2016

Annual Review 2016

—To be the best partner for customers and for society—Corporate Data (As of June 30, 2016)
Corporate name

Japan Trustee Services Bank, Ltd.

Establishment

June 20, 2000

Commencement of operations

July 25, 2000

Head Office address

Harumi Island Triton Square Tower Y,
8-11, Harumi 1-chome, Chuo-ku,
Tokyo 104-6107

Branch network

Head Office only

AgentsBank agents: None
Trust bank agents: 1

Capital¥51.0 billion

Balance of assets in trust¥240,176.0 billion (as of March 31, 2016)

Shareholders’ equity ratio

36.92% (as of March 31, 2016)

Long-Term Credit Ratings (As of June 30, 2016)
Japan Credit Rating Agency, Ltd.

AA+Standard & Poor’s Financial Services LLC

A

Please be noted this English version is for your reference­purposes only; the original in Japanese prevails if any­discrepancies are found.

Table of Contents

 Profile Management Message .................................................................... P2
 Management Vision and Commitment ........................................... P3
 Corporate Data ................................................................................ P4
 Corporate Governance Framework ................................................ P6
 Key Indicators of Management Condition ..................................... P7
 Review of Business Performance ................................................... P8
 Initiatives to Improve Services ........................................................ P9
Systems and Measures to Reflect Customer Opinions
in Our Services
Initiatives for Enhancing Information Provision Services
Initiatives to Meet Various Needs• Foreign Investment Trust Transactions Using the Fund
Settlement Service• Electronic Settlements for Investment Funds• Participation in Custody Services for Foreign Stock
Certificates, etc.
• Securities Lending Services• Domestic Stock Proxy Voting Business• Domestic Stock Transition Management• Electronic Notification Services for Investment Trust Transfersand Other Notices
CSR Initiatives
 Processing Systems Infrastructure .............................................. P25
Initiatives for Improving Processing Quality
Active Initiatives for Reforming Securities Settlement andOther Functions
Overall Composition of Company Systems
Systems Development and Operations Management Framework
Information Security Management
 Internal Management Systems...................................................... P31
Risk Management Systems
Compliance Systems
Crisis Management Systems (Business Continuity Plans)Internal Auditing Systems
 Financial Section ............................................................................ P37

1

Management Message

Yasuo Kuwana
Representative Director and President
July 2016

I would like to express my thanks to you for your continuing patronage of Japan Trustee Services
Bank, Ltd. (JTSB).
We have prepared this Annual Review, which includes information on our performance and business
operations during fiscal 2016, ended March 31, 2016, as well as other topics pertaining to JTSB. We
hope it will be useful to you in understanding our activities.
During fiscal 2016, we implemented measures to address the various issues in our Comprehensive
Management Plan, and steadily moved forward with initiatives aimed at enhancing the sophisticationand diversity of our asset administration services.
Moreover, to further strengthen the governance of our IT systems and services, we took steps toimprove the management of our development processes and our systems development capabilities inthe domains of planning, development, operations, and fundamental technologies.
To raise the level of customer satisfaction (CS) in our investment trust securities processing services,
we worked to respond to the frequently changing requirements of our customers with carefully tailoredservices based on information we gather internally and externally. These information-gathering activities are focused in our Customer Services Center (Investment Trust), which we established in our
Investment Trust Department, and in our Customer Services Center, within the Business Promotion
Department.
In addition, along with the rising importance of risk management and legal compliance, we are working to strengthen our risk management capabilities, focusing especially on operational risk, including
information security. We are also striving to increase the effectiveness of our compliance systems byimproving related training programs to raise the awareness of compliance issues among all management and employees.
With the understanding and support of our customers for these various initiatives, the balance ofassets entrusted to JTSB at the end of fiscal 2016 stood at over ¥240 trillion.
During fiscal 2017, ending March 31, 2017, we will continue with efforts to train and strengthen our
personnel in both operations and IT, as well as implement measures to steadily deal with priority management issues, including “enhancing the sophistication of our business initiatives,” “strengthening ourcapabilities for responding to change,” and “improving our business base.” Through these activities, asa group of professional asset administrators performing a public service for society, we will endeavor tobuild a presence and become generally recognized as “the bank specializing in asset administration.”
Through our asset administration services, we will contribute to the development of companies andsociety as we position supporting the affluence of the public as our management philosophy. JTSB
management and employees, in order to secure unwavering customer confidence, will endeavor tokeep in mind at all times their sense of responsibility and sincerity in implementing this philosophy. We
look forward to your continuing support and patronage in the coming years.

2Management Vision and Commitment

Management Vision
Through our asset administration services, we will contribute to the developmentof companies and society as we support the affluence of the public.
• Increase customer satisfaction as a “good partner with our customers”• Contribute to society as an “indispensable presence”• Increase employee satisfaction as a “company where working is fulfilling”

The Company We Aim to Become
We will work to secure unshakable confidence, and, as a group of professional
asset administrators performing a public service for society, we will endeavor tobuild a presence and become generally recognized as “the bank specializing inasset administration.”

Guidelines for Action
As we administer our customers’ assets, we will follow all laws and internal rules
as well as act with responsibility and sincerity at all times.
• We will respond with a sense of urgency to our customers’ requests with proper
management and accurate processing operations.
• We will continue to make reforms at our own initiative to provide higher-quality
services even more efficiently.
• We will aim to create a workplace culture that makes work brighter and easierthrough a combination of leadership and cooperativeness.

3

Corporate Data Lines of Business
JTSB’s lines of business are securities processing services related to pension trusts, individually managed specified
money trusts, specified money trusts (comprehensive), securities investment trusts, administrated and managed
securities trusts, retirement benefit trusts, and other trusts; management of cash; lending; foreign currency exchangetransactions; account administration institution functions; contracted operations for asset management companies;
and other trustee and banking services related to asset administration.

 History
JTSB was established on June 20, 2000, as Japan’s first trust bank specializing in the asset administration business,by Daiwa Bank, Limited (currently, Resona Bank, Limited) and Sumitomo Trust & Banking Co., Ltd. (currently,
Sumitomo Mitsui Trust Bank, Limited) and commenced operations on July 25, 2000. In October of the same year,
Sumitomo Trust & Banking transferred its trust and certain other assets to JTSB, and, in June 2001, the transfer of
the trust and certain other assets of the then-Daiwa Bank to JTSB was completed. In September 2002, the Mitsui
Trust Financial Group (currently, Sumitomo Mitsui Trust Holdings) invested in JTSB, and, in September 2003, thetransfer of the trust and certain other assets of the then-Mitsui Asset Trust Bank, Limited (currently, Sumitomo Mitsui
Trust Bank, Limited) was completed. As of March 31, 2016, total assets entrusted to JTSB exceeded ¥240 trillion.

 Shareholders
As of March 31, 2016, The number of shares JTSB was authorized to issue was
Common shares: 3,000 thousand
Preferred shares: 1,000 thousand
The total number of shares issued was 1,020 thousand.
 The number of shareholders was two.
 Major shareholders: (Refer to the table below)
 Purchase, disposal, and holdings of own shares: None
Major shareholders

Shares held
680 thousand
340 thousand

Sumitomo Mitsui Trust Holdings
Resona Bank

Shareholdings
Percentage ownership
66.66%
33.33%

 Senior Management (As of June 30, 2016)

4

Title
Representative Director and President
Representative Director and Deputy President

Name
Yasuo Kuwana
Masatoshi Noguchi

Representative Director and Managing
Director

Kunihiko
Tsuneyoshi

Managing Director

Kenichiro Kurisu

Managing Director

Kenichi Okazaki

Managing Director

Takashi Okuda

Auditor (Standing)
Auditor (Standing)
AuditorExecutive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer

Minoru Nakamura
Akira Kobayashi
Shunichi Sakata
Tadayuki Sakai
Masato Tanabe
Yoshito Takahashi
Yasushi Kasahara
Takahiro Ishi
Hiroyuki Shindo

Principal Responsibilities
In charge of Internal Audit Department
In charge of Corporate Risk Management Department, Compliance Department,
IT Management Department
In charge of Operations Planning Department, Corporate Administration Department,
Fund Services Department, Global Securities Department, and Corporate Actions
Department
In charge of Human Resource Department, Treasury Department, Securities Financeand Investment Department, Investment Trust Department, and Domestic Securities andSettlement Department
In charge of IT Planning Department, Business Core Systems Innovation Department,
System Development Department 1, IT Infrastructure & Technology Department, System
Operations Department
In charge of Corporate Planning Department, Business Promotion Department, Client
Service Department, and Administrative Operations Department

General Manager, Internal Audit Department
General Manager, Operations Planning Department
General Manager, Business Promotion Department
General Manager, Investment Trust Department
General Manager, IT Planning Department
In charge of System Development Department 2, System Development Department 3

 Organization Chart (As of June 30, 2016)
General Meeting of Shareholders
Board of Auditors
Board of Directors
President

Executive Committee
Internal Audit Department
Corporate Risk Management Department
Compliance Department
Operations Planning Department
IT Management Department
Corporate Planning Department

Planning
andAdministration Group

Corporate Administration Department
Human Resource Department
Treasury Department

Treasury Group

Business Promotion Department
Customer Services Center

Business Promotion
Group

Securities Finance and Investment Department
Client Service Department
Investment Trust Department
Customer Services Center (Investment Trust)Fund Services Department
Domestic Securities and Settlement Department

Trust Business
Group

Global Securities Department
Global Market Research Center
Corporate Actions Department
Administrative Operations Department
IT Planning Department
Business Core Systems Innovation Department
System Development Department 1
System Development Department 2

Development
Promotion Unit

System Development Department 3
IT Infrastructure & Technology Department
System Operations Department

IT
Group

IT Technology
andOperations Unit

Independent Audit Firm
KPMG AZSA LLC
5

Corporate Governance Framework Business Decision Making and Roles of the Board of Directors
The Board of Directors makes decisions on important management matters and supervises the directors in the
conduct of their duties. An Executive Committee has been established under the Board of Directors. This committee
is responsible for deliberation, as part of the decision-making process in the conduct of business operations, regarding basic management policies and important individual items. The committee also works to share information andconfirm the status of the execution of business activities. Its responsibilities also include reporting important information to the Board of Directors. The Executive Committee comprises all the directors and executive officers, andauditors may attend meetings of this committee and express their opinions.
In addition, as Japan Trustee Services Bank is a joint venture company, decisions on important matters are made in
consultation with its two shareholders.

 Roles of the Board of Auditors
The Board of Auditors comprises all the auditors, and, as necessary, the auditors and the Board of Auditors may
express their opinions to the directors. In addition, following the audit policies established by the Board of Auditors,
the members of the Board of Auditors may attend meetings of the Board of Directors and the Executive Committee
as well as other important meetings, monitor the conduct of duties by the Directors and Executive Officers, and, as
necessary, express their opinions and make various kinds of suggestions.
The Internal Audit Department exchanges opinions with participants in periodic meetings and transmits the advice
and other points from the Auditors. Also, as necessary, this department exchanges information as called for by theoccasion.
The Auditors are responsible for reviewing important documents, including draft proposals; conducting various
kinds of hearings and fact-finding activities; on-site research; and other activities to gather information for their dayto-day auditing activities. In addition, the Auditors hold periodic meetings with the independent auditing company,
receive reports on the status of auditing activities and the results of audits, and exchange opinions. The Auditors also
work to preserve the independence of the independent auditing company and monitor auditing activities to ensure
their proper conduct.
Please note that audit reports are prepared on the status and results of auditing activities, and reports are maderegarding the reports of the Board of Auditors to the Board of Directors. Moreover, the Auditors meet periodically withRepresentative Directors to confirm management policies as well as exchange views regarding the issues facing theCompany and other matters.

 Relationship with Internal Auditing
JTSB has established an Internal Audit Department, which is independent of departments responsible for the conduct of business, audits of the conduct of business activities, and reports directly to the Company president. The
Internal Audit Department examines the appropriateness and effectiveness of internal control systems within thedepartments responsible for the execution of business activities, including compliance and risk management, and,based on such activities, provides guidance and advice as well as makes suggestions. The results of internal audits
are reported promptly to the directors in charge and to the auditors and periodically to the Executive Committee andthe Board of Directors.
General Meeting of Shareholders

Board of Directors

Board of Auditors and Auditors

Executive Committee
Internal Audit Department

Company Departments

Selection
Monitoring, auditing,suggestions
Reports

6

Key Indicators of Management Condition(¥ million)

Years ended March 31

2012

2013

2014

2015

2016

Ordinary income

28,69230,91027,34427,602

27,891

Ordinary profit

1,054

2,100

740

788

570

Net income

574

523

429

460

348

51,000(1,020 thousand)

51,000(1,020 thousand)

51,000(1,020 thousand)

51,000(1,020 thousand)

51,000(1,020 thousand)Net assets

57,761

58,03858,26658,70058,981

Total assets

993,955

1,319,185

1,728,321

2,468,835

6,901,302

Deposits

29,57925,10235,131

32,503

141,305—

172,608

116,625—

772,785

Securities

548,049

168,442

136,532

146,042

95,419

Capital adequacy ratio(Domestic standard)

57.71%

56.48%

40.90%

38.32%

36.92%

Dividend payout ratio

40.81%

40.87%

40.41%

39.88%

40.95%

Number of employees

911

902

926

922

962

24,07926,575

21,34520,657

20,036

—

—

—

—

—

Trust account securities

76,844,683

73,960,925

77,707,294

84,888,357

93,515,727

Total entrusted assets

181,072,646

188,359,947

203,367,513

226,512,594

240,176,012

Paid-in capital(Total number of shares issued)

Loans

Trust fees
Trust account loans

Note: The number of employees includes personnel seconded to JTSB from Resona Bank, Sumitomo Mitsui Trust Bank, and other companies (a totalof 225 in 2012, 218 in 2013, 213 in 2014, 197 in 2015, and 216 in 2016).

(Supplementary Information: Trends in Total Entrusted Assets)(¥ trillion)

250.0

240.2
226.5

200.0

203.4
181.1

188.4

150.0
100.0
50.0
0.0

2012

2013

2014

2015

2016

7

Review of Business Performance Review of Performance and Results
JTSB aims to secure strong confidence and, as a group of professional asset administrators performing a public
service for society, is endeavoring to build a presence and become generally recognized as “the bank specializing inasset administration.” To attain these objectives, JTSB is working to deal with priority management issues: namely,“enhancing the sophistication of our business initiatives,” “strengthening our capabilities for responding to changes,”and “improving our business base.”
In the area of business operations, JTSB promoted Companywide initiatives to improve its operations, and, as aresult, capabilities for responding to customer requests were strengthened.
Among initiatives to further improve the content of its services, in its trust fund business, JTSB worked to respondto customer needs accurately and promptly through its Customer Services Center (Investment Trust). In addition, inthe non-investment trust business area (Tokkin, etc.), JTSB worked to improve its responsiveness to requests from
customers through its Customer Services Center and substantially enhance its services for customers.
In the area of crisis management, JTSB made confirmations of the effectiveness of its business continuity plans
through periodic disaster policy training and drills and is working to strengthen its crisis response capabilities byimproving its systems for management of additional crisis situations, such as pandemics.
As the importance of risk management and compliance with laws and regulations has risen, JTSB has worked tostrengthen its risk management systems for operational risk, including information security. In addition, JTSB has
expanded its training programs to heighten the awareness of compliance among all personnel and implemented
measures to strengthen its compliance systems.

 Profit and Loss
Ordinary income rose ¥289 million over the previous fiscal year, to ¥27,891 million, as a result of an increase in fees
and commissions. Principal components of ordinary income were ¥20,036 million in trust fees, ¥6,074 million in fees
and commissions, and ¥1,730 million in interest income.
Ordinary expenses rose ¥506 million, to ¥27,320 million, due to an increase in operating expenses. The principal
components of ordinary expenses were ¥26,125 million in general and administrative expenses, ¥846 million in interest expenses, and ¥345 million in fees and commissions expenses.
As a result, ordinary profit decreased ¥217 million, to ¥570 million, and net income decreased ¥111 million, to¥348 million.

 Assets and Liabilities
Total assets at the end of the fiscal year rose ¥4,432,466 million, to ¥6,901,302 million, due to an increase in cash
and due from banks as well as other factors. Principal assets were ¥5,494,383 million in cash and due from banks,¥490,000 million in call loans, ¥95,419 million in securities, and ¥772,785 million in loans and bills discounted.
On the other hand, total liabilities increased ¥4,432,186 million over the end of the previous fiscal year, to¥6,842,320 million, as a result of an increase in borrowed money from trust account.

 Entrusted Assets
Total assets entrusted to JTSB as of March 31, 2016, rose ¥13,663,418 million over the end of the previous fiscal
year and amounted to ¥240,176,012 million.

 Issues to Be Addressed
Through strengthening IT governance, improving the efficiency of operations, offering high-value-added services, andmaintaining a high level of reliability through substantial improvements in risk management and internal controls, JTSB
will work to establish a strong reputation as a good partner of its customers and strengthen its competitiveness.

8

Initiatives to Improve Services

 Systems and Measures to Reflect Customer Opinions
in Our Services ...................................................................... P10
 Initiatives for Enhancing Information Provision Services ... P12
 Initiatives to Meet Various Needs ........................................ P16• Foreign Investment Trust Transactions Using
the Fund Settlement Service• Electronic Settlements for Investment Funds• Participation in Custody Services for Foreign Stock
Certificates, etc.
• Securities Lending Services• Domestic Stock Proxy Voting Business• Domestic Stock Transition Management• Electronic Notification Services for
Investment Trust Transfers and Other Notices
 CSR Initiatives....................................................................... P23
9

JTSB, as “a good partner with clients,” has made increasing customer satisfaction one of the objectives in its
Corporate Philosophy.
For JTSB, customer satisfaction means providing services for the customers we deal with directly and, beyond
them, for the affluent lifestyles of their customers––who are subscribers, investors, and beneficiaries––by administering properly the valuable assets that our customers have entrusted to us.
To attain our management objectives, we have adopted the following guidelines for action: “Respond to customers
by providing proper supervision and accurate processing services with a sense of urgency” and “Continuing at all
times to innovate and change to offer even higher quality and services efficiently.” Each and every member of management and staff in their respective positions is endeavoring on a daily basis to be helpful and become “a good
partner with clients.”

Customers

Inquiries, opinions, requests,
and questionnaire responses

Responses,
JTSB seminars

JTSB

Activities toimproveproducts
and services

Information collaboration

Customer Services Center(Investment Trust)Information collaboration
Proposals for improvement

Registration

Information
collaboration

Internal departments

Customer interface system

Directives for
improvement

Systems and Measures to Reflect Customer Opinions in Our Services

 Systems and Measures to Reflect Customer Opinions
in Our Services

Customer
service
information
cards

Analysis

Collaboration
Customer Services Center

Directives for
improvement

Information
collaboration

Executive Committee

 Customer Interface System
JTSB has provided contact points to receive and respond to customer inquiries, opinions, and requests. For
investment trust customers, JTSB’s Customer Services Center (Investment Trust) serves this function, and, forclients in the non-investment trust areas, such as specified money trusts, the Customer Services Center acts
as the point of contact.
JTSB’s organization is divided into fund management, domestic securities administration, foreign security
administration, settlements, and other departments. For one financial instrument, a number of departments may
become involved in a complex fashion, but the Customer Services Center (Investment Trust) and the Customer
Services Center, which are the contact points with customers, are working in close liaison with JTSB’s internal
departments, and they develop and implement various measures to meet customer needs. This system enables
JTSB to respond promptly and accurately to customer inquiries, opinions, and requests.

10

As a good partner with clients and to offer its customers even better services and products, each year, JTSB
conducts a questionnaire survey about its services and products among investment trust management companies and investment advisory companies. JTSB treats these opinions and requests as valuable hints and uses
them as inputs into considering service and product improvements. The outcomes of consideration of the survey
results are reported at seminars and other meetings several times a year.

 Customer Service Information Cards
To use the customer opinions and the awareness we gain from them to improve our services and products,
JTSB introduced customer service information cards as an information management tool in 2006. These cards
are registered with the relevant internal departments, and the information they contain is also recorded. Thus far,more than 6,500 information cards have been accumulated, and the department in charge draws on this information to provide guidance to the relevant departments and make suggestions regarding improvements in services
and products.

 JTSB Seminars
JTSB holds seminars several times each year for investment trust management and investment advisory companies. During fiscal 2015, a total of 63 participants from 43 companies attended seminars. Going forward, to attainour aim of being a good partner with clients and offering them value added, we will continue to offer accurate andtimely information to our customers.

Examples of Seminar Themes
Seminar for Investment Trust Management and Investment Advisory Companies
Held on August 4, 2015
(1) Launch of fund settlement services(2) Shift to straight-through processing (STP) for settlement processing: JTSB’s settlement processing goals(3) Overview of the shortening of the settlement interval for JGBs (T+1) and response measures(4) Trends for major system reforms in Japan(5) Investing in Chinese stocks through Shanghai-Hong Kong Stock Connect(6) Latest trends in investment in India: Shift to the FPI system and recent topics(7) Measures to improve derivatives business operations, and expanded range of applicable products

Systems and Measures to Reflect Customer Opinions in Our Services

 Questionnaire Surveys of Investment Trust Management andInvestment Advisory Companies(8) Measures to improve services for investment advisory companies(9) Tips for using the JTSB web portal(10) Points to consider regarding policy language for foreign funds

11Initiatives for Enhancing Information Provision Services

 Initiatives for Enhancing Information Provision Services
In view of the importance of providing information in the asset administration business, JTSB established its
Customer Services Center and Global Market Research Center and is implementing initiatives to enhance the sophistication of its information provision services.

 Customer Services Center
Along with the rapid advances in Internet-based services and information delivery platforms, JTSB’s Customer
Services Center offers various services and content as well as timely news to customers and is expanding themethods of delivery and diversity of information it provides. The aim of these services is to provide information
useful to customers entrusting assets and investment advisers even more quickly and at a more-sophisticatedlevel.
For investment trust managers, JTSB provides data, such as confirmations of completed foreign securities
transactions and information on interest and dividends, that can be input directly into their accounting systems.
Also, as part of activities to improve user support services, JTSB has set up separate dedicated portal sites forcustomers entrusting assets and investment advisers. These sites present easy-to-understand information on how
to read reports as well as answers to frequently asked questions.
 Examples of Portal Site Screens
For Customers Entrusting Assets: Online 2.0

For Investment Advisory Companies: JTSB Web Portal

Meanwhile, a part of JTSB’s initiatives to increase the convenience of its online services, in February 2013, in
response to requests from customers to offer services earlier in the day, JTSB began to provide services 30 minutes earlier, at 8 a.m. Also, in July 2013, JTSB upgraded the operation of its “Quick Comprehensive Inquiry
Function” for trust reports by adding a capability to access information with multiple base dates. Similarly, JTSB issteadily adding new Internet-based report forms.
To respond to customer needs, JTSB has formed an in-house working group for information delivery, and it
is proceeding with the consideration of various measures to move forward actively to expand its functions andservices.

12

Customers

Inquiries via the Internet

Inquiries via dedicated network

Online information services*1
웇 Trust reports
웇 Online inquiries
웇 Data provision services
웇 Information provision services
Viewing service for pension
investment fund reports*2
Master trust services
MRK service*3
웇 Management report웇 Performance evaluation
웇 Analysis of portfolio
characteristics
웇 Risk management

E-mail distribution

JTSB website

SYNTAX*4
Transactions
data (daily)
Accountbalance data
(daily, monthly)
Consolidated
asset data
(monthly)

XNET*4
Transactions
data (daily)
Accountbalance data
(daily, monthly)SYNTAX data

Asset management data

Online 2.0
e-mail magazine*6

JTSB News*5

Account and information
systems

Initiatives for Enhancing Information Provision Services

 Information Provision Services: Functions*1: Online information services:
Linked to account and information systems, these information services supply customers entrusting assets and fund managers with content
that includes various types of report forms, account balance data, and other information via the Internet.
Report forms are supplied in Excel and CSV formats, making processing easy.
To supply trust reports, the “Quick Comprehensive Inquiry Function” has been added that allows customers to access information on multiple funds and multiple report forms. In addition, to supply trust reports, the “Pension Relation Reports Function” has been added. This function
allows customers entrusting assets to access reports. These reports are “Asset Value Reports” for use in calculating retirement benefit
reserves, the “Detailed Monthly Report on Income and Expense on Pension Assets” and the “Detailed Monthly Report on Changes in Pension
Assets” that show changes in pension asset principal on a monthly basis.
*2: Viewing service for pension investment fund reports:
This service allows customers entrusting pension investment funds to view via the Web data that follows the disclosure requirements of therevised Trust Business Law.
*3: Master record keeping (MRK) service:
This service allows customers entrusting assets to access reports on their assets from a centralized source via the Internet. SYNTAX data isgathered from trust banks and insurance companies, and data from multiple institutions is put into various standard forms.
*4: SYNTAX, XNET:This is a data disclosure service that provides information on asset management electronically via a dedicated network. Data formats areprepared by the original disclosers of the information, namely, Nomura Research Institute and XNET.
*5: JTSB News:
This newsletter is delivered via e-mail and is available on the JTSB website. It contains overseas market systems and taxation, dates of bankholidays, introduction of new products and other items, results of research and analysis, special features on specific topics, and information on
domestic takeover bids and other corporate actions.
*6: Online 2.0 e-mail magazine:
This information service sends out e-mails on topics that include notifications of newly released functions, introductions to convenient services,
and answers to frequently asked questions.

13

Initiatives for Enhancing Information Provision Services

 Global Market Research Center
As part of its initiatives to increase the sophistication of asset administration services, JTSB’s Global Market
Research Center gathers information and undertakes research and analysis on a range of topics related to foreign
securities markets. These include the settlement systems in overseas markets, taxation, dates of bank holidays,
and new investment products. This information is made available through the JTSB News, and the Global Market
Research Center responds to questions regarding the content of JTSB News. These information services have
won the high acclaim of many customers entrusting assets and fund managers.
Going forward, through stronger collaboration with overseas custodian banks, the center gathers informationon the securities exchanges of various countries, central banks, regulatory authorities, industry associations, andmedia. The center also makes use of local consultants for information and advice on tax and legal matters, and,as necessary, gathers the latest information on legal systems, settlement systems, taxation, and other subjects
through the conduct of on-the-spot surveys and research. Through these activities, the center is working tofurther increase the level of its research and analysis.
In addition to information on the latest topics, the center provides useful, accurate, and timely feature articles
on markets of particular interest to investors.

Response to the Diversification in Investment Targets
Investment in foreign securities, along with conventional European and U.S. markets, has in recent years trended
toward increased investment in emerging*1 markets and frontier*2 markets in Asia, South America, the Middle
East, and Africa in line with diversification in investment targets. However, the market practices, regulations, taxation, and other aspects of these local markets remain complex. Making an initial investment often requires complicated procedures, such as an investment authorization application to local authorities, and related costs. After theinvestment is made, investors also need to remain aware of changes in market regulations, taxation systems, andother developments. JTSB makes full use of information offered by global custodians, local central banks, tax
consultants, and other sources to gather data and conduct research and analysis on various markets. JTSB iscontinuing to take initiatives to further improve and increase the sophistication of its asset administration activities
in response to the special features and variability of individual markets.
In addition to these activities, JTSB provides Detailed Information by Overseas Market, which will support
customers to make investments in overseas markets as needed. Along with information directly related to asset
management, JTSB offers information systematically on special features of various markets, mainly emerging andfrontier markets, and points for attention, including matters related to asset administration. Regarding markets indeveloped countries, JTSB selects topics that may have major impact on asset management and practicaladministrative matters, such as revisions in related systems, taxation, and other matters, and provides coverageof these topics.
Going forward, JTSB will periodically update the Detailed Information by Overseas Market and provide accurate
and timely information on asset management that will be useful to customers.
*1: Emerging markets: Securities markets in Asia, South America, Eastern Europe, and elsewhere that are still in the economic growth stage.
Since growth rates are high, investors can expect opportunities for a higher return than in the developed countries, but since there are various
regulations regarding investment and these countries are influenced by trends in the industrialized countries as well as political and financial
factors in their own markets, investment involves some risk.
*2: Frontier markets: Securities markets in developing countries that have not reached the stage of being emerging markets.

14

Global custodians

Information sources
Local tax consultants

Reuters and otherinformation vendors

Information gathering

Local law offices

Provision of information

Local securities
settlement organizations

Local central banks
Inquiries regarding content, etc.

Sub-custodians

Customers

Confirmation of information
Regular updating after
confirmation of information

JTSB
Global Securities Department
Global Planning • CS Team

Detailed information anddata by market
Global Securities Department
Global Market Research Center

Checking by lawyers, tax accountants, accountants, and others

Detailed Information
by Global Market

Initiatives for Enhancing Information Provision Services

 Flow of Services Offering Detailed Information by Overseas Market

15

Transactions for the foreign investment trusts included in investment trusts have increased in recent years.
Administrative procedures for foreign investment trusts are complex, often involving contacting different managementcompanies for each security, making greater consistency and speed increasingly important. Another factor complicating matters is that management companies principally communicate by facsimile.
JTSB has sought to resolve this situation by partnering with Euroclear to offer the Fund Settlement service, introduced in July 2015. This service centralizes all transaction requests through Euroclear, and uses the highly efficient
SWIFT system, allowing for secure and prompt transaction procedures. This initiative has enhanced satisfaction
among investment trust customers.
Investment trust customers can also simultaneously take advantage of straight-through processing (STP).
Specifically, while management companies normally send result notifications for the transaction requests they receiveby fax or PDF, with the Fund Settlement service JTSB will provide this information in data format. Dividend information
can also be provided as data, further enhancing the benefits of STP.
Main Benefits for Investment Trust Companies• Transaction results and dividend information available in data format• Quick verification in yen of sales proceeds received from foreign investment trusts• Ability to search for foreign investment trust securities information and transaction request status using a dedicatedbrowser for the fund settlement service

Without using the fund settlement service (Manual processing via fax and PDF)

Investment Trust Company

Initiatives to Meet Various Needs: Foreign Investment Trust Transactions Using the Fund Settlement Service
16

 Foreign Investment Trust Transactions Using the Fund
Settlement Service

Transaction
order

JTSB

Management company
for the foreign investment trust
Management company
for the foreign investment trust■[Fax/Email (PDF)]
Transaction request result■■

Using the fund settlement service (STP via SWIFT and data)
Transaction
order(no change)

JTSB
Data upload
possible[Fax]
Transaction
requestNotification of transaction request result(data format, etc.)[SWIFT]
Transaction request
Notification of transaction
request result

Management company forthe foreign investment trust

Euroclear
Management company forthe foreign investment trust■■■

Benefit

Notification of transaction request result(contract note) provided in data format

Supports
STP

With the growing trend in Japan toward investment over savings, the capital inflow to Japanese investment trusts has
prompted the establishment of new funds, including funds with high distribution frequency. While the rate of new fundgrowth has begun to slow, it remains at a high level.
Accordingly, the number of settlement transactions by investment funds is growing at a rate that exceeds theestablishment of new funds. JTSB, as well as investment trust management companies, faces a growing need for IT
systems and electronic statements in settlement procedures.
To address these needs, in April 2016 JTSB began implementing the T-STAR/TX settlement operations support
service provided by Nomura Research Institute, Inc. This system allows us to create electronic versions of the settlement statements prepared by investment trust management companies for their provisional account settlement, final
account statement, and redemptions, and send these statements via a dedicated private circuit. The companies
receiving the data can then automatically match it against their own data.
For investment trust management companies that use other accounting management systems, JTSB uses OCR
technology* to produce the data version of PDF files, allowing it to offer similar benefits.
These initiatives allow JTSB to enhance its processing capabilities to handle the anticipated growth in settlement
services for investment trusts, and make those operations more secure.
* Optical Character Reader (OCR) is a technology to create data versions of PDF files using a special application.

Main Benefits for Investment Trust Management Companies• Quick verification procedure and prompt notification of matching from investment trust management companies• Automated matching offers greater security.
• The use of a private circuit rather than fax or email avoids the risk of error in transmitting the form data for verification.

Previous system

Settlement verification list
Earnings distribution calculation sheet
Visual verification
Sent by fax, email, or conveyed over telephone

Management company

Matching confirmation

JTSB

Using thenew service

Digital verification
Data transmission

Management company

Matching confirmation

JTSB

Initiatives to Meet Various Needs: Electronic Settlements for Investment Funds

 Electronic Settlements for Investment Funds

17

In recent years, expectations for upgrading the asset administration infrastructure have risen. Factors accounting forthis have included the globalization of Japanese enterprises, fund-raising by foreign companies on the TSE, the listingof ETFs invested in Asian stocks (other than Japanese stocks), the commencement of the calculation of the JPXNikkei Index 400 (which may include foreign stocks listed on the TSE), and the listing of foreign stocks (including foreign ETFs) (hereinafter, TSE foreign stock).
Amid this business environment, as an asset administration company specializing previously in domestic assets, asa first initiative to respond to these trends, JTSB began to participate in the “Custody Services for Foreign Stock
Certificates, etc.” of the Japan Securities Depository Center, Inc. (JASDEC) in August 2014.
As a result, previously, investments in TSE foreign stock could be transferred and settled freely, but through participation under the delivery versus payment (DVP) system, stock, etc., can be transferred and settlements made, andinformation can be provided on rights and dividends. These arrangements have further enhanced the safety and convenience of asset administration.

 Merits for Investment Trust Management and Investment Advisory Companies
쒁 Reduces securities and settlement risk
• Information on rights and dividends: JTSB receives directly from JASDEC 쒁 Timely provision of information
is expected

Securities transactions• Securities and monetary settlements: DVP becomes possible

Rights and dividend information

Initiatives to Meet Various Needs: Participation in Custody Services for Foreign Stock Certificates, etc.
18

 Participation in Custody Services for Foreign Stock
Certificates, etc.

Prior to participation in the system

After participation in the system

Account management by securities companies
as “account management institution”

Securities management by trust bankas a “JASDEC Participant”

Requires transfer of the securities
between securities companies

Does not require transfer of the securities
between securities companies

JASDECJASDEC

Account management
institution
Securities company A
custody account

Account management
institution
Securities company B
custody accountWhen stock A, which was purchased at securities
company A, is sold to securities company B, it wasnecessary to have the stock transferred in advance tosecurities company B.

JASDEC
Account
management
institution

JASDEC

Securities
company A
custody accountRights anddividend
information

Account management
institution
Securities company A
custody account

Reducessettlement risk

Securities
company A

JTSB

JASDEC Participant
JTSB trust accountWhen the stock is purchased at securities company A, it is transferred to
the JTSB trust account through the DVP process. Then, if the stock is soldat securities company B, it does not require the transfer of securities
between the securities company. Settlement with securities company B iscarried out through a DVP transfer.

JASDEC
Participant

JASDEC

Rights anddividend
information

To investment trust
management and investment advisory companies

Securities company A, where the custody account is located, obtains theinformation on rights and dividends from JASDEC. For this reason, if JTSB
cannot obtain the rights and dividend information, it cannot provide it to theinvestment trust management and investment advisory companies.

JTSB
trust account

JTSB
DirectIndirect
Rights anddividend
information

Account management
institution
Securities company B
custody accountRights anddividend
information

Rights anddividend
information

Information obtained
through a timely
and secure process

To investment trust
management and investment advisory companies

Information on rights and dividends is obtained directly by JTSB fromJASDEC as a participant in the system. For this reason, JTSB can pass theinformation on the investment trust management and investment advisory
companies.

As part of initiatives to offer services related to the asset administration business, JTSB is substantially stepping up
its securities lending services with the objective of offering customers high value added.

 Features of JTSB’s Securities Lending Services
JTSB has one of the largest balances of assets for lending in Japan, and its staff have abundant experience insecurities lending operations. JTSB also has high-level lending support systems that enable it to process large
volumes of such transactions quickly. As a result, JTSB ranks among the leading stock and bond lending
institutions in Japan and is working to further expand the scale of its securities lending services.
Because of the flexibility and careful tailoring of services to meet a wide range of needs of customers entrusting
assets and fund managers as well as detailed reporting services, JTSB offers lending services that cover a wide
range of products, including pensions, comprehensive securities investment trusts, specified money trusts,
specified individually managed money trusts, and custody.

 Service Development
JTSB was one of the first companies in its industry to offer securities lending and introduce a diversity of lending
methods as well as upgrade its operations with the aim of providing advanced, high-value-added services for its
customers. These activities have included lending securities to actively managed funds through active collaboration with investment advisory companies and fund managers, collateral management schemes based on thetri-party method for which needs are strong among borrowers, and the introduction of platforms for securities
lending transactions.
JTSB is continually reviewing and further upgrading its credit and interest rate risk management in line withchanges in the market environment to ensure even safer asset management.
Going forward also, JTSB will continue to differentiate its services from others through its product and service
planning capabilities and operational strengths as it works to substantially raise the level of its services andmaintain its leading status in the industry.

Middle office:Corporate Risk Management Department
trust management teamMonitoring of collateralmanagement status

Back office: Domestic Securities andSettlement Department lending team(Consumption)
Borrowing/lending contract

Lending of
securities

Collateral(Consumption)
Borrowing/lending
contract

Borrowing/lending
markets, financial markets

Mutualchecking
systemSecurities processing notifications

Monitoring of the content of agreements,
borrower credit risk, interest rate risk, etc.

Lending of
securities

Lending agents

Agent contract

Front office: Securities Financeand Investment Department
Re-entrustment agreement

Trustee(Re-entrustor)

Trust contract

Re-entrustee(JTSB)

TrustorOverseas

Collateral

Domestic

 Lending Scheme

Initiatives to Meet Various Needs: Securities Lending Services

 Securities Lending Services

Managementof collateral
funds

Borrowing/lending markets, financial markets(Securities companies, etc.)
Note: The general scheme shown above pertains to re-entrustment of securities. A similar scheme for securities lending services is applicablewhen the securities are entrusted from one party to another.

19

In its asset administration activities, JTSB responds flexibly to the needs of its customers regarding domestic stockproxy voting, which involves the maintenance of important rights, and has appointed specialist staff who can processproxy votes promptly and accurately. JTSB strives to execute the electronic instructions from customers entrusting
assets and fund managers speedily and accurately, and, with its originally developed stock proxy voting management
system, is able to offer services of even higher quality.
Also, by arranging for the participation of fund managers in ICJ Co., Ltd.’s*1 Electronic Proxy Voting Platform*2,
it has been possible to strengthen collaboration with ICJ and enable fund managers to exercise their proxy rights
directly and smoothly. Looking ahead, JTSB will take even more-active initiatives in the increasingly diverse proxyvoting services area.
*1: ICJ Co., Ltd., is a joint venture, established in July 2004 by the Tokyo Stock Exchange Co., Ltd., the Japan Securities Dealers Association, andBroadridge Financial Solutions, Inc., with the objective of operating the Electronic Proxy Voting Platform.
*2: The Electronic Proxy Voting Platform is an infrastructure system that enables institutional investors to vote directly the proxies of the shares they
own without going through the trust banks that are the shareholders of record.

Notice of the General Meetingof Shareholders is mailed• Notice of the General
Meeting of Shareholders• Stock voting proxy

JTSB• Stock voting proxy

Electronic voting instruction
file is transmitted by e-mailElectronic voting
instruction file is returnedby e-mailExchange of
information on
voting rightsthat are voted
directly[Direct voting]
The shareholder exercises his voting rights
by inputting voting instructions directly into
the ICJ Electronic Proxy Voting Platform.

Customers entrusting assets to JTSB
Fund managers

ICJ’s Electronic Proxy Voting Platform

Shareholder registryadministrator[Document voting]IssuerInitiatives to Meet Various Needs: Domestic Stock Proxy Voting Business20

 Domestic Stock Proxy Voting BusinessAs part of its asset administration business, JTSB offers domestic stock transition management services. These
include restructuring stock portfolios that have been entrusted to JTSB, and then transferring them safely and efficiently to separate accounts according to customer requests.

 Features of JTSB’s TM Services
As trustee, JTSB adopts the specified comprehensive trust contract method, and features of its services include
providing a sense of security and transparency to its customers, cost minimization, and anonymity in the market.
(1) In addition to its extensive record of transferring securities documents, JTSB can offer high-quality service
because of its dedicated systems for transition management execution.
(2) When transition projects are entrusted with JTSB, it appoints a specific person in the specialized transition
management unit in the front office on the one hand and, on the other, JTSB’s specialized transition management unit in the middle office strictly monitors the activities of the securities company responsible for
execution (hereinafter, executing securities company). In this way, JTSB guarantees customers a high levelof transparency and the best execution.
(3) By properly managing market risk exposure and tracking errors, JTSB minimizes costs.
(4) By selecting the executing securities company from among those that have no capital ties with JTSB, theconflicts of interest that may arise in such transactions with related parties are eliminated.
(5) By having transition management executed by JTSB, as a trust bank that specializes in asset administration,customers can rely on JTSB for the thorough management of information and eliminate the possibility ofconflicts of interest in the conduct of transition management services.

 TM Scheme
Customers(1) Conclusion of the trust contract
Discussion of execution plans(4) Reports, etc., on execution

JTSB
Specialized TM fund(a specified comprehensive trust, managed and operated by JTSB as the trustee)

Former portfolio
Former fund(2) Transfer of securities
to a specialized
TM fundMatching portion
Non-matching portion(Stocks to be sold and bought)

New portfolio
Portfolio after
the completion of
restructuring

Initiatives to Meet Various Needs: Domestic Stock Transition Management

 Domestic Stock Transition Management

New fund(5) Transfer of securities
from the specialized
TM fund(3) Execution of portfolio restructuring
Securities company responsible for execution

21

Investor interest in investment funds has been high as a result of the introduction of Nippon Individual Savings
Accounts (NISA) and defined contribution pension schemes, with a continued rise in the number of newly offeredinvestment trusts.
In this operating environment, JTSB is implementing various measures to enhance the customer satisfaction of its
investment trust management clients. One such initiative is the industry’s first electronic notification service for investment trust transfers, implemented in February 2014.
Investment trust transfer notices provide information on payments following withdrawals from investment trusts anddistributions of dividends from these trusts. Heretofore, these notices were printed and distributed through the postal
service or by facsimile. JTSB’s new service puts these notices into electronic form, and, by transmitting this information through IT systems, makes paperless, “straight-through processing” possible.

 Merits for Investment Trust Management Companies
Shifting to electronic information transfer has the following merits for investment trust management companies:(1) It simplifies data transmission from the accounting systems of investment trust management companies
to JTSB.
(2) As a result of electronic data collation and straight-through processing, the time needed for making
monetary transfers to sales agents is shortened substantially.
(3) Transitioning to paperless operations increases business process efficiency and reduces the costs

Previous Process Flowassociated with paper notices, etc.

Investment trusttransfer system data

Investment trust
management companies

JTSB

Confirmation
by clericalpersonnel

OutputReceipt of paper copies
Postal service

Investment trust
management companies

Japanese Banks’
Payment Clearing
Network(Zengin-net)

Input byoperators

Facsimile

Entry into investment managementcompany accounting systems,
preparation of paper notices

New Electronic Flow

Initiatives to Meet Various Needs: Electronic Notification Services for Investment Trust Transfers and Other Notices
22

 Electronic Notification Services for Investment Trust
Transfers and Other Notices

Transmission

Receipt of original paper notice

Investment trusttransfer system data

Automatic
linkage
Receiving system

Data transmission throughdedicated channels

Transfers

Settlement
systemJTSB
Japanese Banks’
Payment Clearing
Network(Zengin-net)

Data collation

Investment trust
management company
accounting systems

Investment
trust sales
agentsTransmission

Settlement system

Transfers

Investment
trust sales
agentsJTSB performs its main business as a bank specializing in asset administration faithfully and takes performance of
these duties as the basis for fulfilling its corporate social responsibility (CSR).
With this as a basic assumption, JTSB approaches CSR from three perspectives: “Enhancing customer satisfaction (CS),” “Enhancing employee satisfaction (ES),” and “activities for preserving the environment and contributing tosociety.” As all JTSB’s management and staff from their respective points of view take action, JTSB aims to reachhigher levels of fulfillment of its CSR.
As a specific code of conduct for CSR activities, JTSB has established the following policies for action and is working to raise the awareness of CSR among each and every member of management and staff. As the center of these
activities, JTSB has established a Companywide cross-divisional CSR and CS Promotion Committee to support theactivities of all management and staff.

CSR Initiatives

 CSR Initiatives

Policy for CSR Activities• We have a strong awareness of our high-level functions in the social infrastructure in the field of administering securities
and other assets and offer high-quality services promptly and accurately to all our customers.
• We contribute to the development of our customers and society by developing and providing services that meet theneeds of our customers.
• We, as members of society, participate, on an individual and voluntary basis, in activities that contribute to society.
• We, by contributing to society, work to create a workplace we can each take pride in and work energetically.

 System for Activities
Executive Committee

CSR and CS Promotion Committee
Human Resource Department

Environmental Preservation andSocial Contribution Planning Unit

CS Activities Planning Unit

ES Activities Planning Unit

Activities of All Management and Staff

 Principal Initiatives
Social Contribution Planning Unit
This unit actively engages in a range of projects that contribute to society, including those providing support forthe blood donation activities of the Tokyo Red Cross Blood Donation Center.
CS Activities Planning Unit
Under its slogan of “Nurture the Tree of Reliability! Make the Smiles of Our Customers Bloom,” this unit is engaging in group discussions and meetings to exchange opinions with other companies with the objectives of raising
the awareness of CS among management and staff and thereby “enhancing CS.”
ES Activities Planning Unit
Activities of this unit include promoting the taking of parental leaves of absence among employees and creating
systems to provide assistance to employees raising children. The unit has also established an “External Advice andCounseling Desk” and is taking steps to enable employees to work with a greater peace of mind by creating systems to help them deal with the problems they may face. In addition, this unit aims to create a corporate culturethat respects the rights of each and every employee and is free of discrimination by aggressively implementing
activities that increase the awareness of human rights, focusing around the Human Rights Awareness Promotion
Committee.

23

Processing Systems Infrastructure Initiatives for Improving Processing Quality ........................ P26
 Active Initiatives for Reforming Securities Settlement
and Other Functions ............................................................ P27
 Overall Composition of Company Systems ......................... P28
 Systems Development andOperations Management Framework ................................. P29
 Information Security Management ....................................... P29

25

Processing Systems Infrastructure: Initiatives for Improving Processing Quality

 Initiatives for Improving Processing Quality
 Strengthening Processing Planning Functions
JTSB established its Operations Planning Department with the aim of substantially strengthening its
Companywide system for promoting the enhancement of the quality and efficiency of processing.
As the JTSB department in overall charge of operational planning, the Operations Planning Department handles
matters related to regulatory issues, taxation, and accounting and is responsible for structuring operation processing systems that are appropriate for offering products and services to JTSB customers, investment trust
management companies, and investment advisory companies. The department is also in charge of planning andthe promotion of measures pertaining to improvements in processes, standardization, and efficiency enhancement. Also, as noted in the next section under Processing Risk Management Activities, this department is preparing the way for securing the effectiveness of processing risk management activities.
In addition, from the perspective of promoting the implementation of processing planning policies on a
Companywide basis, persons in charge of promoting processing have been assigned to each department. These
persons are responsible for playing leadership roles in making improvements in processing quality in their respective departments and for implementing within their units the policies set by the Operations Planning Department.

 Processing Risk Management Activities
With the awareness that minimizing processing risk is one of the most-important issues for JTSB as a company
specializing in asset administration, JTSB has established processing procedures manuals for all its processing
operations, have forbidden non-standard processing, and established mutual checking as standard procedure.
In addition, JTSB has prepared its Processing Risk Management Rules, which contains basic items for conducting proper and smooth processing operations and for the management of processing risk, reducing risk, andpreventing the emergence of risk. Based on these rules, JTSB engaged in control activities to take preventive
measures (in advance) and deal with risks that have emerged (after the fact).

Improving processing quality

Raising capacity for structuring processes

Unit in overall charge of operations planning = Operations Planning Department

Operations Planning Department

Other Departments• Overall charge of structuring operational processes (including
those related to regulatory matters, taxation, accounting, andproviding products and services to JTSB customers, who areinvestment trust management companies and investment
advisory companies).

• Assignment of persons in charge ofpromoting process planning• Promotion of processing improvements, standardizationand efficiency enhancement• Taking preventive (in advance) measures: preparation
and updating of the Processing Procedures manuals• Taking measures after the fact: Management of processing
errors26

Improving processing efficiency• Taking charge of improvements, etc., with operating units• Promotion/implementation of measures adopted by the
Operations Planning Department

The securities settlement system plays an important role in Japan’s securities transactions as a core element in theinstitutional base. JTSB, as a leading company in the asset administration business, is preparing actively to respondto the “Securities Settlement System Reforms” and the “Domestic Securities Market Reforms” as well as the“Enhancement of Settlement Systems,” which is being promoted by the Bank of Japan.
In addition, JTSB positions responding appropriately to the “International Regulations” for derivative transactions,which have been implemented in recent years, and the “Extraterritorial Application of Individual Regulations” in the
United States and Europe (under which Japanese financial institutions are subject to regulation) as important issues.”
Category

Field

Governmentbondtransactions
Securities
Settlement System
Reforms

Domestic Securities
Market Reforms

Enhancement of
Settlement Systems

Upcoming EventsContent and JTSB’s Initiatives

The period for settlements from transactions (contract) to final
settlement (delivery) will be shortened, and settlement risk in
Shortening the period of settlethe market as a whole will be reduced.
ment for government bonds
JTSB is participating in meetings with the relevant organizations for the consideration of related issues.
By having trust banks participate in the system for settlement ofParticipation of trust banks in government bond transactions, settlement risk of transactions
government bond transactions in trust accounts will be reduced.
via the clearing organization
JTSB is already participating.

Timing*First half of 2018

Around June2014
For lending/borrowing transactions

Stock trading

Shortening of the settlement
period for stock transactions

The period between transaction (execution) and settlement(transfer) will be shortened, reducing settlement risk for themarket overall.
JTSB is participating in discussions with the relevant organizations to consider related issues.

First half of 2019

Securities
and Futures
markets

Increasing activity in the bond(general bonds) market

With the goal of increasing activity in bond transactions, etc.,
discussions are being held regarding stepping up trading
through the participation of the principal market participants.
JTSB is taking appropriate measures to respond.

Not decided

Central bankEnhancements of the financial
network systems of the Bankof Japan

The national system for funds settlements and government
bond settlements will be enhanced, and the security andconvenience of financial transactions will be improved.
JTSB has completed its response.

October 2015

Centralize transactions in theCentral Counterparty Clearing
House (CCP)

These reforms will aim to reduce settlement risk in the market
as a whole. Transactions of specified OTC derivatives will haveto be settled through a clearing institution.
JTSB will proceed to respond in an appropriate manner.

December 2016

Restrictions on margins, etc.,
for transactions that will notmake use of a Central
Counterparty Clearing House(CCP)

As with OTC derivatives that must be settled through a Central
Counterparty Clearing House (CCP), non-centrally cleared OTC
derivatives settled directly between parties will also require thereceipt and payment of margins.
JTSB is proceeding to respond appropriately.

Expected byMarch 2017
Applicable tovariable margins,
etc.

Introduction of a financialtransactions tax

For the sake of the stability of the financial systems in Europe,
there is a movement toward levying a transactions tax on securities, derivative and other transactions.
JTSB is responding in an appropriate manner.

In accordancewith the conditions in each
European country

Reducing Risk ofInternational
Regulations

Derivativetransactions

Regulations inRegions andCountries (extraterritorial application)

Europe* The timing of items not confirmed are to be scheduled.

Processing Systems Infrastructure: Active Initiatives for Reforming Securities Settlement and Other Functions

 Active Initiatives for Reforming Securities Settlement
and Other Functions27

Processing Systems Infrastructure: Overall Composition of Company Systems

 Overall Composition of Company Systems
JTSB’s systems must perform a full range of integrated securities administration functions to meet the needs ofpension funds, specified money trusts, investment trusts, and other types of customers. These functions include theprocessing of transactions, the management of account balances, and the preservation of ownership rights, throughto accounting and reporting on funds. These various functions are performed by an overall system that is capableof rapid processing operations and is composed of mutually linked specialized systems performing distributed
processing operations.
By realizing the appropriate combination of mainframe and distributed processing, which may depend on theobjectives and nature of processing operations, JTSB is able to provide customers with the data they need andrespond flexibly to their requests.

Japan Securities
Depository Center(JASDEC)*

SWIFT

Japanese Bankers
Association (JBA)

Bank of Japan

External settlement systems

PRESEAKSWIFT Alliance

Yen funds
management

RTGS

Asset administration systems

JBA RC

Individual financial product systems

Fund management system (FM)Stock lending

Management support system

Repurchase agreement/Repo

Global securities STP system

Bond lending/borrowing

Pension accounting system

SWAP

Data disclosure systems
Online dataservice

SYNTAX

XNET* The Japan Securities Depository Center is a central securities depository providing securities settlement and administration services.

28

IT Group
IT Planning Department

Mutual collaboration
Planning/development/operation
Development Promotion Unit

IT Technology and Operations Unit

Planning and Administration GroupIT Management Department• System risk management• System development monitoring, etc.

JTSB has its own system development departments in-house. This makes possible rapid decision making in
IT-related operations, and the operating departments and IT departments work together in implementing initiatives.
The IT Planning Department is responsible for preparing plans and the overall management of IT operations. It
works closely with the Development Promotion Unit, which is responsible for the integrated implementing of various activities ranging from identification of tasks and projects to the development of applications. The IT Planning
Department also works closely with the IT Technology and Operations Unit, which are responsible for structuringsystems platforms, providing technical support, and system operations. As these three organizational units act inclose collaboration, JTSB is able to respond promptly to the varied and diverse needs of its customers.
In addition, under JTSB’s organizational structure, the IT Management Department, which is responsible forrisk management and is independent of the IT Group, monitors the risk of system development.
Going forward, JTSB will strive to strengthen the governance of the IT functions and improve productivity insystem development. It will also respond steadily to changes in the environment surrounding the asset administration business and ensure the stable operation of its systems infrastructure.

 Information Security Management
JTSB has structured and audited its information security systems on a systematic basis and has created the necessary systems for risk management. Today’s asset administration business is based on sophisticated computerized
information processing, and requirements for the strict management of information, as represented by the provisionsof Japan’s Personal Information Protection Law, have been tightened substantially.
JTSB sets priority levels for all the information assets it holds based on the risk of losses that customers may incur
because of actions, such as leakage, loss, falsification, etc. Depending on the level of risk, JTSB takes appropriate
security measures for the acquisition, usage, management, storage, internal transmission, and removal of information
assets from the JTSB premises, its disposal, and other such actions.
Also, in managing its information systems, JTSB implements safety precautions and measures to prevent improper
entry, usage, or other such actions. JTSB maintains its computer hardware systems and ensures that backup andalternative facilities are held in readiness. Through the preparation of backup data and operating manuals, JTSB
implements measures to increase even further the reliability of its hardware, software, and systems operations.
These security management systems have been based on internationally recognized information security management guidelines and the safety measures standards issued by The Center for Financial Industry Information Systems(FISC), a public interest incorporated foundation. JTSB thoroughly reviews its information systems and information
assets, identifies possible threats, ascertains the current risk levels, assesses them, and implements measures on a

Processing Systems Infrastructure: Systems Development and Operations Management Framework/Information Security Management

 Systems Development and Operations Management Framework

continuing basis using the “plan, do, check, act” cycle management approach.

29

Internal Management Systems

 Risk Management Systems .................................................. P32
 Compliance Systems............................................................. P33
 Crisis Management Systems (Business Continuity Plans)... P34
 Internal Auditing Systems ..................................................... P36

31

Internal Management Systems: Risk Management Systems

 Risk Management Systems
For JTSB to fulfill its public mission as a trust bank specializing in asset administration, it is required to ensure thesoundness of its management by measuring risk accurately and controlling it. To satisfy this requirement, JTSB
manages operational risk, credit risk, market risk, and liquidity risk using methods appropriate for their special
characteristics and has developed systems for overall, integrated risk management.

 Common Basic Risk Policy• JTSB classifies risks by risk categories—namely, operational risk, credit risk, market risk, and liquidity risk—andmanages each of these risks with methods appropriate for their special characteristics.
• By managing these risk categories through a process involving identification, assessment, monitoring, control,
and taking steps to reduce risk, JTSB gains an accurate understanding of the status of such risks and takes
appropriate risk management measures. In addition, by gaining an understanding of the aggregate level of risk
in each category, JTSB makes qualitative and quantitative assessments of these risks and focuses on managing
them by making comparisons with its management condition and capabilities.
• JTSB is aware that the principal risk in its risk profile is operational risk because of its specialization in the asset
administration business and, therefore, focuses on the reduction of operational risk.
• For other risk categories, JTSB’s policy is to minimize such risks that may arise in the conduct of its asset
administration business operations.

 Content and Management Systems for Principal Risk Categories
Risk category

Content of risk

Operational risk

The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

Credit risk

The risk of losses due to the decline in or complete loss of value of assets (including off-balance sheet assets) as a result of
the deterioration in the financial condition of borrowers.

Market risk

The risk of losses due to the change in value of assets held (including off-balance sheet assets) as a result of such market risk
factors as fluctuations in interest rates, changes in the market price of securities, foreign exchange rates, and other indicators.
In particular, during times of market turmoil or other adverse circumstances when it becomes impossible to carry out market
transactions or transactions must be conducted on extremely unfavorable terms, this is termed market liquidity risk.

Liquidity risk

The risk of losses due to the inability of obligors to secure sufficient funds to cover financial obligations because of such factors
as deterioration in their financial condition or in cases where obligors must procure funds at interest rates that are much higher
than normal.

Risk Management Deliberation
Committee(ALM Committee)

Risk Management Deliberation Committee (Operational Risk Committee)

Event risk

Operations Planning
Department

Personnel risk

Processing risk

Information
management
related risk

Information
systems
related risk

IT Management
Department

Legal & compliancerisk

Corporate Risk Management Department

Information security risk
System risk

Reputational risk

Liquidity risk

Market risk

Credit risk

Operational risk

ComplianceDepartment

Human
Resource
Department

Corporate
Administration
Department

 Risk Management Deliberation Committee (Operational Risk Committee)
Responsible for coordination related to Company-level and interdepartmental operational risk issues in all risk categories, such as legal and compliance risk as well as personnel risk; promotion of operational risk management measures; and consideration and deliberation related to strengthening risk management systems.
 Risk Management Deliberation Committee (ALM Committee)
Responsible for deliberation regarding matters related to lending activities in JTSB’s banking operations, matters related to overall ALM, andmatters related to operation and management of market risk and liquidity risk.

32

To respond to changes in the times accompanying the growing competition among financial institutions that is
extending beyond the financial services industry and the rising sophistication of financial technology, financial institutions are required to abide strictly by the principle of being responsible for their own actions and maintaining management transparency. Moreover, as a bank specializing in asset administration, JTSB must comply with all laws andregulations and fulfill its social responsibilities of contributing broadly to society and the economy, while also fulfilling
its important public mission as a trust bank. To fulfill its responsibilities and mission, JTSB has established its Ethics
Charter and has positioned compliance with laws and social norms as one of its most-important management issues.
JTSB works to heighten the awareness of compliance among all management and staff with the aim of conducting
corporate activities that are reliable and fair and will win the trust first of our customers and from society as a whole.

 JTSB’s Compliance Systems
JTSB has formed its Compliance Department to be in overall charge of compliance matters. Its responsibilities
include formulating compliance programs to promote the implementation of compliance matters, prepare related
rules and regulations, formulate other measures for promoting compliance, making all personnel aware of compliance, providing guidance, and achieving overall progress toward compliance objectives. In addition, in each of
JTSB’s internal units, compliance officers have been appointed, and these officers serve the functions of ensuringthat all departments are conducting their activities in compliance with laws and regulations and confirming thestatus of compliance. The Compliance Department and the compliance officers in each department hold meetings of the Compliance Officers Committee regularly to discuss matters related to promoting compliance andexchange information. Moreover, the Internal Audit Department conducts audits to confirm whether compliancemanagement activities are being conducted appropriately.

 Making All Personnel Aware of ComplianceTo ensure appropriate compliance with laws and regulations, each and every member of the management andstaff of JTSB must be aware of compliance at all times and practice compliance. To this end, JTSB has preparedand made all management and staff aware of its Compliance Manual, which contains a code of conduct for use
in the daily conduct of operations and information on relevant laws and regulations. In addition, all management
and staff are required to attend training courses on compliance periodically. Furthermore, JTSB has prepared an
Ethics Card that each and every member of management and staff carry at all times. This card summarizes
JTSB’s Ethics Charter, which contains the essential points that management and staff must be aware of. By having everyone carry this Ethics Card, JTSB is aiming to raise the awareness of compliance among all employees.

Internal Management Systems: Compliance Systems

 Compliance Systems

 Public Interest Reporting System
JTSB has made arrangements that make it possible for employees to report compliance violations or their concerns about possible violations promptly, fairly, and properly directly to either internal or external compliance listening desks. When such reports are received, the Compliance Department investigates the matter immediately
and takes action as necessary.
Diagram of the JTSB Compliance System

Board of Directors
Provide advice, reports, etc., regarding the legal
compliance system to the Board of Directors and others
Compliance Department

Compliance Officers Committee

Reports, etc., regarding educational and training activities
related to legal compliance

Compliance officer personnel in various departments
Checks on the status of compliance in various departments by an independent internal unit
(Internal Audit Department)

33

Internal Management Systems: Crisis Management Systems (Business Continuity Plans) Crisis Management Systems (Business Continuity Plans)
As a bank specializing in asset administration with a large balance of entrusted assets, JTSB’s operations may beseriously impacted in the event of natural disasters or major malfunctions, or if its buildings and systems are damaged by such disasters or by terrorists, or for other reasons. In cases where such disasters can be foreseen, JTSB
has prepared business continuity plans that provide for quick early action to restrain damages to a minimum after giving first priority to ensuring the safety and lives of customers and employees as well as their families. These business
continuity plans, which have been prepared in ordinary times by the Crisis Management Committee, then set forthplans for restoring regular operations smoothly at an early date.
Business continuity plans are prepared under the supervision of the Crisis Management Committee during normal
times, and JTSB is responding to newly emerging issues through conducting periodic practice drills to be prepared
for times of disaster.
PLAN
Preparation of disastercountermeasure plans

ACTION

DO• Revision of internal regulations andbusiness continuity plans• Improvements in systems infrastructure• Implementation of disaster countermeasuredrills and training• Verifying status of addressing issues
identified previously

CHECK
Assessment of disaster countermeasuredrills and training

 Facilities (Installations and Equipment)
JTSB’s Head Office is located in the Harumi Island Triton Square complex and is designed to withstand magnitude seven (Japanese scale) earth tremors, such as the 2011 Great East Japan Earthquake. The building is also
outfitted with electric power, telecommunications, security, and other functions. Further, as a financial institution
JTSB has enhanced its facilities in line with the standards issued by the Center for Financial Industry Information
Systems (FISC), including a dedicated electric power generator to secure a power supply, telecommunicationslines from multiple carriers to avoid communication breakdowns, and an IC card system to strengthen crime prevention measures.
In addition, JTSB’s systems centers and backup sites have a similarly strong infrastructure, including antiearthquake construction, electric power sources, and security facilities.

34

JTSB’s offices and system centers have backup facilities in preparation for possible natural disasters or other difficulties. JTSB established facilities in its Fuchu business location to provide backup for the functions of the Harumi
Head Office. These facilities in Fuchu went into operation in December 2002 and were upgraded in November
2012. In October 2003, JTSB opened the Chiba backup center in Chiba Prefecture to provide backup systems
for the Fuchu office.
Of note, we plan to move the Chiba backup center to Osaka during fiscal 2016 as a provision against a disaster affecting the entire Tokyo metropolitan area.
If the Harumi Head Office is affected by a disaster, operations will be continued at the Fuchu backup office, andat temporary windows (delivery windows of securities companies and other customers). Certain priority operations (settlements, etc.) will be input by staff at the Fuchu center until staff from Harumi can arrive.
If the Fuchu center is affected by a disaster, the system environment will be transferred and operations continued at the Chiba backup center.

 Practice Drills for Disaster Countermeasures
Following systematic disaster countermeasure plans, post-disaster practice drills are conducted at the backup
sites as well as drills with the participation of outside organizations to verify the workability of business continuity
plans prepared by various departments. These repeated practice drills enable all staff to make preparations to act
smoothly during times of disaster.

Fuchu

Chiba
About 60 kilometers’
distance

Main center
Backup office• System switchover• Personnel transfer• System switchover• Personnel transfer

Backup center

About
30 kilometers’
distance

HarumiResona Bank, Limited

Internal Management Systems: Crisis Management Systems (Business Continuity Plans) Backup Systems

Sumitomo Mitsui Trust Bank,
Limited• Personnel transfer

Main officeTemporary center activated35Internal Management Systems: Internal Auditing Systems

 Internal Auditing Systems
The internal audit independently verifies the appropriateness and effectiveness of internal management systems,
including those related to compliance and risk management. The objective of this verification is to strengthen internalmanagement systems, improve business operations, enhance efficiency and rationalize management throughproviding advice and suggestions based on the results of the verification.
JTSB prepared its “Internal Auditing Policy” that sets forth internal auditing policies, the position of the internal audit
unit within the organization, and other basic matters. The Internet Audit Department was formed as an organizational
unit that is independent from the operating departments. The department gains an understanding of the operationsof the departments subject to internal auditing and the types of risks inherent in their activities and assesses theserisks. This department then prepares audit plans, giving attention to the frequency and depth of the audits and thenworks to conduct efficient and effective audits.
Depending on the objectives of the internal audits, such audits are divided into two types: namely, General Auditsthat examine matters related to the businesses of the departments subjected to auditing and Special Audits that
focus on specified themes. Results of these audits are reported promptly to the director in charge and corporate
auditors, and reports are made periodically to the Executive Committee and Board of Directors.

Board of Directors

Board of Auditors
Auditors

Placing plans on the agenda,
reporting on results
Executive Committee

Reporting on results

Various departments,
including risk management units

Internal Audit Department• Verification of appropriateness andeffectiveness of internal management system(including the risk management systems)• Guidance, advice, and suggestions

36

Financial Section

 Financial Data Balance Sheets ................................................................. P38
 Statements of Income ...................................................... P39
 Statements of Changes in Net Assets............................. P40
 Confirmation Statement from Management ................... P47
 Auditors’ Statement .......................................................... P47
 Basel III Pillar 3 Disclosure Items .................................... P47
 Trust Assets and Liabilities .............................................. P50

37

Financial Data

AssetsCash and due from banks
Cash
Due from banks
Call loans
Securities
Government bonds
StocksOther securities
Loans and bills discounted
Loans on deeds
Other assets
Prepaid expenses
Accrued income
Cash collateral pledged for financial instruments
Other assets
Tangible fixed assets
Buildings
Lease assets
Construction in progress
Other tangible fixed assets
Intangible fixed assets
Software
Other intangible fixed assets
Prepaid pension expenses
Deferred tax assets
Total assets(¥ million)

March 31, 2015
2,005,292
2
2,005,290
290,000
146,042
145,702
320
19
—
—
3,344
564
1,347
500
932
1,894
593
25
—
1,275
21,61821,6126
173
468
2,468,835

Liabilities and net assets
Deposits
Current deposits
Ordinary deposits
Other deposits
Borrowed money from trust account
Other liabilities
Income taxes payable
Accrued expenses
Lease obligations
Asset retirement obligations
Deposits received
Other liabilities
Provision for bonuses
Provision for retirement benefits
Provision for directors’ retirement benefits
Total liabilities
Capital stock
Retained earnings
Legal retained earnings
Other retained earnings
Retained earnings brought forward
Total shareholders’ equity
Valuation difference on available-for-sale securities
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

38

March 31, 2016
5,494,383
1
5,494,381
490,000
95,41995,083320
16772,785
772,785
23,806502
1,277
15,500
6,525
2,152
906
16
57
1,171
22,145
22,1395203
406
6,901,302(¥ million)

March 31, 2015
32,503
22,887
3,838
5,776
2,338,438
38,391
218
1,106
30
116
35,224
1,694
316
465
19
2,410,134
51,000
7,699
857
6,842
6,842
58,6991
158,7002,468,835

March 31, 2016
141,305
22,883
108,883
9,539
6,668,273
31,920
186
1,234
19
124
29,527
828
324
474
21
6,842,320
51,000
7,864
894
6,970
6,970
58,864116
116
58,981
6,901,302

(¥ million)

Ordinary income
Trust fees
Interest income
Interest on loans
Interest and dividends on securities
Interest on call loans
Interest on due from banks
Fees and commissions
Fees and commissions on domestic
and foreign exchanges
Other fees and commissions
Other income
Other income
Ordinary expenses
Interest expenses
Interest on deposits
Interest on call money
Interest on borrowings
Other interest expenses
Fees and commissions expenses
Fees and commissions on domestic
and foreign exchanges
Other fees and commissions
General and administrative expenses
Other expenses
Other expenses
Ordinary profit
Extraordinary income (loss)
Loss on disposal of fixed assets
Income before income taxes
Income taxes—current
Income taxes—deferred
Total income taxes
Net income

From April 1, 2014
to March 31, 2015
27,602
20,657
1,497
53
132
278
1,031
5,387

From April 1, 2015
to March 31, 2016
27,891
20,036
1,730
11
61
347
1,310
6,074

340
5,047
59
59
26,814
641
1
1
0
639
338

308
5,766
49
49
27,320
846
1
1
0
843
345

77
261
25,817
16
16
788
30
30
757
278
18
297
460

75
270
26,125
2
2
570
13
13
557
197
10
208
348

39

Financial Data

From April 1, 2014 to March 31, 2015(¥ million)

Valuation and translation adjustments

Shareholders’ equity
Retained earnings

Capitalstock

Balance at the beginningof the period
Cumulative effect ofchanges in accounting
policies
Balance at the beginningof the period after the
cumulative effectChanges during the period
Cash dividends
Net income
Net changes of items
other than shareholders’equityTotal changes during
the period
Balance at the end of
the period

51,00051,000

Other
retainedearnings

Legal
Total
retained Retained retained
earnings earnings earnings
brought
forward822

Total
shareholders’equity

6,432

7,254

58,254

158

158

158

822

6,590

7,412

58,412

34

(208)
460

(173)
460

(173)
460

Total
Valuation
valuation Total net
differassets
andence onavailable- translation
for-saleadjustsecurities
ments

12

12

58,266

158

12

12

58,424
(173)
460

(10)

(10)

(10)

—

34

252

286

286

(10)

(10)

276

51,000

857

6,842

7,699

58,6991

158,700From April 1, 2015 to March 31, 2016(¥ million)

Valuation and translation adjustments

Shareholders’ equity
Retained earnings

Capitalstock

Balance at the beginningof the period
Changes during the period
Cash dividends
Net income
Net changes of items
other than shareholders’equityTotal changes during
the period
Balance at the end of
the period

40

51,000

Other
retainedearnings

Legal
Total
retained Retained retained
earnings earnings earnings
brought
forwardTotal
shareholders’equity

857

6,842

7,699

58,699

36

(220)
348

(183)
348

(183)
348

Total
Valuation
valuation Total net
differassets
andence onavailable- translation
for-saleadjustsecurities
ments

1

1

58,700
(183)
348

115

115

115

—

36

128

165

165

115

115

280

51,000

894

6,970

7,864

58,864116

116

58,981

Amounts less than ¥1 million are rounded down.
Significant Accounting Policies (Fiscal year ended March 31, 2016)
1. Standards for evaluation of securities and valuation methods used
In principle, as with available-for-sale securities, securities are valued by the market method based on the market
price or other appropriate price at the balance sheet date (with the sales price calculated by the moving averagemethod). However, for securities for which it is generally recognized that the determination of market prices is
extremely difficult, JTSB employs the original purchase prices using the moving average method. Note that the fullamount of adjustments in the value of available-for-sale securities is accounted for by adding such amounts directly to
net assets.
2. Depreciation methods(1) Tangible fixed assets (excluding leases)
JTSB calculates depreciation of tangible fixed assets by the declining balance method, with the exception of buildings (excluding equipment installed in buildings) which is depreciated by the straight-line method. Estimated useful
lives of major items are as follows:
Buildings: 3-43 years
Others:2-20 years(2) Intangible fixed assets (excluding leases)
Intangible fixed assets are amortized using the straight-line method. Software for internal use is amortized over its
estimated useful life (generally five years).
(3) Lease assets
Lease assets for which the ownership does not transfer and are included in tangible fixed assets are depreciatedusing the straight-line method over the estimated useful life. Note that for those leases that are based on contracts
providing for guarantees of residual value the assets are depreciated down to the specified residual value, and allother assets are depreciated to zero.
3. Standards for translating foreign currency assets and liabilities into yen
Foreign currency assets and liabilities are translated into Japanese yen at the exchange rate prevailing at the balance sheet date.
4. Standards for calculating reserves(1) Provision for bonuses
To provide for the payment of bonuses, JTSB sets aside a reserve for bonuses for employees in the amount of theestimated bonuses attributable to the relevant fiscal year.
(2) Provision for retirement benefits
To provide for the payment of retirement benefits to employees, JTSB sets aside the reserve necessary at the fiscal
year-end to cover such benefits, based on estimates of its retirement benefit obligations and the expected value ofpension plan assets. In addition, in calculating retirement benefit liabilities, the expected amount of retirement benefit
payments through the end of the subject fiscal year is allocated to the fiscal year under the benefit formula standard.
Please note that the method for amortizing expenses or recognizing gains arising due to actuarial differences is
as follows.
Actuarial calculation differences: The unrecognized net actuarial difference accrued in each fiscal year is amortized proportionately using the straight-line method over a specified number of years (five years), which is within the
average remaining years of service in each year when the obligations are incurred, commencing from the next fiscal
year of incurrence.
(3) Provision for directors’ retirement benefits
To provide for the payment of retirement benefits for directors and statutory auditors, as provided for in JTSB’s
rules for payment of such retirement benefits, the portion of the total of such benefits that have accrued throughthe end of the fiscal year under review is set aside as a reserve.
Note that retirement benefits for executive officers are included in the provision for directors’ retirement benefits.

41

Financial Data

5. Accounting for lease transactions
Among lease assets for which ownership does not transfer, leases that commenced in fiscal years prior to April 1,
2008, are treated as ordinary rental transactions.
6. Accounting for consumption taxes
National and regional consumption taxes (hereinafter, consumption taxes) are accounted for using the net-of-tax
method.
Notes to Accounting Items (Fiscal year ended March 31, 2016)
Balance Sheets
1. The full amount of loans is outstanding to the government of Japan.
2. Collateral for exchange settlement and other transactions has been presented in the form of securities amounting
to ¥95,083 million and loans of ¥733,323 million. Other assets include guarantee deposits of ¥6,179 million.
3. Overdraft contracts provide for making loans up to a specified limit, provided there are not violations of the provision of contracts, when loan requests are received from customers. The unexercised balance of loan commitments
under these contracts is ¥13,800 million, and contract terms are one year or less.
Note that, since typically these contracts terminate without requests for overdrafts, the unexercised balance ofloan commitments under these contracts will not necessarily have an effect on JTSB’s cash flow. In addition, undersystems related to these contracts, measures are taken to preserve the related loan assets, including the securingof repayment resources in the form of securities, cash, and other assets.
4. Accumulated depreciation of tangible fixed assets:
5. Total monetary claims on affiliates:
6. Total monetary obligations outstanding to affiliates:¥3,519 million¥148 million¥5,850 million

7. JTSB has accepted limitations on dividends of the surplus as prescribed by Article 18 of the Banking Act.
Notwithstanding the provision of Article 445 (4) (Amounts of Stated Capital and Amounts of Reserves) of theCompanies Act, in the case where JTSB pays dividends from the surplus, it records an amount equivalent to onefifth of the amount of the deduction from the surplus as a result of the payment of such dividends of the surplus, as
legal retained earnings.
In the subject fiscal year, JTSB recorded ¥36 million in legal retained earnings in relation to dividends from thesurplus.

42

Statements of Income
Income related to transactions with affiliates
Trust fee income:¥4,166 million

Total income from fees and commissions:¥681 million

Expenses related to transactions with affiliates
Total expenses related to other businesses and other ordinary transactions:¥0 million

Statements of Changes in Net Assets
1. Types of shares issued and number(Thousand shares)

Type of shares

Total number outstanding at
the beginning of the period

Increase during
the period

Common share

1,020

—

Decrease during
Balance at thethe period
end of the period

Remarks

—

1,020

None

Dividends per
share

Record date

Effective date¥180

March 31,2015

June 29, 2015

Note: No treasury shares were held.

2. Dividends(1) Dividends paid during the fiscal year
Date of decision
Taken on June 26, 2015 based on Article319-1 of the Companies Act

Type of shares Total dividends
Commonshare¥183 million(2) Dividends with a record date during the fiscal year, but whose effective date is after March 31, 2016
Date of decision
Taken on June 30, 2016 based on Article319-1 of the Companies Act

Type of shares Total dividends
Commonshare¥142 million

Dividends per
share

Record date

Effective date

¥140

March 31,
2016

July 1, 2016

Note: The source of funding for dividends is other retained earnings.

Tax Effect Accounting Items
1. The breakdown of factors accounting for the accrual of deferred tax assets and liabilities is as follows.
Deferred tax assets
Impairment losses
Provision for retirement benefits
Provision for bonuses
Enterprise tax payable
Depreciation denied
Asset retirement obligations
OthersTotal deferred tax assets
Deferred tax liabilities
Prepaid pension expenses
Valuation difference on available-for-sale securities
OthersTotal deferred tax liabilities
Net deferred tax assets¥155 million
145
100
42
39
38
25
546
62
52
24
139
¥406 million

2. The “Act on Partial Amendment to the Income Tax Act, etc.” (Act No. 15 of 2016) and the “Act on Partial
Amendment to the Local Tax Act, etc.” (Act No. 13 of 2016) were enacted on March 29, 2016, reducing income
taxes effective from fiscal years beginning on and after April 1, 2016. As a result of this act, the effective statutory
tax rate for calculating deferred tax assets and liabilities will be reduced from 32.26% to 30.86% on temporary differences that are expected to be realized during the fiscal years beginning on April 1, 2016, and on April 1, 2017,
and to 30.62% on temporary differences that are expected to be realized in the fiscal years beginning on or after
April 1, 2018. The effects of this change were to decrease deferred tax assets by ¥21 million, increase valuationdifference on available-for-sale securities by ¥2 million, and increase income taxes—deferred by ¥23 million.

43

Financial Data

Financial Instruments
1. Matters related to the status of financial instruments(1) Policy on financial instruments
JTSB, as a trust bank specializing in the asset administration business, raises funds through borrowed money fromtrust account, which generates cash on a continuing basis.
In its fund management activities, JTSB holds Japanese government bonds (JGBs) that have been pledged toits settlement system as collateral to facilitate the smooth flow of settlement operations. Also, if there are idle funds,
these are used for deposits in the Bank of Japan or other institutions, making call market loans, and for holding
JGBs. These fund management activities are not conducted to obtain capital gains, but, in principle, funds areinvested in instruments with a remaining period to maturity of one year or less. Notwithstanding this, when permission is received from the Board of Directors, these funds are invested, within the scope of JTSB’s asset-liability
management (ALM) plans, in JGBs with maturities from one year to three years or less and/or used for loans to theJapanese government with maturities of one year or less.
(2) Types of contents and risks associated with financial instruments
JTSB’s financial assets, in addition to deposits in the Bank of Japan and other institutions, comprise JGBs, loans
to the Japanese government, and call loans. Within these assets, investments in JGBs and loans to the Japanese
government are based on the policies outlined immediately above and the risk associated with these investments
is extremely low. JTSB’s policy for making call loans is to restrain the size and content of such loans to a necessary
minimum with the aim of minimizing credit risk.
On the other hand, JTSB’s liabilities are primarily borrowed money from trust account. The balance of such loans
is stable, and JTSB avoids liquidity risk by limiting its asset management operations to highly liquid financial instruments.
(3) Risk management relating to financial instruments(a) Credit risk management
JTSB’s principal credit risks arise in the management of idle funds generated by its asset administration business. JTSB has established a “Credit Risk Management Policy,” which calls for restraint in the size and content
of such investments. Moreover, the Corporate Risk Management Department sets various credit risk position
limits based on the “Rules for Credit Risk Management,” and monitors the observance of these limits on a daily
basis.
(b) Market risk management
JTSB has established a “Market Risk Management Policy,” which calls for strict limitation of market risk, and,based on this policy, aims for safe and secure management. In addition, the Corporate Risk Management
Department set various market risk position limits based on the “Rules for Credit Risk Management,” and monitors the observance of these limits on a daily basis.
JTSB’s principal market risks arise from the effects of interest rate risk, and the principal financial instruments
subject to this risk are JGBs, loans to the Japanese government, and call loans. To manage the risk of thesefinancial instruments, JTSB employs the Basis Point Value (BPV) method (which measures the change in thevalue of these assets for each one basis point (0.01%) movement in interest rates) to conduct quantitative analysis and the management of interest rate risk. As of March 31, 2016, analyses based on the BPV method indicate that the interest rate risk for a one basis point movement in interest rates is ¥48 million. Please note that
this movement in asset prices assumes that risk factors, excluding interest rate risk, remain unchanged, anddoes not take account of correlations between interest rates and other risk causal factors.
(c) Liquidity risk management
JTSB manages the idle cash generated by its asset administration business on a continuing basis and limits
the choice of investment instruments to those with high liquidity as provided for in its “Policy for Liquidity
Management.” Accordingly, the level of liquidity risk is basically believed to be low; however, the Corporate Risk
Management Department sets liquidity risk position limits based on its “Rules for Liquidity Risk Management”
and monitors the observance of these limits on a daily basis.

44

(4) Supplementary explanation of fair value of financial instruments
The fair value of financial instruments is based on the market price of such instruments, but, when market prices
are not available, prices based on reasonable estimates are reported. Since these estimates involve certain
assumptions, in cases where assumptions are subject to change, the value of assets may also change.
2. Fair values of financial instruments
The differences between the carrying amounts on the balance sheets and fair values, as of March 31, 2016, areshown below. Those assets for which fair value is recognized to be extremely difficult to determine are not included(refer to Note 2).
(¥ million)(1) Cash and due from banks(2) Call loans(3) Securities
Available-for-sale securities(4) Loans and bills discounted
Total assets(1) Deposits(2) Borrowed money from trust accountTotal liabilities

Balance sheet amount
5,494,383
490,000

Fair value
5,494,383
490,000

Difference——

95,083772,7856,852,251
141,305
6,668,273
6,809,579

95,083772,7856,852,251
141,305
6,668,273
6,809,579

—
—
—
—
—
—

Notes:
1. Calculation of the fair value of financial instruments
Assets(1) Cash and due from banks
Since due from banks comprises only deposits with banks without maturity dates and since the fair value closely
approximates the book value, the book value concerned is recorded as the fair value.
(2) Call loans
Since the contract term of call loans (one year or less) is short, and the fair value closely approximates the bookvalue, the book value concerned is recorded as the fair value.
(3) Securities
The fair value of securities is based on the exchange prices or the values provided by financial institutions for therespective securities. Please note that information on the balance of securities by reasons for holding is included in
the section “Securities.”(4) Loans and bills discounted
Since JTSB’s loans are short-term (one year or less) loans to the Japanese government, the fair value closely
approximates the book value, and the book value concerned is recorded as the fair value.
Liabilities(1) Deposits
Since all deposits are demand deposits, the amount that may be demanded on the date of the closing of accounts(book value) is regarded to be the fair value.
(2) Borrowed money from trust accountSince borrowed money from trust account is equivalent to demand deposits, the amount that may be demandedon the date of the closing of accounts (book value) is regarded to be the fair value.

45

Financial Data

2. Balance sheet amounts of financial instruments for which fair values are recognized to be extremely difficult todetermine are as follows. They are not included in financial product market values under “Assets (3) Available-forsale securities.”(¥ million)
Category
Unlisted stocks
Unlisted foreign securities
Total

Balance sheet amount
320
16
336

Note: Because of the absence of market value quotes for these securities, their fair value is difficult to determine, and their fair value is not disclosed.

3. Redemption schedule of monetary claims and securities with maturity dates after March 31, 2016(¥ million)

5,494,381
490,000

Over one year to
two years or less——

50,02544,800772,785

—

—

—

—

6,807,191

44,800———One year or lessDue from banks
Call loans
Securities
Securities withmaturity dates
Loans and bills
discounted
Total

Over two years to
three years or less——Over three years tofive years or less——Over five years——

4. Repayment schedule of deposits and interest-bearing debt (liabilities) after March 31, 2016(¥ million)

141,305

Over one year to
two years or less—Over two years to
three years or less—Over three years tofive years or less—

6,668,273

—

—

—

—

6,809,579

—

—

—

—

One year or less
Deposits
Borrowed moneyfrom trust account
Total

Over five years—

Note: Demand deposits and borrowed money from trust account, which are equivalent to demand deposits, are included in the “one year or less.”
Deposits include balances of current deposits.

Securities
Available-for-sale securities (as of March 31, 2016)
Balance sheet
amountAcquisition cost

Difference

Bonds
JGBs

95,083

94,913

169

Bonds
JGBs

—

—

—

95,083

94,913169

Type of security
Securities for which balance sheet
amount exceeds acquisition cost
Securities for which balance sheet
amount does not exceed acquisition
cost
Total

(¥ million)

Transactions with Related Parties(1) Parent company and major corporate shareholders(¥ million)
Type ofcompany

Name ofcompany

Percentage
ownership

Relationship withrelated party

Type oftransactions

Other
affiliatedcompany

ResonaBank,
Limited

Percentage
owned:
33.3%

Entrusts asset
administration
to JTSB

Re-entrustment
fees, receipt
of feesAmount ofBalance at
Accounting item
transactions
end of period
Accrued income
47
4,848
Deposits
5,850
received

The terms of transactions and method of determination are as follows:
Notes: Fees for re-entrustment and other fees that are based on cost are decided through negotiations. “Amount of transactions” includes consumption taxes. “Balance at end of period” does not include consumption taxes.

(2) Subsidiaries and affiliates, etc.
None

46

(3) Other companies with indirect capital affiliation(¥ million)
Type ofcompany

Name ofcompany

Subsidiary of
the parent
company

Sumitomo
Mitsui Trust
Bank,
Limited

Percentage
ownership

Relationshipwith related
party

—

Monetary
assets andliabilities/
Entrusts asset
administration
to JTSB

Type oftransactions

Amount ofBalance at
Accounting item
transactions
end of period

Release of call
funds (Note 1)

290,000

Re-entrustment
fees, receipt offees (Note 2)

18,721

Call loans

290,000

Accrued income

424

Deposits
received

23,628The terms of transactions and method of determination are as follows:
Notes: 1. Interest rates on call loans are set with reference to prevailing market rates. Since call loans are short-term market transactions, the outstanding balance of such loans as of March 31, 2016 is shown in the “Amount of transactions” column.
2. Fees for re-entrustment and other fees that are based on cost are decided through negotiations. “Amount of transactions” includes consumption taxes. “Balance at end of period” does not include consumption taxes.

(4) Directors and other individual shareholders
None
Per share of common stock information
Net assets per share: ¥57,825.09
Net income per share:¥341.87

I have confirmed that the financial statements (balance sheets, statements of income, and statements ofchanges in net assets) for the 16th period, covering the period from April 1, 2015 to March 31, 2016, arepresented appropriately and that the internal auditing related to the preparation of these financial statements functioned effectively.
June 30, 2016
Yasuo Kuwana
Representative Director and President

The Company has received a report from independent accounting firm KPMG AZSA LLC. indicating that allmaterial items in the financial statements pertaining to assets and income for the fiscal year (from April 1,2015 to March 31, 2016) have been presented appropriately in accordance with Article 396-1 of theCompany Act.

Composition of Capital Disclosure
Based on Article 14-2 of the Banking Act, the Company calculates its capital ratio as the basis for making
judgments regarding the adequacy of its capital in light of its holdings of assets according to the formula fordomestic banks (Financial Services Agency Notification No. 19 of 2006).
Please note that the Company has calculated its credit risk assets according to the standardized
approach and its operational risk amount according to the Advanced Measurement Approaches.

47

Financial Data

Non-Consolidated Capital Ratio
Basel III (Financial Services Agency Notification 7 of 2014)(As of March 31, 2016)(¥ million)

Items

Amounts
excluded
End of period
undertransitionalarrangements

End ofprevious
periodAmounts
excludedundertransitionalarrangementsCore Capital: Instruments and reserves (1)Directly issued qualifying common shares or preferred shares
mandatorily convertible into common shares capital plus related
capital surplus and retained earnings

58,721

58,516

Of which, capital and capital surplus

51,00051,000Of which, retained earnings

7,864

7,699

Of which, treasury stock (-)——

Of which, planned distribution of income (-)

142

183

Of which, other than above——

Subscription rights to acquire common shares or preferred shares
mandatorily convertible into common shares——

Reserves included in Core Capital: Instruments and reserves——

Of which, general reserve for possible loan losses——

Of which, eligible provisions——

Eligible non-cumulative perpetual preferred shares subject totransitional arrangements included in Core Capital——

Eligible capital instruments subject to transitional arrangements
included in Core Capital——

Capital instruments issued through the measures for strengthening
capital by public institutions included in Core Capital——

Amount equivalent to 45% of land revaluation excess subject totransitional arrangements included in Core Capital——

58,721

58,516

Core Capital: Instruments and reserves (A)Core Capital: Regulatory adjustments (2)Total intangible fixed assets (excluding those relating to mortgage
servicing rights)
Of which, goodwill (including those equivalent)

9,218

2,925

11,701

—

—

—

—

6,145

9,218

2,925

11,701

Deferred tax assets (excluding those arising from temporary
differences)

—

—

—

—

Shortfall of eligible provisions to expected losses

—

—

—

—

Capital increase due to securitization transactions

—

—

—

—

Gains and losses due to changes in own credit risk on fair valued
liabilities

—

—

—

—

Prepaid pension costs

56

84

23

94

Investments in own shares (excluding those reported in the Net
Assets)

—

—

—

—

Reciprocal cross-holdings in capital instruments issued by otherfinancial institutions for raising capital that are held by the Bank

—

—

—

—

Investments in the capital of banking, financial and insurance
entities that are outside the scope of regulatory consolidation

—

—

—

—

Of which, other than goodwill and mortgage servicing rights

48

6,145

(¥ million)

Items

Amount exceeding the 10% threshold on specified items

Amounts
excluded
End of period
undertransitionalarrangements

End ofprevious
periodAmounts
excludedundertransitionalarrangements

1,192

1,788

628

2,512

Of which, significant investments in the common stock ofother financial institutions

—

—

—

—

Of which, mortgage servicing rights

—

—

—

—

1,192

1,788

628

2,512

Of which, deferred tax assets arising from temporary
differences
Amount exceeding the 15% threshold on specified items

—

—

—

—

Of which, significant investments in the common stock ofother financial institutions

—

—

—

—

Of which, mortgage servicing rights

—

—

—

—

Of which, deferred tax assets arising from temporary
differences

—

—

—

—

Core Capital: Regulatory adjustments (B)

7,394

3,576

51,32754,939

Capital
Total amount of capital ((C)=(A)–(B))
Risk-Weighted Assets (3)Credit risk assets

94,73989,546

Of which, total of items included in risk-weighted assets
subject to transitional arrangements

11,091

14,307

Of which, intangible fixed assets (excluding goodwill
and mortgage servicing rights)

9,218

11,701

Of which, deferred tax assets

1,788

2,512

Of which, prepaid pension costs

84

94

Of which, exposure to other financial institutions——

Of which, other than above——

Amount equivalent to market risk divided by 8%——

Amount equivalent to operational risk divided by 8%

44,24753,815Credit risk-weighted assets adjustments——

Amount equivalent to operational risk adjustments——

138,986

143,361

36.92%

38.32%

Total risk-weighted assets (D)Capital Adequacy Ratio
Capital Adequacy Ratio (C)/(D)49(¥ million)

Assets
Loans
Securities
Japanese government bonds
Regional government bonds
Short-term bonds
Corporate bonds
StocksForeign securities
Other securities
Securities in investment trusts
Foreign securities in investment trusts
Trust beneficiary certificates
Trust securities
Monetary claims
Other monetary claims
Tangible fixed assets
Real estate
Other claims
Call loans
Loans to banking accountCash and deposits
Deposits
Total

March 31, 2015—
84,888,357
15,482,146
671,966
1,247,918
2,398,035
44,969,528
16,257,047
3,861,713
38,696,735
21,747,417
40,017,130
21,169,223
5,223,798
5,223,798
239
239
2,872,836
6,851,190
2,338,438
2,707,225
2,707,225
226,512,594

March 31, 2016—
93,515,727
12,690,858
824,737
604,7312,569,750
54,345,173
18,224,289
4,256,186
39,260,408
21,945,153
48,127,084
19,978,250
5,235,467
5,235,467
240
240
1,766,991
883,242
6,668,273
2,795,172
2,795,172
240,176,012

Liabilities
Money in trust
Monetary trusts other than money in trust
Composite trusts
Total

March 31, 2015
3,075,697
2,295,041
221,141,856
226,512,594

March 31, 2016
3,399,006
1,758,939
235,018,066
240,176,012

Notes: 1. Amounts less than ¥1 million are rounded down.
2. Joint trusts and trusts administered by others: ¥— million
3. Figures do not include any trusts with principal-guaranteed features.

50

Japan Trustee Services Bank, Ltd.
Annual Review 2016
Issued: July 2016
By the Planning Department, Japan Trustee Services Bank
Address: 8-11, Harumi 1-chome, Chuo-ku, Tokyo 104-6107, Japan
Telephone: 03-6220-2071
Website: http://www.japantrustee.co.jp