Securities Finance
ANNUAL REPORT 2019

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 ････････････････････････････････････････････････････････････････････････････････････ 75
Corporate Data ････････････････････････････････････････････････････････････････････････････････････････････ 76

1

FINANCIAL HIGHLIGHTS

Thousands of
U.S. dollars*Millions of yen*
2015

2016

2017

2018

2019

2019

Operating Results:
Operating revenues￥

20,300￥22,035￥23,066￥26,333￥24,321＄

219,137

Operating income

3,025

2,558

2,802

3,881

3,981

35,877

Net income

3,520

2,646

3,078

4,225

3,765

33,931

Total assets￥ 3,482,602￥ 3,249,170￥ 4,645,051￥ 4,960,161￥ 5,291,372＄47,674,313

Net assets

137,145

142,031

139,712

143,811140,793

1,268,520

3.94

4.37

3.01

2.90

2.66

2.66

Financial Position:

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

Net assets

33.94

￥

26.90

￥

31.90

￥

44.24

￥

40.02

＄

0.36

1,373.94

1,467.01

1,452.63

1,518.77

1,519.30

13.68

15

16

18

26

22

0.19

Cash dividend* except per share amountOperating revenues

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

3,881

4,000

30,0003,981

26,33325,00020,00020,30022,03524,321

23,066

3,000

3,025

2,802
2,558

2,000

15,00010,000

1,000
5,000
0

15

16

17

18

0

19

2

15

16

17

18

19

FINANCIAL HIGHLIGHTSNet income

Net income per share(millions of yen)

(yen)

6,000

70
60

5,000
4,225
4,000

50

3,765

3,520

40

3,078
3,000

2,646

33.9

26.9

20

1,000

10

15

16

17

18

0

19

15

Net assets per share

16

17

18

19

Cash dividend per share

(yen)

(yen)

1,600

30
1,519
1,467

1,500

1,519

26
25

1,453

22

1,400 1,374

20

1,300

15

1,200

10

1,100

5

1,000

40.0

31.9

30

2,000

0

44.2

15

16

17

18

0

19

18
15

15

16

16

17

18

19

Note: 1. Yen amounts have been translated into United States dollars, solely for the convenience of the reader, at the rate of￥110.99=U.S.$1 in effect on March 29, 2019.
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

I would like to express my sincere gratitude to you all foryour continued support.
I , S h i g e k i Ku s h i d a , w a s a p p o i n t e d R e p r e s e n t a t i ve
Executive Officer & President, effective June 25, 2019.
In the year ended March 31, 2019, in terms of the
breakdown of operating revenues by business, the marginloan business struggled with year-on-year decrease of
27.1%, but initiatives to expand stock and government
bond sources and tap new domest ic and overseas
transaction needs led to high growth in each of the
securities lending business with year-on-year increaseof 28.7% and the general loan business with year-onShigeki Kushida
President

year increase of 35.4%, not to mention the other business(mainly management of government bonds and othersecurities), too, posting year-on-year increase of 9.3%.

As a result, consolidated operating revenues were 24.3 billion yen (year-on-year decrease of 7.6%), consolidated operating
income was 3.9 billion yen (year-on-year increase of 2.6%), consolidated ordinary income was 5.0 billion yen (year-on-yearincrease of 7.7%) and net income was 3.7 billion yen (year-on-year decrease of 10.9%), securing net income of a level thatexceeds the estimate announced at the beginning of the fiscal year (3.1 billion yen) by slightly more than 20%.
For the year ending March 31, 2020, consolidated operating income of 3.6 billion yen (year-on-year decrease of 9.6%),
consolidated ordinary income of 4.4 billion yen (year-on-year decrease of 12.8%) and consolidated net income of 3.2
billion yen (year-on-year decrease of 15.0%) are estimated.
On top of the shortening of the stock settlement cycle to T+2 in July 2019, we will work on initiatives such as
strengthening earnings power through enhancement of convenience for customers by introducing a new stock lending
system and such.
Dividend for the year ending March 31, 2020 is estimated to be 22 yen from the perspective of placing emphasis on
stable return of profits to our shareholders based on our policy that “the consolidated payout ratio shall not fall below
the 60% level.” With regard to share buybacks, we have set a ceiling of 1 million shares at an acquisition price of up to
700 million yen.
We will continue to aim to ensure rewarding return of profits to our shareholders while taking into account the earnings
situation and stock price situation.
We look forward to our shareholders’ continued support of the Group.

Shigeki Kushida
President

4

BUSINESS REVIEW

BUSINESS REVIEWBusiness Environment

additional interest rate hike by the FRB and partial United

In the year ended March 31, 2019, in terms of the global

States government shutdown, led to it falling below theeconomy, the United States continued its economic growth

20,000-yen level for the first time since September 2017

through expansion in consumption and employment

to 19,155 yen on December 25. After the turn of thewhile Europe came to a standstill toward the second half

new year, on the rebound on the back of developmentsof the fiscal year amid a widespread sense of uncertainty

in trade talks between the United States and China andover the future of trade issues between the United States

expectations over the FRB ending the monetary tightening

and China. Meanwhile, the Japanese economy also madepolicy, it closed at 21,205 yen to end of the fiscal year.

moderate recovery through improvement in corporate
earnings and the employment and income environment.

During this period, the average daily value traded on theFirst Section of the Tokyo Stock Exchange was 2,855.1

As for the equity market, the Nikkei Stock Average (Nikkei

billion yen, a year-on-year decrease of 101.9 billion yen.

225) started at 21,388 yen at the beginning of the fiscal
year and did not fall any lower, due in part to progress

Under such circumstances, the outstanding balancein the strong dollar and weak yen amid easing concernsof standardized margin buying on the Tokyo market

over the trade friction between the United States andwas on a gradual downward trend after peaking in the

China, rising to 24,270 yen—the high for the fiscal

2,900-billion-yen range at the beginning of the fiscal

year—on October 2. Entering December, deterioration in

year, decreasing to the 2,130-billion-yen range at theinvestor sentiment, due in part to concerns over the tradeend of September. Driven by individual investors buying

friction between the United States and China resurfacing,on dips in the stock price adjustment phase in October

Nikkei Indexyen
26,00024,00022,00020,00018,000
Apr
2018

May

Jun

Jul

Aug

Sep

5

Oct

Nov

Dec

Jan
2019

Feb

Mar

Outstanding balance of Standardized Margin Transactions(billions of yen)

3.000
Margin Buying

Margin Selling

2.500
2.000
1.500
1.000
0.500
0.000
Apr
2018

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
2019

Feb

Mar

onward, the balance recovered to the 2,480-billion -yenBusiness Results of the JSF Group

range at the end of October. However, the balance took

Under the described market trends, the outstanding

a downward turn again in November onward. Seeingbalance of loans in total for the Group (average for thealso profit-taking selling by individual investors in thefiscal year) increased by 126.4 billion yen year on year tostock price recovery phase after the turn of the new796.6 billion yen.

year and other factors, the balance hit the 1,790-billionyen range—the low for the fiscal year—at the end

Consolidated operating revenues were 24,321 million yen

of March. Meanwhile, the outstanding balance of(year-on-year decrease of 7.6%), due in part to decrease

standardized margin selling was in the 500-billion-yen

in revenues from fees on lending securities in therange at the beginning of the fiscal year. With new selling

margin loan business. On the other hand, consolidated

increasing as stock prices rose, the balance reached theoperating expenses were 12,284 million yen (year-on-year

680-billion-yen range—the peak for the fiscal year—

decrease of 7.9%), due to decrease in fees on borrowing

in late September. With progress in buybacks entering

securities in the margin loan business, and general andthe stock price adjustment phase in October onward, theadministrative expenses were 8,056 million yen (year-on-balance decreased to the 410-billion-yen range—the low

year decrease of 11.7%).

for the fiscal year—at the end of December. However,with recovery in stock prices leading to new selling also

As a result, consolidated operating income was 3,981

increasing after the turn of the new year, the balance

million yen (year-on-year increase of 2.6%). Consolidated

reached the 590-billion-yen range at the end of March.

ordinary income was 5,046 million yen (year-on-year

6

BUSINESS REVIEW

increase of 7.7%), due in part to increase in dividend

General Loan Businessincome and expansion of equity in earnings of affiliates.

In the general loan business, operating revenues were

However, net income attributable to owners of the parent

1,242 million yen (year-on-year increase of 35.4%). Loans

was 3,765 million yen (year-on-year decrease of 10.9%),

for financial instrument companies were strong and loans

due to elimination of loss brought forward and otherfor individuals and general companies exceeded thefactors leading to increase in tax burden.

previous fiscal year, resulting in the average outstandingbalance of loans in this business for the fiscal year

1) Securities Finance BusinessMargin Loan Businessincreasing by 34.8 billion yen to 81.1 billion yen. In

In the margin loan business, operating revenues weretransactions (cash-collateral stock borrowing and lending

9,661 million yen (year-on-year decrease of 27.1%). The

transactions).

addition, there was large increase in use of equity repo

average outstanding balance of margin loans for the fiscal
year decreased by 65.9 billion yen year on year to 284.2

Securities Lending Businessbillion yen, leading to decrease in revenues from interest

In the securities lending business, operating revenues

on loans. In addition, the average outstanding balance ofwere 6,480 million yen (year-on-year increase ofstock loans for the fiscal year decreased by 104.5 billion

28.7%). Increase in the outstanding balance of loans andyen year on year to 261.6 billion yen, leading to decrease

resumption of gensaki transactions (repo transactions)in revenues from lending fees and premium charges oncontributed to large increase in revenues in the bondover-lent issues, too.

services section. In addition, increase in the outstandingbalance of loans and other factors led to securing increase
in revenues in the general stock lending section.

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

600

Margin Loans

Stock Loans

500
428

401

400

350

300
222

227

265

366

291

284

261

200
100
0

15

16

17

7

18

19

Breakdown of JSF Group operating revenues
2019

2018

( ￥ million)( ￥ million)

20,96922,487

9,661

13,253

1,799

2,225

708

1,073

Fees on lending securities

6,819

9,481

Bond financing and general loans

1,242

917

Securities lending

6,480

5,035

Stocks

1,517

1,458

Bonds

4,962

3,576

Other business

3,586

3,281

Trust Banking Business

2,467

2,971

Interest on loans

58

89

Trust charges

746

741

Real Estate Leasing Business

884

873

Total Operating Revenues

24,321

26,333

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

Other Business

Future Challenges

In the other business, operating revenues were 3,586

Going forward, while there are concerns over the

million yen (year-on-year increase of 9.3%). This wasprolonged trade friction between the United States andattributable to gain on sale of foreign government

China, heightening geopolitical risks in the Middle Eastbond holdings and such decreasing, but posting foreignand other impacts, the global economy is expected to

exchange gains on foreign currency transactions.

recover moderately, mainly in the United States. Whilethe impact of the consumption tax hike scheduled for2) Trust Banking Business

October 2019 is among factors that need to be watched,In the trust banking business, increase in trust charges

the Japanese economy is also expected to continue its

were offset by decrease in gain on sale of government

moderate recovery through improvement in corporatebond holdings and such, resulting in operating revenues

profits and promotion of various policies by thein this business of 2,467 million yen (year-on-year

government.

decrease of 17.0%).
Meanwhile, with the globalization and development

3) Real Estate Leasing Businessof finance accelerating in the financial and securities

In the real estate leasing business, operating revenues

markets, the environment in which the Group operates

were 884 million yen (year-on-year increase of 1.3%).

is undergoing major changes, such as the ongoingtightening of international financial regulations and8

BUSINESS REVIEW

revision of securities clearing systems.

T+2 in July 2019 possibly increasing cases of settlement
failure (failure to hand over securities on the settlement

In light of the described business environment, thedate), we will work on enhancing convenience forCompany continued to undertake initiatives under the 5th

customers by expanding stock sources, introducing a

Mid-Term Management Plan (from fiscal 2017 to fiscal

new stock lending system and such as “a key player in2019) formulated in March 2017. Along with striving tosecurities market infrastructure.”

further enhance the margin loan business, which is core
to a securities finance company, such initiatives included
working to expand the finance- and securities-related

Flexibly addressing the diversifying needs ofcustomers

services provided by the Group and tap new domestic andUnder the recognition of “proactively addressing theoverseas needs. Continuing into the year ending Marchdiverse needs of the securities and financial circles,” we31, 2020 (fiscal 2019), which is the final fiscal year ofwill continue to take challenges toward development

the 5th Mid-Term Management Plan, the Company willof investment indicators and other development of new

address the following challenges in order to enhancebusiness, in addition to working on greater handlingthe fundamental stability of our business and therebyof foreign currency denominated assets, advances

maintain the trust of markets and investors.

in transaction techniques and such, in order to be
responsive to the financial and securities markets thatare undergoing serious changes with the movements of

Promoting use of margin transactions andloans for margin transactions

globalization and tightening of regulations.

We will engage in dissemination activities targeted
at issuer and securit ies company representat ives,

Through initiatives like those described above, the Group

promot ional act ivit ies targeted at investors basedaims to achieve improved business performance andoverseas and such as a means to promote use of margin

enhanced corporate value over the medium to long term,transactions and loans for margin transactions, and also

and thereby continue to ensure rewarding return offocus efforts on initiatives toward the liberalization of

profits to our shareholders.

margin transactions utilizing a proprietary trading system

The continued support and guidance of our shareholders(PTS).

would be greatly appreciated.

Addressing the shortening of the stock
settlement cycle to T+2
In light of the shortening of the stock settlement cycle to9

MANAGEMENT POLICYMANAGEMENT POLICY
Corporate Philosophy

activities, organization, and system and to create an efficient,

As an institution specializing in securities finance, JSF has adynamic structure.

mission to contribute to the development of the securities

At the same time, there have been major changes in themarket by proactively meeting the diverse needs of theenvironment in which our company operates. Specifically,

securities and financial sectors and to enhance the long-

along with technological improvements such as theterm interests of users, while always maintaining a keen

application of artificial intelligence (AI) to products andawareness of its public role.

services, the globalization and development of finance haveincreased speed and international financial regulations andManagement Principles

securities clearing systems have undergone further reviews

・ To practice sound business management by thoroughly

aimed at stabilizing financial markets. As a result, newimplementing compliance, corporate governance, andfinancial transaction needs are also emerging.

risk management and thereby establish solid credibility,

While bearing in mind the possibility that the current

while always maintaining a keen awareness of our social

ultra-low interest rates may continue, our Group will work

responsibilities as a securities finance company.

to strengthen our existing business by leveraging themanagement capabilities and creditworthiness that we・ To enhance enterprise value while maintaining solid

have acquired over time in finance and securities business

equity capital in order to ensure the management

management as well as our market neutrality; at the samestability and financial health required of a company

time, we intend to enhance the fundamental stability ofthat is a key player in securities market infrastructure,

our business by proactively addressing new domestic andto give comprehensive consideration to the earnings

overseas transaction needs and thereby maintain the trust

environment, investment plans, etc., and to ensure profits

of markets and investors.

are returned to shareholders.

In line with this approach, we have formulated a new
medium-term management plan that begins in FY2017.

・ To further enhance JSF’s core customer loans businesswhile also striving to expand the finance- and securities-[Strategies]i) Enhancing the Margin Loan Business as part ofrelated services provided by JSF and Group companies,
develop new business, and to further grow and solidify

securities market infrastructure

the entire Group’s base.

We aim to pursue stable management of our marginloan business and improve profitability by appropriately

・ To further improve the efficiency of organizational andresponding to changes in the stock market environment.

business management within the Group in order toMoreover, we aim to carefully monitor trends among market

flexibly address changes in the business environment.

participants, promote the use of margin loans, enhance theprovision of information relating to margin transactions andmargin loans, and expand the range of investors.

Management Plan
Fifth Mid-term Management Planii）Flexibly addressing the needs of domestic and[Concept]

We aim to enhance our profit opportunities by proactively

It has been over three years since JSF merged with theaddressing the diverse transaction needs of domestic andOsaka Securities Finance Company, Ltd. During that time,

foreign financial instrument companies, through increasing

our group has moved forward with efforts to integrate ourdirect transactions with clients based outside of Japan,

foreign financial instrument companies

10

MANAGEMENT POLICY

including foreign companies that are already customers

continue to upgrade our remote backup arrangementsof JSF, accepting collateral for foreign securities, etc.

while closely monitoring trends in the finance and securities

Moreover, we aim to expand our securities lending businesssectors.

by proactively addressing new needs and reducing thevii） Developing an employee-friendly work

settlement interval for securities.

environment and making the company moreiii）Developing new businessdynamic

We will leverage our strengths as a company with a history

We will increase the productivity of individual personnel

in the securities finance field, and develop new businessand make the company more dynamic by developing a

based on a long-term perspective in collaboration withrewarding and employee-friendly workplace.

Group companies and domestic and foreign partners.

Shareholder Return Policyiv）Diversified management of securities as an

To enhance enterprise value while maintaining solid equity

efficient use of capital

capital in order to ensure the management stability andWe will secure stable revenues by responding to changes

financial health required of a company that is a key player

in the external environment and revising our portfolio in a

in securities market infrastructure, to give comprehensive

flexible manner while maintaining appropriate risk controls.

consideration to the earnings environment, investment plans,Moreover, we will move forward with expandingetc., and to ensure profits are returned to shareholders.

management based on foreign currency-denominated

Our dividend policy is to return profits to shareholders

securit ies such as foreign government bonds andbasically in accordance with the “consolidated payout ratio”

establishing foreign currency funding methods, in order to

as a standard that reflect our business performance, but also

support the development of business using foreign currency.

taking account of “dividend on equity ratio”.

v）Enhancing collaboration with Group companies[Basic Policy]

We will proactively address diversifying transaction

To enhance enterprise value while maintaining solid equity

needs by enhancing collaboration with Group companies,

capital in order to ensure the management stability andespecially subsidiaries. Moreover, we will further solidify thefinancial health required of a company that is a key player

revenue base for the Group as a whole through integrated

in securities market infrastructure, to give comprehensive

initiatives involving JSF and its subsidiaries.

consideration to the earnings environment, investment plans,etc., and to ensure profits are returned to shareholders.

vi）Strengthening business management structure
We will proactively address our social obligations and[Basic Dividend Payment Policy]

ensure that compliance is positioned as a prerequisite of

Our policy is that the consolidated payout ratio, as amanagement, in order to achieve our corporate philosophy.

standard that reflects our business performance, shall not

To establish unwavering social trust in our company, we

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

aim to secure the effectiveness of our internal auditing

shareholders while taking into account the consolidated

and further enhance our risk management in response todividend on equity ratio (DOE = ratio of the dividend amountthe increasingly diverse and complex risks associated withto shareholder equity).

finance business.
In order to maintain the loan business that is our top[Share Buyback Policy]
With a view to offering even more rewarding returns topriority in the event that a major disaster occurs, we will

11

shareholders, we will buy back shares as needed in future
while considering the company’s financial situation, stock
price levels, and so forth.

12

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

credit risk to JSF. The arrangement also contributes tobonds to a borrower, and after mutually agreed period, thecreating fair and stable market by publicly disclosing

borrower repays the lender with bonds of the same typeindication via QUICK, Bloomberg, and other informationand quantity. JSF serves as a broker between borrowers andservices.

lenders.

Transaction types
REPO transactions

The bond borrowing and lending transactions market
was established in May 1990 for the purpose of covering

JSF borrows bonds after depositing cash collateral with abonds sold short, and was followed in April 1996 by thelender and then lends bonds after receiving cash collateral

introduction of REPO (cash-collateral bond borrowing andfrom a borrower. This transaction can be either a Special

lending transactions). JSF was the first company in Japan

Collateral transaction that specifies an issue or a General

to be authorized to offer such brokerage services, because

Collateral transaction that does not specify an issue.

JSF can link securities industries and financial industries
on neutral ground and is well versed in handling of bondOrdinary bond borrowing and lending transactionstransactions.

JSF, in principle, borrows bonds without collateral from alender and then lends bonds after receiving collateral from aborrower.

JSF receives applications from both parties and, on
their behalf, lends and borrows bonds on the basis ofloan agreement. This type of arrangement has several

Gensakiadvantages, including helping to form a transaction that

This transaction involves resale or repurchase of the same

matches the needs of both lender and borrower, maintaining

type and quantity of bonds, etc., at a prescribed price after

high confidentiality of information to ensure the completea fixed period agreed upon in advance between transacting

privacy of both parities, and transferring all counterparty

parties.

Types of bond transactions

LenderLending rate

Cash collateral

Cash collateralInterest

Interest

JS F(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
the extent designated in the Articles of Incorporation.

CORPORATE GOVERNANCE STRUCTURE
1. Management StructureWith the Basic Policy on Corporate Governance, theMultiple outside directors independent from theCompany has adopted “Company w ith Nominat ing

Company shall be appointed to constitute the Board ofCommittee, etc.” as the structure under the Companies

Directors where it is expected that, through their advice

Act since June 2019, based on which the Company strives

and comments based on abundant experience and expert

to clarify the separation of supervision and execution ofknowledge on business management and other issues,

business operations, to further strengthen supervision byappropriateness of the Company’s business operations ismainly outside directors for ensuring the soundness of

secured and business management supervisory functions

management, and to realize prompt business execution thatfrom external viewpoints are performed in an objective andresponds quickly to change in the business environment.

neutral manner.
In principle, the chairperson of the Board of Directors

2. Organization

1) Board of Directors

shall be an outside director.

The Board of Directors not only conducts the decisionmaking on basic management policy and other matters(Membership)

designated by laws and regulations, as well as important

Director Chairperson Naotaka Obata (Outside Director)

matters on business management, but also supervises the

Director Shoko Sugino (Outside Director)

status of execution of duties of directors and executive

Director Shuya Iimura (Outside Director)

officers.

Director Shigeki Kushida
Director Hiroshi Nasuno

In order to enhance efficiency of business management
and speed up execution of operations, the Board of Directors

2) Three Committeesdelegates the decisions on execution of operations other

The Nomination Committee not only determines the content

than the matters to be resolved by the Board of Directorsof election of director candidates pursuant to laws anddesignated by laws and regulations and the Articles ofregulations, but also deliberates and determines the content

Incorporation to representative executive officers.

of election and dismissal of directors, executive officers, thepolicy on election and dismissal of directors and executive

The Board of Directors comprises a variety of directors

officers, and other matters on election and dismissal ofwith different expertise, experiences and other qualifications.

directors, executive officers and corporate officers of the

The Company secures the appropriate number of the Board

Company in general.

of Directors members at which the functions of the Board of
The Audit Committee not only audits the execution of

Directors can be exerted most effectively and efficiently, toCommittee Membership
Nomination Committee

Audit Committee

Remuneration Committee

Chairperson

Naotaka Obata

Shuya Iimura

Naotaka Obata

MemberShoko Sugino

Shoko Sugino

Shoko Sugino

Shigeki Kushida

Hiroshi Nasuno

Shigeki Kushida・Naotaka Obata, Shoko Sugino and Shuya Iimura are each outside directors.

21

Corporate Governance System Structure
Decision Making of Management
General Meeting of Shareholders

External Financial Auditor

Board of Directors
Nomination Committee

Remuneration Committee
Cooperation

Survey/Report, etc.

Audit Committee

Audit

Cooperation

ReportExternal Reporting
Contact Desk

Representative ExecutiveOﬃcer & President
Cooperation

ReportCompliance Committee

Audit

Audit
Department

Compliance Department

Executive Oﬃcer

Management Administration& Report, etc.
Internal
Audit

Risk Management
Department

Mutual
Check

Internal
Audit

22

Business
Department

JSF Group Companies

Management Committee

Consultation and Report

Business
Operetion

Entrustment andSupervision ofbusiness execution

CORPORATE GOVERNANCE

duties of directors and executive officers, prepares audit

etc., it also discerns risk management and so forth throughreports and such, but also deliberates and determines

rigorous internal audits of the effectiveness and efficiency

the content of proposals on election and dismissal ofof operations, the accuracy and reliability of financial andaccounting auditors for submission to the general meeting

operational information, and the safeguarding/conservationof shareholders and such.

of assets. Through these activities, the Audit Department
verifies the appropriateness and effectiveness of the internal

The Remuneration Committee not only determines

management system in respect to control and management

the individual amounts of remuneration for directorsof risks and other factors in individual business units.

and executive officers and determines the policy on
determination thereof pursuant to laws and regulations,3) Status of Accounting Audits

but also deliberates and determines the matters on

Accounting audits of the Company are performed byremuneration for directors and executive officers of thecertified public accountants Wataru Kobayashi, Hidehiro

Company in general.

Goto and Nobuyuki Mito of Crowe Toyo & Co. Accounting
audits are assisted by 15 certified public accountants and
10 others, and care is taken to eliminate bias in years of

In principle, the chairperson of the Nomination/Audit/

experience.

Remuneration Committee shall be an outside director.

3) Executive Officers

The Company has entered into an agreement limiting

The representative executive officers and executive

liability with four non-executive directors, based on which

officers determine the execution of operations and executethe amount of liability for damages is limited to the amountoperations so delegated by the Board of Directors based

provided for in laws and regulations.

on the segregation of duties and hierarchy of commands
designated by the Board of Directors.

matters related to the execution of operations, among other[Policy on Determination of Amount of
Remuneration or Method of Calculation Thereof]
1. P olicy on Determination of Amount of Officers’
Remuneration and Such or Method of
Calculation Thereof

matters.

Remuneration and such for the officers of the Company

The Company has established the Management
Committee, which deliberates or determines important

shall be based on systems and standards in accordancewith the directors’ and executive officers’ roles and3. Status of Audit Committee Audits, Internal
Audits and Accounting Audits

expected functions, in order to achieve sustained growth

1) Status of Audit Committee Audits

and enhancement of corporate value over the medium

The Audit Committee comprises two outside directors andto long term based on the corporate philosophy andone internal director, one of which is appointed as a full-management policy. Specifically, the individual amounts

time Audit Committee member (outside director). The dutiesof the remuneration and such shall be determined by theof the Audit Committee are assisted by the corporate officer

Remuneration Committee based on the following policyin charge.

determined by the Remuneration Committee.

2) Status of Internal Audits

1) Directors

The internal audit structure consists of the Audit Department

With a view to having supervisory functions exerted,(approximately 10 members) that is independent of all otherdirectors shall receive only the fixed monthly remuneration

business units. Not only does it perform internal audits of(base remuneration), and remuneration linked to thecompliance with all applicable laws, regulations, contracts,business performance and such shall not be provided to23them.

Base remuneration: 65%
Performance-based remuneration (officers’ bonuses):

Individual directors’ remuneration shall be determined20%

in accordance with responsibilities as directors, such as

P erformance-based remunerat ion (share-based

whether full-time or part-time and acting as chairperson.

remuneration): 15%

Directors concurrently serving as executive officers shall

3. P olicy on Determination of PerformanceBased Remuneration

not receive remuneration as directors.

The following shall be the benchmark and such for the2) Executive Officers

performance-based remuneration (officers’ bonuses andWith a view to enhancing the correlation with the Company’share-based remuneration) portions of the remunerations business performance and share value, the remunerationand such for the executive officers of the Company.

for executive officers shall comprise a fixed monthly
remuneration (base remuneration), officers’ bonuses linked

1) Officers’ Bonuses

to business performance and share-based remuneration.

In the same way that dividend is determined basedon the consolidated payout ratio, a certain percentage(approximately 2%) of consolidated net income shall be the

The fixed monthly remuneration (base remuneration)

total amount of officers’ bonuses.

shall be determined in accordance with each executive
officer’s position.

The individual amounts of pay shall be determined inaccordance with the executive officers’ roles and other

The officers’ bonuses shall be determined in accordance

factors.

with the business performance of each fiscal year, with the
purpose of clarifying the responsibility of management.

2) Share-Based Remuneration
As for the share-based remuneration, the Board Benefit

The number of points serving as the basis shall be

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

determined in accordance with each executive officer’s

are determined in correlation with medium- to long-term

position.

business performances, to the executive officers, to whom
From the number of points serving as the basis, addition

the Company’s shares will be issued upon their retirement

shall be made if the average amount of consolidated

from office in accordance with the points.

ordinary income or loss over the past three years including

2. Policy on Determination of Breakdown of
Pay of Performance-Based Remuneration
and Remuneration and Such Other than
Performance-Based Remuneration

the fiscal year under review is above the basis andExecutive officers’ remuneration and such shall be based onas the benchmark is enhancing the correlation with thethe following breakdown of pay by type of remuneration ininterests of shareholders over the medium to long term

the case of pay based on the business performance serving

by using business performance excluding the effect ofas the basis.

infrequently occurring income or loss.

subtraction shall be made if below.
The reason for using consolidated ordinary income

24

CORPORATE GOVERNANCE

Appendixof shareholders can execute their rights at the general

Basic Policy on Corporate Governance

1) Appropriately set the schedules related to the general

The Company has established the Basic Policy onenhancement of dialogue with shareholders and provisionCorporate Governance as follows in order to achieve itsof accurate information for that purpose.

sustained growth and enhancement of its corporate value2) Send and disclose a notice of convocation of theover a medium to long term.

general meeting of shareholders as early as possible inmeeting of shareholders.
meeting of shareholders from such viewpoints asorder to secure enough time for shareholders to study
1. Fundamental Views on Corporate Governancethe content.

As an institution specializing in the securities finance3) Provide information (such as information on thebusiness, the Company is keenly aware of its public role

Company’s operating results) that is necessary forat all times, and makes it a mission to contribute to theshareholders to make proper judgments at the generaldevelopment of the securities market by proactively

meeting of shareholders on its website and through otheraddressing the diverse needs of the securities andmeans.

financial circles and working to enhance the long-term4) Establish an environment in which all shareholders

interests of the securities market participants and users.

including those who do not attend the general meeting

Based on this thinking, the Company aims to gain the firmof shareholders can exercise their voting rights

trust of the society through sound business operations.

appropriately, such as utilizing the Electronic Voting
Platform for Foreign and Institutional Investors.

With this corporate philosophy, the Company has
adopted “Company with Nominating Committee, etc.”

In addition, when there are a large number of votes

as the structure under the Companies Act, based on

against any of the agendas proposed by the Company atwhich the Company will strive to clarify the separation

the general meeting of shareholders, the Company shallof supervision and execution of business operations,analyze the reasons and report the analysis results toto further strengthen supervision by mainly outside

the Board of Directors as well as investigate necessary

directors for ensuring the soundness of management,

responses.

and to realize prompt business execution that responds(3) Protecting the rights of shareholders

quickly to change in the business environment.

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 the25shareholders. Moreover, the Company shall not unduly

Directors regarding the investment efficiency andpreclude 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.

As a result of our examination, we will reduce such

The Company shall respond to requests for dialogue fromholdings that we determine deficient in necessity.

its shareholders and investors (hereinafter referred to as
the “shareholders, etc.”) to the extent and by the methods

With regard to the exercise of voting rights of sharesconsidered to be appropriate by the Company.

the Company holds in strategic shareholdings, theCompany shall exercise the rights for all agendas as a

Policies on establishing a system and implementing

rule.

measures for promoting constructive dialogues with theshareholders, etc. are as follows:

Judgment of approval or disapproval for each agenda

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

shall be made by comprehensively considering suchby the Corporate Planning Department and supervised

factors as whether the subject will contribute to theby the officer in charge of the Corporate Planningmedium- to long-term enhancement of the corporate

Department.

value of the relevant company and common interests of2) When conducting dialogues with the shareholders,

its shareholders, and whether the subject will not lessen

etc., the Corporate Planning Department shall be central

the significance of holding the relevant shares by thein making appropriate coordination with internal

Company.

departments, including the Business Development
Department, and affiliate companies through information

In particular, in the event of a serious scandal or aexchange and other measures.

proposal that could significantly damage shareholder

3) The Company shall hold operating results briefing

value, the Company shall make a careful decision.

sessions on a regular basis, among other measures,in order to enhance the means of dialogues with the(6) Transactions among related parties

shareholders, etc.

When the Company conducts transactions with its4) Opinions, etc. obtained through dialogues with theofficers and principal shareholders, etc., the Company

shareholders shall be reported to the Board of Directors,

shall submit the matter as agenda to the Board ofetc. on a regular basis.

Directors in advance and have it approved by the Board

5) Dialogues with the shareholders, etc. shall beof Directors so that the relevant transaction will not harm

conducted in compliance with laws and regulations as

the Company’s interests and common interests of thewell as internal rules, and the insider information shall beshareholders, except for cases where it is evident thatmanaged appropriately.

the transaction is conducted under the similar terms and6) The Company shall endeavor to understand theconditions as ordinary transactions in general.

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

3. Relationship with Stakeholders other thanShareholders

dialogues with the shareholders, etc.

In order to achieve sustained growth and enhancement(5) Strategic shareholdingsof its corporate value over medium to long term, the

The Company may hold the shares of the companies

Company shall respect not only the shareholders but alsothat are considered to be necessary for such purposesa variety of its stakeholders including customers, officers

as strengthening the business relationship with them, inand employees and local communities, and endeavors toorder to achieve sustained growth and enhancement ofmaintain good and smooth relationships with them.

its corporate value over the medium to long term.
The Company shall establish the “Code of Conduct
The Company shall make a report to the Board of

for Officers and Employees” and make all of its officers

26

CORPORATE GOVERNANCE

and employees understand that they are to respect theimportant matters related to the execution of operations,stakeholders’ positions.

among other matters.
(2) Board of Directors

Moreover, in view of the importance of the issues
related to sustainability, the Company shall endeavor to

The Board of Directors comprises a variety of directors

take appropriate measures to address such issues, andw ith different expert ise, experiences and otherwork to secure diversity, including promotion of women’squalifications. The Company secures the appropriate

active engagement.

number of the Board of Directors members at which thefunctions of the Board of Directors can be exerted mosteffectively and efficiently, to the extent designated in the

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 t

Articles of Incorporation.

transparency, the Company shall endeavor to proactively
make fair, t imely and appropriate disclosure ofMoreover, multiple outside directors independent

management information by using its website andfrom the Company shall be appointed to constitute thethrough other means, not limited to information

Board of Directors where it is expected that, through theirdisclosure based on the Companies Act, the Financial

advices and comments based on abundant experiences

Instruments Exchange Act and listing rules of the security

and expert knowledge on business management andexchange, etc.

other issues, appropriateness of the Company’s business
operations is secured and business management

In making information disclosure, the Company shallsupervisory functions from external viewpoints iswork to provide plain and concrete descriptions.

performed in an objective and neutral manner.
In principle, the chairperson of the Board of Directors

5. Corporate Governance System(1) Board of Directors and other systems

shall be an outside director.

The Board of Directors not only conducts decisionmaking on basic management policies and other matters(3) Nomination, Audit and Remuneration Committees

designated by laws and regulations, as well as important

The Nomination Committee not only determines thematters on business management, but also supervises thecontent of election of director candidates pursuant tostatus of execution of duties of directors and executive

laws and regulations, but also deliberates and determines

officers.

the content of election and dismissal of directors,
executive officers and corporate officers, the policy on

In order to enhance efficiency of business management

election and dismissal of executive officers and corporate

and speed up execution of operations, the Board of

officers, and other matters on election and dismissal of

Directors delegates the decisions on execution of

directors, executive officers and corporate officers of theoperations other than the matters to be resolved by theCompany in general.

Board of Directors designated by laws and regulations
and the Articles of Incorporation to representative

The Audit Committee not only audits the execution of

executive officers.

duties of directors and executive officers, prepares audit
reports and such, but also deliberates and determines

The representative executive officers and executive

the content of proposals on election and dismissal

officers determine the execution of operations andof accounting auditors for submission to the general

execute operations so delegated by the Board of Directors

meeting of shareholders and such.

based on the segregation of duties and hierarchy ofcommands designated by the Board of Directors.

The Remuneration Committee not only determines
the individual amounts of remuneration for directors,

The Company will establish the Management

executive officers and corporate officers and determines

Committee, which shall deliberate and determine

the policy on determination thereof, but also deliberates

27and determines the matters on remuneration forthe share-based remuneration, the Board Benefit Trust

directors, executive officers and corporate officers of the(BBT) scheme shall be used to provide points, which are

Company in general.

determined in correlation with medium-term businessperformance, to the executive officers, to whom theIn principle, the chairperson of the Nomination/Audit/

Company’s shares will be issued upon their retirement

Remuneration Committee shall be an outside director.

from office in accordance with the points.

(4) Appointment and Dismissal of directors, executive

With a view to having supervisory functions exerted,

officers and corporate officers

directors (excluding those concurrently serving as

The Company elects persons who are believed to

executive officers) shall receive only the fixed monthly

contribute to achieving its sustained growth andremuneration (base remuneration), and remuneration

enhancement of its corporate value over a medium tolinked to the business performance and such shall not

long term as candidates for the directors, auditors andbe provided to them. Individual directors’ remuneration

executive officers, taking into account their personality,

shall be determined in accordance with responsibilities

knowledge, capacity and experiences, etc. and with theiras directors, such as whether full-time or part-time andfiduciary duties to the shareholders in mind.

acting as chairperson. Directors concurrently serving
as executive officers shall not receive remuneration as

For the outside directors, the Company shall electdirectors.

persons who, on top of the above, satisfy the criteria for
independence the Company sets forth separately.

The remuneration for corporate officers shall be inaccordance with that for executive officers.

In the event of a serious incident resulting in a loss ofcredibility or substantial damage, or a serious violation of

The individual amounts of the remuneration forcompliance by executives (meaning directors, executive

the directors, executive officers and corporate officers

officers and corporate officers; the same shall apply

shall be determined by the Remuneration Committee.

hereinafter), the Nomination Committee shall consider

Modifications to the remuneration framework and thewhether or not it is necessary to dismiss the relevant

remuneration system, etc. shall also be determined by the

executives.

Remuneration Committee.
(6) Operation of the Board of Directors

Election of candidates for executives and dismissal of
executives shall be determined pursuant to the provisions

The agendas and deliberation time of the Board ofof laws and regulations after consideration by the

Directors shall be set in a manner that should allow

Nomination Committee.

deliberations necessary and sufficient for deciding onimportant execution of operations and supervision of(5) Remuneration of directors, executive officers andexecution of operations.

corporate officers
With a view to enhancing the correlation with the

As a rule, materials for the Board of Directors meeting

Company’s business performance and share value, theshall be delivered in advance, taking into account the

remuneration for executive officers shall comprise a fixed

time required for the attendees of the meeting to makemonthly remuneration (base remuneration), officers’

prior preparations, in order to help deepen deliberations

bonuses linked to business performance and share-basedat the meeting. In addition, prior explanations may beremuneration. The fixed monthly remuneration (basegiven to them depending on the content of the agendas.

remuneration) shall be determined in accordance witheach executive officer’s position. The officers’ bonuses

Schedules of holding the Board of Directors

shall be determined in accordance with the businessmeeting and assumed agendas for the meeting shall be

performance of each fiscal year, with the purpose ofdetermined and notified in advance.

clarifying the responsibilities of management. As for28

CORPORATE GOVERNANCE

Aside from the Board of Directors meeting and theto provide them, when they take office, with informationcommittees meeting, a meeting by outside directors shallregarding the Company’s operations, finance, organization

be held periodically to exchange information and shareand others as well as knowledge on laws and regulations,recognitions, so that they can exert functions from theiretc., taking into account the careers and experiences,

standpoint that is independent from the Company.

etc. of the directors or the Audit & Supervisory Board
members who are taking office. Moreover, the Company(7) Evaluation and assessment of effectiveness of theshall provide opportunities, as needed, to continuously

Board of Directors

update such information or knowledge.

The Company shall make self-assessment as to theeffectiveness of the Board of Directors once a year, and(9) Accounting Auditor

disclose the outline of the results. Furthermore, the

The Company shall understand the responsibilities

Company shall make appropriate review of the Board of

the accounting auditor owes to the shareholders andDirectors based on the assessment.

investors, and endeavors to secure appropriate audits asstated below.

(8) Support system and training policies for directors
In order for the directors to effectively perform their roles(1) The Audit Committee shall establish criteria toand responsibilities, related departments and sections ofappropriately assess the accounting auditor. Moreover,

the Company, including the Corporate Planning Division

the Audit Committee shall check whether the accountingof the Corporate Planning Department that is in charge

auditor has independence and expertise required for anof the work related to the Board of Directors, shallaccounting auditor.

coordinate with each other to exchange information and(2) The Company shall endeavor to provide theconduct other tasks.

accounting auditor with an audit environment thatshould allow high-quality audits, including provision of

When it is necessary to make communications

opportunities to interview directors, executive officers,

and adjustments between the outside directors andthe Audit Committee and other departments required

the management team, the secretariat of the Board offor auditing and securing sufficient time for conducting

Directors shall be central in addressing such matters.

audits.

In order for the directors and the Audit & Supervisory

When the accounting auditor points out injustice,

Board members to effectively perform their roles andflaws or problems, etc., the Company shall accept what is

responsibilities, the Company shall set the opportunity

pointed out in earnest and take appropriate measures.

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

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 malfunctions,

System Risk

etc., of computer systems or due to unauthorized uses (including cyberattacks) of computer
systems, etc.

30

RISK MANAGEMENT

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 managementmonitoring system is facilitated. Moreover, in preparation

In our company, each department has jurisdiction over theagainst the threat of cyberattacks, countermeasures for

management of processing risks. To lessen processing risks,computer systems and cybersecurity measures have been

through facilitation of regulations and manuals and also

implemented. In addition, concerning the protection ofthrough trainings, all employees are familiarized with proper

our own information assets (information and information

handling of operational work. In addition, by ensuring thatsystems), necessary regulations are consolidated and alleach department implements its own voluntary inspection

officers and employees are familiarized with handlingon a regular basis, we endeavor to prevent occurrence of

information assets. Furthermore, to minimize the effects ofaccidents and improve our business processing system.

system failures, measures are taken such as the facilitationof various handling manuals, implementation of drills, etc.

System risk management
In our company, the Information Systems Planning

Internal auditing system

Department holds jurisdiction over system risks

In our company, the Audit Department, which is independent

management. To ensure stable operations of our computerfrom other departments, implements strict internal auditing

systems, the department takes preventive measures againstof overall business operation on management status of eachsystem failures such as duplicating networks and equipment.

category of risk along with regulatory compliance status and

To develop and operate our computer systems safely andvalidates the appropriateness and efficacy of our internal

effectively, all of our operation procedures are clear and ourcontrol 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 Directors

Management Committee

Executive Oﬃcer incharge of Treasury
Department

ALM
Committee

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

Executive Oﬃcer
in charge of Audit
Department

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
Categories
Risk Management
SectorRisk Operation Sector

Executive Oﬃcer incharge of Each
Department

Risk Capital
Meeting

Integrated Risk
Management Sector

Meeting

Management

President

FINANCIAL SECTION

Consolidated Financial Statements ･･････････････････････････････････････････････････････････････････ 36
Consolidated Balance Sheet ･ ･･･････････････････････････････････････････････････････････････････････ 36
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 ･････････････････････････････････････････････････････････････････････････ 74

35

CONSOLIDATED BALANCE SHEETJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2019

AssetsCurrent assets:
Cash (notes 3 and 15)
Call loans
Short-term investments (notes 4 and 15)
Short-term loans receivable (note 15)
Receivables under resale agreements
Collateral money for securities borrowed
Other current assets (note 15)
Allowance for doubtful receivables
Total current assets¥

Property, plant and equipment:
Buildings and structures
Tools, furniture and fixtures
Land (note 6)$ 8,925,759
900,982
2,150,140
6,026,615
4,924,254
19,259,303
854,149(6,631)
43,034,571

8,809
1,583
3,265
13,657(7,368)6,289

79,457
13,434
29,417
122,308(68,123)
54,185

3,451

3,884

31,093505,163570(233)
505,500

787,232
1,948(678)
788,5024,551,428
5,135(2,099)4,554,464¥ 5,291,372 ¥ 4,960,161$ 47,674,313

Intangible assets, net
Investments and other assets:
Investments in securities (notes 4, 5 and 15)
Other investments and other assets
Allowance for doubtful receivables
Total investments and other assets

See accompanying notes to consolidated financial statements.

36

990,670 ¥ 777,895
100,000
95,000238,644
60,817
668,894
1,002,931
546,543–
2,137,590
2,168,170
94,802
57,791(736)(1,118)4,776,407
4,161,486
8,819
1,491
3,265
13,575(7,561)
6,014

Accumulated depreciation
Net property, plant and equipment

Total assets

Millions of yen
2019
2018

Thousands of
U.S. dollars(note 2)2019

Millions of yen
2019
2018

Liabilities and Net Assets
Current liabilities:
Call money (notes 7 and 15)¥ 1,016,460 ¥ 771,414
Short-term borrowings and current installments of
16,547
15,510long-term borrowings (notes 7 and 15)
Commercial paper (note 7)
214,000
459,000
Payables under repurchase agreements
1,453,352–
Accrued income taxes (note 9)368
621
Collateral money received for securities lent
1,563,430
2,505,135
Other current liabilities
850,955
1,040,772
Total current liabilities
5,115,112
4,792,452
Non-current liabilities:
Long-term borrowings (note 7)
Deferred tax liabilities (note 9)
Deferred tax liabilities for land revaluation (note 6)
Liability for retirement benefits (note 8)
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock (note 10):
Authorized 200,000,000 shares;
issued 100,000,000 shares in 2019 and 2018
Capital surplus (note 10)
Retained earnings (note 11)
Treasury stock, at cost; 7,330,865 shares in 2019
and 5,311,432 shares in 2018
Total stockholders’ equity
Accumulated other comprehensive income (loss):
Net unrealized gain on other securities(note 4)
Deferred loss on hedges (note 17)
Gain on revaluation of land (note 6)
Remeasurements of defined benefit plans (note 8)
Total accumulated other comprehensive
incomeTotal net assets

Thousands of
U.S. dollars(note 2)
2019
$ 9,158,122
149,085
1,928,102
13,094,441
3,316
14,086,224
7,666,952
46,086,242

4,000
10,07574
1,381
19,93735,467

3,000
9,628
74
441
10,75523,89836,03990,774667
12,442
179,629
319,551

5,150,579

4,816,350

46,405,793

10,00010,00090,098

11,326109,688

11,326
108,588

102,046988,269(4,382)
126,632(3,094)
126,820(39,481)
1,140,932

29,171

24,484

262,825(14,133)168(1,045)(7,243)
168(418)(127,336)
1,514(9,415)

14,161

16,991

127,588

140,793

143,811

1,268,520¥ 5,291,372 ¥ 4,960,161$ 47,674,313

Commitments and contingencies (note 18)
Total liabilities and net assets

37

CONSOLIDATED STATEMENT OF INCOME

Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2019

Operating revenues
Operating expenses
Operating profit
General and administrative expenses (note 12)
Operating income¥

Other income (deductions):
Interest income
Dividend income
Interest expenses
Equity in earnings of affiliates
Gain on bad debt recovered
Loss on sale of investments in securities
Gain on sale or liquidation of investments insecurities
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 parent¥

Millions of yen
2019
2018
24,322 ¥26,334
12,284
13,331
12,03813,003
8,056
9,122
3,982
3,881

Thousands of
U.S. dollars(note 2)
2019$219,137
110,677
108,460
72,58335,877

229
547
(0)
248
22
(41)
–

228
414
(0)
123
22
–
132

2,063
4,928
(0)
2,235
198
(369)
–

19
1,024
5,006

17
936
4,817

171
9,226
45,103

842
398
1,240
3,766
–
3,766

938
(346)
592
4,225
–
4,225

7,586
3,586
11,17233,931–33,931¥$

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, 2019

Net income¥
Other comprehensive income (loss) arising during
the year (note 13):
Net unrealized gain on other securities (note 4)
Deferred loss on hedges
Remeasurements of defined benefit plans (note 8)
Share of other comprehensive loss of affiliates accounted
for by the equity method
Total other comprehensive income (loss)
arising during the year
Comprehensive income¥
Comprehensive income attributable to:
Owners of parent¥
Non-controlling interests
See accompanying notes to consolidated financial statements.

38

Millions of yen
2019
2018
3,766 ¥
4,225

Thousands of
U.S. dollars(note 2)
2019$
33,931

4,700(6,891)
(637)

4,837
(2,159)(9)42,346(62,087)(5,739)

(2)

(75)

(18)

(2,830)
936 ¥

2,594
6,819

936
–

6,819
–

¥

$
$

(25,498)
8,433
8,433
–

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2019

Millions of yen

Stockholders’ equity

Commonstock

CapitalsurplusRetainedearnings(note 10) (note 10) (note 11)
Balance at March 31, 2017
Changes arising during year:

Accumulated other comprehensive income

Treasury
stock

Total

(note 4)

¥ 10,000 ¥ 11,326 ¥106,196 ¥ (2,207) ¥125,315

Cash dividends
Net income attributable to owners ofparentPurchase of treasury stock(1,833)4,225

Disposition of treasury stock
Net changes other than stockholders’equityTotal changes during the year
Balance at March 31, 2018

Remeasure-mentsofdefinedbenefitplans

Netunrealized
gain onDeferred Gain on
otherloss on revaluatio
securities hedges
n of land(note 17)

(note 6)

¥ 19,737 ¥ (5,084) ¥(note 8)

168 ¥

Total

Total net
assets(424) ¥ 14,397 ¥139,712(1,833)(1,833)

4,225

4,225

(892)

(892)

(892)

5

5

5
4,747

(2,159)

–

6

2,594

2,594

–

–

2,392

(887)

1,505

4,747

(2,159)

–

6

2,594

4,099

10,00011,326

108,588(3,094)

126,820

24,484(7,243)

168

(418)

16,991

143,811

Changes arising during year:
Cash dividends
Net income attributable to owners ofparentPurchase of treasury stock
Disposition of treasury stock
Net changes other than stockholders’equityTotal changes during the year
Balance at March 31, 2019

(2,666)(2,666)

3,766

3,766

3,766

(1,305)(1,305)(1,305)

17

17

17

(1,288)

(188)

(0)
–

(0)

1,100

¥ 10,000 ¥ 11,326 ¥109,688 ¥ (4,382) ¥126,632(2,666)

4,687(6,890)–(627)(2,830)(2,830)

4,687(6,890)–(627)(2,830)(3,018)¥ 29,171 ¥ (14,133) ¥168 ¥ (1,045) ¥ 14,161 ¥140,793

Thousands of U.S. dollars(note 2)
Stockholders’ equity

Balance at March 31, 2018

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$ 90,098 $

102,046 $ 978,358 $ (27,876) $ 1,142,626

Total

Accumulated other comprehensive income
RemeasureNet
unrealized-ments ofGain ongain onDeferreddefinedotherloss on revaluation benefit
hedgesof landplans
Total
securities

Total net
assets$ 220,596 $$1,295,712(65,258) $1,514 $

(3,766) $ 153,086

Changes arising during year:
Cash dividends(24,020)(24,020)(24,020)

Net income attributable to owners of parent

33,93133,93133,931(11,758)(11,758)(11,758)

153

153

Purchase of treasury stock
Disposition of treasury stock(0)

Net changes other than stockholders’ equity
Total changes during the year
Balance at March 31, 2019–
$ 90,098 $

(0)

9,911

(11,605)(1,694)

102,046 $ 988,269 $ (39,481) $ 1,140,932

See accompanying notes to consolidated financial statements.

39

153
42,229(62,078)–(5,649)(25,498)(25,498)

42,229(62,078)–(5,649)(25,498)(27,192)(9,415) $ 127,588$1,268,520$ 262,825 $ (127,336) $1,514 $

CONSOLIDATED STATEMENT OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2019

Cash flows from operating activities:
Income before income taxes and non-controlling interests¥
Adjustments to reconcile income before income taxes andnon-controlling interests to net cash provided by (used in)operating activities:
Depreciation and amortization
Loss on sale/disposal of property, plant and equipment
Gains relating to short-term investments and investments insecurities
Allowance for doubtful receivables
Increase (decrease) in liabilities for retirement benefits
Interest and dividend income
Interest expenses
Equity in earnings of affiliates(Increase) decrease in short-term loans receivable
Increase in call loans
Increase in receivables under resale agreements(Increase) decrease in collateral money for securities
borrowed
Increase in call money
Increase in short-term borrowings
Increase in payables under repurchase agreements
Increase (decrease) in commercial paper
Increase (decrease) in collateral money received for
securities lent
Increase in collateral money received for loan transactions
Purchase of short-term investments and investments insecurities
Proceeds from sale/redemption of short-term investments
and investments in securities
Other, net
Sub totalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided 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

Millions of yen
2019
2018
5,006

¥

4,817

Thousands of
U.S. dollars(note 2)
2019$45,103

1,380
32

1,364
3

12,434
288

(441)
(827)
940
(9,727)2,162(248)
334,037(5,000)(546,543)

(730)
384
(2,594)(9,034)1,260(123)(415,179)(62,000)–(3,973)(7,451)
8,469(87,639)
19,479(2,235)3,009,613(45,049)(4,924,254)

30,581
245,046
2,037
1,453,352(245,000)(237,448)
144,5151,500–
274,000

275,5292,207,821
18,35313,094,441(2,207,406)(941,705)
15,80912,556
12,124(8,484,593)
142,436(115,870)(253,811)(1,043,968)

235,014(238,518)
221,517
9,539(2,108)(2,596)226,352

345,217(114,603)(297,782)
9,101(1,128)(706)(290,515)

2,117,434(2,149,004)
1,995,828
85,945(18,993)(23,389)
2,039,391(10,664)
2,682
(44)
(631)
4
(8,653)(8,498)
4,520
(60)
(408)
6
(4,440)(96,081)
24,164(396)(5,685)
36(77,962)(2,666)(1,305)
1(3,970)213,729
771,469
985,198(1,834)(892)–(2,726)(297,681)
1,069,150
771,469(24,020)(11,758)9(35,769)
1,925,660
6,950,797
8,876,457¥$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2019(1)

Summary of Significant Accounting Policies(a)Basis of Presenting Consolidated Financial Statements
Japan Securities Finance Co., Ltd. (the Company) and its consolidated subsidiaries maintain their books 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.
cost.

Securities classified as “held-to-maturity securities” are stated at amortized

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.
Resale/repurchasetransactions

originate

intheJapanesefinancialmarkets,

andinvolvetheselling/purchasing of commercial paper, certificates of deposit, Japanese government bonds and various otherdebt securities to/from an institution wishing to make a short-term investment, with the Company agreeing torepurchase/resell them from/to the institution on a specified date at a specified price.

Under the “AccountingStandards for Financial Instruments”, resale/repurchase transactions are accounted for as financing
transactions.

Resale/repurchase transactions are carried at their contractual amounts.

41

(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 and the leasehold improvements and structures acquired on or after April 1, 2016, which are depreciatedbased on the straight-line method.
The estimated useful lives are as follows:
Buildings and structures(f)

3–50 years

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.

Consolidated subsidiaries calculate retirement benefit obligation based on a simplified method, which ispermitted 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 this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled, and theeffect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(k)

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

42

(l)

Provision for Share Remuneration Plan
Provision for share remuneration plan is provided for delivery of the Company’s shares to directors andexecutive officers at an amount of estimated obligation for share remuneration based on the internal rule.
(m)
Accounting standards issued but not yet applied
Accounting Standards for Revenue Recognition etc.
・Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 30, 2018)
・Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance

No.

30,

March 30, 2018)(1) Overview
The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board(FASB) co-developed a new comprehensive revenue recognition standard and published “Revenue fromContracts with Customers” in May 2014 (IFRS No. 15 in IASB, Topic 606 in FASB). Given that IFRS No. 15
will be applied from the fiscal year starting on or after January 1, 2018 and Topic 606 from the fiscal year
starting after December 15, 2017, the Accounting Standards Board of Japan (ASBJ) has developed
comprehensive accounting standards for revenue recognition and published them together with
implementation guidance
The ASBJ basic policy in developing accounting standards for revenue recognition is thought to be
setting accounting standards, with the incorporation of the basic principles of IFRS No. 15 as a starting
point, from a standpoint of comparability between financial statements, which is one of the benefits ofensuring consistency with IFRS No. 15, and to be adding alternative accounting treatments without losing
the comparability if there is an item that we should take into account in practices, etc. that have been
conducted in Japan.
(2) Planned applicable date
The accounting standards are to be applied from the beginning of the year ending March 31, 2022.
(3) Impact of application on these accounting standards
The Company is currently evaluating the impact of application of these accounting standards to theconsolidated financial statements.
(n)

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, 2019

43

(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 29, 2019, which was ¥110.99 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, 2019 and 2018 are as
follows:
Thousands ofMillions of yen
2019
Cash

¥

U.S. dollars
2018

990,670¥2019

777,895$

8,925,759

Time deposits with maturities of overthree months(1,470)(2,424)(13,245)

Certificate of deposits with maturities ofover three months(4,002)

Cash and cash equivalents(4)¥(4,002)985,198¥(36,057)

771,469$

8,876,457

Short-term Investments and Investments in Securities
No trading securities were held both as of March 31, 2019 and 2018.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity

securities as of March 31, 2019 and 2018 are summarized as follows:
Millions of yen
Balance

Gross

Gross

sheet

unrealized

unrealized

amountgain

loss

Fair value

March 31, 2019
Government bond securities

¥

1,514

¥

244

¥

–

¥

1,758

¥

1,514

¥

244

¥

–

¥

1,758

¥

1,515

¥

208

¥

–

¥

1,723

¥

1,515

¥

208

¥

–

¥

1,723

March 31, 2018
Government bond securities

Thousands of U.S. dollars
Balance

Gross

Gross

sheet

unrealized

unrealized

amountgain

loss

Fair value

March 31, 2019
Government bond securities$

13,641

$

2,198

$

–

$

15,839$13,641

$

2,198

$

–

$

15,83944

Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities
with fair value as of March 31, 2019 and 2018 are summarized as follows:
Millions of yen
Gross

Gross

BalanceAcquisition

unrealized

unrealized

sheet

cost

gain

loss

amountMarch 31, 2019
Equity securities

¥

5,205

¥

8,138

¥

(19) ¥

13,324(0)623,009

Bond securities:
Government bond securities

589,471

33,538

Corporate bond securities

41,39333(2)41,424Other

31,257116(971)

30,402Other securities(132)

10,927¥677,116

9,790¥

43,094

1,269¥(1,124) ¥719,086

¥

5,279

¥

8,511

¥

(49) ¥

13,741(3)

640,688

March 31, 2018
Equity securities
Bond securities:
Government bond securities

615,056

Corporate bond securities

145,65761(53)

145,665

Other

20,401

274(502)

20,173

Other securities

25,635

4,926¥

791,319

1,348¥

35,829

¥

(19)

6,255

(626) ¥

826,522

Thousands of U.S. dollars
Gross

Gross

BalanceAcquisition

unrealized

unrealized

sheet

cost

gain

loss

amountMarch 31, 2019
Equity securities$

46,896$73,322$(171) $

120,047

Bond securities:
Government bond securities

5,311,028

302,171(0)5,613,199

Corporate bond securities

372,944297(18)373,223

Other

281,620

1,045(8,748)273,917

88,206

11,434(1,190)98,450(10,127) $6,478,836

Other securities$

6,100,694$

388,269$

Securities classified as other securities for which fair value is not available are summarized as follows:
Thousands ofMillions of yen
2019Unlisted equity securities¥

Unlisted REITs
Investments in investment limited partnershipBeneficial interests

45

2,900

U.S. dollars

2018
¥

2019

2,900

$

26,128

14,58813,012

131,435

897

521

8,081

1,050

–

9,460

For the years ended March 31, 2019 and 2018, proceeds from sale of other securities, the gross realized gains
and the gross realized losses are summarized as follows:
Thousands ofMillions of yen
2019
Proceeds from sale of other securities¥

U.S. dollars
2018

146,904¥2019

106,429$

1,323,579

Gross realized gains

647

1,524

5,829

Gross realized losses

85

219

766

Financial assets received as collateral on which the Company has a right of disposal as of March 31, 2019 and2018 are as follows:
Thousands ofMillions of yen
2019
The fair value of the securities received¥

U.S. dollars
2018

1,540,709¥

2019

2,134,336$

13,881,512

as collateral
Securities lent

178,891

Collateral provided
On hand

231,482

1,611,776

232,234

301,250

2,092,386

1,129,584

1,601,604

10,177,350

Balance sheet amount of securities lent under loan for consumption agreement, etc. as of March 31, 2019 and2018 are as follows:
Thousands ofMillions of yen
2019
Short-term investments

¥

2018

209,335

Investments in securities

U.S. dollars¥

379,548

2019

35,699$555,606

1,886,071
3,419,658

The fair value of the securities borrowed under loan for consumption agreement, etc. as of March 31, 2019and 2018 was as follows:
Thousands ofMillions of yen
2019
The fair value of the securities borrowed¥

2,816,195

U.S. dollars

2018
¥

2019

2,098,145$

25,373,412

2,680,144

2,071,442

24,147,617

Securities pledged as collateral

108,232–

975,150

On hand27,81926,703

250,645

Securities loaned

46

(5)

Investments in Affiliates
The aggregate carrying amount of investments in affiliates as of March 31, 2019 and 2018 are ¥3,773 million($33,994 thousand) and ¥3,578 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.
(7)

Debt
The composition of debt and the weighted average interest rate on debt as of March 31, 2019 and 2018 are as

follows:
Thousands

Weighted

Millionsof U.S.

averageof yendollars

rate

149,085

0.982%March 31, 2019
Short-term borrowings¥

Long-term borrowings
Call money
Commercial paper

16,547 $4,000

36,0390.535

1,016,460

9,158,122(0.036)(0.001)

214,000

1,928,102¥

1,251,007 $11,271,348¥

14,510March 31, 2018
Short-term borrowings
Long-term borrowings
Call money
Commercial paper¥(8)0.037%

4,000

0.542

771,414(0.028)459,000(0.000)1,248,924

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 for the plans.
Defined benefit plans
Followings are the information for the Company’s and the consolidated subsidiaries’ defined benefit plans asof March 31, 2019 and 2018 and for the years then ended.

47

(1) Reconciliation of changes in retirement benefit obligation (the following table excludes certain plans
mentioned in (3))
Thousands ofMillions of yen
2019
Retirement benefit obligation at beginning of year
Service cost¥

Interest cost
Actuarial gains and losses
Benefits paid
Retirement benefit obligation at end of year¥

U.S. dollars
2018

8,798

¥

2019

8,544

$

79,268

325

315

2,928

26

34

233

880

228

7,930

(340)

(323)

(3,063)

9,689

¥

8,798

$

87,296(2) Reconciliation of changes in plan assets (the following table excludes certain plans mentioned in (3))
Thousands ofMillions of yen
2019Plan assets at beginning of year
Expected return on plan assets¥

Actuarial gains and losses
Employer contributions
Benefits paid
Contribution to the retirement benefit trust
Plan assets at end of year

2018

8,657

¥

2019

5,748

$

77,998

173

142

1,559

(83)

252

(749)

172

100

1,551

(261)

(250)

(2,352)–¥

U.S. dollars

8,658

2,665
¥

8,657

–
$

78,007(3) Reconciliation of changes in liability for retirement benefits whose plans adopted the simplified method
Thousands ofMillions of yen
2019

U.S. dollars
2018

2019

Liability for retirement benefits at beginning of year ¥160

Benefits paid

15

14

135

(13)

–

(118)

(1)

(0)

(8)

Retirement benefit expenses
Contributions

Liability for retirement benefits at end of year

¥

48

161

¥

¥

146

160

$

$

1,442

1,451

(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
2019
Funded retirement benefit obligation
Plan assets¥

Unfunded retirement benefit obligation
Net liability for retirement benefit recognized

9,689

U.S. dollars
2018

¥

8,798

2019
$

87,296(8,658)(8,657)(78,007)

1,031

141

9,289

161

160

1,451

in consolidated balance sheet

¥

1,192

¥

301

$

10,740Liability for retirement benefit

¥

1,192

¥

301

$

10,740

¥

1,192

¥

301

$

10,740Net liability for retirement benefit recognizedin consolidated balance sheet(5) The components of retirement benefit expenses

Thousands ofMillions of yen
2019Service cost
Interest cost¥

Expected return on plan assets
Amortization of actuarial gains or losses

325

U.S. dollars
2018

¥

315

2019
$

2,928

27

34

243

(173)

(142)

(1,560)

53

66

479

15

14

135

Retirement benefit expenses calculated by thesimplified method

Retirement benefit expenses

¥

247

¥

287

$

2,225

(6) Remeasurements of retirement benefit plans before related tax effects
Thousands ofMillions of yen
2019

U.S. dollars
2018

2019

Actuarial gains or losses

¥

(910)

¥

90

$

(8,199)

Total

¥

(910)

¥

90

$

(8,199)(7) Accumulated remeasurements of retirement benefit plans before related tax effects
Thousands ofMillions of yen
2019

U.S. dollars
2018

2019

Unamortized actuarial gains or losses

¥

1,283

¥

373

$

11,560

Total

¥

1,283

¥

373

$

11,56049

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

Debt securities
Equity securities
General account
Other
Total

2019

2018

48.9%
31.1
11.0
9.0

44.9%
41.6
11.1
2.4

100.0%

100.0%

Plan assets at March 31, 2019 and 2018 include the retirement benefit trust contributed for the years ended
March 31, 2019 and 2018 which are both 10% of total plan assets.
(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, 2019 and 2018 are as follows:
2019
2018
(a) Discount rate

0.2%
2.0%
5.2%

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

0.3%
2.0%
5.2%

Defined contribution plans
For the years ended March 31, 2019 and 2018, the amount to be paid by the Company and its consolidated
subsidiaries to the defined contribution plans was ¥36 million ($324 thousand) and ¥37 million, respectively.
Liability 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 theyleave the Company or subsidiaries.
As of March 31, 2019 and 2018, the liability for retirement benefits related to the plans were ¥42 million($378 thousand) and ¥42 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 30.9% and 30.6% in2019 and 2018, respectively.

50

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, 2019 and 2018 is follows:

Statutory tax rate
Equity in gains of affiliates

2019

2018

30.6%

30.9%

(1.5)

(0.8)

Expenses not deductible for tax purposes

1.0

1.1

Valuation allowance(5.1)(18.2)

Income not credited for tax purposes

(2.3)

(2.0)

Other

2.0

1.3

Effective tax rate

24.8%

12.3%

The above valuation allowance in 2018 includes expired tax loss carryforward.
Significant components of deferred tax assets and liabilities as of March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019

U.S. dollars

2018

2019

Deferred tax assets:
Accrued business tax¥

Accrued bonuses
Liability for retirement benefits (employees)

66

¥

75

$

595

205

194

1,847

1,106

840

9,965

Liability for retirement benefits (directors
and corporate auditors)
Allowance for doubtful receivables
Tax loss carryforward

13

13

117

245

532

2,207

120

488

1,081

7,182

4,199

64,709Net unrealized loss on other securities

344

175

3,099

Other

314

308

2,829

9,595

6,824

86,449(3,124)(2,480)(28,147)

6,471

4,344

58,302Gain on evaluation of subsidiaries’ assets

(155)

(155)

(1,396)

Net unrealized gain on other securities(13,208)(10,970)(119,002)

(359)

(359)

(3,234)

Deferred losses on hedges

Valuation allowance
Deferred tax liabilities:

Gain on transfer of investment in an affiliate
Gain on evaluation of acquired assets by merger
Deferred loss on hedges
Other
Net deferred tax liabilities

¥

(580)

(603)

(5,226)(2,204)(1,866)(19,858)

(40)

(19)

(360)

(16,546)(13,972)(149,076)(10,075)¥(9,628)$(90,774)

The Company applies the “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ
Statement No. 28 issued on February 16, 2018, hereinafter the “Partial Amendments to Tax Effect AccountingStandard”) from the beginning of the year ended March 31, 2019. Deferred tax assets are shown in the segmentof investments and other assets, and deferred tax liabilities are shown in the segment of non-current liabilities.
As a result, the Company offset “deferred tax assets” classified as “current assets” of ¥768 million with “deferred
tax liabilities” classified as “non-current liabilities” of ¥10,396 million liabilities, and “deferred tax liabilities”

51

classified as “non-current liabilities” of ¥9,628 million is reported in the consolidated balance sheet at March 31,
2018.

The Company offset deferred tax assets and liabilities when the deferred tax assets liabilities areassociated with the income taxes levied on the same taxable entity, as a result, total assets decreased by ¥768
million at March 31, 2018.
(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
the Company and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are
required when the total amount of the additional paid-in capital and the legal reserve equals 25% of 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, 2019 and 2018 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.
(a)

Dividends paid during the year ended March 31, 2018
The following was approved by the general meeting of stockholders held on June 23, 2017.
(a)Total dividends¥968 million(b)Cash dividends per common share(c)

Record date

March 31, 2017(d)

Effective dateJune 26, 2017¥10

The following was approved by the Board of Directors held on November 6, 2017.
(a)

(b)

Total dividends¥865 million(b)Cash dividends per common share(c)

Record date

September 30, 2017(d)

Effective date

December 4, 2017¥9

Dividends paid during the year ended March 31, 2019
The following was approved by the general meeting of stockholders held on June 22, 2018.
(a)Total dividends¥1,621 million ($14,605 thousand)(b)

Cash dividends per common share(c)

Record date

March 31, 2018(d)

Effective dateJune 25, 2018¥17 ($0.15)

52

The following was approved by the Board of Directors held on November 5, 2018.
(a)

(c)

Total dividends¥1,046 million ($9,424 thousand)(b)

Cash dividends per common share(c)

Record date

September 30, 2018(e)Effective date

December 4, 2018

¥11 ($0.10)

Dividends to be paid after the balance sheet date but the record date for the payment belongs to the year

ended March 31, 2019
The following was approved by the general meeting of stockholders held on June 25, 2019.
(a)Total dividends¥1,027 million ($9,253 thousand)(b)

Dividend source

Retained earnings(c)Cash dividends per common share¥11 ($0.10)(d)Record date

March 31, 2019(e)Effective dateJune 26, 2019(12) General and Administrative Expenses
Significant components of general and administrative expenses are as follows:
Thousands ofMillions of yen
2019
Salaries¥

Retirement benefit expenses
Depreciation

53

3,038

¥

U.S. dollars

2018

2019

3,073

$ 27,372

283

324

2,550

1,380

1,364

12,434(13)Other Comprehensive Income (Loss)
The reclassification adjustment and the related income tax effects allocated to each component of othercomprehensive income (loss) for the years ended March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019

U.S. dollars

2018

2019

Net unrealized gain (loss) on other securities:¥

Arising during the year

7,330

¥

8,209

$

66,042

Reclassification adjustment(562)(1,304)(5,064)

Before tax amount

6,768

6,905

60,978Tax benefit (expense)(2,068)(2,068)(18,632)

Net-of-tax amount

4,700

4,837

42,346(8,843)(3,483)(79,674)

205

－

1,847

(8,638)(3,483)(77,827)

Tax benefit (expense)

1,747

1,324

15,740Net-of-tax amount(6,891)(2,159)(62,087)

(963)

24

(8,676)

53

66

477

Deferred gain (loss) on hedges:
Arising during the year
Reclassification adjustment
Before tax amountRemeasurements of defined benefit plans:Arising during the year
Reclassification adjustment

(910)

90

(8,199)Tax benefit (expense)

273

(99)

2,460

Net-of-tax amount

(637)

(9)

(5,739)Before tax amount

Share of other comprehensive income (loss) of affiliates accounted for by equity method:
Arising during the year

(21)

128

(189)

Reclassification adjustment

19

(203)

171

(2)

(75)

(18)

(2,830) ¥

2,594

¥

Total other comprehensive income (loss)

54$(25,498)

(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, 2019 and 2018 are as follows:
Yen

U.S. dollars

2019
Basic net income per share

¥

2018

40.02

¥

44.24

2019
$

0.36

Thousands ofMillions of yen
2019
Net income attributable to owners of parent¥

Net income not applicable to common stockholders

3,766

¥

U.S. dollars

2018

2019

4,225

$ 33,931

－

－

4,225

$ 33,931－

Net income attributable to owners of parent
applicable to common stockholders

¥

3,766

¥

Number of shares (Thousands)
2019

2018

Weighted average number of shares outstanding
94,075

on which basic net income per share is calculated

95,494The Company’s own stocks which are held by the trust are included in the treasury stocks which are
excluded from the calculation of weighted average number of shares outstanding on which basic net income pershare is calculated.
(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, 2019 and 2018 are as follows:
Yen
2019
Net assets per share¥

U.S. dollars
2018

1,519.30¥

1,518.77

2019
$

13.69

Thousands ofMillions of yen
2019
Total net assets¥

Amount deducted from total net assets

140,793¥－

Net assets applicable to common stockholders¥

55

140,793¥

U.S. dollars

2018

2019

143,811$ 1,268,520－－

143,811$ 1,268,520

Number of shares (Thousands)
2019

2018

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

92,66994,688The Company’s own stocks which are held by the trust (BBT) are included in the treasury stocks which are

excluded from the calculation of number of shares outstanding at end of year on which net assets per share is
calculated.
(15)

Pledged Assets
The carrying value and classification of assets owned by the Company that have been pledged tocounterparties as of March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019
Short-term investments¥

19,102

U.S. dollars

2018¥

23,817

2019$

172,106

Short-term loans receivable

360,834

415,678

3,251,050

Investments in securities

69,649167,968

627,525

Assets in the above table were pledged for the followings:
Thousands ofMillions of yen
2019
Call money¥

Short-term borrowings

205,000

U.S. dollars

2018¥

205,000

2019
$

5,000

－

1,847,013－

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 ofMillions of yen
2019
Cash

¥

25

U.S. dollars

2018
¥

25

2019
$

225

Other current assets

70,51546,505635,328

Investments in securities

1,661

1,785

14,96556

(16) 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, local government bonds, public corporation bonds and government-backed bonds as securities
investment activities and usually raises money through a trust account.
(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.
Collateral money for securities borrowed is the collateral for cash-secured bond lending transaction, cash-secured
stock lending transaction and securities borrowed of loan on margin transactions.

Main financial instrumentthat JSFTB holds are loans to government and business corporations and securities such as government bonds,
local government bonds, public corporation bonds and government-backed bonds. Trade loans receivable held by
the Company and JSFTB are exposed to credit risks that caused from counterparties’ default of contract.
Securities are exposed to market risks.

Regarding raising money such as call money and short-term borrowingsof the Company and JSFTB, the liabilities are exposed to liquidity risks that caused from turmoil in the financial
markets or a credit rating down.
The Company has entered into forward exchange contract for hedging currency exchange risk of bonds
denominated in foreign currency and interest rate swaps for hedging interest rate risk of fixed-rate bonds.
Hedge accounting is applied to the derivatives and the Company regularly monitors the hedge effectiveness
whether the relationship between hedging derivatives and hedged assets are appropriate and the currency
exchange risk and the interest rate risk of hedged items are offset by hedging derivatives.
JSFTB has entered into interest rate swaps for hedging fixed-rate loans, bonds and borrowings as a part ofinterest risk control (ALM). Hedge accounting is applied to the derivatives held for ALM purpose, and theCompany regularly monitors the hedge effectiveness whether the relationship between hedging derivatives andhedged assets or liabilities are appropriate and the interest rate risk of hedged items are offset by hedging
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.
1) Integrated risk management
The Company quantizes the risk by Value at Risk (VaR) approach after allocating risk capital within equity
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 to the management.

572) Credit risk
The Company manages all of the credit risk strictly to maintain and improve assets quality.

The RiskManagement Department evaluates credit risks according to the in-house rating and quantizes and controls thecredit risk using the default rate by each in-house rating category.
compensating the quantization control.

Stress tests are also performed for

The Risk Management Department evaluates customers or loans, andsets up the credit limits, while business operation department monitors the credit limit.
business operation departments are assessed by themselves strictly.

Assets owned by

The Company receives collateral securities

for each loan and revaluates the securities daily to mitigate the collectability issues, and the Company collects theclaims 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 Delta method(holding period: 10-120 days (depending on purposes in holding), confidence interval: 99%, observation period:
mainly 1 year).

Market risk amount (possible losses) of the Company is ¥9,242 million ($83,269 thousand) as ofMarch 31, 2019.
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 stable financing
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, the Company has asystem to report to the management with daily cash flow status. The Company tries to hold enough liquidity, forexample, to possess a certain amount of government bonds, makes a contingency plan and builds 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 measures andmonitors 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%,
observation period: 5 years).

JSFTB market risk amount is ¥4,674 million ($42,112 thousand) as of March 31,

2019.

58

(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 which quoted

market price is not available is calculated based on certain assumptions, and the fair value might differ if
different assumptions are used.
Fair value of financial instruments
The carrying value on the consolidated balance sheet, fair value, and differences as of March 31, 2019 and2018 are as follows.
Financial instruments, of which it is extremely difficult to measure the fair value, are not included. (Please see“<2> Financial instruments of which the fair value is extremely difficult to measure”)
Millions of yen
Carrying
value

Assets:(1) Cash¥

990,670(2) Call loan *1

99,883(3) Trade loans receivable
Allowance for doubtfulreceivables *1

668,894

Fair value¥

Differences

990,670 ¥－

99,883－

2018

Carryingvalue¥

777,895

Fair value¥

94,893777,895

Differences¥－

94,893－

1,002,931－(256)
1,002,675

1,002,675－

2,137,118－

2,167,416

2,167,416

－

1,514

1,758

(244)

1,515

1,723

208

719,086

719,086－

826,522826,522－¥ 5,163,603¥ 5,163,847 ¥(244)¥ 4,870,916¥ 4,871,124¥

208¥ 1,016,460¥ 1,016,460 ¥

－

¥

¥

¥

－

(4) Receivables under resaleagreements *1(5) Collateral money for securities
borrowed *1(6) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities
Total

2019

(72)
668,822

668,822546,510546,510

2,137,118

Liabilities:(1) Call money

771,414

771,414(2) Short-term borrowings

16,547

16,547－

14,51014,510－(3) Commercial paper(4) Payables under repurchaseagreements(5) Collateral money received for
securities lent
(6) Long-term borrowings

214,000

214,000－

459,000

459,000－

1,453,352

1,453,352

1,563,430
4,000

1,563,430
4,000

－
－

2,505,135
4,000

2,505,135
4,000

－
－

Total

¥ 4,267,789¥ 4,267,789 ¥－¥ 3,754,059¥ 3,754,059¥－

Derivative transactions *2

¥

(－)

¥

¥

¥

(－)

(19,024) ¥(19,024) ¥59(8,905)(8,905)

Thousands of U.S. dollars
2019
Carrying
value
Assets:(1) Cash(2) Call loan *1(3) Trade loans receivable
Allowance for doubtfulreceivables *1(4) Receivables under resaleagreements *1(5) Collateral money for securities
borrowed *1(6) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities
Total

$

8,925,759
899,928
6,026,615

Fair value$

8,925,759
899,928

Differences
$

－
－

(649)
6,025,966

6,025,966

4,923,957

4,923,957

19,255,050

19,255,050－

13,641
6,478,836$ 46,523,137

15,8396,478,836$ 46,525,335$(2,198)－(2,198)

$

$

$

－

－

Liabilities:(1) Call money(2) Short-term borrowings(3) Commercial paper(4) Payables under repurchaseagreements(5) Collateral money received for
securities lent
(6) Long-term borrowings
Total
Derivative transactions *2

9,158,122

9,158,122

149,085

149,085－

1,928,102

1,928,102－

13,094,441

13,094,441

14,086,224
36,039$ 38,452,013

14,086,224
36,039$ 38,452,013$$(171,403)

$

－
－
－

(171,403) $(－)*1 Allowance for doubtful accounts associated with trade loans receivable is deducted.

Carrying value of callloan and collateral money for securities borrowed is net amount of related allowance for doubtful accounts,
because the allowance for doubtful accounts for these accounts is not material.
*2 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 and (2) Call loan
The fair value approximates carrying amount because of the short maturity of these instruments.
(3) Trade loans receivable
The fair value of trade loans receivable with variable interest rate approximates carrying amount because thefair value is reflected a fluctuation of interest market in a short period and unless credit status of the borrower
does not change so much from when the Company lent. Allowance for doubtful receivables are estimated basedon collectable amounts by collaterals and guarantee and thus the fair value approximates the carrying amountminus allowance for doubtful receivables amounts.
(4) Receivables under resale agreements and (5) Collateral money for securities borrowed
The fair value approximates carrying amount because of the short maturity of these instruments.
(6) Short-term investments and investments in securities

60

The fair value of equity securities are calculated by quoted market price and bond securities are calculated byquoted market price or quotes from information venders.

The fair value of government bonds with variableinterest rate held by the Company 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 fairvalue due to the market situation where the number of transactions is extremely small.

The pricing model usedby the information vendors is forward pricing model, and the price determinant variables are the spot rate forJapanese 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, (4) Payables under repurchase agreements and(5) Collateral money received for securities lent
The fair value approximates carrying amount because of the short maturity of these instruments.
(6) 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.
Derivatives:
Please see note “(17) Derivative Financial Instruments.”<2> Financial instruments of which the fair value is extremely difficult to measure

Thousands ofMillions of yen
2019

U.S. dollars

2018

2019

Unlisted equity securities
Other securities¥

Investments in affiliates

Unlisted REITs

Investments in investment limited partnershipBeneficial interests

2,900

¥

2,900

$

26,128

3,773

3,578

33,994

14,58813,012

131,435

897

521

8,082

1,050

－

9,460

Above securities have no market value and the fair value is extremely difficult to measure, therefore are notincluded in “Assets: (5) Short-term investments and investments in securities.”61

<3> Projected future redemption of monetary claim and securities with maturities as of March 31, 2019
Millions of yen
Due after

Due after(1) Cash(2) Call loan
(3) Trade loans receivable(4) Receivables under resaleagreements¥

one yearfive years

Due within

through fivethrough ten

Due after

one year

years

years

ten years

990,670
100,000

¥

－

¥

－

－

¥

－

－
－

645,587

23,307－－546,543－－－

2,117,590

20,000

－

－

－

－

－

1,500

218,840

80,51318,000268,000

19,40021,846－－(5) Collateral money for securities
borrowed(6) Short-term investments andinvestments in securities
Held-to-maturity securities(Government bonds)
Other securities withmaturities
Bond securities
Government bonds
Corporate bonds
Other
Total

－
¥ 4,638,630

27,462－¥

62

145,666¥

45,462622¥

270,122

Thousands of U.S. dollars(1) CashDue after

Due after

one yearfive years

Due within

through fivethrough ten

Due after

one year

years

years

ten years

8,925,759$(2) Call loan

900,982

$

－

$

$

－

－

－

－

－

5,816,623

209,992－－

4,924,254－－－

19,079,106

180,196

－

－

－

－

－

13,515

1,971,709

725,408

162,177

2,414,632

174,791

196,829

－

－

－

－

247,428

5,604

409,605$ 2,433,751(3) Trade loans receivable(4) Receivables under resaleagreements(5) Collateral money for securities
borrowed(6) Short-term investments andinvestments in securities
Held-to-maturity securities(Government bonds)
Other securities withmaturities
Bond securities
Government bonds
Corporate bonds
Other
Total

$

41,793,224$

1,312,425$<4> The annual maturities of the long-term borrowings, lease liabilities and other interest bearing liabilities as ofMarch 31, 2019
Millions of yen

Call money
Short-termborrowings
Commercial paper
Payables under
repurchaseDue after

Due after

Due after

two years

three

Due afterDue

one yearthrough

years

four years

within one

throughthree

throughthroughDue afteryear

two years

years

four years

five years

five years¥ 1,016,460

¥

－

¥

－

¥

－

¥

－

¥

－

16,547

－

－

－

－

－

214,000

－

－

－

－

－

－

－

－

－

－

1,563,430

－

－

－

－

－

－

1,000

－

－

－

3,000

1,453,352

agreements
Collateral money
received for
securities lentLong-term
borrowings
Total¥ 4,263,789

¥

1,000

¥

63

－

¥

－

¥

－

¥

3,000

Thousands of U.S. dollars

Short-term

three

Due afterDue

one yearthrough

years

four years

throughthree

throughthroughDue afteryear

two years

years

four years

five years

five years

$

－

$

－

$

－

$

－

$

－

149,085

－

－

－

－

－

1,928,102

－

－

－

－

－

－

－

－

－

－

14,086,224

－

－

－

－

－

－

9,010

－

－

－

27,029borrowings
Commercial paper
Payables under

Due after

two years

within one$ 9,158,122

Call money

Due after
Due after

13,094,441

repurchaseagreements
Collateral money
received for
securities lentLong-term
borrowings$ 38,415,974 $

Total

9,010

$

－

$

－

$

－

$

27,029(17) Derivative Financial Instruments
1.

Derivative transactions to which hedge accounting are not applied as of March 31, 2019 are summarized asfollows:

Exchange rate derivatives
Millions of yen

Thousands of U.S. dollars

Contract or
Nature ofnotionaltransaction
Off-market

Forward exchangetransaction

contract:

Gains oramounts

Contract orlosses on

notional

Fair value

valuationamounts¥¥

Gains orlosses on
Fair value

valuation

Buy:
Euro

¥

5,536

2

The fair value is estimated based on quotes from counterparties.

64

2

$

49,878

$

18

$

18

2.

Derivative transactions to which hedge accounting are applied as of March 31, 2019 and 2018 aresummarized as follows:(a)

Exchange rate derivatives
Millions of yen
2019

Hedge

2018

Contract or

accounting
methodnotional
Nature of transaction*1

Contract orHedged items

notional

amounts

Fair value

amounts

Fair value

Forward exchange contract:
Sell:
Euro

Investments insecurities¥

5,690 ¥

93¥

18,548 ¥231

Thousands of U.S. dollars
2019
Hedge

Contract or

accounting

notional
Nature of transaction

method*1

Fair value

amounts

Hedged items

Forward exchange contract:
Sell:
Euro

Investments in$securities

51,266 $838*1 Deferred hedge accounting is applied.
The fair value is estimated based on quotes from counterparties.
(b)

Interest rate derivatives
Millions of yen
2019

Hedge
accounting
method*1

Contract ornotional
Nature of transaction

Hedged items

amounts

notional
Fair value

amounts

Fair value

Interest rate swaps:
Variable rate received
for fixed rate

*2

2018

Contract orInvestments in ¥securities

294,417 ¥ (19,102)¥

285,291 ¥(9,136)

Interest rate swaps:
Variable rate received

Trade loans

for fixed rate
Variable rate paid

Long-termfor variable rateborrowings

65

35,262*3

54,226

*3

3,000

*3

3,000

*3

Thousands of U.S. dollars
2019
Hedge

Contract or

accounting
method*1

notional
Nature of transaction

amounts

Fair value

Interest rate swaps:
Variable rate received
for fixed rate*2

Hedged items
Investments in$ 2,652,644 $ (172,106)

securities

Interest rate swaps:
Variable rate received

Trade loans

for fixed rate
Variable rate paid

317,704*3

27,029*3

Long-termfor variable rateborrowings*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 is estimated based on quotes from counterparties or the present discounted value.

66

(c)

Bond derivatives
Millions of yen
2019

2018

Hedge

Contract orContract or

accounting

notional

notional

methodNature of transaction*1

Hedged items

amounts

Fair value

Fair value

Bond futures:
Sell

Investments in¥

1,896 ¥

securities(19)

Thousands of U.S. dollars
2019
Hedge

Contract or

accounting

notional

methodNature of transaction*1

Hedged items

amounts

Fair value

Bond futures:
Sell

Investments in$

17,083 $(171)

securities*1 Deferred hedge accounting is applied.
The fair value is calculated by quoted market price.
(d)Stock derivatives
Millions of yen
2019

Hedge

Contract or

accounting

notional

method*1

Nature of transaction

Hedged items

Total return swap

Investments inamounts¥

Fair value

121 ¥securities

2

Thousands of U.S. dollars
2019
Hedge

Contract or

accounting

notional

method*1

amounts

Nature of transaction

Hedged items

Total return swap

Investments inamounts$

securities*1 Deferred hedge accounting is applied.
The fair value is estimated based on quotes from counterparties.

67

Fair value

1,090 $

18¥

1,357 ¥

(0)

(18) Commitments and Contingencies
As of March 31, 2019 and 2018, undrawn amount of general loan for securities companies and customers,
overdraft loan and loan commitment line are as follows:
Thousands ofMillions of yen
2019
Total credit line
Drawn amount
Undrawn amount¥

827,808¥

795,448

U.S. dollars

2018

2019

¥

789,958¥

757,958

32,360$7,458,402$

7,166,844

32,000291,558

Since some of these contracts expire without the rights exercised, the undrawn amount itself does not necessarily
affect future cash flows.

(19)

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
Trust and 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 margintransaction, bond financing and general loans, bond lending and stock lending. “Trust banking business” isengaged in providing trust services such as securities trust and banking services such as deposit or loan.

“Realestate leasing business” is mainly engaged in providing services for leasing and managing real estate owned by
JSF Group.
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 non-controlling 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.
and transfer are based on arms-length transactions.

68

Intersegment revenue

The reported segment information for the Company and its consolidated subsidiaries for the years ended
March 31, 2019 and 2018 was summarized as follows:
Millions of yen
2019
Securities

Real estate

finance

Trust banking

leasing

Total

Revenues:
Revenues to third parties¥

20,970

¥

2,467

¥

885

Total

¥

Segment income
Segment assets¥

24,322

20,971

¥

2,539

¥

1,275

¥

24,785

¥

3,655

¥

614

¥

673

¥

4,942

¥

4,379,472¥

933,757¥

10,064¥

5,323,293

¥

1,183

¥

78

¥

119

¥

1,380

Intersegment revenues andtransfers

1

72

390

463

Others:Depreciation andamortization
Interest income

229

－

12

241

Income taxes

937

75

228

1,240

Thousands of U.S. dollars
2019
Securities

Real estate

finance

Trust banking

leasing

Total

Revenues:
Revenues to third parties$

188,936$

22,227

$

7,974

$

219,137

Intersegment revenues andtransfers

9

649

3,514

4,172

Total

$

188,945$

22,876$

11,488$223,309

Segment income$

32,931

$

5,532

$

6,064

$

44,527

Segment assets$

39,458,257$

8,412,983$

90,675$47,961,915$

10,659

$

703

$

1,072

$

12,434

Others:Depreciation andamortization
Interest income

2,063

－

108

2,171

Income taxes

8,442

676

2,054

11,17269

Millions of yen
2018
Securities

Real estate

finance

Trust banking

leasing

Total

Revenues:
Revenues to third parties¥

22,488

¥

2,972

¥

874

Total

¥

Segment income
Segment assets¥

26,334

22,490

¥

2,980

¥

1,268

¥

26,738

¥

3,626

¥

421

¥

648

¥

4,695

¥

3,853,625¥

1,122,363

¥

9,812

¥

4,985,800

¥

1,153

¥

85

¥

126

¥

1,364

Intersegment revenues andtransfers

2

8

394

404

Others:Depreciation andamortization
Interest income

228

－

11

239

Income taxes

317

55

221

593

Reconciliation between total segment revenues in the table above and revenues in the accompanying
consolidated statement of income for the years ended March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019
Total segment revenues¥

Intersegment revenues

U.S. dollars
201824,785¥

26,738

(463)

2019
$

(404)

223,309(4,172)

Revenues in the accompanying consolidated
statement of income¥

24,322¥

26,334$

219,137

Reconciliation between total segment income in the table above and ordinary income for the years ended
March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019
Total segment income

¥

4,942

U.S. dollars

2018
¥

4,695

2019
$

44,527

Intersegment income

(143)

(132)

(1,288)Equity in earnings of affiliates

248

123

2,234

Ordinary income

¥

5,047

70

¥

4,686

$

45,473

Reconciliation between total segment assets in the table above and assets in the consolidated accompanying
balance sheet as of March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019
Total segment assets¥

U.S. dollars
20185,323,293¥

4,985,800

2019$

47,961,915

Intersegment accounts(8,822)(2,358)(79,484)

Intersegment investments(26,269)(26,269)(236,679)

3,170

2,988

28,561

Other
Assets in the accompanying consolidatedbalance sheet¥

5,291,372¥

4,960,161$

47,674,313

Reconciliation between others in the table above and amounts in the consolidated financial statements as ofand for the years ended March 31, 2019 and 2018 are as follows:
Millions of yen
Amounts intheconsolidated
financialstatements

Adjustments

Segment total
March 31, 2019
Depreciation and amortization

¥

1,380

¥

0

¥

1,380

Interest income

241

(12)

229

Income taxes

1,240

0

1,240

March 31, 2018
Depreciation and amortization

¥

1,364

¥

0

¥

1,364

Interest income

239

(11)

228

Income taxes

593

(1)

592

Thousands of U.S. dollars
Amounts intheconsolidated
financialstatements

Adjustments

Segment total
March 31, 2019
Depreciation and amortization$

12,434$0$

12,434

Interest income

2,171

(108)

2,063

Income taxes

11,172

0

11,17271

Related Information(a)

Information by services
Sales by services for the years ended March 31, 2019 and 2018 are as follows:
Thousands ofMillions of yen
2019

Loans for margin transaction

¥

9,661

U.S. dollars
2018¥13,254

2019$

87,044

Bond lending

4,963

3,577

44,716

Other

9,698

9,503

87,377¥(b)

24,322¥

26,334$

219,137

Geographic information
Because revenues from customers inside Japan are over 90% of revenues in the consolidated statement ofincome and no property, plant and equipment located outside Japan, the geographic information is not disclosed
for the years ended March 31, 2019 and 2018.
(c)

Information by major customers

Because no particular third party whose revenues are over 10% of revenues in the consolidated statementof income exists, the information by major customers is not disclosed for the years ended March 31, 2019 and2018.

Information of impairment loss on fixed assets by reported segments

The information is not applicable for the years ended March 31, 2019 and 2018.

Goodwill by reported segments

The information is not applicable for the years ended March 31, 2019 and 2018.

Negative goodwill incurred by reported segments

The information is not applicable for the years ended March 31, 2019 and 2018.

(20) Transactions of Delivering the Company’s Own Stock to Directors through Trust
The Company has introduced a performance-based share remuneration plan called “Board Benefit Trust(BBT)” in order to further clarify the linkage between remuneration for directors (other than outside directors)
and executive officers (collectively “directors”) and the performance and share value of the Company, thereby
enhancing their awareness of the need to contribute to the efforts to archive improved business performance andgreater enterprise value in the medium to long term.
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 using money contributed by the Company and the Company’s shares and the money
equivalent to the market value of the shares will be delivered by the Trust to directors pursuant to the “Rules for
Delivery of Shares to Directors” to be established by the board of directors.
In principle, the Shares, etc. will be delivered when he/she resigns as director.
2. Stock remaining in the trust
In accordance with the “Practical Solution on Transactions of delivering the Company’s Own Stock to
Employees etc. through Trust (ASBJ Practical Issue Task Force (PITF) No. 30, March 26, 2015)”, the Company
recorded assets and liabilities of the trust on the Company’s balance sheet as assets and liabilities of the72Company.

The Company recorded own stocks in the trust as treasury stocks under net assets at book value inthe trust excluding associated costs. The book value of the own stocks was ¥282 million ($2,541 thousand) andthe number of the stocks was 645 thousand shares at March 31, 2019, and ¥262 million and the number of thestocks was 627 thousand shares at March 31, 2018.
(21) Subsequent Event
Acquisition of treasury stocks
The Board of Directors of the Company approved at May 15, 2019 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 is to be 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: 1,000,000 shares (upper limit)(3) Total acquisition costs: ¥700 million ($6,307 thousand) (upper limit)(4) Acquisition schedule: From May 16, 2019 to March 23, 2020

73

INDEPENDENT AUDITORS' REPORT74

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.

75

CORPORATE DATA

(as of March 31, 2019)

Establishment

President

July 1927

Shigeki Kushida

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

251

Share Information
Shares outstanding

Stock exchange listing

100,000,000 shares（as of March 31, 2019）

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

Number of shareholders

Transfer agent

12,344（as of March 31, 2019）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)

6,017

6.44

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

4,671

5.00

Shihon-Shijo Shinko Foundation

4,654

4.98

Japan Trustee Services Bank, Ltd.
(Trust account 9)

4,458

4.77

Mizuho Bank, Ltd.

3,536

3.78

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

2,989

3.20

Northern Trust Co.(AVFC) RE IEDU UCITS
Clients Non Lending 15 PCT Treaty Account

2,692

2.88

Northern Trust Co.(AVFC) RE NVl01

2,260

2.42

State Street Bank West Client-Treaty
505234

1,897

2.03

State Street Bank And Trust Company
505019

1,892

2.02

76

Composition of shareholders(by number of shares)Securities
Companies
6.4%

Other JapaneseCompanies
7.6%

Individuals
20.9%

Financial
Institutions
33.1%
ForeignInvestors
25.3%

Executives(As of June 25, 2019)

Directors
Director

Chairperson
Director

Executive Officers
Naotaka Obata *Chairperson

Shoko Sugino *Officer & President

Representative Executive

Shuya Iimura *Vice President

Shigeki Kushida **Senior Managing Executive
Officer

Hiroshi Nasuno

Eizo Kobayashi
Shigeki Kushida
Shunichiro Higuchi
Kenji Fukushima
Kazuhiro Maeda

Yutaka Okada

Managing Executive Officer(* Outside Director)

Yutaka Okada(** Serves concurrently as Executive Offer)

Corporate Officers
Senior Corporate Officer

Yasuhiro Hirama

Corporate Officer

Tetsuya Tawara
Morikuni Shimoyamada
Osamu Nishida
Shinichi Sugiyama

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+

77

CORPORATE DATAORGANIZATION

General Meeting of Shareholders

Board of Directors
Nomination Committee

Audit Committee

Remuneration Committee

Representative ExecutiveOﬃcer & PresidentManagement Committee
Executive Oﬃcers in Charge

Compliance Committee
Audit Department
Compliance Department

ALM Committee
Risk Management Department
Risk Capital Meeting

Human Resources Department

System Committee

Corporate Planning Department
Business Development Department
Treasury Department
Margin Loan Department
Institutional Sales Department
Retail Business Department
Settlement & Custody Department
Information SystemsPlanning Department
Osaka Branch78