all of our business strategies.

basically in accordance with the "consolidated payout ratio"
as a standard that reflect our business performance, but alsoiv）Other business strategies

taking account of the "dividend on equity ratio".

We aim to further strengthen coordination among our Group
companies to respond proactively to diversifying customer[Basic Policy]

needs. We also aim to continue to monitor trends in rapidly

The company considers the long-term, stable return ofdeveloping Asia and other foreign markets in order to seek

profits to shareholders to be among its most importantout and seize new business opportunities. We at the same

management tasks and therefore has a basic guideline oftime aim to improve the efficiency of our fund management

paying dividends according to results after provisioning theunder appropriate risk controls.

capital and internal reserves that it requires as a financial
institution.

[Reinforcing business management systems]i) Enhancing internal controls[Basic Dividend Payment Policy]

We aim to continue to enhance the effectiveness of our

Our policy is that the consolidated payout ratio, as acompliance and internal auditing to respond more nimbly tostandard that reflects our business performance, shall not

the evolving social demands placed on financial institutions.

fall below the 60% level and that we shall return profits to11

shareholders while taking into account the consolidated

shareholders, we will buy back shares as needed in future

dividend on equity ratio (DOE = ratio of the dividend amountwhile considering the company’s financial situation, stock

to shareholder equity).

price levels, and so forth.

[Share Buyback Policy]
With a view to offering even more rewarding returns to12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

COM - STOCK Loan

A loan aimed at individual investors, for which loan
applications are made through the Internet

Business Loan

A large loan aimed at people such as owners of listedcompanies

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

13

OUR BUSINESS FIELDLOANS FOR MARGIN TRANSACTIONSWhat is Margin Transactions?
In margin transactions, an investor trades stocks after

Apart from the purpose of obtaining margins as described(1) depositing a certain amount of collateral (margin

above, an investor can use margin transactions as a means

requirements) with a securities company and (2) borrowing

for hedging. In other words, in the event that, although anfunds for purchasing stock or stock for sale. Margin

investor expects that the stock price in hand may decline,transactions help investors to expand their trading volumes

the stock is not to be sold for some reasons, such as thatby enabling them to purchase stock which value is in excess

convertible bond is within its convertible period or that itof their available funds, or to sell stock that they do not own.

is a publicly-offered stock just purchased, the investor canThus, margin transactions broaden and strengthen stock

avoid loss with hedging sale by using margin transactions.

trading and contribute to the smooth circulation of stocks
and the fair stock prices formation.

There are two types of margin transactions, standardized
margin transactions and negotiable margin transactions. In

Margin transactions is used, for example, when an

standardized margin transactions, terms of repayment areinvestor considers that the stock price of a certain issue will

determined by stock exchanges, and a securities company

rise or decline sharply in a short period of time.

can borrow funds for purchasing and stock for sale needed
to settle transactions from a securities finance company

・When it is expected that the stock price will rise, an(loans for margin transactions).

investor borrows funds for purchasing stock from a

In negotiable margin transactions, which is limited to cases

securities company (margin buying), and if the stockin which a securities company can procure funds and stock

price rises as expected within a term of repayment (6to be lent to customers by internal matching (Note) ormonths), the investor sells the stock, repays the funds

external procurement without borrowing from a securities

borrowed (reversing transaction) and receives the margin.

finance company, the condition of margin transactions

The investor may also receive the stock (actual receipt)

may be decided freely in negotiations between a securities

by procuring funds separately and depositing it with acompany and its customer.

securities company.

(Note) This is a system of appropriating purchased stock received from buy
side as collateral to sell side's stock for sale within a company or,conversely, of appropriating sell side's proceeds of sale to buy side's

・Conversely, when it is expected that the stock price willfunds for purchasing stocks.

decline, an investor borrows stock from a securities
company and sells them (margin selling). If the stock
price declines as expected within the term of repayment(6 months), the investor 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 asecurities company (actual delivery).

14

OUR BUSINESS FIELD

JSF receives loan applications for each issue from a

What is Loans for Margin Transactions?
Loans for margin transactions is a system in which asecurities company on the trading date of standardized

securities finance company receives a certain amount ofmargin transactions (5).To execute the loan, JSF, in place ofmargin (margin requirements) from a securities company,

the securities company, delivers funds or stock to clearing

who is a general trading participant of stock exchanges (3)facilities of stock exchanges (6). The stock purchased

and lends funds or stock necessary for margin transactions(collateral stock for loans) or proceeds from sale (collateral(4). This is executed through the clearing facilities of stockmoney for stock loans) are received by JSF (7), and thenexchanges. Loans for margin transactions is authorized only

each collateral is appropriated.

for the securities finance companies 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, and Fukuoka.

Standardized margin transactions and Loans for margin transactions

Loans for margin transactions

Standardized margin transactions

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

15

Japan Securities Finance

Submit application (5)Securities company

Place trade orderHandling of over-lent issues

and non-life insurance companies, banks and other sources.

JSF usually appropriates stock received as collateral for

The highest bidding rate becomes the lending rate (Premiumloans to stock loans. However, should the outstanding

Charges) of that issue. This premium charge is applied tostock loans exceed the outstanding loans, it is necessary to

all users of standardized margin transactions, and should

procure the stock needed for settlement by bidding withbe collected by all sell sides and paid to all buy sides or

securities companies or institutional investors such as life

successful bidders.

In case of Premium Charge may apply
Loans for margin transactions

Standardized 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

16

OUR BUSINESS FIELD

BOND SERVICES
In bond borrowing and lending transactions, a lender lends

matches the needs of both lender and borrower, maintaining

bonds to a borrower, and after mutually agreed period, thehigh confidentiality of information to ensure the complete

borrower repays the lender with bonds of the same typeprivacy of both parities, and transferring all counterpartyand quantity. JSF serves as a broker between borrowers andcredit risk to JSF. The arrangement also contributes tolenders.

creating fair and stable market by publicly disclosing
indication via QUICK, Bloomberg, and other information

The bond borrowing and lending transactions market

services.

was established in May 1990 for the purpose of covering
bonds sold short, and was followed in April 1996 by theTransaction types

introduction of REPO (cash-collateral bond borrowing and

REPO transactions

lending transactions). JSF was the first company in Japan

JSF borrows bonds after depositing cash collateral with ato be authorized to offer such brokerage services, because

lender and then lends bonds after receiving cash collateral

JSF can link securities industries and financial industries

from a borrower. This transaction can be either a Special

on neutral ground and is well versed in handling of bond

Collateral transaction that specifies an issue or a Generaltransactions.

Collateral transaction that does not specify an issue.

JSF receives applications from both parties and, on

Ordinary bond borrowing and lending transactions

their behalf, lends and borrows bonds on the basis of

JSF, in principle, borrows bonds without collateral from aloan agreement. This type of arrangement has several

lender and then lends bonds after receiving collateral from aadvantages, including helping to form a transaction thatborrower.

Types of bond transactions

LenderLending rate

Cash collateral

Cash collateralInterest

Interest

JSF(Fund raising)

Borrowing rate

Borrower

Bonds

Bonds

(Fund investment)

REPO transactions

Ordinary transaction

Lender

Bonds

Bonds
Securities collateral
Lending rate

Borrowing rate

17

Borrower(securities-collateral transaction)

GENERAL STOCK LENDING
This business lends stock needed to settle trades to

In February 2002, we implemented offer-bid borrowing

securities companies. A securities company would use

and lending transactions (e Stock Lending) by expanding theGeneral Stock Lending when it has no stock on hand, foronline network that is linked with securities companies, so

the purpose of hedge sale of convertible bonds or arbitrage

as to include institutional investors, such as life and non-lifetransactions with spots and futures, and so forth. JSF has

insurance companies.

done its utmost to increase the number of eligible issues
and shares for brokerage services since the business waslaunched 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.

Mechanism of stock lending business
Stocks (deposit)

Stocklenders
Institutional
investors

Stocks (lend)

JSF
Borrowing fee

Collateral deposit
Lending fee

18

Securities
companies

OUR BUSINESS FIELDLOANS FOR NEGOTIABLE MARGIN
TRANSACTIONSWhat is Loans for Negotiable Margin Transactions?

Loan Period

Loans for negotiable margin transactions is a system

In principle, the due date of loan is the day following thewhich lends the necessary funds for securities companies

lending date, but it can be extended to the deferment

to purchase stocks in negotiable margin transactions on

deadline for repayment of negotiable margin transactions

behalf of its customer (3), receiving stock purchased (1) andfor securities companies.

certain margin requirement (2) as collateral for loans

Interest rate
The interest rate on loans is determined individually

Conditions of loans

Loanable stock Issues

between JSF and securities companies.

In principle, loanable stock issues are those listed on stock
exchange. (However, they can be limited to those we admit

Collateralavailable.) Newly listed stocks can be accepted from the 1st

JSF receive sto ck purchased in negot iable marg in

day of its listing.

transactions and certain margin requirement as collateralfor loans. Margin requirement can be substituted by acertain ratio of cash or by securities.

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

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

19

Japan Securities Finance

Customer

Deposit margin requirement

Securities company

Application

BOND FINANCING
The aim of bond financing is to contribute to smoothutilizing investment securities for shares, etc. as collateral.

underwriting, circulation and fair price formation in bond

We are expanding "COM-STOCK Loans" for individuals,

markets. This business offers low-interest loans by using

which do not require applicants to come to a branch,government and other bonds as collateral to provide funds"Business Loans" aimed at owners of listed companies.

required by securities companies in bond operations.

COM-STOCK Loan

GENERAL LOANS

A loan aimed at individual investors, for which loan

This business loans working funds required by securities

applications can be made through the Internet, andcompanies by using stocks, bonds, and other securities as

for which investors do not need to come to a branch.

collateral, and aims to respond quickly and flexibly to theApplications can be made through a special JSF website.

needs of securities companies.

Business loan

SECURED LOANS ON SECURITIES FOR
INDIVIDUAL AND CORPORATE INVESTORS

A large loan aimed at people such as owners of listedcompanies.

We provide loans to individuals and companies for any use,

20

CORPORATE GOVERNANCECORPORATE GOVERNANCE
・ Attendance of corporate auditors at internal meetings andBASIC CONCEPT OF CORPORATE GOVERNANCE
As an institution specializing in the securities financeinstigation of necessary checks

business, Japan Securities Finance has a mission, while

・ Internal audit by the Audit Department, which isalways maintaining a keen awareness of our public role,

independent from other departments

to contribute to the development of the securities industry
by proactively meeting the diverse needs of securities andFurthermore, from the perspect ive of ensuring

financial circles and working to boost the long-term interests

management transparency, we are committed to makingof securities markets users and participants. The company

active and timely disclosure of management information

believes gaining the firm trust of society through soundthat goes beyond legal requirements via our website.

business operations is our most important management
directive.

CORPORATE GOVERNANCE STRUCTURE
1. Management Structure

・ Establishment of compliance system

Below is an outline of JSF's management structure.

・ Establishment and implementation of risk management

・ The Board of Directors is the decision-making body for all
matters related to management policy and the execution

policiesof operations, and it appoints executive officers who are

・ Active invitation of outside directors (three directors, twocharged with the execution of operations in accordance

auditors)

Corporate Governance System Structure
Decision Making of Management
General Meetingof Shareholders

Inspection System
Board ofAuditors

Board of Directors

Nomination and Remuneration
Advisory Committee

ReportCorporate
Auditors

External
Financial
AuditorBusiness
Operation
Audit

President
Management Committee

Compliance
Committee

Executive Oﬃcers
Meeting
Audit
Department

Audit
Subsidiaries
AﬃliatesManagement
Administration& Report. etc.

Executive Oﬃcers in Charge

Compliance Department
Personnel in chargeof compliance

Mutual CheckBusiness
Departments

Risk Management
Department

JSF Group
Company

21

External Reporting
Contact Desk

Consultation and Report for Compliance

Audit

All Departments

with its decisions.
・ Directors are members of the Board of Directors and2) Nomination and Remuneration Advisory Committee

supervise the company's decision-making and the activities

The Nomination and Remuneration Advisory Committeeof representative directors. Executive officers execute theinvestigates such matters as election of candidates for

operations of the Company in line with decisions made bydirectors, auditors and executive officers as well as their

the Board of Directors.

remunerations, in response to consultations from the Board of
Directors, and provides advices and proposals to the Board. A・ Directors may concurrently serve as executive officers

majority of the members of the Nomination and Remuneration(executive directors).

Advisory Committee are outside directors and outside auditors.

・ Executive officers comprise executive directors andexecutive officers.
・ Executive officers are appointed for a term of 1 year.

3) Board of Auditors

・ The Company has established a Nominat ion and

The Board of Auditors may have up to four members, ofwhich the majority must be outside auditors.

Remuneration Advisory Committee in order to reinforce

The Board of Auditors shall make a decision on thethe supervisory functions of the Board of Directors.

execution of the duties of auditors and shall discuss the

2. Organization

exercise of authority by auditors. Meetings of the Board

To strengthen management supervisory functions, theof Auditors are convened from time to time as necessary.

Company stipulates that three of the ten directors must

During fiscal 2015, the Board of Auditors met ten times.

be outside directors, and outside directors serve as theTwo outside auditors are appointed and are expected tocenter of the Board of Directors. In addition, two of the four

provide supervision based on a wealth of experience andauditors on the Board of Auditors must be outside auditors.

broad knowledge and expertise.

The Management Committee and Executive Officers Meeting

4) Management Committee

serve as management-level decision-making bodies.

The purpose of the Management Committee is to deliberate

Below are outlines of these organizations.

important matters related to the execution of company

1) Board of Directors

operations.

The Board of Directors may have up to ten members

Members of the Management Committee are executive(including three outside directors).

directors. When necessary, directors who are not executive

Meetings of the Board of Directors shall in principle

directors and auditors may attend meetings of thebe convened once per month but may be convened at

Management Committee.

other times as necessary. During fiscal 2015, the Board of

The Management Committee is in principle convened

Directors met ten times.

once per week. The Management Committee may also meet

Positions on the Board of Directors shall consist of theother times as necessary.

chairperson, vice chairperson, president, executive vicepresident, senior managing directors, managing directors5) Executive Officers Meetingand directors. The Board of Directors may appoint directors

The purpose of the Executive Officers Meeting is to reportto execute operations (executive directors).

on the status of operations.

Three outside directors appointed are expected to ensure

Members of the Executive Officers Meeting are all

the appropriateness of company operations and provide

executive officers, including executive directors. Directors

objective, neutral, outside supervision of management

who are not executive directors and auditors may also

through advice and comments with a wealth of experienceattend the Executive Officers Meeting.
The Executive Officers Meeting is in principle convened

in management and professional knowledge and expertise.

22

CORPORATE GOVERNANCE

once per week. The Executive Officers Meeting may also

management system in respect of control and management

meet other times as necessary.

of risk and other factors in individual business units.
Internal audits, auditor audits and accounting audits

3. Outside directors and outside auditors

are mutually coordinated. All who are responsible for these

The Company has three outside directors and two outside

audits and internal control may exchange information etc.

auditors.

when necessary for closer coordination.

The outside directors and outside auditors have no

Auditor Toshio Kamiyama is a certified public accountant

interest in the Company other than owning shares in theand certified tax accountant and provides considerable

Company. There are not now nor have there ever been factors

insight on financial and accounting matters.

requiring a determination of potential conflict of interest withgeneral shareholders by the Tokyo Stock Exchange.

5. Status of accounting audits

Outside directors are expected to ensure the

Accounting audits of the Company are performed byappropriateness of company operations and provide

certified public accountants Mitsuhiro Fukuda, Nobuyuki

objective, neutral, outside supervision of management

Kobayashi and Hironobu Sakai of BDO Toyo & Co.

through advice and comments based on their abundantAccounting audits are assisted by 13 certified public

experience in management and professional knowledge andaccountants and 6 others, and care is taken to eliminate bias

expertise. They are in an objective position independent ofin years of experience.

the executive directors and have no potential conflicts ofinterest with general shareholders.
Outside auditors are expected to provide supervision

6. Policy regarding the remuneration of
directors and auditors

based on a wealth of experience and broad knowledge and

The Company has established its policy on the remuneration

expertise. They have a high degree of independence andof directors and auditors as follows, in accordance with its

no conflicts of interest with general shareholders and are“Basic Policy on Corporate Governance.”

therefore judged to contribute to auditing operations andcompliance. They endeavor to mutually coordinate internal[Remuneration of directors, auditors and executive officers]

audit section etc.

・ With a view to enhancing the correlation with the

Furthermore, the Company has established the following

Company’s business performance and share value, thecriteria for independence in appointing outside directors

remuneration of executive directors and executive officers

and outside auditors.

shall comprise a fixed monthly remuneration, officers’
bonuses linked to business performance and share-

4. Status of internal audits and auditor audits

based remuneration. For the officers’ bonuses, an amountThe internal audit structure consists of Audit Department

determined in accordance with the business performancethat is independent of all other business units (approximatelyof each fiscal year shall be paid, with the purpose often members).

clarifying the management’s responsibility.

Its duties are not only the internal audits of compliance・ As for the share-based remuneration, the Board Benefit

with all applicable laws, regulations, contracts etc. It

Trust (BBT) scheme shall be used to provide points, which

also figures out the management of risks and so forth by

are determined in correlation with medium-term businessrigorous internal audits of the effectiveness and efficiency

performances, to the executive directors and executiveof operation, the accuracy and reliability of financial andofficers, to whom the Company’s shares will be issued upon

operational information and the assets safeguarding/their retirement from office in accordance with the points.

conservation. Through these activities, Audit Department

Outside directors and auditors shall receive only the fixedverifies the appropriateness and effectiveness of internalmonthly remuneration, and the officers’ bonuses or the23

share-based remuneration shall not be provided to them.

group compliance system.

・ Specific amounts of the remuneration for the directors
and executive officers shall be determined by the Board ofConsulting and reporting system regarding complianceDirectors based on the results of investigations made by

In order to strengthen the compliance system, the company

the Nomination and Remuneration Advisory Committee.

has its external consulting and reporting contact desk by

Modifications to the remuneration framework and thelawyers, in addition to the Compliance Committee, theremuneration system, etc. shall also be investigated by theCompliance Department and personal in charge of compliance.
The external consulting and reporting contact desk

Nomination and Remuneration Advisory Committee.

guarantees the complete anonymity of any person

COMPLIANCE SYSTEM

consulting or reporting matters regarding the company,

The following details our compliance system and consulting

thereby reducing the psychological burden on those persons

and reporting system in regard to complianceand making consulting and reporting easier.

The company’s compliance system centers on our Boardof Directors, the Management Committee, the Compliance

BUSINESS CONDUCT GUIDELINES

Committee and the Compliance Department. The situation

1) As an institution specializing in securities-related

regarding internal compliance is constantly studied by thefinancing, the company recognizes its social

Compliance Department and the results are regularly reported

responsibility and its public mission. It aims to establish

to the Board of Directors and the Management Committee.

firm trust through sound business operation.

The Compliance Committee deliberates importantmatters concerning compliance.

2) The company will comply strictly with relevant rules and

The Complianceregulations. It will conduct its business activities in a fair

Department makes all possible efforts to promote andand reliable manner, in accordance with social norms.

thoroughly establish compliance through such measures as3) In the interests of its shareholders, the company will

urging managers and employees alike to take faithful andmaximize its communications with a broad spectrum ofhonest actions based on clear ethical standards.

society and will disclose information on the management

In addition, the company takes the initiative in theof the organization in a fair and positive manner.

promotion of the establishment and strengthening of overall

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)

24

CORPORATE GOVERNANCE

Appendix

meeting of shareholders.

Basic Policy on Corporate Governancemeeting of shareholders from such viewpoints as

The Company has established the Basic Policy onof accurate information for that purpose.

Corporate Governance as follows in order to achieve its2) Send and disclose a notice of convocation of thesustained growth and enhancement of its corporate value

general meeting of shareholders as early as possible inover a medium to long term.

order to secure enough time for shareholders to study

1) Appropriately set the schedules related to the generalenhancement of dialogue with shareholders and provision

the content.
1. Fundamental Views on Corporate Governance3) Provide information (such as information on the

As an institution specializing in the securities finance

Company’s operating results) that is necessary forbusiness, the Company is keenly aware of its public roleshareholders to make proper judgments at the general

at all times, and makes it a mission to contribute to themeeting of shareholders on its website and through otherdevelopment of the securities market by proactively

means.

addressing the diverse needs of the securities and4) Establish an environment in which all shareholders

financial circles and working to enhance the long-term

including those who do not attend the general meetinginterests of the securities market participants and users.

of shareholders can exercise their voting rights

Based on this thinking, the Company aims to gain the firm

appropriately, such as utilizing the Electronic Voting

trust of the society through sound business operations.

Platform for Foreign and Institutional Investors.

With this corporate philosophy, the Company has

In addition, when there are a large number of votes

adopted the Board of Company Auditors system as anagainst any of the agendas proposed by the Company atinstitution under the Companies Act, and will proactively

the general meeting of shareholders, the Company shallinvite outside directors and outside auditors from a wide

analyze the reasons and report the analysis results torange of economic circles including the securities andthe Board of Directors as well as investigate necessaryfinance industries, in an effort to establish a system that

responses.

enables implementation of supervision and audits from
(3) Protecting the rights of shareholders

multi-faceted viewpoints.

When implementing the capital policies that may
2. Securing the Rights, Etc. of Shareholders

cause changes in the controlling interest or cause a(1) Securing the rights and equality of shareholders

significant share dilution, the Company shall investigate

The Company shall take appropriate measures tothe necessity and rationality of implementing them andeffectively secure the rights of its shareholders, andsecure appropriate procedures so that they should cause

endeavor to establish an environment in which the rights

no unjust harm to the interests of existing shareholders,of shareholders are effectively secured.

and shall appropriately disclose the details of the policies
to be implemented.

Moreover, the Company recognizes that every
shareholder is equal in accordance with his/her equity

As for introducing and conducting anti-takeoverinterest, and will secure the substantial equality ofmeasures, the Company shall investigate the necessity

shareholders

and rationality of such measures and secure appropriate
procedures as well as provide sufficient explanations to(2) General meeting of shareholders

the shareholders.

The Company shall endeavor to set schedules related
to the general meeting of shareholders and expand

If the Company’s shares become subject to a takeover

the means for shareholders to execute their voting

bid, the Company shall appropriately disclose the view ofrights, etc., as provided below, so that a larger number

the Board of Directors regarding the takeover bid to theof shareholders can execute their rights at the generalshareholders. Moreover, the Company shall not unduly

25

preclude the shareholders’ rights to sell the Company’s

medium- to long-term economic rationality of strategic

shares they own in response to the takeover bid.

shareholdings and verify them.

(4) Dialogue with shareholders, etc.

With regard to the exercise of voting rights of shares

The Company shall respond to requests for dialogue fromthe Company holds in strategic shareholdings, theits shareholders and investors (hereinafter referred to as

Company shall exercise the rights for all agendas as

the “shareholders, etc.”) to the extent and by the methods

a rule. Judgment of approval or disapproval for eachconsidered to be appropriate by the Company.

agenda shall be made by comprehensively consideringsuch factors as whether the subject will contribute to

Policies on establishing a system and implementing

the medium- to long-term enhancement of the corporate

measures for promoting constructive dialogues with thevalue of the relevant company and common interests ofshareholders, etc. are as follows:

its shareholders, and whether the subject will not lessen

1) Dialogues with the shareholders, etc. shall be managed

the significance of holding the relevant shares by theby the Corporate Planning Department and supervisedCompany.

by the officer in charge of the Corporate Planning
Department.

(6) Transactions among related parties

2) When conducting dialogues with the shareholders,

When the Company conducts transactions with its

etc., the Corporate Planning Department shall be central

officers and principal shareholders, etc., the Company

in making appropriate coordination with internal

shall submit the matter as agenda to the Board ofdepartments, including the Business Development

Directors in advance and have it approved by the Board

Department, and affiliate companies through informationof Directors so that the relevant transaction will not harmexchange and other measures.

the Company’s interests and common interests of the3) The Company shall hold operating results briefing

shareholders, except for cases where it is evident thatsessions on a regular basis, among other measures,the transaction is conducted under the similar terms andin order to enhance the means of dialogues with theconditions as ordinary transactions in general.

shareholders, etc.
4) Opinions, etc. obtained through dialogues with the

3. Relationship with Stakeholders other thanShareholders

shareholders shall be reported to the Board of Directors,
etc. on a regular basis.

In order to achieve sustained growth and enhancement

5) Dialogues with the shareholders, etc. shall beof its corporate value over medium to long term, theconducted in compliance with laws and regulations as

Company shall respect not only the shareholders but also

well as internal rules, and the insider information shall bea variety of its stakeholders including customers, officers

managed appropriately.

and employees and local communities, and endeavors to6) The Company shall endeavor to understand themaintain good and smooth relationships with them.

shareholder structure through shareholder identification
surveys and other means in order to promote constructive

The Company shall establish the “Code of Conduct

dialogues with the shareholders, etc.

for Officers and Employees” and make all of its officers
and employees understand that they are to respect the(5) Strategic shareholdings

stakeholders’ positions.

The Company may hold the shares of the companies
that are considered to be necessary for such purposes

Moreover, in view of the importance of the issues

as strengthening the business relationship with them, in

related to sustainability, the Company shall endeavor toorder to achieve sustained growth and enhancement oftake appropriate measures to address such issues, andits corporate value over the medium to long term.

work to secure diversity, including promotion of women’s
active engagement.

The Company shall make a report to the Board of
Directors regarding the investment efficiency and26

CORPORATE GOVERNANCE

Moreover, multiple outside directors independent

4. Information Disclosure

F r o m t h e p e r s p e c t i ve o f e n s u r i n g m a n a g e m e n tfrom the Company shall be appointed to constitute thetransparency, the Company shall endeavor to proactively

Board of Directors where it is expected that, through theirmake fair, t imely and appropriate disclosure ofadvices and comments based on abundant experiences

management information by using its website andand expert knowledge on business management andthrough other means, not limited to information

other issues, appropriateness of the Company’s businessdisclosure based on the Companies Act, the Financial

operations is secured and business management

Instruments Exchange Act and listing rules of the security

supervisory functions from external viewpoints is

exchange, etc.

performed in an objective and neutral manner.
(3) Board of Company Auditors and Auditors

In making information disclosure, the Company shallwork to provide plain and concrete descriptions.

In performing their roles and responsibilities such as
auditing the execution of the duties of the directors, the5. Corporate Governance System

auditors and the Board of Company Auditors endeavor to(1) Board of Directors and other systems

make appropriate judgment from their independent and

The Board of Directors, which is positioned by theobjective standpoint, with their fiduciary duties to theCompany as the decision-making inst itut ion onshareholders in mind.

management policies and other issues, deliberates not
only the matters designated by laws and regulations or(4) Nomination and Remuneration Advisory Committee

the Articles of Incorporation but also important matters

The Company has established the Nomination andon business management.

Remuneration Advisory Committee in order to reinforce
the supervisory functions of the Board of Directors. The

In order to enhance business management efficiency

Nomination and Remuneration Advisory Committee

and speed up execution of operations, the Board ofinvestigates such matters as election of candidates for

Directors appoints executive officers to entrust them

directors, auditors and executive officers as well as theirwith execution of operations other than the matters to be

remunerations, in response to consultations from thedeliberated by the Board of Directors.

Board of Directors, and provides advices and proposals to
the Board.

The executive officers execute operations basedon the decisions made by the Board of Directors.

A majority of the members of the Nomination and

Furthermore, a Director may concurrently take office as

Remuneration Advisory Committee shall be outside

an executive officer.

directors and outside auditors (hereinafter referred to as
the “outside officers”).

The Company has established the Management(5) Candidates for directors, auditors and executive

Committee, which deliberates important matters related

officers

to the execution of company operations, and the
Executive Officers Meeting where the status of execution

The Company elects persons who are believed toof operations is reported, among other purposes.

contribute to achieving its sustained growth andenhancement of its corporate value over a medium to(2) Board of Directors

long term as candidates for the directors, auditors and

The Board of Directors comprises a variety of directors

executive officers, taking into account their personality,

w ith different expert ise, experiences and otherknowledge, capacity and experiences, etc. and with their

qualifications. The Company secures the appropriate

fiduciary duties to the shareholders in mind.

number of the Board of Directors members at which thefunctions of the Board of Directors can be exerted most

For the outside officers, the Company shall electeffectively and efficiently, to the extent designated in the

persons who, on top of the above, satisfy the criteria for

Articles of Incorporation.

independence the Company sets forth separately.

27

Election of candidates for the directors, auditors andtime required for the attendees of the meeting to makeexecutive officers shall be determined by the Board ofprior preparations, in order to help deepen deliberations

Directors based on the results of investigations made byat the meeting. In addition, prior explanations may be

the Nomination and Remuneration Advisory Committee,

given to them depending on the content of the agendas.

pursuant to the provisions of laws and regulations.
Schedules of holding the Board of Directors(6) Remuneration of directors, auditors and executive

meeting and assumed agendas for the meeting shall be

officers

determined and notified in advance.

With a view to enhancing the correlation with theCompany’s business performance and share value,

Aside from the Board of Directors meeting and thethe remuneration of executive directors and executive

Board of Auditors meeting, a meeting by outside officers

officers shall comprise a fixed monthly remuneration,

shall be held periodically to exchange information andofficers’ bonuses linked to the business performance

share recognitions, so that they can exert functions fromand share-based remuneration. For the officers’ bonuses,

their standpoint that is independent from the Company.

an amount determined in accordance with the business(8) Evaluation and assessment of effectiveness of theperformance of each fiscal year shall be paid, with theBoard of Directors

purpose of clarifying the management’s responsibility. As
for the share-based remuneration, the Board Benefit Trust

The Company shall make self-assessment as to the(BBT) scheme shall be used to provide points, which are

effectiveness of the Board of Directors once a year, anddetermined in correlation with medium-term businessdisclose the outline of the results. Furthermore, theperformances, to the executive directors and executive

Company shall make appropriate review of the Board of

officers, to whom the Company’s shares will be issued

Directors based on the assessment.

upon their retirement from office in accordance with the(9) Support system and training policies for directors

points.

and auditors
Outside directors and auditors shall receive only the

In order for the directors and auditors to effectively

fixed monthly remuneration, and the officers’ bonuses or

perform their roles and responsibilities, related

the share-based remuneration shall not be provided todepartments and sections of the Company, including thethem.

Corporate Planning Division of the Corporate Planning
Department that is in charge of the work related to theSpecific amounts of the remuneration for the directors

Board of Directors, shall coordinate with each other toand executive officers shall be determined by the Board of

exchange information and conduct other tasks.

Directors based on the results of investigations made by
the Nomination and Remuneration Advisory Committee.

When it is necessary to make communications

Modifications to the remuneration framework and theand adjustments between the outside officers and the

remuneration system, etc. shall also be investigated bymanagement team or coordination with the auditors andthe Nomination and Remuneration Advisory Committee.

the Board of Auditors, the secretariat of the Board of
Directors shall be central in addressing such matters.

(7) Operation of the Board of Directors
The agendas and deliberation time of the Board of

In order for the directors and auditors to effectively

Directors shall be set in a manner that should allow

perform their roles and responsibilities, the Company

deliberations necessary and sufficient for deciding onshall set the opportunity to provide them, when they

important execution of operations and supervision oftake office, with information regarding the Company’

execution of operations.

s operations, finance, organization and others as wellas knowledge on laws and regulations, etc., taking into

As a rule, materials for the Board of Directors meeting

account the careers and experiences, etc. of the directors

shall be delivered in advance, taking into account theor auditors who are taking office. Moreover, the Company

28

CORPORATE GOVERNANCE

shall provide opportunities, as needed, to continuously

Criteria for Independence of Outside Officers

update such information or knowledge.

The Company shall determine that, on top of the criteria(10) Accounting Auditor

for independence set forth by the Tokyo Stock Exchange,

The Company shall understand the responsibilities

a person who falls under any of the following categories

the accounting auditor owes to the shareholders andis not independent of the Company.

investors, and endeavors to secure appropriate audits asstated below.

1. A person who currently falls under any of thefollowing (1) through (5)(1) The Board of Auditors shall establish criteria to(1) Principal shareholder

appropriately assess the accounting auditor. Moreover,・ A person who is a principal shareholder of thethe Board of Auditors shall check whether the accounting

Company (a shareholder holding shares that represent

auditor has independence and expertise required for an

at least 10% of the total voting rights) or, if the person

accounting auditor.

is a corporation, etc., its conducting representative(2) The Company shall endeavor to provide the(2) Principal business partner

accounting auditor with an audit environment that・ A person for whom the Company is a principal

should allow high-quality audits, including provisioncustomer (a person whose transaction amount withof opportunities to interview senior members of thethe Company accounts for at least 2% of the person’s

management team, auditors and other departments

consolidated operating revenues in the latest fiscal year)

required for auditing and securing sufficient time foror, if the person is a corporation, etc., its conducting

conducting audits.

representative・ A person who is a principal customer of the Company (aWhen the accounting auditor points out injustice,customer with whom the Company conducts businessflaws or problems, etc., the Company shall accept what isfor an amount that accounts for at least 2% of thepointed out in earnest and take appropriate measures.

Company’s consolidated operating revenues in thelatest fiscal year) or, if the person is a corporation, etc.,
its conducting representative(3) Experts, etc.
・ Consultant, accountant or legal professional who
receives monies or other economic benefits (excluding
officers’ remunerations) amounting to 10 million yen or
more per fiscal year from the Company or, if the person
is a corporation, etc., its conducting representative(4) Donation
・ A person who has received donation from the Company
for the amount of 10 million or more per fiscal year
or, if the person is a corporation, etc., its conducting
representative(5) Close relatives
・ A close relative (spouse or a relative within the second
degree of kinship) who falls under the categories of (1)through (4) above
2. A person who falls under any of the categories in
1. at any time in the past three years

29

RISK MANAGEMENTRISK MANAGEMENT
Basic policies in risk management

Method of risk management

With environmental changes such as financial deregulation

We classify expected risks broadly into 5 categories andand globalization as well as striking advances in information

then set these categories as management objectives; credit

technologies, risks which financial institutions face haverisks, market risks, liquidity risks, processing risks, andbecome diversified and more complicated. Accordingly,

system risks. Among these categories, for credit risks

risk management has become more important in theand market risks, we are striving to secure profits while

management of financial institutions than ever before.

quantitatively grasping the risks and controlling themwithin proper levels as feasible for our management vitality

In this situation, in order to increase profitability while(integrated risk management).

maintaining sound management, we have positioned risk
management at the highest priority and have establishedOn the other hand, for liquidity risks, processing risks

basic policies in risk management at our Board of Directors.

and system risks, we are taking preventive measures against
occurrences of these risks by executing proper management

More precisely, we have established basic policies

according to risk characteristics.

for risk management; “Keeping all employees informedof company’s emphasis on risk management”, “Proper
management of each category of risk”, “Promotion of
integrated risk management”, “Establishing a system ofmutual checks and balances”, and so forth.

Risk Categories
Risk Category
Credit Risk

Risk Description
Credit risks are risks to suffer losses by decreasing or losing the values of the assets due tocredit events such as deterioration in the financial standing of counterparty.
Market risk refers to the risk that owned assets (bonds, stocks) or derivative values will fluctuateMarket Risk

and losses will be incurred due to fluctuations in various market risk factors such as interest
rates, securities prices, and exchange rates.
Liquidity risks are risks to suffer losses caused by failures of raising necessary funds or by

Liquidity Risk

procurement of funds with unusually high interest rates or risks caused by halt of transactions
due to market disruptions or by forced transactions with unusually unfavorable prices.

Processing Risk
System Risk

Processing risks are risks to suffer losses from failed processing due to negligence, accidents or
fraud by officers and employees.
System risks are risks to suffer losses due to system defects such as failures or malfunction ofcomputer systems or due to unauthorized use of computer systems.

30

Integrated risk management

said amounts for transaction limitation. In addition, eachIntegrated risk management is a method to quantify various

department implements rigid self-assessment of those assets

risks with unified methodology and to manage the total

for which they hold jurisdiction.

amount of risks within the realm of management vitality.
For credit risks and market risks, after allocating risk

Additionally, for each loan transaction, as a general

capital to each risk operation department by risk category

rule, we take adequate collateral. By implementing a

within the realm of our own capital, we quantify risks withdaily marking to the market of the relevant collaterals, we

the methodology of Value at Risk (VaR) and manage thesuppress occurrences of impaired loans. In a case where

calculated volume of risks within the range of that allocateda borrower falls into bankruptcy, by selling off collateralrisk capital. With corresponding to Basel II regulation

securities and so forth, we collect receivables in an

enforced in March 2008, operational risks, which consists

expeditious manner.

of processing risks and system risks, is measured by basic
method and we allocate risk capital amounts on it.

Market risk management
In our company, the Risk Management Department

Allocated amounts of risk capital are determined as final

quantifies and manages market risks, and to complement

at the Management Committee, with prior deliberation at

management by quantification, it implements stress tests.

regular “Risk Capital Meeting” in every March.

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

Each risk operation department controls the risks

with the portfolio-fixed virtual profit and loss

within the realm of the allocated risk capital. The Risk
Management Department, which is independent of risk
operation departments, quantifies the risks, monitors risk

Liquidity risk management

operation conditions, and report to board members.

In our company, the Treasury Department has jurisdiction
over the management of liquidity risks and attempts

In case a possible rise for a risk may exceed the allocatedto diversify procurement methods and to secure stableamount of the risk capital, an extraordinary “Risk Capital

supplies. As for cash flow management, while we are

Meeting” will be held to deliberate responses to the case andimplementing development of cash flow projection, graspingthen consult the Management Committee.

the amount which can be procured or liquidity of assets,
and paying attention to concentrated settlement dates for

Credit risk management

large capital, we have a system to report to our management

We try to sustain and improve the soundness of the assets

with daily cash flow status. Furthermore, to be preparedby strictly managing overall credit risks.

for unforeseeable circumstances, we take measures tosupplement liquidity such as possessing a certain amount ofMore precisely, the Risk Management Department

government bonds with high liquidity.

assesses credit risks according to in-house ratings, andquantifies and manages credit risks using a default rate

In addition, at the “ALM Committee” held in every

for each in-house rating. Furthermore, to complement

quarter, we develop cash flow projection based on forecasts

management by quantification, we implement stress tests.

of loans outstanding, deliberate policies for ALM (Asset

On the other hand, for credit control, the Risk Management

Liability Management) such as revenue management for

Department screens client companies and loan transactions

assets and liabilities of the company as a whole and thus

and sets the amounts for transaction limitation for eachreport to the Management Committee.

client, while business operation department manages the31Processing risk management

systems safely and effectively, all operation procedures

In our company, each department has jurisdiction over theare clarified and our monitoring system is facilitated. In

management of processing risks. To lessen processing risks,

addition, concerning protection of our own information

through facilitation of regulations and manuals and also

assets (information and information systems), necessary

through trainings, all employees are familiarized with proper

regulations are consolidated and all officers and employees

handling of operational work. In addition, by ensuring thatare familiarized with handling of the information assets.

each department implements its own voluntary inspection

Furthermore, to minimize the effects of system failures,on a regular basis, we endeavor to prevent occurrence ofmeasures are taken such as facilitation of various handling

accidents and improve our business processing system.

manuals, implementation of drills, and so on.

System risk management

Internal auditing system

In our company, the Information Systems PlanningIn our company, the Audit Department, which is independent

Department holds jurisdiction over management of systemfrom other departments, implements strict internal auditing

risks. To ensure stable operation of our computer systems,of overall business operation on management status of eachthe department takes preventive measures for occurrence of

category of risk along with regulatory compliance status andsystem failures such as duplicating networks and equipment

validates the appropriateness and efficacy of our internaland so forth. To develop and operate our computer

control system in each department.

32

RISK MANAGEMENT

Appendix

In-house rating system

We introduced a rating system which segmentalizes credit
ratings of client companies into 6 ranks, based on ratings
by external credit rating agencies, quantitative assessmentof financial standing, obligor classifications used in selfassessment, and so forth. With this system, we assess thelevels of credit risks properly, quantify credit risks, and set
up amount for transaction limitation.

Risk capital

Risk capital is capital necessary to cover losses caused byrisks generated from business operation.

Value at Risk (VaR)

VaR is the maximum expected loss on an asset calculatedwith a certain period (holding period) and a certain
probability (confidence level). This is calculated based ondata in the past with statistical method. In our company,
VaR is calculated based on confidence level of 99% andholding period of one year.

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 (stressevent). In this situation, to be prepared for unforeseeable
circumstances, we implement stress tests to calculate amountof losses in a case of occurrence of stress event based ondata in the past or on hypothetical scenarios and assess thesoundness of our financial management.

Risk Capital Meeting

The meeting is organized by the officers in charge of the
Risk Management Department, Business Development
Department, Corporate Planning Department, Treasury
Department, Margin Loan Department, Institutional Sales
Department and Retail Business Department, managers of
the Risk Management Department, Business Development
Department and Corporate Planning Department and, whenconcerned with the deliberation matters of the meeting,the managers of the Treasury Department, Margin Loan
Department, Institutional Sales Department and Retail
Business Department. The meeting is supervised by theofficer in charge of the Risk Management Department.

ALM Committee

This is a committee to deliberate ALM (asset liability
management), such as development of fund procurement
and management plans and revenue management, for assets
and liabilities of the company as a whole. The committee
is organized by the officer in charge of the Treasury
Department (serving as chairperson), officers in charge ofthe concerned departments and managers of respective
departments.

33

Risk Management System

Board of Auditors,
Corporate Auditors

Board of Directors

Management
Committee
Executive Oﬃcers Meeting

Executive Oﬃcer incharge of Treasury
Department

ALM
Committee

Risk Operation Sector

Executive Oﬃcer in charge of
Risk Management
Department and Information
Systems Planning Department

Executive Oﬃcer incharge of Department

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

Information
Systems
Planning
Department

Each
Department

Treasury
Department

・Treasury
Department
・Margin Loan
Department

Each
Department

Each
Department

・Institutional
Sales
Department
・Retail Business
Department
・Margin Loan
Department
・Tresury
Department
・Branch34

Internal Audit Sector

Risk Management
Department

Audit Department

Risk Management
SectorRisk
Categories

Integrated Risk
Management Sector

Meeting

Management

President

FINANCIAL SECTION

Consolidated Financial Statements ･･････････････････････････････････････････････････････････････････ 35
Consolidated Balance Sheet ･ ･･･････････････････････････････････････････････････････････････････････ 35
Consolidated Statement of Income ･･･････････････････････････････････････････････････････････････ 38
Consolidated Statement of Other Comprehensive Income ･････････････････････････････････ 38
Consolidated Statement of Changes in Net Assets ･ ･･････････････････････････････････････････ 39
Consolidated Statement of Cash Flows ･･････････････････････････････････････････････････････････ 40
Notes to Consolidated Financial Statements ･･･････････････････････････････････････････････････ 41
Independent Auditors' Report ･････････････････････････････････････････････････････････････････････････ 70

35

CONSOLIDATED BALANCE SHEETJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2016
Millions of yen
Assets2016

Current assets:
Cash (note 3)
Short-term investments (notes 4 and 16)
Short-term loans receivable (note 16)
Deferred tax assets (note 9)
Collateral money for securities borrowed
Other current assets (note 16)
Allowance for doubtful receivables
Total current assets¥

Property, plant and equipment:
Buildings and structures
Tools, furniture and fixtures
Land (note 6)
Leased assets
Construction in progress
Accumulated depreciation
Net property, plant and equipment
Intangible assets, net
Investments and other assets:
Investments in securities (notes 4, 5 and 16)
Other investments and other assets
Allowance for doubtful receivables
Total investments and other assets
Total assets¥

See accompanying notes to consolidated financial statements.

36

2015

266,378 ¥431,565
567,749167
1,025,617
45,123(236)
2,336,363

31,792588,814883,101
391
974,9745,686(340)
2,484,418

Thousands of
U.S. dollars(note 2)2016$

2,364,022
3,830,005
5,038,596
1,482
9,102,032
400,453(2,094)
20,734,496

8,792
1,431
3,265
367
535
14,390(7,408)
6,982

8,791
1,356
3,265
370
333
14,115(7,087)
7,028

78,026
12,70028,976
3,257
4,748
127,707(65,744)
61,963

4,229

2,388

37,531

900,167
2,987(1,558)
901,596

987,898
2,663(1,793)
988,768

7,988,703
26,509(13,827)
8,001,385

3,249,170¥

3,482,602$

28,835,375

Millions of yen
Liabilities and Net Assets

2016

Current liabilities:
Call money (notes 7 and 16)
Short-term borrowings and current installments oflong-term borrowings (notes 7 and 16)
Commercial paper (note 7)
Accrued income taxes (note 9)
Collateral money received for securities lent
Other current liabilities (note 7)
Total current liabilities¥

Non-current liabilities:
Long-term borrowings (note 7)
Deferred tax liabilities (note 9)
Deferred tax liabilities for land revaluation (note 6)
Liabilities for retirement benefits (note 8)
Other non-current liabilities (note 7)
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock (note 10):
Authorized 200,000,000 shares;
issued 100,000,000 shares in 2016
and 107,307,763 shares in 2015
Capital surplus (note 10)
Retained earnings (note 11)
Treasury stock, at cost; 3,183,566 shares in 2016
and 181,071 shares in 2015
Total stockholders’ equity
Accumulated other comprehensive income (losses):
Net unrealized gain on other securities(note 4)
Deferred losses on hedges (note 18)
Gain on revaluation of land (note 6)
Remeasurements of defined benefit plans (note 8)
Total accumulated other comprehensive
incomeTotal net assets

720,900
198,0102015¥

1,587,000
439,510

Thousands of
U.S. dollars(note 2)
2016$

6,397,764
1,757,277

122,000
298
1,549,653
484,592
3,075,453

440,000
299
788,716
73,6003,329,125

1,082,712
2,645
13,752,689
4,300,603
27,293,690

3,000
11,55374
3,425
13,634
31,686

2,000
7,190
78
2,589
4,475
16,332

26,624
102,529657
30,396
120,998
281,204

3,107,139

3,345,457

27,574,894

10,00010,00088,747

11,471
104,669(2,054)

11,471
103,608(114)

101,802928,905(18,229)

124,086

124,965

1,101,225

27,877

14,787

247,400(9,248)168(852)
17,945(2,766)164(5)12,180(82,073)
1,491(7,562)
159,256

142,031

137,145

1,260,481

Commitments and contingencies (note 19)
Total liabilities and net assets¥

37

3,249,170¥

3,482,602$

28,835,375

CONSOLIDATED STATEMENT OF INCOME
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2016
Millions of yen
Operating revenues
Operating expenses
Operating profit
General and administrative expenses (note 12)
Operating income

¥

2016

Other income (deductions):
Interest income
Dividend income
Interest expenses
Equity in earnings (losses) of affiliates
Gain on bad debt recovered
Equity in earnings of limited partnership
Gain (loss) on sale of investments in securities
Subsidy income
Loss on sale/disposal of property, plant andequipment
Other, net
Income before income taxes andnon-controlling interests
Income taxes (note 9):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent¥

22,035
11,538
10,497
7,939
2,558

¥

2015

20,3009,450
10,8507,825
3,025

Thousands of
U.S. dollars(note 2)
2016$

195,554
102,396
93,15870,45622,702

259
392
(0)
55
17
–
–
–
–

105
293
(0)
(144)
271
591
23
39
(7)

2,298
3,479
(0)
488
151
–
–
–
–

69
792
3,350

90
1,261
4,286

612
7,028
29,730

459
245
704
2,646
–
2,646

444
321
765
3,521
–
3,521

4,074
2,174
6,248
23,482–
23,482¥$

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2016
Millions of yen
Net income
Other comprehensive income (losses) arising during
the year (note 13) :Net unrealized gain on other securities (note 4)
Deferred losses on hedges (note 18)
Gain on revaluation of land (note 6)
Remeasurements of defined benefit plans (note 8)
Other comprehensive income (losses) of affiliates
for by the equity method¥

Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests
See accompanying notes to consolidated financial statements.

¥

Total other comprehensive income arising during the year

38¥

Thousands of
U.S. dollars

20162,646 ¥

2015
3,521

(note 2)
2016$
23,482

13,152(6,482)
4
(758)
(152)

6,397
(2,168)8
211
111

116,720(57,526)
36(6,727)(1,349)5,764
8,410 ¥

4,559
8,080

8,410 ¥
–

8,080
–

$
$

51,154
74,636
74,636–

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2016
Millions of yen
Accumulated other comprehensive income(losses)

Stockholders’ equity
Commonstock

CapitalsurplusRetainedearnings(note 10)

(note 10)

(note 11)Net

unrealized

Treasury
stock

Total

gain onothersecurities

Balance at March 31, 2014¥

10,000 ¥16,027 ¥Cumulative effects of changes

101,596 ¥(note 4)(16) ¥

127,607 ¥64

8,346 ¥

Gain onDeferred
losses onhedgesrevaluation(note 18)

(note 6)(598) ¥of land

Remeasurementsof defined benefit
plans

Total

Total net
assets7,621 ¥

135,228(note 8)156 ¥(283) ¥

64

64

in accounting policies
Restated balance at March 31, 2014

10,00016,027

101,660(16)

127,671

8,346

(598)

156

(283)

7,621

135,292

Changes arising during year:
Cash dividends(1,469)(1,469)(1,469)Net income attribute to owners of the

3,521

3,521

3,521

parentChange in the scope of equity method(104)

Purchase of treasury stock
Retirement of treasury stock(4,556)

1

(103)

(103)

(4,655)(4,655)(4,655)

4,556

–

–

Net changes other than

6,441

(2,168)

8

278

4,559

4,559

stockholders' equity
Total changes during the year
Balance at March 31, 2015–

(4,556)

1,948

(98)

(2,706)

6,441(2,168)

8

278

4,559

1,853

10,00011,471

103,608(114)

124,965

14,787(2,766)164(5)12,180137,145

Changes arising during year:
Cash dividends(1,585)(1,585)(1,585)

Net income attribute to owners of the

2,646

2,646

2,646

parent(1,940)Purchase of treasury stock(1,940)Net changes other than

(1,940)13,090(6,482)

4

(847)

5,765

5,765

stockholders’ equity

Total changes during the year
Balance at March 31, 2016

¥

–

–

1,061

(1,940)(879)

10,000 ¥11,471 ¥104,669 ¥(2,054) ¥124,086 ¥Balance at March 31, 2015$

Capitalsurplus88,747 $ 101,802 $Retainedearnings(6,482)

4

(847)

5,765

4,886

(9,248) ¥168 ¥(852) ¥

17,945 ¥142,031

Thousands of U.S. dollars(note 2)
Accumulated other comprehensive income(losses)

Stockholders’ equity
Commonstock

13,09027,877 ¥Treasury
stock

Total

Net
unrealized
gain onothersecurities

Deferred
losses onhedges(24,547) $Gain onrevaluationof land1,455 $

Remeasurementsof defined benefit
plans

Total

Total net
assets919,489 $(1,012) $ 1,109,026 $ 131,230 $(45) $ 108,093 $ 1,217,119

Cash dividends(14,066)(14,066)(14,066)

Net income attributable to owners of the

23,482

23,482

23,482

Changes arising during year:

parentPurchase of treasury stock(17,217)(17,217)

Net changes other than

(17,217)
116,170(57,526)

36(57,526)(82,073) $36
1,491 $

(7,517)51,16351,163stockholders' equity
Total changes during the year
Balance at March 31, 2016$––
88,747 $ 101,802 $9,416(17,217)(7,801)
116,170928,905 $ (18,229) $ 1,101,225 $ 247,400 $See accompanying notes to consolidated financial statements.

39(7,517)51,16343,362(7,562) $ 159,256 $ 1,260,481

CONSOLIDATED STATEMENT OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2016

Thousands of
U.S. dollars(note 2)Millions of yen

Cash flows from operating activities:
Income before income taxes and non-controlling interests¥
Adjustments to reconcile income before income taxes and non-controllinginterests to net cash provided by (used in) operating activities:
Depreciation and amortization
Loss on sale/disposal of property, plant and equipment
Gain relating to short-term
investments and investments in securities
Allowance for doubtful receivables
Increase (decrease) in liabilities for retirement benefits
Interest and dividend income
Interest expenses
Equity in (earnings) losses of affiliates
Decrease in short-term loans(Increase) decrease in collateral money forsecurities borrowed
Decrease in call money
Decrease in short-term borrowings
Increase (decrease) in commercial paper
Increase (decrease) in collateral money
received for securities lent
Increase (decrease) in collateral money received
for loan transactions
Decrease in long-term debt
Purchase of short-term investments andinvestments in securities
Proceeds from sale/redemption of short-term
investments and investments in securities
Other, net
Sub totalInterest and dividend received
Interest paid
Income taxes paid
Income taxes refunded
Net cash privided by (used in) operating activities
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:
Dividends paid to stockholders
Purchase of treasury stock
Other, net
Net cash used in financing activities
Net Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year¥
Cash and cash equivalents at end of year (note 3)
See accompanying notes to consolidated financial statements.

40

2016

2015

2016

3,350 ¥

4,286

$

626
15
(625)

662
8
(415)

5,556
133
(5,547)(339)
836(10,441)2,870(55)
315,353(50,643)(1,212)(498)(11,313)
3,461
144
14,724
328,181(3,009)7,419(92,661)
25,470(488)
2,798,660(449,441)(866,100)(238,500)(318,000)
760,937(9,600)(70,000)
11,000(397,009)(7,686,368)(2,116,613)(2,822,151)
6,753,080(15,061)

14,885(133,662)(2,000)(449,143)

1,000(436,419)(17,749)(3,986,005)

689,754482,028

6,121,353

417,113
239,947
10,526(2,809)(516)–
247,148985(67,102)
11,791(3,520)(299)
140(58,990)

3,701,748
2,129,455
93,415(24,929)(4,579)–2,193,362(7,653)200(612)(1,896)
1(9,960)

–
120
(443)
(1,676)913(1,086)(67,918)
1,775(5,431)(16,827)9(88,392)(1,585)(1,939)(80)(3,604)
233,584
26,787260,371 ¥(1,469)(4,655)(83)(6,207)(66,283)
93,07026,787(14,066)(17,208)(710)(31,984)
2,072,986
237,726
2,310,712$

29,730NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2016
(1)(a)

Summary of Significant Accounting Policies
Basis of Presenting Consolidated Financial Statements
Japan Securities Finance Co., Ltd. (the Company) and its consolidated subsidiaries maintain their books ofaccount and prepare 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 forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in
conformity with accounting 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 thanJapan.
In preparing the accompanying consolidated financial statements, certain reclassifications have been madein the financial 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 2

subsidiaries.
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
scope of 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, and a 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.
(c)Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly liquid investments withinsignificant risk of changes in value which have maturities of generally three months or less when purchased tobe 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 amortizedcost. Securities classified as “other securities” with fair value are stated at fair value and unrealized gains orlosses, net of related taxes, are excluded from earnings and recorded in a separate component of net assets.
Realized gains or losses on the other securities are determined by the moving average method. Securities
classified as “other securities” for which fair value is not available are stated at the moving-average cost.
(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, except for the buildings acquired on or after April 1,
1998, which are depreciated based on the straight-line method.
The estimated useful lives are as follows:
Buildings and structures 3–50 years

41

(f)

Intangible Assets
Intangible assets are carried at cost less accumulated amortization. Software development expenses aredeferred and amortized by the straight-line method over estimated useful lives (5 years). Intangible assets otherthan software are deferred and amortized by the straight-line method at rates based on the estimated useful livesof 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.
Liability for retirement benefits have been made in the accompanying consolidated financial statements
based on the present value of the projected future retirement benefits attributable to employee services renderedby the end of the year, less amounts funded under contributory and noncontributory pension plans.
The retirement benefit obligation is attributed to each period by the benefit formula basis.
Actuarial gain or loss is amortized in the subsequent year that it occurs by the declining-balance method
within the average remaining years (15 years) of service of the employees.
Certain consolidated subsidiaries calculate retirement benefit obligation based on a simplified method, whichis permitted for small size companies in conformity with the Accounting Standard for Retirement Benefits forcalculating retirement benefit liability and retirement benefit expenses.
(i)LeasesAll finance lease transactions are 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.
(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 consequences of events that have been included in the financial statements or tax returns. Under thismethod, deferred tax assets and liabilities 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 ondeferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes theenactment date.
(k)

Directors’ Bonus
Directors’ bonuses are accounted for as an expense when such bonuses are accrued.

(l)Application of accounting standard for business
Effective from the beginning of the year ended March 31, 2016, the Company applied the “Revised
Accounting Standard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement
No.21, issued September 13, 2013, hereinafter referred to as the “Accounting Standard for Business
Combinations”), “Revised Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22,
issued September 13, 2013, hereinafter referred to as the “Accounting Standard for Consolidated Financial
Statements”), “Revised Accounting Standard for Business Divestitures” (ASBJ Statement No. 7, issued
September 13, 2013, hereinafter referred to as the “Accounting Standard for Business Divestitures”) and otherrelated standards and implementation guidance.
In applying these revised accounting standards, the Company records any differences arising from changes
in ownership interest in a subsidiary when it retains control as capital surplus and the acquisition-related costs
are recognized as expenses when incurred. Also, regarding business combinations implemented on or after April
1, 2015, the accounting method was changed to reflect adjustments to the allocation of acquisition cost underprovisional accounting treatment on the consolidated financial statements of the fiscal year in which the relevantbusiness combinations became or will become effective. In addition, the presentation of net income wasamended and the reference to “minority interests” was changed to “non-controlling interests”.
The Company has applied these standards in accordance with the transitional treatment prescribed in42Section 58-2 (4) of the Accounting Standard for Business Combinations, Section 44-5 (4) of the AccountingStandard for Consolidated Financial Statements, and Section 57-4 (4) of the Accounting Standard for Business
Divestitures, and the Company applied these standards from the beginning of the year.
As a result of these changes, there is no impact on consolidated financial statements.
(m)

Reclassifications

Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to
the presentation used as of and for the year ended March 31, 2016.
(2)

Financial Statement Translation
The translations of the yen amounts into U.S. dollars are included solely for the convenience of the reader,using the prevailing exchange rate as of March 31, 2016, which was ¥112.68 to U.S. $1. 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
Reconciliation between “Cash” in the accompanying consolidated balance sheet and “Cash and cash
equivalents” in the accompanying consolidated statement of cash flows as of March 31, 2016 and 2015 are as
follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Cash
¥
266,378¥
31,792$
2,364,022
Certificate of deposits with maturities of(6,007)(5,005)(53,310)over three months
Cash and cash equivalents¥
260,371¥
26,787$2,310,712(4)

Short-term Investments and Investments in Securities
No trading securities were held both as of March 31, 2016 and 2015.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity
securities as of March 31, 2016 and 2015 are summarized as follows:
Millions of yen
Gross
Gross
Balanceunrealized
unrealized
sheet
loss
Fair value
gain
amountMarch 31, 2016
Government bond securities ¥41,455
¥
585
¥
(1) ¥
42,039¥41,455
¥
585
¥
(1) ¥
42,039March 31, 2015
Government bond securities

March 31, 2016
Government bond securities¥¥

40,73740,737¥¥367,900
367,900

¥
¥

(43)
(43)

¥
¥

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

Balancesheet
amount
$
$

178
178

$
$

5,192
5,192

43

$
$

(9)
(9)

40,87240,872

Fair value$$

373,083
373,083

Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities
with fair value as of March 31, 2016 and 2015 are summarized as follows:
Millions of yen
Balance
Gross
Gross
sheet
unrealized
unrealized
Acquisition
amount
loss
gain
cost
March 31, 2016
Equity securities¥
5,530 ¥
6,661
¥
(111)
¥
12,080Bond securities:
Government bond securities
971,241
32,629(1)
1,003,869
Corporate bond securities
204,257233(15)
204,475
Other
55,767
1,067(1,093)55,741Other securities
1,939
676
–
2,615
¥
1,238,734 ¥
41,266¥(1,220)¥1,278,780
March 31, 2015
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other
Other securities

March 31, 2016
Equity securities

¥

4,595

¥

1,370,604
98,95233,038936
1,508,125

¥

7,365

¥

12,82513
1,797
814
22,81449,077

(9)

¥

(383)
(32)
(568)
–
(992)

¥

11,951¥

1,383,046
98,93334,2671,750
1,529,947

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

Acquisition
cost
$

¥

$

59,114$

Balancesheet
amount(985) $

107,206

Bond securities:
Government bond securities

8,619,462

289,573(9)8,909,026

Corporate bond securities

1,812,717

2,068

(133)

1,814,652

Other494,9159,469(9,700)494,684

Other securities

17,208

5,999–

23,207$

10,993,379$

366,223$(10,827) $11,348,775

Securities classified as other securities for which fair value is not available are summarized as follows:

Unlisted equity securities
Unlisted preferred equity securities
Unlisted REITs¥

Millions of yen
2016
2015
2,900
–
5,031

¥

2,184
200
–

$

Thousands of
U.S. dollars
2016

25,737–44,649For the years ended March 31, 2016 and 2015, proceeds from sale of other securities, the gross realized gains
and the gross realized losses are summarized as follows:

Proceeds from sale of other securities
Gross realized gains
Gross realized losses¥

Millions of yen
2016
2015
437,441¥
314,609
1,750
433
6
19

44

Thousands of
U.S. dollars
2016$3,882,153
15,53153

Financial assets received as collateral on which the Company has a right of disposal as of March 31, 2016 and2015 are as follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
The fair value of the securities as collateral
Securities lentCollateral provided
On hand¥1,549,741
127,083
394,104
1,028,554¥

2,060,035
171,352
545,873
1,342,810$

13,753,470
1,127,822
3,497,551
9,128,097

Balance sheet amount of securities lent under loan for consumption agreement, etc. as of March 31, 2016 and2015 are as follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Short-term investments
Investments in securities¥

344,742
330,321¥–46,734$

3,059,478
2,931,496

The fair value of the securities borrowed under loan for consumption agreement, etc. as of March 31, 2016
and 2015 was as follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
The fair value of the securities as collateral
Securities lent
Securities pledged as collateral
On hand¥1,135,294
1,131,462
–
3,832

¥

935,537
866,956
68,581–$

10,075,382
10,041,374–
34,008(5)Investments in Affiliates
The aggregate carrying amount of investments in affiliates as of March 31, 2016 and 2015 are ¥3,566 million($31,647 thousand) and ¥3,643 million, respectively.
(6)Land Revaluation
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 wasreported in a separate component of net assets, net of related taxes, and the related taxes are reported inliabilities as deferred tax liabilities for land revaluation as of March 31, 2002.
The value of the land as of March 31, 2016 decreased by ¥80 million ($710 thousand) in comparison with thebook value of the land after revaluation.

45

(7)

Debt
The composition of debt and the weighted average interest rate on debt as of March 31, 2016 and 2015 are as
follows:
Thousands
Weighted
Millionsof U.S.
averageof yendollars
rate
March 31, 2016
Short-term borrowings¥
198,010 $1,757,277
0.088%
Current portion of lease liabilities
Long-term borrowings
Call money
Commercial paper

March 31, 2015
Short-term borrowings

470－

26,6240.638

720,900

6,397,764

0.000
0.042

122,000

1,082,712¥

1,043,963 $

9,264,847¥

436,5100.149%

3,000

0.530

79

－

2,000

0.902

53

－

1,587,000

0.055

440,000

0.087

Current portion of long-term borrowings
Current portion of lease liabilities
Long-term borrowings
Lease liabilities
Call money
Commercial paper
¥
(8)

53
3,000

2,468,642

Retirement and Severance Benefits

The Company has defined benefit retirement and pension plans, which consist of a defined benefit corporate
retirement and pension plan and an unfunded retirement and severance plan that provide for lump-sum payment
of benefits, and a defined contribution plan.
Consolidated subsidiaries’ main retirement plans are unfunded retirement and severance plans that provide
for lump-sum payment of benefits as defined benefit retirement and pension plans and the simplified method has
been adopted for the calculation of liability for retirement benefits and retirement benefit expenses of lump-sum
payment plans.
One subsidiary had participated in Zenkoku Jutakuchi Kaihatsu Kosei Nenkin Kikin (the Kikin) which wasestablished as a multi-employer welfare pension plan and the Kikin obtained the approval for its liquidation from
the Minister of Health, Labour and Welfare and terminated on March 29, 2016. No additional cost was
anticipated for the Kikin termination.
Defined benefit plans
Followings are the information for the Company’s and the consolidated subsidiaries’ defined benefit plans asof March 31, 2016 and 2015 and for the years then ended.

46

(1) Reconciliation of changes in retirement benefit obligation (the following table excludes certain plans
mentioned in (3))
Thousands of
U.S. dollars
Millions of yen
2016¥

Retirement benefit obligation at beginning of year

7,946

Cumulative effects of changes in accounting policies
Restated balance at beginning of year

2015

¥

2016

7,541

$

70,518

–

24

–

7,946

7,565

70,518Service cost

304

277

2,698

Interest cost

64

83

568

Actuarial gains and losses

756

340

6,709

Benefits paid

(356)

(319)

(3,159)Retirement benefit obligation at end of year

¥

8,714

¥

7,946

$

77,334(2) Reconciliation of changes in plan assets (the following table excludes certain plans mentioned in (3))
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Plan assets at beginning of year

¥

5,534

¥

4,646

$

49,112

Expected return on plan assets

111

93

985

Actuarial gains and losses

(332)

624

(2,946)

Employer contributions

412

410

3,656

Benefits paid

(261)

Plan assets at end of year

¥

5,464

(239)
¥

5,534

(2,316)$48,491(3) Reconciliation of changes in liability for retirement benefits whose plans adopted the simplified method
Thousands ofMillions of yen
U.S. dollars
2016
Liabilities for retirement benefits at beginning of year ¥

2015

127

¥

2016

137

$

1,127

Retirement benefit expenses

15

13

133

Benefits paid

(8)

(23)

(71)

Contributions

(1)

(0)

(9)

Liabilities for retirement benefits at end of year

¥

47

133

¥

127

$

1,180

(4) Reconciliation between retirement benefit obligation and plan assets and liability for retirement benefit andasset for retirement benefit recognized in consolidated balance sheet
Thousands ofMillions of yen
U.S. dollars
2016

Funded retirement benefit obligation¥

Plan assets

2015

6,978

¥

6,341

2016

$

61,927(5,464)(5,534)(48,491)
13,436

1,514

807

Unfunded retirement benefit obligation

1,869

1,731

Net liabilities for retirement benefit recognized in¥consolidated balance sheet

3,383

¥

2,538

$

30,023

¥

3,383

¥

2,538

$

30,023Net liabilities for retirement benefit recognized in¥consolidated balance sheet

3,383

¥

2,538

$

30,023Liabilities for retirement benefit

16,587(5) The components of retirement benefit expenses

Thousands of
U.S. dollars

Millions of yen
2016
Service cost¥

Interest cost

by

304

¥

277

2016

$

2,698

64

83

568

(111)

(93)

(985)

the

(5)

42

(44)

15

13

133

¥

267

Expected return on plan assets
Amortization of actuarial gains or losses
Retirement benefit expenses calculated
simplified method
Retirement benefit expenses

2015

¥

322

$

(6) Remeasurements of retirement benefit plans before related tax effects

Thousands of
U.S. dollars

Millions of yen
2016

2,370

2015

2016

Actuarial gains or losses¥(1,093)¥326$(9,700)Total¥(1,093)¥326$(9,700)(7) Accumulated remeasurements of retirement benefit plans before related tax effects

Thousands of
U.S. dollars

Millions of yen
2016

2015

2016

Unamortized actuarial gains or losses

¥

1,059

¥

(34)

$

9,398

Total

¥

1,059

¥

(34)

$

9,398

48

(8) Plan assets(a) Percentage by major category of plan assets

Debt securities
Equity securities
General account
Other
Total

2016

2015

30.8%
48.4
17.9
2.9

26.2%
54.2
16.8
2.8

100.0%

100.0%(b) Determination procedure of long-term expected rate of return on plan assets
In determining long-term expected rate of return on plan assets, the Company considers the current andprojected asset allocation, as well as current and future long-term rate of returns for various categories of theplan assets.
(9) Basis for calculation of actuarial assumptions
The assumptions used in accounting for the above plans as of March 31, 2016 and 2015 are as follows:
2016
2015
(a) Discount rate

0.2%
2.0%
5.2%

(b) Long-term expected rate of return(c) Expected salary increase rate

0.8%
2.0%
5.2%

Defined contribution plans
For the years ended March 31, 2016 and 2015, the amount to be paid by the consolidated subsidiaries to thedefined contribution plans (including the multi-employer welfare pension plan whose contribution has beenaccounted for as a defined contribution plan) was ¥38 million ($337 thousand) and ¥39 million, respectively.

Followings are the information of the multi-employer plan.
(1)
The most recent funded status of the whole multi-employer pension plan as of March 31, 2014 wasoutlined as follows:
Millions ofyen¥Plan assets at fair value

34,214

Benefit obligation under pension funding programs¥

Difference49

30,998(3,216)(2)The subsidiary’s proportion of the contribution to the aggregate pension contributions in March 2015
were 0.33%.
Liabilities for retirement benefits (directors and corporate auditors)
Directors and corporate auditors are not covered by the plans described above. The Company and all
consolidated subsidiaries had abolished retirement benefit system for directors and corporate auditors.
Directors and corporate auditors were entitled to lump-sum payment up to the date of the abolishment
when they leave the Company or subsidiaries.
As of March 31, 2016 and 2015, the liability for retirement benefits related to the plans were ¥42
million ($373 thousand) and ¥51 million which include the lump-sum payments mentioned above,
respectively.

(9)

Income Taxes
The Company and its consolidated subsidiaries are subject to Japanese corporate, inhabitant and businesstaxes based on income which, in the aggregate, result in a statutory tax rate of approximately 33.1% and 35.6% in
both 2016 and 2015, respectively.
Because "Act for Partial Amendment of the Income Tax Act, etc." (Act No. 15 of 2016) and "Act for Partial
Amendment of the Local Tax Act, etc." (Act No. 13 of 2016) were enacted by the Diet on March 29, 2016, theeffective statutory tax rate is to be lowered from the year beginning on or after April 1, 2016. The effective
statutory tax rate used to measure deferred tax assets and liabilities was changed from 32.3% to 30.9% for
temporary differences expected to be eliminated in the fiscal two years beginning on April 1, 2016, and to 30.6%
for temporary differences expected to be eliminated in the fiscal years beginning on and after April 1, 2018.
As a result of the change in tax rates, the net amount of deferred tax liabilities decreased by ¥626 million($5,556 thousand), income taxes-deferred for the current year increased by ¥27 million ($240 thousand),
unrealized gain on other securities increased by ¥683 million ($6,061 thousand) and deferred losses on hedges
decreased by ¥12 million ($106 thousand).

Deferred tax liabilities for gain on revaluation of land decreased by¥4 million ($35 thousand) and gain on revaluation of land increased by the same amount.
In addition, due to the revision of the carry-forward system of the net operating losses, the amount of net
operating losses that can be deducted has been limited to the equivalent of 60% of taxable income before suchdeductions from the year beginning on April 1, 2016, 55% from the year beginning on April 1, 2017 and 50% fromthe year beginning on April 1, 2018. As a result of the revision, the amount of deferred tax assets decreased by¥6 million ($53 thousand) and income taxes-deferred for the current year increased by ¥6 million ($53 thousand).

The reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before income
taxes and non-controlling interests for the years ended March 31, 2016 and 2015 is follows:
2016
2015
Statutory tax rate
Equity in gains of affiliates
Expenses not deductible for tax purposes
Valuation allowance
Income not credited for tax purposes
Adjustments of deferred tax assets due to change instatutory tax rate
Other
Effective tax rate

50

33.1%
(0.5)
0.8
(13.1)
(2.2)
0.8

35.6%
1.2
0.9
(20.6)
(2.4)
1.5

2.1
21.0%

1.6
17.8%

Significant components of deferred tax assets and liabilities as of March 31, 2016 and 2015 are as follows:
Millions of yen
2016
2015

Deferred tax assets:
Accrued business tax
Accrued bonuses
Liabilities for retirement benefits(employees)
Liabilities for retirement benefits (directors
and corporate auditors)
Allowance for doubtful receivables
Tax loss carryforward
Deferred losses on hedges
Net unrealized loss on other securities
Other

¥

Valuation allowance
Deferred tax liabilities:
Gain on evaluation of subsidiaries’ assets
Net unrealized gain on other securities
Gain on transfer of investment in an affiliate
Gain on evaluation of acquired assets by merger
Deferred gains on hedges
Other
Net deferred tax liabilities

¥

43
150
1,039

¥

37
167
837

Thousands of
U.S. dollars
2016
$

381
1,331
9,221

13

16

115

424
4,103
4,549
369
306
10,996(7,000)
3,996

552
4,811
1,706
307
279
8,712
(6,134)
2,578

3,763
36,41340,371
3,275
2,716
97,586(62,123)
35,463(155)(12,591)
(359)
(603)
(1,653)(21)(15,382)(11,386)(158)(7,304)
(367)
(637)
(889)
(22)
(9,377)(6,799)(1,376)(111,741)(3,186)(5,351)(14,670)(186)(136,510)(101,047)¥$

Net deferred tax assets and liabilities as of March 31, 2016 and 2015 are reflected in the accompanying
consolidated balance sheet under the following captions:Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Current assets - Deferred tax assets
Non-current liabilities- Deferred tax liabilities

¥

167

¥

(11,553)391(7,190)$1,482(102,529)(10) Common Stock
Under the Companies Act, the entire amount of the issue price of shares is required to be designated asstated common stock account although a company in Japan may, by resolution of its Board of Directors, accountfor an amount not exceeding 50% of the issue price of new shares as additional paid-in capital, which is included
in capital surplus.
(11) Retained Earnings and Dividends
The Companies Act provides that an amount equal to 10% of distributions from retained earnings paid by theCompany 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 theirrespective stated capital. The Companies Act also provides that capital surplus 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 sheet.
Cash dividends charged to retained earnings for the years ended March 31, 2016 and 2015 represent
dividends paid out during those years. The amount available for dividends is based on the amount recorded in
the Company’s non-consolidated books of account in accordance with the Companies Act.

51

(a)

Dividends paid during the year ended March 31, 2015
The following was approved by the general meeting of stockholders held on June 25, 2014.
(a) Total dividends¥751 million(b) Cash dividends per common share¥7(c) Record date

March 31, 2014(d) Effective dateJune 26, 2014

The following was approved by the Board of Directors held on November 10, 2014.
(a) Total dividends¥718 million(b)(b) Cash dividends per common share¥7(c) Record date

September 30, 2014(d) Effective date

December 5, 2014

Dividends paid during the year ended March 31, 2016
The following was approved by the general meeting of stockholders held on June 25, 2015.
(a) Total dividends¥799million ($7,091 thousand)(b) Cash dividends per common share¥8($0.07)(c) Record date

March 31, 2015(d) Effective dateJune 25, 2015

The following was approved by the Board of Directors held on November 9, 2015.
(a) Total dividends(c)¥787million ($6,984 thousand)(b) Cash dividends per common share¥8 ($0.07)(c) Record date

September 30, 2015(d) Effective date

December 7, 2015

Dividends to be paid after the balance sheet date but the record date for the payment belongs to the year
ended March 31, 2016
The following was approved by the general meeting of stockholders held on June 24, 2016.
(a) Total dividends¥775million ($6,878 thousand)(b) Dividend source

Retained earnings(c) Cash dividends per common share¥8 ($0.07)(d) Record date

March 31, 2016(e) Effective dateJune 27, 2016(12) General and Administrative Expenses
Significant components of general and administrative expenses are as follows:
Millions of yen
2016
2015
Salaries
Retirement benefit expenses
Administrative and computer expenses
Depreciation

¥

3,172
305
1,331
626

¥

3,215
361
1,368
662

Thousands of
U.S. dollars
2016$28,151
2,707
11,812
5,556(13) Other Comprehensive Income
The reclassification adjustment and the related income tax effects allocated to each component of othercomprehensive income (losses) for the years ended March 31, 2016 and 2015 are as follows:52

Thousands of
U.S. dollars
2016

Millions of yen
2016
2015
Net unrealized gain on other securities:
Arising during the year
Reclassification adjustment
Before tax amountTax expense
Net-of-tax amount¥

19,969 ¥(1,693)
18,276(5,124)
13,152

9,336
(341)
8,995
(2,598)6,397(6,929)–(6,929)447(6,482)(1,929)–(1,929)(239)(2,168)(61,493)–(61,493)
3,967(57,526)48

36(1,088)(5)(1,093)
335
(758)

285
41
326
(115)
211

(9,656)(44)(9,700)2,973(6,727)

Share of other comprehensive income (losses) of affiliates accounted for by equity method:
Arising during the year
(162)
98
Reclassification adjustment
10
13
(152)
111

(1,438)89(1,349)Deferred losses on hedges:
Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount
Gain on revaluation of land:Tax benefit
Remeasurements of defined benefit plans:Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount

Total other comprehensive income

¥

5,764

¥

4,559

$

$

177,219(15,025)
162,194(45,474)
116,720

51,154(14) Per Share Information(a) Net Income per Share
Basic net income per share, and reconciliation of the numbers and the amounts used in the basic net income
per share computations for the years ended March 31, 2016 and 2015 are as follows:
Yen
U.S. dollars
2016
2015
2016
Basic net income per share

¥

26.90

¥

33.94

Millions of yen
2016
2015
Net income attributable to owners of the parent
Net income not applicable to common stockholders
Net income attributable to owners of the parent
applicable to common stockholders

¥
¥

53

2,646
–
2,646

¥
¥

3,521
–
3,521

$

0.24

Thousands of
U.S. dollars
2016
$
$

23,482–
23,482

Number of shares (Thousands)

Weighted average number of shares outstandingon which basic net income per share is calculated

2016

2015

98,344

103,726(b) Net Assets per Share
Net assets per share, and reconciliation of the numbers and the amounts used in the net assets per sharecomputations as of March 31, 2016 and 2015 are as follows:
Yen
U.S. dollars
2016
2015
2016
Net assets per share¥

1,467.01¥

1,373.94

Millions of yen
2016
2015
Total net assets
Amount deducted from total net assets
Net assets applicable to common stockholders¥

142,031–
142,031¥¥¥

137,145–
137,145$

13.02

Thousands of
U.S. dollars
2016$

1,260,481–
1,260,481$

Number of shares (Thousands)

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

2016

2015

96,816

99,819(15) Leases(a) Finance Lease
The main assets are system equipment which are included in tools, furniture and fixtures.
(b)

Operating Lease
Future minimum lease payments required under noncancellable operating leases as of March 31, 2016 and2015 are as follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Future minimum lease payments:
Within one year¥

1

Over one year

¥

5

–
¥

1

$

1
¥

6

9
–

$

9

(16) Pledged Assets
The carrying value and classification of assets owned by the Company that have been pledged tocounterparties as of March 31, 2016 and 2015 are as follows:
Thousands of U.S.
Millions of yen
dollars
2016
2015
2016
Short-term investments¥

Short-term loans receivable
Investments in securities

54

85,059¥586,013$754,872

113,642

23,281

1,008,537

466,275

812,392

4,138,046

Assets in the above table were pledged for the followings:

Thousands of
U.S. dollars

Millions of yen
2016
Call money¥

Short-term borrowings

450,9002015¥

1,302,200

20,0002016$

75,0004,001,597
177,494

In addition to the above, followings are deposited for the Clearing Fund of Japan Securities Clearing
Corporation and Japan Government Bond Clearing Corporation, etc.
Thousands of U.S.
Millions of yen
dollars
2016¥

Other current assets

30,001

2015
¥

1,502

Investments in securities

501
16,742

2016$

266,250
13,330(17) Financial Instruments
Conditions of Financial instruments(1) Management policy
The Company and a consolidated subsidiary, JSF Trust and Banking Co., Ltd. (“JSFTB”) mainly deal infinancial instruments.
transactions.

The Company is engaged in providing loan services, mainly loans for margin

The loans for margin transaction are loan services which are money lending or stock loan forsettlement of standardized margin transactions.

The transaction is strongly effected by security market

condition, therefore, the Company raises money flexibly from short-term finance market, primarily from callmarket. The Company owns securities such as Japanese Government Bonds to maintain daytime liquidity.
A consolidated subsidiary, JSFTB is engaged in providing credit services such as loans as banking businessand finance and securities activities. JSFTB invests in highly liquid and safe-and-secure securities such as
government bonds, government-backed bonds, local government bonds and public corporation bonds as securities
investment activities and usually raises money from call market.
(2) Financial instruments and risks
Main financial instrument that the Company holds are trade loans receivable, collateral money for securities
borrowed, short-term investments and investments in securities such as government bonds and equity securities.
Main financial instrument that JSFTB holds are loans to government and business corporations and securities
such as government bonds, government-backed bonds, local government bonds and public corporation bonds.
Trade loans receivable held by the Company and JSFTB are exposed to credit risks that caused fromcounterparties’ default of contract.

Securities are exposed to market risks.

Collateral money for securities

borrowed is collateral money mainly for repurchase transaction and securities borrowed of loans for margintransactions.

Regarding raising money such as call money and short-term borrowings of the Company and

JSFTB, the liabilities are exposed to liquidity risks that caused from turmoil in the financial markets or a credit
rating down.
JSFTB has entered into interest rate swaps for hedging fixed-rate loans and bonds, and variable-rateborrowings as a part of interest risk control (ALM). Hedge accounting is applied to the derivatives held for ALM
purpose, and the Company regularly monitors the hedge effectiveness whether the relationship between hedging
derivatives and hedged assets or liabilities are appropriate and the interest rate risk of hedged items are offset byhedging derivatives.
(3) Financial instruments risk management
The Company places risk management as top priority of management. Basic policy of risk management isapproved at the Board of Directors, and various rules for risk management according to the basic policy are
established for concrete risk management method or system. The Company regularly receives a report fromJSFTB concerning its risk management.

551) Integrated risk management
The Company quantizes the risk by Value at Risk (VaR) approach after allocating risk capital withinequity capital, and controls the quantized risk amount within the allocated risk capital. Each business
operation department controls a risk within the allocated risk capital, risk management department that is
independent from each operational section quantizes the risk, monitors the risk management and reports tothe management.
2) Credit risk
The Company manages all of the credit risk strictly to maintain and improve assets quality. The Risk
Management Department evaluates credit risks according to the in-house rating and quantizes and controls
the credit risk using the default rate by each in-house rating category. Stress tests are also performed forcompensating the quantization control. The Risk Management Department evaluates customers or loans,and sets up the credit limits, while business operation department monitors the credit limit. Assets owned bybusiness operation departments are assessed by themselves strictly. The Company receives collateral
securities for each loan and revaluates the securities daily to mitigate the collectability issues, and theCompany collects the claims quickly through sale of the collaterals when the customer bankrupts.
3) Market risk
The Risk Management Department quantizes and controls market risks, and performs stress tests tocompensate the quantization control. Back-testing which is the test compared calculated VaR and estimatedprofit or loss by using the fixed portfolio is performed to test the reliability of the Company’s market risk
quantization model.
4) Quantitative information of market risk
The Company calculates VaR of short-term investments and investments in securities by using Deltamethod (holding period: 10-240 days (depending on purposes in holding), confidence interval: 99%, observation
period: mainly 1 year). Market risk amount (possible losses) of the Company is ¥22,326 million ($198,136
thousand) as of March 31, 2016.
Because VaR is a statistical estimate of market risk amount at a particular probability using past market
movement data, VaR may not capture the risk during radical market movements that are extreme in nature.
5) Liquidity risk
The Treasury Department of the Company seeks to diversify financing channels and to secure stablefinancing sources. For sound cash flow management, the Company develops cash flow forecast, understands
the amount can be raised or future liquidity and also understands dates of a large payment concentration, theCompany has a system to report to the management with daily cash flow status. The Company tries to holdenough liquidity, for example, to possess a certain amount of government bonds, makes a contingency plan andbuilds a company-wide emergency response system against contingencies. Liquidity stress tests are
performed monthly for ascertaining whether consolidated liquidity held by the Company and JSFTB is
adequate. At the “ALM Committee” held in every quarter, the Company develops cash flow forecast based on
estimates of loans outstanding, studies policies for ALM (Asset Liability Management) such as revenue
management for assets and liabilities of the Company and the Company has a system to report to the
management.
6) Subsidiary’s risk control system
JSFTB basic policy of risk management is approved at the Board of Directors, and various rules for risk
management according to the basic policy are established for concrete risk management method or system, andthe Risk Management Department controls the risks totally. The Risk Management Department measuresand monitors the risk quantity, collects and analyzes information and reports the risk condition to the
management for maintaining the proper risk management.
JSFTB calculates market risk amount for all market transactions. Interest rate risk amount which is amajor risk variable is calculated by VaR (Delta method; holding period: 1 year, confidence interval: 99%,56

observation period: 5 years). JSFTB market risk amount is ¥4,826 million ($42,829 thousand) as of March 31,
2016.
(4) Supplemental explanation regarding fair value of financial instruments
Fair value of financial instruments are measured based on the quoted market price, if available, or
reasonably assessed value if a quoted market price is not available. Fair value of financial instruments whichquoted market price is not available is calculated based on certain assumptions, and the fair value might differ if
different assumptions are used. In addition, the contract amount of the derivative transactions described below
in note “(18) Derivative financial instruments” does not represent the market risk of the derivative transactions.
Fair value of financial instruments
The carrying value on the consolidated balance sheet, fair value, and differences as of March 31, 2016 and2015 are as follows.
Financial instruments, of which it is extremely difficult to measure the fair value, are not included. (Pleasesee “<2> Financial instruments of which the fair value is extremely difficult to measure”)

Millions of yen

2016
Carrying
value
Assets:(1) Cash(2) Trade loans receivable
Allowance for doubtfulreceivables *1¥

Fair value

266,378 ¥
567,749(127)

Differences

266,378 ¥–2015

Carrying
value¥

31,792
883,101(195)

Fair value¥

31,792Differences¥–

567,622
1,025,508

567,651
1,025,508

29–

882,906
974,861

882,905
974,861

(1)
–

Total

41,455
1,278,780¥ 3,179,743

42,0391,278,780¥ 3,180,356 ¥

584
–
613

40,737
1,529,947¥ 3,460,243

40,872
1,529,947¥ 3,460,377

¥

135
–
134

(1) Call money¥¥

720,900 ¥–¥ 1,587,000¥ 1,587,000¥–

198,010

198,010–436,510436,510–122,000
1,549,653

122,000
1,549,653––

440,000
788,716

440,000
788,716

–
–

3,000

–

5,000

5,000

–

¥ 3,257,226¥ 3,257,226

¥

–

(–)

¥

¥

¥

(–)

(3) Collateral money for securities
borrowed *1(4) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities(2) Short-term borrowings(3) Commercial paper(4) Collateral money received for
securities lent
(5) Long-term borrowings *2

720,900

3,000

Total

¥ 2,593,563

Derivative transactions *3¥¥ 2,593,563 ¥(11,608) ¥(11,608) ¥57(3,012)(3,012)–

Thousands of U.S. dollars
2016
Carrying
value
Assets:(1) Cash(2) Trade loans receivable
Allowance for doubtfulreceivables *1(3) Collateral money for securities
borrowed *1(4) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities

$

Total

$

(1) Call money$

2,364,022
5,038,596(1,127)

Fair value$

Differences

2,364,022 $–

5,037,469
9,101,065

5,037,726
9,101,065

257–

367,900
11,348,775
28,219,231

373,083
11,348,775$ 28,224,671 $

5,183
–
5,440

6,397,764$

6,397,764 $–(2) Short-term borrowings

1,757,277

1,757,277–(3) Commercial paper(4) Collateral money received for
securities lent
(5) Long-term borrowings *2

1,082,712
13,752,689

1,082,712
13,752,689––

26,624

26,624

–

Total

$

23,017,066

Derivative transactions *3$(103,017)$ 23,017,066 $

–

$

(–)

(103,017) $*1 Allowance for doubtful accounts associated with trade loans receivable is deducted. Carrying value ofcollateral money for securities borrowed is net amount of related allowance for doubtful accounts, because theallowance for doubtful accounts for collateral money for securities borrowed is not material.
*2 Current portion of long-term borrowings are included in long-term borrowings.
*3 Derivative receivables and payables are on net basis. Items that are net payables are shown in parenthesis.
<1> Fair value measurement of financial instruments
Assets:(1) Cash
The fair value approximates carrying amount because of the short maturity of these instruments.
(2) Trade loans receivable
The fair value of trade loans receivable with variable interest rate approximates carrying amount because
the fair value is reflected a fluctuation of interest market in a short period and unless credit status of theborrower does not change so much from when the Company lent. Allowance for doubtful receivables are
estimated based on collectable amounts by collaterals and guarantee and thus the fair value approximates the
carrying amount minus allowance for doubtful receivables amounts.
(3) Collateral money for securities borrowed
The fair value approximates carrying amount because of the short maturity of these instruments.
(4) Short-term investments and investments in securities
The fair value of equity securities and bond securities is calculated by quoted market price and quotes frominformation venders.

The fair value of government bonds with variable interest rate held by the Company and

JSFTB is estimated based on quotes from information venders in accordance with the “Practical Solution on
Measurement of Fair Value of Financial Assets” (ASBJ Practical Issue Task Force (PITF) No. 25, October 28,2008), because based on our determination that their market prices cannot be deemed fair value due to the58market situation where the number of transactions is extremely small.

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.
The fair value of investment trust is calculated by quoted market price.
Please see note “(4) Short-term Investments and Investments in Securities” for information by category.
Liabilities:(1) Call money, (2) Short-term borrowings, (3) Commercial paper and (4) Collateral money received for securities lent
The fair value approximates carrying amount because of the short maturity of these instruments.
(5) Long-term borrowings
The fair value of long-term borrowings with variable interest rate approximates carrying amount because thefair value is reflected a fluctuation of interest market in a short period and credit status of the Company does notchange very much from when the Company borrowed.
The fair value of long-term borrowings with fixedinterest rate is based on the present value of future cash flows of interest and principal payments discounted
using the current borrowing rate for similar borrowings of a comparable maturity.
Derivatives:
Please see note “(18) Derivative Financial Instruments.”<2> Financial instruments of which the fair value is extremely difficult to measure

Thousands of
U.S. dollars
2016

Millions of yen
2016
2015

Unlisted equity securities
Other securities
Investments in affiliates
Unlisted preferred equity securities
Unlisted REITs

¥

2,900
3,566
–
5,031

¥

2,184
3,643
200
–

$

25,73731,647–44,649Above securities have no market value and the fair value is extremely difficult to measure, therefore are notincluded in “Assets: (4) Short-term investments and investments in securities.”<3> Projected future redemption of monetary claim and securities with maturities as of March 31, 2016
Millions of yen
Due after
Due after
five years
one yearthrough ten
Due after
through fiveDue within
years
ten years
years
one year(1) Cash¥(2) Trade loans receivable(3) Collateral money forsecurities borrowed(4) Short-term investments andinvestments in securities
Held-to-maturity securities(Government bonds)
Other securities withmaturities
Bond securities
Government bonds
Corporate bonds
Other
Total
¥

266,378
472,816
1,005,617¥–
94,24420,000

¥

–
689
–

¥

–
–
–

–

40,000–1,500

404,947
25,935–2,175,693

375,344
178,210–
707,798

32,000–49,977
82,666

153,000–
2,765
157,265

¥

59

¥

¥

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

Due within
one year(1) Cash$(2) Trade loans receivable(3) Collateral money forsecurities borrowed(4) Short-term investments andinvestments in securities
Held-to-maturity securities(Government bonds)
Other securities withmaturities
Bond securities
Government bonds
Corporate bonds
Other
Total
$

2,364,022
4,196,095
8,924,539$–
836,386
177,494$

Due after
ten years

–
6,115
–

$

–
–
–

–

354,988–

13,312

3,593,779
230,165–
19,308,600

3,331,061
1,581,558–
6,281,487

283,990–443,530
733,635

1,357,827–
24,539$ 1,395,678$$<4> The annual maturities of the long-term borrowings, lease liabilities and other interest bearing liabilities as ofMarch 31, 2016
Millions of yen
Due after
Due after
Due after
Due after
four years
three
two years
one year
Due after
throughyears
throughthrough
Due within
five years
five years
throughthree
two years
one yearfour years
years
Call money
Short-termborrowings
Commercial paper
Collateral money
received for
securities lentLong-term
borrowings *
Total

¥

720,900 ¥198,010

–
–

¥

–
–

¥

–
–

¥

–
–

–
–

–
–

–
–

–
–

–
–

–

–

1,000

–

–

2,000

¥ 2,590,563 ¥$¥

122,000
1,549,653

Due within
one yearCall money
Short-termborrowings
Commercial paper
Collateral money
received for
securities lentLong-term
borrowings *
Total

–
–

–

Due after
one yearthrough
two years

¥

1,000

¥

–

¥

Thousands of U.S. dollars
Due after
Due after
three
two years
years
throughthroughthreefour years
years

–
–

–
–

–
–

–
–

–
–

–

–

8,875

–

–

17,7498,875$* Current portion of long-term borrowings are included in long-term borrowings.

60

–
–

–

$

$

–
–

Due after
five years

1,082,712
13,752,689$$

Due after
four years
throughfive years

2,000

–
–

–

–
–

¥

6,397,764 $
1,757,277$ 22,990,442 $

$

–

–

$

$

–
–

17,749(18) Derivative Financial Instruments
Derivative transactions to which hedge accounting are applied as of March 31, 2016 and 2015 aresummarized as follows:(a) Exchange rate derivatives

Hedge
accounting
method*1

Nature of transaction
Forward exchange
contract:
Sell:
U.S. dollars
Euro

Hedge
accounting
method*1

Nature of transaction
Forward exchange
contract:
Sell:
U.S. dollars
Euro

Millions of yen

Hedged items

Investments
in securities
Investments
in securities

Hedged items

Investments
in securities
Investments
in securities(b) Interest rate derivatives

Hedge
accounting
methodNature of transaction

Hedged items*1

Interest rate swaps:
Investments
in securities
Trade loans*2

Variable rate received
for fixed rate
Variable rate received
for fixed rate
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate paid forvariable rate

Trade loans
Long-term
borrowings

61

2016
Contract ornotional
Fair value
amounts

2015
Contract ornotional
Fair value
amounts¥¥

12,982 ¥687

39,760207

10,515¥

21,349(274)
631

Thousands of U.S. dollars
2016
Contract ornotional
Fair value
amounts$

115,211 $

6,097

352,858

1,837

Millions of yen
2016
2015
Contract orContract ornotional
notional
amounts Fair value
Fair value
amounts¥

246,150 ¥ (12,458)

45,000 ¥(3,349)

(44)

7,500

(20)

111,595

*3

5,056

*3

2,000

*3

2,000

*3

7,500

¥

Hedgeaccounting
methodNature of transaction

Hedged items*1

Interest rate swaps:
Investments
in securities
Trade loans*2

Variable rate received
for fixed rate
Variable rate received
for fixed rate
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate paid forvariable rate

Thousands of U.S. dollars
2016
Contract ornotional
Fair value
amounts$ 2,184,505 $ (110,561)
66,560(390)

Trade loans

990,371*3

Long-term
borrowings

17,749*3*1 Deferred hedge accounting is applied.
*2 The difference in amounts to be paid or received on interest rate swaps is recognized over the life of theagreements as an adjustment to interest expense.
*3 For the assets and liabilities for which interest rate swap contracts are used to hedge the interest rate
fluctuations, fair value of derivative financial instrument is included in fair value of the respective assets andliabilities as hedged items.
The fair value of interest rate swaps are estimated based on quotes from counterparties.
(19) Commitments and Contingencies
As of March 31, 2016 and 2015, undrawn amount of general loan for securities companies and customers,
overdraft loan and loan commitment line are as follows:

Millions of yen
2016
2015
Total credit line
Drawn amount
Undrawn amount¥¥

738,467
68,847
669,620¥¥

741,813210,581531,232

Thousands of
U.S. dollars
2016
$
$

6,553,665
610,995
5,942,670

Since some of these contracts expire without the rights exercised, the undrawn amount itself does notnecessarily affect future cash flows.
(20) Segment Information
The reported segments of the Company are the business units for which the Company is able to obtainrespective financial information separately in order for the Board of Directors to conduct periodic investigation todetermine distribution of management resources and evaluate their business results.
“Securities finance business” conducted by the Company, “Trust banking business” conducted by JSF Trustand Banking Co., Ltd. and “Real estate leasing business” conducted by Nihon Building Co., Ltd. are theCompany’s reported segments. JSF Trust and Banking Co., Ltd. and Nihon Building Co., Ltd. are consolidated
subsidiaries of the Company.
“Securities finance business” is engaged in providing loan services, which are loans for margin transaction,bond financing and general loans, bond lending and stock lending. “Trust banking business” is engaged inproviding trust services such as securities trust and banking services such as deposit or loan.

“Real estateleasing business” is mainly engaged in providing services for leasing and managing real estate owned by JSF
Group.

62

Segment revenues, income, assets, liabilities and others are calculated by accounting methods similar to
those employed to prepare the accompanying consolidated financial statements. Segment income is calculated
based on “Keijo-soneki.” Under accounting principles generally accepted in Japan, an ordinary income or loss,“Keijo-soneki” should be disclosed in the income statement.

The ordinary income or loss is an income or loss

figure with certain adjustments, which are categorized as extraordinary items in accordance with accounting
principles generally accepted in Japan, made to income or loss before income taxes and minority interests.
Therefore, ordinary income or loss is operating income or loss plus non-operating income from interest anddividend income and other items less non-operating expenses, such as interest expenses.

Intersegment revenue

and transfer are based on arms-length transactions.
The reported segment information for the Company and its consolidated subsidiaries for the years ended
March 31, 2016 and 2015 was summarized as follows:
Millions of yen
2016
Securities
Real estate
finance
Trust banking
leasing
Total
Revenues:
Revenues to third parties ¥17,776 ¥3,452 ¥
807 ¥
22,035Intersegment revenues and
22
25
393
440
transfers
Total¥
17,798 ¥3,477 ¥
1,200 ¥
22,475
Segment income

¥

2,508

¥

470

¥

467

¥

3,445

Segment assets¥

2,633,332¥

649,149

¥

8,856

¥

3,291,337

352

¥

113

¥

152

¥

617

Others:Depreciation and¥amortization
Interest income
Income taxes
Increase in property, plantand equipment andintangible assets

Revenues:
Revenues to third parties $Intersegment revenues andtransfers
Total
$

259
537
2,420

–
19
53

13
151
35

272
707
2,508

Thousands of U.S. dollars
2016Real estate
Trust banking
leasing

Securities
finance

Total

157,757
195$

30,635
222

$

7,162
3,488

$

195,554
3,905

157,952$

30,857$

10,650$199,459

Segment income$

22,258

$

4,171

$

4,144

$

30,573

Segment assets$

23,370,004$

5,760,996$

78,594$29,209,594

3,124

$

1,003

$

1,349

$

5,476

Others:Depreciation and$amortization
Interest income
Income taxes
Increase in property, plantand equipment andintangible assets

2,299
4,766
21,477

–
168
470

63

115
1,340
311

2,414
6,274
22,258

Revenues:
Revenues to third parties ¥Intersegment revenues andtransfers
Total¥

Millions of yen
2015
Real estate
Trust banking
leasing

Securities
finance

Total

17,163
22

¥

2,269
2

¥

868
396

¥

20,300420

17,185

¥

2,271

¥

1,264

¥

20,720

Segment income

¥

2,653

¥

1,281

¥

583

¥

4,517

Segment assets¥

2,881,054¥

649,730

¥

8,781

¥

3,539,565

387

¥

101

¥

165

¥

653

Others:Depreciation and¥amortization
Interest income
Income taxes
Increase in property, plantand equipment andintangible assets

105
457
1,881

–
107
200

12
207
37

117
771
2,118

Reconciliation between total segment revenues in the table above and revenues in the accompanying
consolidated statement of income for the years ended March 31, 2016 and 2015 are as follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Total segment revenues¥

Intersegment revenues
Revenues in the accompanying consolidated
statement of income

22,475¥(440)¥

22,035

20,720$(420)¥

20,300199,459(3,905)$

195,554

Reconciliation between total segment income in the table above and ordinary income for the years ended
March 31, 2016 and 2015 are as follows:
Thousands ofMillions of yen
U.S. dollars
2016
2015
2016
Total segment income¥

Intersegment income
Equity in earnings (losses) of affiliates
Ordinary income

¥

3,445

¥

4,517

$

30,573

(149)

(142)

(1,322)

54

(144)

479

3,350

64

¥

4,231

$

29,730Reconciliation between total segment assets in the table above and assets in the consolidated accompanying
balance sheet as of March 31, 2016 and 2015 are as follows:
Thousands ofMillions of yen
U.S. dollars
2016
Total segment assets

¥

2015

3,291,337¥

3,539,565

2016$

29,209,594

Intersegment accounts(19,072)(34,021)(169,258)

Intersegment investments(26,269)(26,269)(233,129)

Other
Assets in the accompanying consolidatedbalance sheet

3,174
¥

3,327

3,249,170¥

3,482,602

28,168$28,835,375

Reconciliation between others in the table above and amounts in the consolidated financial statements as ofand for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen
Amounts intheconsolidated
financialstatements
Adjustments
Segment total
March 31, 2016
Depreciation and amortization
Interest income

¥

617

¥

272
707
2,508

Income taxes
Increase in property, plant and equipment
and intangible assets

9

¥

(13)
(3)
–

626
259
704
2,508

March 31, 2015
Depreciation and amortization
Interest income

¥

653

¥

117
771
2,118

Income taxes
Increase in property, plant and equipment
and intangible assets

9

¥

(12)
(6)
–

Thousands of U.S. dollars

Adjustments

Segment total
March 31, 2016
Depreciation and amortization
Interest income
Income taxes
Increase in property, plant and equipment
and intangible assets

$

5,476
2,414
6,274
22,258

65

$

80
(116)
(26)
–

662
105
765
2,118

$

Amounts intheconsolidated
financialstatements
5,556
2,298
6,248
22,258

Related Information(a) Information by services
Sales by services for the years ended March 31, 2016 and 2015 are as follows:

Thousands of
U.S. dollars
2016

Millions of yen
2016
2015
Loans for margin transaction
Other

¥

10,579¥11,456¥22,035

9,667$

10,633¥

20,30093,885
101,669$

195,554(b)Geographic information
Because there are no revenues from customers outside Japan and no property, plant and equipment locatedoutside Japan, the geographic information is not disclosed for the years ended March 31, 2016 and 2015.
(c)

Information by major customers
Because no particular third party whose revenues are over 10% of revenues in the consolidated statement ofincome exists, the information by major customers is not disclosed for the years ended March 31, 2016 and 2015.
Information of impairment loss on fixed assets by reported segments
The information is not applicable for the years ended March 31, 2016 and 2015.
Goodwill by reported segments
The information is not applicable for the years ended March 31, 2016 and 2015.
Negative goodwill incurred by reported segments
The information is not applicable for the years ended March 31, 2016 and 2015.
(21) Subsequent Event
Acquisition of treasury stocks
The Board of Directors of the Company approved at May 12, 2016 to acquire treasury stocks pursuant to theprovisions of Article 165 Paragraph 3 of the Companies Act by replacing the provisions stipulated in Article
156 of the same Act.
1.

Reasons for the acquisition of treasury stocks

The acquisition of treasury stocks was conducted in an aim to prepare for flexible capital policies.
2.

Details of the acquisition of treasury stocks(1) Type of shares to be acquired: Common stocks(2) Number of shares to be acquired: 2,000,000 shares (upper limit)(3) Total acquisition costs: ¥1,000 million ($8,875 thousand) (upper limit)(4) Schedule of acquisition date: From May 13, 2016 to March 22, 2017

Introduction of a new Performance-based Share
Remuneration Plan for the directors and the executive officers
The Board of Directors of the Company approved at May 12, 2016 to revise its existing director
remuneration plan and newly introduce a performance-based share remuneration plan called “Board
Benefit Trust (BBT) (herein after “the Plan”) and the 106th general meeting of shareholders (herein after“OGM”) at June 24, 2016 approved the proposal for the introduction of the Plan.
1. Background and purpose
Board of Directors of the Company approved to introduce the Plan on condition of obtaining the approval66

of shareholders at the OGM, and to submit the proposal for the Plan at the OGM.

The purpose of the

proposed introduction of the plan is to further clarify the linkage between remuneration for directors (otherthan outside directors) and executive officers and the performance and share value of the Company, thereby
enhancing their awareness of the need to contribute to the efforts to archive improved businessperformance and greater enterprise value in the medium to long term.
The Company has a Nomination and Remuneration Advisory Committee, a major member of theCommittee comprised by outside directors and outside auditors, which serves as an advisory body to theBoard of Directors.

The Committee deliberated the Plan proposal prior to the Board of Directors.

2. Outline of the Plan
(1) Outline of the plan
The Plan is a performance-based share remuneration plan under which the Company’s shares will beacquired through a trust (herein after “the Trust”) using money contributed by the Company and theCompany’s shares and the money equivalent to the market value of the shares (herein after “the Shares,etc.”) will be delivered by the Trust to directors and executive officers pursuant to the “Rules for Delivery of
Shares to Directors (herein after “the Rule”)” to be established by the board of directors.
In principle, the Shares, etc. will be delivered when he/she resigns as Director or Executive Officer.
(2) Targets of the Plan
Directors (excluding outside directors) and Executive Officers(3) Trust period under the Plan
The Trust period will be from August 2016 (scheduled) to the expiration of the Trust. No specificexpiration date is set for the Trust, which will remain in effect as long as the Plan continues.

The Plan willterminate upon the delisting of the Company’s shares, an abolition of the Plan based on the board of
directors’ resolution, or in certain other cases.
(4) Amount of funds the Company will contribute to the Trust
The Company will introduce the Plan for four fiscal years ending at March 31, 2020 (this period of four
fiscal years as well as each subsequent period of four fiscal years, are hereinafter “Target period”) and foreach subsequent Target periods. In initial Target period, the Company will contribute up to ¥80 million($710 thousand) (including $66 million ($586 thousand) for directors) per fiscal year, ¥320 million ($2,840
thousand) (including ¥264 million ($2,343 thousand) for directors) in total, to the Trust as funds to acquire
the Company’s shares in advance, for the purpose of delivering them to directors and executive officers
under the Plan.
After the initial Target period, the Company will make an additional contribution to the Trust of up to¥320 million ($2,840 thousand) (including ¥264 million ($2,343 thousand) for directors) for each of theTarget periods until the termination of the Plan as the funds to acquire the Company’s shares as mentioned
above.
Upon such additional contribution, however, if there are the Company’s shares (excluding shares whichcorrespond to the number of points awarded to directors and executive officers, and which have yet to bedelivered to them) and money remaining in the trust assets (hereinafter “Remaining shares, etc.”) on thelast day of the Target period immediately preceding the Target period for which the Company intends tomake the additional contribution, the combined total value of the Remaining shares, etc.(the applicablevalue of the Company’s shares will be calculated by the market price on the last day of the preceding Target
period) and the funds to be additionally contributed will be an amount not exceeding the upper limit
approved at the OGM.

67

(5) Method of acquisition of the Company’s shares and number of shares to be acquired
The Trust will acquire the Company’s shares through securities markets or by underwriting of treasury
stock disposal.
In the initial Target period, the Trust will acquire the Company’s shares up to 640,000 shares immediately
after the establishment of the Trust. The method of acquisition will be disclosed as the details have been
determined.
(6) Details of the Shares, etc. to be delivered to directors and executive officers
In each fiscal year, the Company will award points (hereinafter “Share points”) to each director andexecutive officer, which will be calculated by multiplying the base point awarded according to his/her duties,
responsibilities and other elements by a factor which will vary depending on the level of the consolidated
results.
The total number of Share points awarded to directors and executive officers in each fiscal year is up to160,000 points (equivalent to 160,000 shares of the Company’s common stock (including 132,000 points for
directors (equivalent to 132,000 shares of the Company’s common stock)). The Company believes thenumber of points is reasonable, as it is comprehensively determined considering the current payment levelof remuneration for directors and executive officers, the number of directors and executive officers, and thetrend of the Company’s stock price, etc.
Upon the delivery of Shares, etc. to director or executive officer, mentioned in (7) below, 1 Share point
will be converted to 1 share of the Company’s common stock.

If, however, the number of the Company’s

share is increased or decreased due to a share split, free allotment of shares, stock consolidation or any
other event, after the Plan is approved at the OGM, the conversion ratio will be adjusted reasonably
according to the percentage of the increase or decrease.
(7) Time to deliver
If a director or executive officer who has resigned meets the beneficiary requirement stipulated in theRule, he/she will be able to receive the Company’s shares from the Trust after his/her retirement inproportion to the accumulated number of the Share points rewarded until his/her retirement as director or
executive officer, by taking established procedures to determine the beneficiary. As for a certain percentageof the Company’s shares which are supposed to be delivered, if a director or executive officer meets certain
requirements, the Company will pay him/her money equivalent to the market value of such shares, insteadof delivering the shares.
The Trust may sell a certain number of the shares for paying money.
(8) Handling of voting rights
To ensure the neutrality of management, voting rights whose shares which belong to the Trust will not
be exercised during the trust period.
(9) Handling of dividends
Dividends on the Company’s shares which belong to the Trust will be received by the Trust, and will be
used to acquire the Company’s shares and pay trust fees payable to the trustee.

Pursuant to the Rule, anysuch dividends remaining in the Trust at the termination of the Trust will be paid to directors and executive
officers at that time.
(10) Procedure of the termination of the Trust
The Trust will terminate upon the delisting of the Company’s shares or abolition of the Rule, or in othercases.
Of the residual assets of the Trust at the termination of the Trust, all the Company’s shares in the
Trust will be acquired by the Company at no charge and cancelled after a resolution is approved at the68

Board of Directors.

Of the residual assets of the Trust at the termination of the Trust, any money

remaining in the Trust (deducting the amount to be delivered to directors and executive officers pursuant to(9)) will be paid to the Company.

69

INDEPENDENT AUDITORS' REPORT70

OUTLINE OF JSF GROUP

Japan Securities Finance Co., Ltd.

Subsidiaries

Aﬃliates

JSF Trust and Banking Co., Ltd.

Japan Information Processing
Service Co., Ltd.

Nihon Building Co., Ltd.

JSF Information Technology Co., Ltd.

Name

(millions of yen)

Ratio ofshareholding

14,000100

Trust service, Banking services

100

100

Real estate ownership and leasing
Real estate trading and brokerage

2,460

20.00

Information processing services
Software development and sales

100

20.75

Information processing services
Software development and sales

CapitalBusiness overview

Subsidiaries
JSF Trust and Banking Co., Ltd.
Nihon Building Co., Ltd.
Affiliates
Japan Information Processing Service Co., Ltd.
JSF Information Technology Co., Ltd.

71

CORPORATE DATA

(as of March 31, 2016)

Establishment

President

July 1927

Eizo Kobayashi

Head office

Capital1-2-10 Nihonbashi-Kayabacho, Chuo-ku, Tokyo￥10 billion

103-0025
Tel: +81-3-3666-3184

Number of employees

Fax: +81-3-3666-1403

253

Share Information
Shares outstanding

Stock exchange listing

100,000,000 shares（as of March 31, 2016）

Tokyo Stock Exchange, 1st section (Code:8511)

Number of shareholders

Transfer agent

13,391（as of March 31, 2016）

Japan Securities Agents, Ltd.
1-2-4 Nihonbashi-Kayabacho, Chuo-ku, Tokyo
103-8202
Tel: +81-3-3668-9211

Major shareholders

Number ofshares held(Thousands)

Ratio ofshareholding

Japan Trustee Services Bank, Ltd.
(Trust account)

5,873

5.87

Northern Trust Co. (AVFC) Re IEDU UCITS CLIENTSNON LENDING 15 PCT TREATY ACCOUNT

5,478

5.47

Shihon-Shijo Shinko Foundation

4,810

4.81

Mizuho Bank, Ltd.

4,779

4.77

JP Morgan Chase Bank 385632

4,777

4.77

RBC ISB S/A Dub Non Resident /Treaty Rate Ucits-Clients Account

3,800

3.80

Japan Trustee Services Bank, Ltd.
(Trust account 4)

3,000

3.00

The Master Trust Bank of Japan, Ltd.
(Trust account)

1,634

1.63

Japan Secrities Agents, Ltd.

1,460

1.46

Chase Manhattan Bank GTS Clients
Account Escrow

1,434

1.43

72

Composition of shareholders(by number of shares)Securities
Companies
7.6%

Other JapaneseCompanies
9.6%

Financial
Institutions
25.9%
Individuals
26.1%

ForeignInvestors
30.8%

CORPORATE DATA

Board of Directors, Corporate Auditors and Executive Officers (As of June 24, 2016)
Directors

Executive Officers

Chairperson

Minoru Masubuchi *Chairperson

Minoru Masubuchi

President

Eizo Kobayashi *President

Eizo Kobayashi

Vice President

Shunichiro Higuchi *Vice President

Shunichiro Higuchi

Senior Managing Director

Toshihiro Oritate

Senior Managing Director

Toshihiro Oritate

Managing Director

Yasufumi Oda

Managing Director

Yasufumi Oda

Director

Kenji Fukushima

Kenji Fukushima

Kazuhiro Maeda

Kazuhiro Maeda

Takashi Imai **Senior Executive Officer

Yutaka Tanaka

Tetsuo Mae **Executive Officer

Yasuhiro Hirama

Eiko Shinotsuka **Teruo Murasawa(* Representative Directors)(** Outside Directors)

Corporate Auditors
Tadahiko Genta
Masayuki Hamada
Shuuya Iimura *Toshio Kamiyama *(* Outside Corporate Auditors)

Rating Information
Long-term rating

Short-term ratingStandard and Poor’s (S&P)

A

A-1

Rating and Investment Information, Inc. (R&I)

AA －

a-1+

Japan Credit Rating Agency (JCR)

AA －

J-1+

73

ORGANIZATION

General Meetingof Shareholders

Board of Auditors
Board of Directors(Chairperson, Vice Chairperson)

Nomination and Remuneration
Advisory Committee

President
Management committee

Compliance Committee
Executive Oﬃcers Meeting

Executive Oﬃcers in Charge

Audit Department
Compliance Department
Risk Management Department

ALM Committee

Human Resources Department

Risk Capital Meeting

Corporate Planning Department

System Committee

Business Development Department
Treasury Department
Margin Loan Department
Institutional Sales Department
Retail Business Department
Settlement & Custody Department
Information Systems Planning Department
Osaka Branch74