Foundation Supporting Corporate Value

Corporate Governance

Under this corporate philosophy, the Company has
adopted the Company with a Nominating Committee, etc.
structure under the Companies Act, based on which it strives
to clarify the separation of supervision and execution ofbusiness operations, further strengthen supervision by having
mainly outside directors to ensure sound management, andachieve prompt business execution that responds quickly
to changes in the business environment.

As an institution specializing in securities finance, JSF has a
mission to contribute to the development of the securities
and financial markets by proactively meeting the diverse
needs of the securities and financial sectors and to enhance
the long-term interests of market participants and users,
while always maintaining a keen awareness of its public role.
Based on this thinking, the Company aims to gain the solid
trust of society through sound business operations.

Company with a Board
of Auditors

JSF’s Corporate Governance Enhancements in Retrospect

Basic Concept

FY2015• Appointed a woman outside director

FY2016• Established a Nomination Committee and Remuneration Committee∙ Made the majority of the committee members outside directors and outside Audit & Supervisory Board members• Introduced a share-based remuneration plan

FY2017• Began holding an outside officers-only meeting

FY2018• Formulated succession plans for candidates for executive director (management executives)

Corporate Governance System
FY2019General Meeting of Shareholders• Formulated and announced the Sixth Medium-Term Management Plan
∙ Pushed to expand and strengthen the securities financing business and trust banking business, promoted thediversification of revenue sources, and enhanced profitability∙ Set and announced management goals (number of loanable stock issues and basic profit)

Accounting Auditor

Board of Directors (7 members)
Nomination Committee (5 members)
Remuneration Committee (5 members)
Cooperation

Survey and report, etc.
Report to Audit
Committee

Compliance Committee

Executive Officers

Compliance Department

ReportManagement administration and report, etc.

Risk Management Department

ChecksBusiness Departments

External Reporting Contact Desk

Risk Management Committee

Consult andreportJSF Group Companies
Note: Entities in area enclosed by dashed outlines are subject to internal audit.

Corporate Governance History
The Company has a history of taking a strong interest in andbeing proactive about corporate governance since the time
it was a Company with a Board of Auditors. For example, in
FY2015, the Company appointed a woman outside director,
and in FY2016, it established a Nomination Committee
and Remuneration Committee, with the majority of thecommittee members being outside directors and outside
Audit & Supervisory Board members. In FY2018, theCompany formulated a succession plan for candidates for
executive director at the time.
Based on this foundation, JSF transitioned to a Company
with a Nominating Committee, etc. in FY2019. The aim of
this was to separate supervision from execution to create asystem that would enable the Company to push forwardwith its management policies. The organization would be

38

Japan Securities Finance Co., Ltd.

Integrated Report 2023

comprised of the Board of Directors, responsible fordetermining and supervising management policies suchas medium-term management plans, and an execution
side composed of the Executive Committee under thesupervision of the Representative Executive Officer &President. This would allow for prompt and effective decisionmaking. Therefore, from the outset, the chairpersons of
the Board of Directors and the three statutory committees
were all outside directors, and the majority of the directors
were independent outside directors.
Under the basic framework as a Company with aNominating Committee, etc., JSF has made various efforts
to improve its effectiveness accordingly. A summary of key
initiatives is presented here.

• Introduced performance-linked remuneration for officers∙ Introduced performance-linked remuneration for officers in line with the management goals of the Sixth MediumTerm Management Plan
• Formulated and announced the Medium-Term Management Policy∙ Ensured a higher level of transparency and commitment to sustainable growth and medium- to long-term enhancementof corporate value∙ S et a management goal of achieving ROE of 5% by FY2025, above the cost of equity (estimated to be around 4.5%)∙ Aiming to achieve a total payout ratio of 100% on a cumulative basis by FY2025

Secretariat

Corporate Governance Office

Management Committee

Internal Audit
Department

Outside Director

Business Execution

Representative Executive Officer & PresidentInternal
audit

Inside Director

Company with a Nominating Committee, etc.

Entrustment andsupervision ofbusiness execution

Audit

Cooperation

Audit

FY2020

Audit Committee (3 members)

Cooperation• Transitioned to a Company with a Nominating Committee, etc.
∙ S eparated supervision and execution, with the Board of Directors determining and supervising management policies suchas medium-term management plans, and the Executive Committee under the supervision of the Representative Executive
Officer & President, for a system to make prompt decisions to realize the management policies∙ Made the chairpersons of the Board of Directors and the three statutory committees all outside directors∙ Independent outside directors come to account for the majority of directors• Formulated and announced our approach to the composition and other aspects of the Board of Directors∙ Amid the changing environment of globalization and digital transformation, decided on a policy of structuring theBoard of Directors that is attentive to the diversification of skills, balancing the numbers on the supervision andexecution sides and diversifying board members in terms of age and gender, in order to formulate medium-term
management plans in accordance with the Medium-Term Management Policy and further exercise supervisory
functions

FY2021• Formulated and announced our approach to the appointment of executive officers• Formulated and publicly announced our basic approach concerning our business portfolio∙ Decided on a business portfolio consisting of securities financing centered on loans for margin transactions, as well as
securities investment, trust banking and real estate leasing• Formulated and announced our basic approach to sustainability∙ By providing loans for margin transactions and various other services as infrastructure for securities and financial
markets, the JSF Group aims to contribute to the realization of a sustainable society, including by providing support tomarket participants who are engaged in similar initiatives.
• Strengthened the functions of the secretariat of the Board of Directors∙ A Corporate Governance Office was established from the perspective of promptly addressing corporate governanceissues and further strengthening the secretariat functions of the Board of Directors. The office fulfills a secretariat
function for deliberations of the Nomination Committee, the Remuneration Committee and the Board of Directors on
the various measures mentioned above.

FY2022• Improved the transparency of the nomination process for management executives∙ Pursuant to decisions by the Nomination Committee and the Board of Directors, in March 2023, publicly announced
the operational specifics of the nomination process for management executives, particularly the independent and active
involvement of outside directors in the Nomination Committee and other committees, and the approach to in-househuman resource development with a view to the selection of management executives (details on pages 43–44)• Formulated and publicly announced the Seventh Medium-Term Management Plan (details on page 20)•D etermined the officer remuneration system in line with the Seventh Medium-Term Management Plan (details on page 45)

FY2023• Announced efforts to respond to the Tokyo Stock Exchange’s request to listed companies, as well as the status of
dialogue with shareholders• Implemented a Company stock incentive program for employees• Formulated and announced the Long-Term Management Vision (details on page 9)Japan Securities Finance Co., Ltd.

Integrated Report 2023

39

Foundation Supporting Corporate Value

Corporate Governance
Composition of the Board of Directors

Status of Board of Director Initiatives

The Board of Directors comprises a variety of directors withdiverse expertise, experience and other characteristics, basedon a skill matrix formulated by the Company. To the extent
stipulated in the Articles of Incorporation, JSF secures theappropriate number of members to maximize the effectivenessand efficiency of the board’s functions. In addition, multiple
outside directors independent from the Company and possessing

Overview of the Board of Directors (As of June 22, 2023)
Organization form

Company with a Nominating
Committee, etc.

Chairperson of the board

Outside director

Maximum number of directors
as stipulated in the Articles
of Incorporation

8

Number of directors

7

Number of outside directors[Independent directors]

5 [5]abundant experience and expert knowledge of business
management and other matters have been appointed to theboard to ensure appropriate business operations while enabling
objective and neutral management supervision from external
viewpoints. The Board of Directors currently comprises sevenmembers (including five outside directors), with an outside
director serving as chairperson.

Non-Executive
Directors

Independent
Outside Directors

6 7 6 75 5 5 585.785.7%%

100100%%

Director Expertise (Skill Matrix), Attendance at Board of Directors and Other Meetings
Area of Expertise
Finance,Financial
Internal
Outside/ Corporate
International Legal affairs,
securities,
affairs,
control, risk
Inside management
affairs
complianceeconomics
accounting management

NaotakaObata

Outside

100%
13/13

100%
8/8

100%
7/7

—

Shoko
SuginoOutside

100%
13/13

100%
8/8

100%
7/7

100%
13/13

Kensuke
Futagoishi1

Outside

100%
10/10

100%
8/8

100%
6/6

—

ESG

Audit
Board of Nomination Remuneration
Directors Committee Committee Committee

Takayoshi
Yamakawa1

Outside

100%
10/10

SetsukoEgami2

Outside——Inside

100%
13/13

100%
8/8

100%
7/7

—

Inside

100%
13/13

—

—

100%
13/13

Shigeki Kushida

Hiroshi
AsakuraChairperson

40

FY2022 Meeting Attendance

Name

Representative Executive
Officer & President

Japan Securities Finance Co., Ltd.

Integrated Report 2023

Committed to achieving the Medium-Term Management
Policy’s medium-term management goal of 5% ROE by FY2025,
in FY2022 we compiled the Seventh Medium-Term Management
Plan based on discussions of JSF’s management policy forthe coming three years and the strategies and measures it
encompasses. In particular, in order to respond agilely andflexibly to changes in the business environment we need to
improve corporate vitality and organizational transformation
capabilities by developing human resources and ensuring
diversity. We therefore discussed human resource strategies
for the Seventh Medium-Term Management Plan, and formulated
and publicly announced our Human Capital Policy, which is
our basic policy for promoting initiatives related to humancapital formation. In addition, in order to increase employee
job satisfaction, motivation and interest in improving corporate
value, we also discussed and publicly announced our Company
stock incentive program for employees under which we will
grant JSF stock to employees based on the Company’s
performance in FY2022, the final year of the Sixth MediumTerm Management Plan.
Among initiatives related to promoting sustainability and
ESG, we have clarified and publicly announced our policy
with regard to addressing climate change and environmental
protection (initiatives to meet the TCFD recommendations).

Member (As of June 22, 2023)

100%
6/6

1. Appointed in June 2022

100%
11/11
—

2. Appointed in June 2023

Namely, JSF will work to realize a sustainable global
environment through its business activities and to enhance
disclosure of climate-related information in accordance with
the TCFD recommendations. The board also received
reports from executive officers and discussed various
initiatives related to the Company’s material issues, such asefforts for carbon neutrality and programs to promoteacademic research.
Main Agenda Items for FY2022
Corporate Governance• Formulation of the Seventh Medium-Term Management Plan
• Partial revision of Basic Policy on Corporate Governance• Examination of sustainability issues (e.g., addressing carbon neutrality)• Disclosure of climate-related financial information in accordance with
the TCFD recommendations• Examination of implementation of Company stock incentive programfor employees• Evaluation of the effectiveness of the Board of Directors
Risk Management• Summary report on the risk appetite framework (RAF)• Examination of risk appetite indicators• Implementation status of internal audits
Capital and Financial Policy• Examination of future shareholder returns• Evaluation of strategic equity holdings• Status of dialogue with investors

Overview of Each Statutory Committee and Status of Initiatives
Nomination Committee
To ensure that the Board of Directors can adequately determine
management policies and supervise execution, the Nomination
Committee deliberates and decides on general matters related
to the appointment and dismissal of the Company’s management
executive team (directors, executive officers and corporate
officers) such as the composition of the Board of Directors,
including the skill matrix; determination of director candidates;consideration of succession plans; qualifications required of
executive officers and corporate officers; the policy for their
appointment and dismissal; and determination of specificcandidates. The committee currently comprises five directors(including four outside directors), and is chaired by anoutside director.
Main Agenda Items for FY2022
Consideration of management executive team succession plans
Consideration of the transparency of the selection process and thein-house human resource development policy for management
executive team members• Consideration of the approach to the appointment of executive
officers and corporate officers• Nomination of director, executive officer and corporate officer
candidates for FY2023••

Remuneration Committee
The Remuneration Committee deliberates and decides on
general matters related to amounts of remuneration for senior
management (directors, executive officers and corporate officers)
for the steady implementation of the Medium-Term Management
Policy and management plans based on this policy. These
matters include making sure the remuneration system is consistent
with the implementation of the management policy and relatedplans, deciding on remuneration for individual members ofsenior management, and the policy for determination thereof.
The committee currently comprises five directors (including
four outside directors), and is chaired by an outside director.
Main Agenda Items for FY2022
 etermination of FY2022 remuneration amounts for individualD
directors and executive officers• Consideration of the officer remuneration system in conjunction withthe formulation of the Seventh Medium-Term Management Plan•

Japan Securities Finance Co., Ltd.

Integrated Report 2023

41

Foundation Supporting Corporate Value

Corporate GovernanceApproach to Selecting the Management Executive Team

Audit Committee
In addition to carrying out tasks such as auditing the executionof duties of directors and executive officers and preparing
audit reports, the Audit Committee deliberates on anddetermines the content of proposals (including those on
appointment and dismissal of the accounting auditor) to besubmitted to the General Meeting of Shareholders.

The committee currently comprises three directors (including
two outside directors), and is chaired by an outside director.
Main Agenda Items for FY2022
Business operation status, risk management, compliance,internal auditing• Reports from the accounting auditor (audit plans, major audit
matters, etc.)•

JSF believes that the roles expected of its management team,
centered on the Representative Executive Officer & President,change over time depending on the environment in which
the Company operates and its business portfolio. With this• Operation of a loans for margin transactions system

The loans for margin transactions business is the foundation and raison d’etre of the Company as a licensed
business under the Financial Instrument and Exchange Act. JSF will continue to maintain and strengthen thisbusiness by appropriately responding to the changing business environment surrounding the stock market andproperly understanding the trading requirements of market participants.

Evaluation of the Effectiveness of the Board of Directors
In FY2022, based on an evaluation by each of the directors,
the Board of Directors analyzed and evaluated matters related
to its effectiveness including the composition and operationof the Board of Directors, the support system for directors andthe directors’ individual initiatives, as well as an evaluation of
the three statutory committees, namely, the Nomination Committee,
the Remuneration Committee and the Audit Committee.
For the analysis and evaluation, a questionnaire surveyof all directors was conducted. The Company has chosen to

receive recommendations from an external organization
regarding the content of the questionnaire and, in principle,
to send responses directly to that organization. The board’s
analysis and evaluation are based on the external organization’sreport of the aggregated results and an opinion exchange
meeting, including with the outside directors, held prior to
conducting the questionnaire survey.

Overall Evaluation
The questionnaire responses and other findings confirmedthat the composition, operation, support system and otheraspects of the Board of Directors and the committees are allappropriate. Board and committee meetings were also highly

evaluated for their free, lively and constructive discussions
and exchanges of opinions.
Based on these findings, the Company judged that theeffectiveness of its Board of Directors has been ensured.

Initiatives to Address Issues in FY2022
FY2022 was the final year of the Sixth Medium-Term Management
Plan, and the main item for discussion was the formulationof the Seventh Medium-Term Management Plan, aimed atachieving the medium-term management goal of 5% ROE
by FY2025. We evaluated the process for formulating mediumterm management plans, and concluded that follow-up on the
progress of the Sixth Medium-Term Management Plan, which
is a prerequisite for plan formulation, is being carried out
appropriately; and that executive officers explain management
issues to the Board of Directors in a timely manner and provide
sufficient information related to discussions.
With regard to the constructive dialogue that JSF maintains
with shareholders and investors to improve corporate value
over the medium to long term, we concluded that feedback to
the Board of Directors regarding the status of dialogue withshareholders and investors is being provided appropriately. In
addition, in conjunction with the formulation of the Seventh
Medium-Term Management Plan, the committees discussed

42Japan Securities Finance Co., Ltd.

Integrated Report 2023

JSF’s aims forbusiness expansion• Securities financing and trust banking businessIn the securities financing business, JSF is actively responding to the expansion of transactions with domestic
and overseas market participants by leveraging its background in loans for margin transactions and other services.
Specifically, we are expanding the number of clients, and the currencies and securities covered. To achieve this,
we are actively engaged in cross-border securities loans through international forums such as PASLA and ISLA.
In the trust banking business, we are also expanding by focusing on so-called custodial trusts, such as preservation
trusts, and by taking advantage of our agility and flexibility to gain a high market share in niche areas. These
operations are expected to make a significant contribution to the Company’s future profitability.

• Loans for margin transactions system
Qualities considered
important for eachbusiness in JSF’s
portfolio

Because loans for margin transactions systems are widely used by securities companies, the qualifications required
for their administration emphasize their public role, impartiality, and neutrality. In addition, going forward, JSF
must be flexible in responding to the changing business environment and participants’ needs, and in uncovering
participants’ new requirements in this field. For this reason, a project team was established in FY2023 to consider
the ideal mechanisms for margin loan transactions from a medium- to long-term perspective.

• Securities financing and other businesses

Since the securities financing business and trust banking business also involve an extensive range of market
participants, we believe even more strongly that the above-mentioned qualities are appropriate for JSF, which
supports the securities and financial market infrastructure. However, for these businesses, knowledge andexperience related to securities and financial business, markets, and technological innovation, as well asinternational expertise, are even more important qualities.

Approach to the Structure of the Management Team
topics such as the revision of officer remuneration and theapproach to in-house human resource development with aview to selecting management executives. We concluded
that the committees’ discussions regarding nomination andremuneration were carried out in accordance with the
management policy. With the addition of two new directors
in FY2022, we worked to enhance the provision of informationand training, and to improve secretariat functions. Specifically,in addition to continuing to provide advance explanations onimportant agenda items for Board of Directors meetings, we
also worked to enhance the provision of information in ways
such as conducting tours of JSF business locations. Based onthese initiatives, we concluded that the provision of informationand the improvement of the functions of the secretariat werecarried out appropriately. However, because we believe thatproviding various types of information to directors constitutes
the basis of discussions at Board of Directors meetings, wewill remain cognizant of this issue and work to improve it.

Issues to Address in FY2023
With regard to the way JSF disseminates information, some
respondents felt that we should focus more on providing
information to shareholders and investors in general, including
individual shareholders. Consequently, we recognize this as an
issue and are addressing it in FY2023 by enhancing various
tools for providing information, such as our website andintegrated report.

in mind, the appointment of our management team andsuccession planning are structured based on our approachconcerning the Company’s business portfolio, as follows:

Furthermore, we will continue working to provide information
to directors and enhance opportunities for outside directors to
exchange opinions, based on our ongoing awareness thatthese are issues we need to address.
The Company will work to address all of the aforementioned
issues to further improve the effectiveness of the Boardof Directors.

Based on such future business developments and the required
qualifications, the management team is currently being structured
as follows:

expertise; advanced knowledge of business management,risk management, and financial accounting; and flexibility inresponding to the changing business environment.

• Execution• Supervision

JSF will build an overall executive system with the qualities
sought by combining the strengths and talents of each individual
executive officer so that the above business development
can proceed effectively. The required qualities of the entire
executive team are having a thorough recognition of their
public role; extensive knowledge of the market in general;familiarity with various laws and regulations; knowledge of
the Company’s highly specialized operations; international

After establishing a skill matrix to enable effective supervisionof the above execution, we will structure a team of directors
taking into consideration the multi-layering of skills anddiversification in age and gender. In recent years, experiencein corporate management in the financial and industrial sectors,
specialized knowledge such as that relating to law, andexpertise in digital transformation and innovative businesshave been emphasized.

Approach to Succession Planning for the Representative Executive Officer & President
Among the succession plans for the management executive
team mentioned above, the Nomination Committee engages
on an ongoing basis in discussions of a preliminary list of specificcandidates and requisite qualities for the Representative Executive
Officer & President, for whom the succession plan is particularly
important.
Regarding the preliminary list of candidates, we are taking
into consideration the above-mentioned direction for developing
JSF’s business by positioning securities financing and otherareas as growth fields, as well as the composition of theexecutive officer team as a whole. At the same time, we aremainly considering candidates from within the Company,
including experienced mid-career hires, but not candidates

from public sector backgrounds, with more emphasis on
knowledge and experience in securities and financial businesses,
including technological innovation.
The qualities required of the Representative Executive
Officer & President currently under discussion include highethical standards and a sense of responsibility as a representativeof a company with a public role; the ability to accurately
understand changes in the operating environment and develop
strategies for shaping a vision for JSF’s future; both a long-term
and a big-picture perspective; decision-making and execution
abilities; leadership; and communication skills that contributeto organizational vitality.

Japan Securities Finance Co., Ltd.

Integrated Report 2023

43

Foundation Supporting Corporate Value

Corporate GovernanceManagement Team Appointment Process and the Roles Played by the Nomination
Committee and the Board of Directors

Officer Remuneration System

The appointment of the management team is one of the most important missions of the Nomination Committee and Board of
Directors, and this committee and the Board of Directors are independently and actively engaged in the following management
nomination process:

Revision of the Officer Remuneration System in Line with the Seventh Medium-Term Management Plan
The Remuneration Committee revised the design of remuneration for officers to create incentives consistent with the management
policy under the Seventh Medium-Term Management Plan, which started in FY2023.

1)	Deliberation and determination of the basic qualitativerequirements
	The Nomination Committee and Board of Directors deliberates
and determines the “Approach to the structure of the Boardof Directors,” the skill matrix for directors, and the “Approachto the appointment of Executive Officers,” and establishes
the required qualities as described on the previous page.
2)	Preliminary list discussions
	Discussions are held on the preliminary list of candidates.
In the case of directors, individuals with corporate management

executive experience, legal and other experts, and thosewith expertise in digital transformation and innovative business.
In the case of executive officers, those from within the Company
and outside persons (e.g., those from public sector backgrounds
and those from the securities and financial sectors).
3) Narrowing down and finalizing the list to a short list
	Following 2), above, the Nomination Committee narrows
down the candidates to a short list based on their backgrounds,
expertise, and evaluation results. The final decision is thenmade based on this short list.

Independent and Active Involvement of the Nomination Committee in the Above Process
The Nominating Committee gathers information during various
opportunities such as regular briefings and discussions at theBoard of Directors, on-site tours, and briefings prior to theBoard of Directors meeting from the executive side. The
committee also exchanges opinions with outside directors(excluding the director who also serves as the Representative
Executive Officer & President) through activities such as outside
director liaison committee meetings. Based on this understandingof the Company’s operations and candidates, as well as proactive
questions from the supervisory side and a review and proposals
by the executive side in response to such questions, deliberations
and decisions are effectively carried out.
As an example, JSF disclosed its current view regarding
succession planning for the current president, which is toconsider internal personnel, including employees hired
mid-career, but not including those from public sector
backgrounds, as was the policy as of January 2023. This point
was already raised by the Nomination Committee in the

Basic approach

Skill matrix

Directors

Executive
officers

Approach to board
structure

Qualities sought

Overview of the New Remuneration System for Officers
Regarding performance-linked remuneration, it is divided into short-term and long-term incentives, with bonuses positioned as
short-term incentives and share-based remuneration as long-term incentives.
Regarding bonuses, consolidated current fiscal year profit shall be used as a reference index from the perspective of defining
management responsibility for each fiscal year as a short-term incentive. In addition, remuneration is divided into a
performance-based component and an individual evaluation component. It may increase or decrease depending on theindividual evaluation.
Regarding share-based remuneration, ROE and consolidated ordinary profit, for which management goals have been set in theSeventh Medium-Term Management Plan, will be used as reference indicators for the long-term incentive.

∙

Appointment Process

Preliminary list

Individuals withcorporate management
experience, legal andother experts, andthose with expertise indigital transformationand innovative businessIndividuals fromwithin the Company
and individuals fromthe public sector or
the securities andfinancial sector

summer of 2022 during an informal exchange of views
between the Nomination Committee and the executive team.
Likewise, on the executive side as well, a similar awareness of
the issue had emerged during the process of establishing ourapproach to the business portfolio and our thoughts on
appointing executive officers based on this approach since2021, and a basic understanding was reached between the
supervisory and executive sides. Based on these
considerations, the succession plan for the Representative
Executive Officer & President was discussed and disclosed in
January 2023 after being approved by the Nomination
Committee and the Board of Directors.
For important matters, including the aforementioned cases,
decisions are made after several rounds of discussions, withthe supervisory side proposing and raising issues to the executive
side, in the form of deliberations on 1) organization of theissues and free discussion, 2) discussions on the draft proposals,and 3) deliberation on the resolutions and disclosure.

Short list

Interviews, etc.

Nomination Committee narrows the list to ashort list.

∙ Interviews are held for new director
candidates.

∙ Executive officer candidates are judged on

their character and qualifications over thecourse of regular briefings and discussions at
Board of Directors meetings, as well as
through interviews, as necessary.

Decision

Candidates for
director are
determined by the
Nomination Committee(Appointed by theGeneral Meeting of
Shareholders)
The Board of
Directors makes
decisions on
candidates based on
the candidates
selected by the
Nomination
Committee.

∙∙

Policy for Determining the Amount of Remuneration for Officers and the Calculation Method Thereof
Details of Policy and Determination Method
Remuneration for officers shall be based on systems and standards in accordance with the respective roles and expected functionsof directors and executive officers, in order to achieve sustained growth and enhancement of corporate value over the medium tolong term based on the corporate philosophy and management principles. Specifically, individual amounts of remuneration shallbe determined by the Remuneration Committee based on the following policy decided on by the committee.

• Directors∙ With a view to having supervisory functions carried out appropriately, directors shall receive only fixed monthly remuneration (baseremuneration). Performance-linked remuneration shall not be provided to directors.

∙ R emuneration for individual directors shall be determined in accordance with the responsibilities of each director, such as whether
that person is serving in a full-time or part-time capacity or as a chairperson.

∙ Directors concurrently serving as executive officers shall not receive remuneration as directors.
• Executive Officers∙ With a view to enhancing correlation with the Company’s business performance and share value, remuneration for executive officers
shall comprise fixed monthly remuneration (base remuneration), performance-linked officer bonuses and share-based remuneration.

∙ Fixed monthly remuneration (base remuneration) shall be determined in accordance with each executive officer’s position.
∙ R egarding performance-linked remuneration, it is divided into short-term and long-term officer incentives, with bonuses positioned
as short-term incentives and share-based remuneration as long-term incentives.

∙ To clarify the responsibilities of management each fiscal year for short-term incentives, officer bonuses shall be determined after

the end of each fiscal year, in accordance with business performance and individual evaluation for the fiscal year, and are paid
within three months after being decided.
∙ As for share-based remuneration, a Board Benefit Trust (BBT) scheme shall be used to award each executive officer points as along-term incentive. Points shall be determined based on correlation with the achievement of management goals in the mediumterm management plan, from the perspective of strengthening the link between medium- to long-term increases in corporate
value and shareholder returns. Upon retirement from office, executive officers are issued Company shares corresponding to thenumber of points they have accumulated.

Overview of the Officer Remuneration System (FY2023)

Basic

Japan Securities Finance Co., Ltd.

Integrated Report 2023

Fixed or variable
remuneration

65%

Fixed

Payment standards
Position

Chairperson

President

Senior managing
executive officer

Managing
executive officer

20%

Bonus
Performancelinked
Sharebased

44

Proportion of total
remuneration paid

(performancelinked
component:
15%; individual
evaluation
component: 5%)

15%

Linked to short-term
performance(short-term incentive)

Linked to medium- tolong-term performance(long-term incentive)

Base calculation
amount according
to position

Performancelinked coefficient

Consolidated profit<YoY change>• Number of standard points according to position × Performance-linked coefficient• Consolidated ROE and consolidated ordinary profit (Degree of achievement: Actual

values in relation to standard values for each fiscal year)

Japan Securities Finance Co., Ltd.

Integrated Report 2023

45

Foundation Supporting Corporate Value

Corporate Governance
Officer nomination process and governance initiatives

Total Amount of Remuneration by Officer Classification (FY2022)

Officer classification

Total amount of
remuneration paid
(Thousands of yen)

Director(Excluding outside directors)
Outside director The Company transitioned to a Company with a Nominating Committee, etc. in 2019 and is working to further enhance and strengthen its
corporate governance. The Company published its policy regarding the composition of the Board of Directors and the appointment of executive

Total amount of remuneration paid by type of remuneration(Thousands of yen)

Basic

8,400
61,560Non-monetary

Bonus

—

—

61,560—

officers in FY2021. In our dialogue with shareholders, we provided explanations regarding governance at JSF, focusing on the details of thenomination process for these officers. Many of our shareholders have given JSF favorable evaluations for its governance initiatives.
 		 We also received feedback that, from now on, shareholders expect the disclosure of information to focus on the evolution of governance(Share-based)

—

8,400

Number of
eligible officers

efforts to date, specifics about the status of the nomination process, the roles played by outside directors, and human capital initiatives. In

2light of these comments, in March 2023 we disclosed our approach to the appointment of management executives and our internal humanresources development policy in anticipation of these appointments (details on page 43).
 		 Specifically, we disclosed the following cases that were proposed as issues raised by outside directors regarding the actual operational5

aspects of the Nomination Committee, Remuneration Committee and Board of Directors, each of which is led by an outside director.
 		∙ Succession planning for the current Representative Executive Officer & President

Executive officer

329,977

219,480

72,23038,267

7

1. Directors concurrently serving as executive officers shall not receive remuneration as directors.
2. The indicators for calculating performance-linked bonuses are the number of loanable stock issues, basic profit and consolidated profit, which in FY2022 were 2,702
stock issues, ¥8,610 million and ¥5,966 million, respectively.
3. The indicator for calculating performance-linked share-based remuneration is consolidated ordinary profit (3-year average), which in FY2022 was ¥6,774 million.

Status of Dialogue with Shareholders (FY2022) 		∙ Internal human resource development initiatives in response to the business portfolio 		∙ More proactive disclosure of our approach to human capital

Information disclosure Although many shareholders have stated that dialogue has enabled them to better understand JSF’s management policies and the special
characteristics of JSF on which they are based, and the Company’s various governance initiatives, they also commented that suchinformation should be widely disseminated to the general public. In response to this, in FY2022 JSF formulated and published its first Integrated
Report incorporating such information. Also, as mentioned above, we disclosed our approach to the appointment of management and ourinternal human resource development in anticipation of these appointments. Specifically, our report sets out our approach to the appointmentof management executives based on the business development we aim to achieve and the qualities considered important for each businessAs a Prime market listed company, JSF, based on Japan’s
Corporate Governance Code, engages in dialogue with its
shareholders in a positive manner, within reasonable limits,in order to contribute to the sustainable growth and theenhancement of corporate value over the medium to long term.

The status of dialogue with shareholders conducted by
JSF’s management and others during FY2022 is as follows.

in our business portfolio, and explains our approach to the composition of the management executive team and succession planning for the
Representative Executive Officer & President. Also, from the perspective that the development of internal human resources is important for
ensuring the effectiveness of management succession planning, the report explains the direction of human resource development andspecific initiatives. It also describes the specific commitments of the Nomination Committee and the Board of Directors in the abovementioned initiatives.
 		 We recognize through discussions at Board of Directors meetings that we need to develop tools and systems to enhance information

Main persons
engaging in
dialogue∙ The Representative Executive Officer & President and the Senior Managing Executive Officer Responsible for Corporate

disclosure, and we will continue to proactively disseminate information with regard to this as well.

Strategy engage in dialogue.
∙ Depending on the substance of an opportunity for dialogue, outside directors may also participate.

Overview ofshareholders withwhom dialogue
was conducted

Total: 41 times∙ Individual interviews: 39 times (Domestic investors: 9; Overseas investors: 4; Total: 13 companies)∙ Information sessions: 2 times (total of 23 companies participated)

Policy on Strategic Equity Holdings

Main themes,
matters of interestto shareholders,etc.

(1) Initiatives and achievements to enhance corporate value and capital efficiency(2) Officer nomination process and initiatives in governance(3) Information disclosure

The Company has been reducing strategic equity holdings.
Between March 2018 and March 2022, it reduced shares oflisted issues held by 91% on a market value basis, andshares of total issues held including listed and unlisted
issues by 78%. In FY2022 as well, the Board of Directors

Feedback fromshareholders to
the Board of
Directors∙ JSF reports the status of dialogue with shareholders to the Board of Directors promptly after each opportunity for
dialogue.

∙ Through these initiatives, we strive to ensure that the Board of Directors and the various committees hold discussions
that also take into account the feedback of shareholders.

Below, we introduce specific examples of dialogue, including shareholder opinions, matters that were brought to our attention byshareholders and our response to them, and matters that were explained to and understood by shareholders.

Initiatives and achievements to enhance corporate value and capital efficiency The Company explained that it has been striving to improve profitability and capital efficiency by setting a management goal of achieving

Policy on Strategic Equity Holdings
Basic Policy(1) In order to contribute to sustainable growth and an increasein corporate value over the medium to long term, JSF strategicallyholds other companies’ shares it deems necessary for purposessuch as strengthening business relationships.

ROE of 5%, exceeding the cost of equity (estimated to be around 4.5%), during the period of the Seventh Medium-Term Management Planin its Medium-Term Management Policy, that JSF’s ROE has been steadily increasing in recent years as a result of the initiatives under the
Sixth Medium-Term Management Plan, and that JSF is making steady progress toward achieving its ROE target of 4% for FY2022. Many
assessed our efforts and accomplishments over the past several years. However, there were differences in perception among a portion of

Number of issues

the shareholders regarding the level of the ROE target and the time frame for achieving it.
Seventh Medium-Term Management Plan period is over. In light of this, we have indicated that we will further promote our efforts to enhance
corporate value, and will continue our management efforts to achieve a higher ROE level in FY2026 and beyond.

46

Japan Securities Finance Co., Ltd.

Integrated Report 2023

(2) With respect to strategic equity holdings, the Company
examines the status of dividends and valuation gains andlosses, the status of transactions with investee companies,
and the history and the effects of the shareholdings, andbased on this examination, reduces the number of strategic
equity holdings in shareholdings deemed to be no longer
necessary.

March 31, 2023

shareholders understand our cost of equity and management goal, given our nature as a securities finance company, and have positively 		 In addition, we received feedback from shareholders that they would like to see continued efforts to enhance corporate value after thereceived a report on the status of strategic equity holdings.
Upon verifying the propriety of all strategic equity holdings,
the board determined that they all remained justifiable (thenumber of stock issues did not change from the previous
fiscal year-end).

Carrying amount

Percentage of
total assets

Percentage ofnet assets

Listed shares2¥1,254 million

0.009%

0.924%

Unlisted shares

7¥1,780 million

0.013%

1.311%

Japan Securities Finance Co., Ltd.

Integrated Report 2023

47

Foundation Supporting Corporate Value

Compliance and Internal Audits
Message from the Responsible Executive Officer

Formulating Conduct Guidelines and Compliance Program
In addition to formulating and disseminating the JSF BusinessConduct Guidelines and the accompanying Compliance Manual,
the Company is working to instill compliance awareness byhaving all officers and employees carry a “compliance selfcheck card” at all times. In addition, the Company has formulated
a Compliance Program as a practical plan for promoting
compliance, and the Board of Directors receives regular reportson the program’s implementation status.
The Compliance Program incorporates specific measuresrelated to compliance promotion from the perspectives of

We will promote the establishment of a systemthat reflects our awareness of our public role.
We are always aware of our public role in supporting the infrastructure functionsof securities and financial markets. We believe that conducting business in compliancewith laws, regulations and rules is crucial, as are honest and fair corporate activities.
In order to realize our corporate philosophy, we position compliance as a precondition
for management. We have therefore established a system to ensure thoroughcompliance, and will proactively respond to the social demands placed on the
Company. In addition, one of the strategies in the Seventh Medium-Term Management
Plan is to strengthen the business management structure, and we are building arobust system to ensure the effectiveness of internal audits and contribute toincreased corporate value over the medium to long term.

Response to Money Laundering and Other Issues
Shinichi Sugiyama
Managing Executive Officer
Responsible for Compliance Department,Internal Audit Department

Compliance Systemand share information with those in charge in each department,
and compliance management meetings to share awarenesswith senior management.
In addition, the Company plays a central role in promoting
the establishment and strengthening of the overall compliancesystem for the JSF Group, in ways such as holding Group
compliance liaison meetings and Group compliance officer
liaison meetings to promote mutual understanding andinformation sharing among Group companies.

Compliance System

Board of Directors
Management Committee
ReportCompliance Committee(Chairperson: Executive Officer Responsible
for Compliance Department)

Reportour system for implementing mitigation measures. We willcontinue to collect information on the changing external
environment and trends at other financial institutions, and willcontinuously review our business practices under the leadershipof our management executive team.

The organization as a whole takes a resolute stance against
demands made by antisocial forces that threaten the orderand safety of civil society. Our aim is to eliminate any
relationships with antisocial forces by working closely withexternal specialized agencies such as the police, anti-organizedcrime campaign centers, and attorneys. We are also working
to block such relationships through appropriate pre-screening

and organized crime exclusion clauses in contracts andother documents.
The Compliance Department ensures the effectivenessof efforts to block relationships with antisocial forces in various
ways, including centrally managing and accumulating information
on such groups, building a database, conducting training
activities and preparing response manuals.

Initiatives to Protect Clients and Personal Information
Regarding opinions and complaints received from clients, weclarify the relevant facts and responsibilities and work to
resolve the situation quickly, honestly, fairly and appropriately,with respect for the client’s position. In the event of a disputeor similar issue, we respond appropriately in accordance withthe aims of the financial alternative dispute resolution (ADR)
system.
In addition, regarding transactions between Company orGroup company businesses and their clients, or between
Company or Group company clients, we carry out our duties
appropriately, taking necessary measures in accordance withlaws and regulations and our conflict of interest management
policy to ensure that the interests of our clients are notwrongfully harmed.
We take appropriate measures to safely and properly
manage the personal information of our clients to prevent
leakage, loss, damage or other issues, and educate and properly
supervise our employees to that same end. In addition, whenentrusting the handling of personal information and similar
data that we have received, we appropriately supervise theentrusted party.

Internal Audit System

Compliance Department
Compliance personnel

ReportExternal Reporting Desk
Consult/Report

Consult/Report

Consulting and reporting personnel (Managers and employees)

Japan Securities Finance Co., Ltd.

As Japan’s financial institutions are required to strengthen
their response to money laundering within an internationalframework, we are conducting risk assessments and evaluationsof money laundering and other issues with regard to our clients incompliance with the guidelines issued by Japan’s Financial
Services Agency. At the same time, we have strengthened

Initiatives to Block Relationships with Antisocial Forces

We have established a Compliance Committee, chaired by
the executive officer responsible for the Compliance Department,
to deliberate on important matters related to compliance,such as formulating a compliance program and considering
measures to be taken when compliance-related issues arise.
In addition to educating officers and employees regarding
honest and fair conduct based on high ethical standards, theCompliance Department works to thoroughly implement andpromote Company-wide compliance activities. Activities include
holding meetings for compliance officers to communicate

48

understanding compliance risks and the status of legal
compliance (such as the establishment of systems related tolaws and regulations and self-inspections using checklists),
compliance awareness-raising activities (including training
and tests), and cooperation in and promotion of complianceactivities (activities aimed at sharing recognition and awarenessamong Group companies and among officers and employees).

Integrated Report 2023

Consult/Report

The Company has established an Internal Audit Department
as an independent department to conduct audits of all Company
businesses and departments. Additionally, the Internal Audit
Department conducts Group-wide audits, targeting the operationsof consolidated subsidiaries, as necessary.
Specifically, the Internal Audit Department verifies the
propriety and effectiveness of the internal control system of
each business and department, reports the audit results to
the Representative Executive Officer & President and to theManagement Committee, and then makes recommendations
for improvements and enhanced conformance to the audited
department based on its evaluation. Moreover, importantmatters such as internal audit plans and audit results arereported to the Audit Committee and the Board of Directors.
By establishing this internal audit system, we have strengthened
our operational management system and ensure effective,
sound corporate activities.

Japan Securities Finance Co., Ltd.

Integrated Report 2023

49

Foundation Supporting Corporate Value

Officers
Directors

Setsuko Egami

Shigeki Kushida

Hiroshi Asakura

Director

Director

Director

May 2008 Deputy Director-General of
Personnel and Corporate Affairs
Department (Personnel
Management), Bank of Japan (BOJ)

Apr. 1978 Joined Japan Securities Finance Co., Ltd.
Jun. 2002 General Manager of Planning
Department

Apr. 1983 Chief Editor of Travail of Japan
Recruit Center

Jun. 2015 Outside Director of Mitsubishi
Estate Co., Ltd.

Dec. 2001 Head of Frontier Service
Development Laboratory of East
Japan Railway Company
Apr. 2006 Visiting Professor of Graduate
School of Public Management,
Waseda University

Jun. 2018 Outside Director of Mitsubishi
Motors Corporation

Nov. 2006 Member of Government Tax
Commission

Jun. 2023 Director of Japan Securities
Finance Co., Ltd.
(current position)

Jun. 2007 Outside Auditor of Taisho
Pharmaceutical Co., Ltd.
Apr. 2009 Professor of Graduate School of
Humanities, Musashi University
Professor of Faculty of Sociology,
Musashi University

Jun. 2020 Outside Director of Resona
Holdings, Inc. (current position)
Apr. 2021 Professor Emeritus, Musashi
University (current position)

Significant concurrent positions

Professor Emeritus, Musashi University
Outside Director of Resona Holdings, Inc.

Mar. 2009 Director-General of Personnel andCorporate Affairs Department, BOJ
Jun. 2010 Director-General of Monetary Affairs
Department, BOJ
May 2011 General Manager of Nagoya Branch, BOJ
Mar. 2013 Executive Director of BOJ
Apr. 2017 Senior Advisor of American FamilyLife Assurance Company (currently
Aflac Japan Ltd.)May 2019 Advisor of Japan Securities FinanceCo., Ltd.
Jun. 2019 Director, Representative Executive
Officer & President of Japan
Securities Finance Co., Ltd.
(current position)

Jun. 2011 Outside Auditor of Yusen Logistics
Co., Ltd.
Apr. 2012 Dean of Faculty of Sociology,
Musashi University

Jun. 2005 General Manager of Margin Loan
Department
Jun. 2006 Corporate Officer & General Manager
of Margin Loan Department
Feb. 2008 Corporate Officer & General Manager
of Loan Department
Jun. 2009 Managing Director
Jun. 2013 Senior Managing Director(retired in June 2016)
Jun. 2016 President of Nihon Building Co., Ltd.
(retired in June 2021)
Jun. 2021 Director of Japan Securities FinanceCo., Ltd. (current position)

Jun. 2022 Director of JSF Trust & Banking Co.,
Ltd. (current position)
Significant concurrent positions

Outside Director of Denso Corporation

Executive Officers

Takayoshi Yamakawa
Director

Shoko Sugino
Director

50

Kensuke Futagoishi
Director

Naotaka Obata

Director, Chairperson of the Board

Shigeki Kushida
Director

Senior Managing Executive Officer
Responsible for Margin Loan
Department, Institutional Sales
Department, Retail Business
Department

Masaru Sekiguchi

Shinichi Sugiyama

Wataru SatoManaging Executive Officer
Responsible for Risk Management
Department, Corporate Planning
Department, Settlement & Custody
Department, Information Systems
Planning Department, Osaka Branch,Group Companies Relations

Managing Executive Officer
Responsible for Internal Audit
Department, ComplianceDepartment

Managing Executive Officer
Interim General Manager of Human
Resources Department

Yuji Yoshimoto

Ken Toda

Hiroyuki Matsui

General Manager of ComplianceDepartment

General Manager of Risk
Management Department

Director

Kensuke Futagoishi

Takayoshi Yamakawa

Director

Director

Director

Apr. 1968 Joined The Mitsubishi Bank, Ltd.
May 1999 Managing Executive Officer of The
Bank of Tokyo-Mitsubishi, Ltd.
Jan. 2004 Senior Managing Executive Officerof The Bank of Tokyo-Mitsubishi, Ltd.
Jun. 2004 Deputy President of The Bank ofTokyo-Mitsubishi, Ltd.
Jun. 2005 President and CEO of Diamond
Lease Company Limited
Apr. 2007 President and CEO of Mitsubishi
UFJ Lease & Finance Company
Limited (currently Mitsubishi HC
Capital Inc.)
Jun. 2010 Chairman of Mitsubishi UFJ Lease &Finance Company Limited
Jun. 2012 Executive Advisor to the Board,
Mitsubishi UFJ Lease & Finance
Company Limited
Apr. 2013 Board member of Japan Pension
ServiceJun. 2018 Special Advisor, Mitsubishi UFJ
Lease & Finance Company Limited(currently Mitsubishi HC Capital Inc.)
Jun. 2019 Director, Chairperson of the Boardof Japan Securities Finance Co., Ltd.
(current position)
Jun. 2023 Honorary Advisor, Mitsubishi HC
Capital Inc. (current position)

Apr. 1973 Registered as an attorney
Joined Fujibayashi Law Office
Apr. 1994 Partner Attorney at Fujibayashi Law
Office (current position)
Apr. 1997 Professor for The Legal Training andResearch Institute of Japan
Apr. 2000 Tokyo Family Court Conciliation
Committee Member
Jul. 2005 Environment Dispute Coordination
Commission Member
Mar. 2007 Outside Audit & Supervisory Board
Member of Kitoku Shinryo Co., Ltd.
Jun. 2018 Outside Audit & Supervisory Board
Member of Takeei Corporation(current position)
Jun. 2019 Director of Japan Securities FinanceCo., Ltd. (current position)
Jun. 2022 Outside Director of Janome
Corporation (current position)

Apr. 1977 Joined The Sanwa Bank, Limited
Apr. 2001 General Manager, Retail Banking
Planning Division, UFJ Holdings, Inc.
Jan. 2002 General Manager, Gotanda
Corporate Sales Department andBranch Manager, Gotanda Branch,
UFJ Bank Limited
Oct. 2003 Joined IY Bank Co., Ltd.
(currently Seven Bank, Ltd.)
Jun. 2004 Director of IY Bank Co., Ltd.
(currently Seven Bank, Ltd.)
Jun. 2006 Director, Executive Officer of Seven
Bank, Ltd.
Nov. 2007 Director, Managing Executive Officer
of Seven Bank, Ltd.
Jun. 2009 Director, Senior Managing Executive
Officer of Seven Bank, Ltd.
Jun. 2010 President and Representative
Director of Seven Bank, Ltd.
Jun. 2018 Chairman and Representative
Director of Seven Bank, Ltd.
Jun. 2022 Executive Advisor of Seven Bank,
Ltd. (current position)
Director of Japan Securities FinanceCo., Ltd. (current position)

Apr. 1991 Joined Yokogawa Hewlett Packard Co.
Oct. 1995 Joined The Boston Consulting Group
Jun. 2000 Founder (co-established), Director
and CTO of Dream Incubator Inc.
Jun. 2005 Vice Representative Director ofDream Incubator Inc.
Jun. 2006 Representative Director & CEO of
Dream Incubator Inc.
(retired June 2020)
Jul. 2020 Representative Partner of Business
Producer LLC (current position)
Jan. 2021 Outside Director of BitStar, Inc.
(current position)
Apr. 2021 Outside Director of Baseconnect Inc.
(current position)
Jun. 2021 Outside Director of Akatsuki
Securities, Inc. (current position)
Jun. 2022 Outside Director of FP Corp.
(current position)
Director of Japan Securities FinanceCo., Ltd. (current position)

Integrated Report 2023

Morikuni Shimoyamada

Senior Managing Executive Officer
Responsible for Corporate
Governance Office, Business
Development Department, Treasury
Department, International Relations

Setsuko Egami

Shoko Sugino

Japan Securities Finance Co., Ltd.

Yutaka Okada

Representative Executive Officer &President

Director

Director, Chairperson of the Board

Significant concurrent positions

Shigeki Kushida

Chairperson

Hiroshi Asakura

Naotaka Obata

Partner Attorney at Fujibayashi Law OfficeOutside Audit & Supervisory Board Member ofTakeei Corporation
Outside Director of Janome Corporation

Eizo Kobayashi

Significant concurrent positions

Representative Partner of Business Producer LLC
Outside Director of Akatsuki Securities, Inc.
Outside Director of FP Corporation

Corporate Officers
Jun Akabane
General Manager of Osaka BranchJapan Securities Finance Co., Ltd.

Integrated Report 2023

51

Foundation Supporting Corporate Value

Sustainability Initiatives
Basic Approach to Sustainability

Dialogue with Stakeholders

The development of infrastructure that serves as the foundationof socio-economic activities is a key element in realizing asustainable society, and it is also one of the Sustainable
Development Goals (SDGs: Goal 9). The JSF Group provides
a variety of services, including the loans for margin transactions
business, as a company that supports the infrastructure ofJapan’s securities and financial markets, and works to improve
the liquidity of the domestic securities and financial markets,
as well as convenience for market participants. Through these
activities, we aim to contribute to initiatives to realize asustainable society, including supporting market participants
who are engaged in similar initiatives.
Because it is responsible for the infrastructure of the
securities and financial markets, the Group believes it isimportant to build a system that provides stable operations
regardless of circumstances. To this end, we must not only
respond to disasters in a narrow sense, but also ensure thestability and high reliability of our business base.
In addition, we believe that there are issues toward
which the Group can also contribute by utilizing the knowhow and other resources that it has cultivated over theyears. Based on this perspective, we are currently aware of
the following material issues. Our Group recognizes theroles expected of it in addressing these material issues andwill advance various initiatives while flexibly responding tochanges in the social environment.

We are promoting the following initiatives in order to gain and maintain the support and trust of our stakeholders.

• Hold financial results briefings for analysts and institutional investors (May and November 2022) and
Shareholders andinvestors

individual interviews• Conduct shareholder surveys and share survey responses with the Board of Directors• Introduce hybrid shareholder meetings that enable both online and in-person participation (Live streamingof general meetings for shareholders unable to attend due to remote location or other reasons)

Employees
Business partners
and others
Society• Hold dialogue sessions between top management and employees to share value (Online meetings
for all employees, and regular small group dialogue sessions with voluntary participation)• Conduct employee surveys and DI* surveys to understand employee attitudes and opinions• Interviews and participation in international conferences• Hold various seminars on margin transactions for securities company employees• Support international cooperation and securities market development, and engage in academic researchon securities and financial markets• Make donations for disaster relief* Diffusion Index: An index based on employee surveys that measures employee job satisfaction, changes in workplace conditions and other conditions

Material Issues That We Recognize
Classification

Item

E

Climate change• Improve Company facilities to conserve electricity, and be conscious of environmental impact• Promote paperless operations in all areas of the Company• Carry out initiatives to address the TCFD recommendations• Promote financial and economics-themed education activities• Promote academic research activities• Hold a lecture on “Financial and Securities Markets and Industry-Academia Alliance—Blockchain Case Studies” at the Graduate School ofEngineering at the University of Tokyo• Hold various seminars on margin transactions• Conduct joint empirical research with the University of Tokyo (Securities Finance Transactions Using Distributed Ledger Technology)• Promote diversity• Develop and secure human resources and create a pleasant workplace• Provide support for childbirth, childcare and nursing care
- Introduce telework Company-wide- Monitor employee engagement

Human rights• Respect human rights, prohibit discrimination and respect diversity• Prohibit all types of harassment• Conduct harassment prevention training for new managers• Establish an Internal Reporting Desk and an External Reporting Desk

Capital market•E nhance functions as infrastructure for Japan’s securities and financial markets• Contribute to overseas securities and financial market infrastructure• Provide technical assistance and investment in securities finance in Indonesia• Continuously improve corporate governance• Strive to enhance governance as a Company with a Nominating Committee, etc.
- Ensure that the majority of directors are independent outside directors- Ensure that the chairpersons of the Board of Directors and the three statutory committees are independent outside directors- Establish a dedicated department to address various corporate governance issues with a sense of urgency

Business continuity planning(BCP)• Stably operate business that is not affected by disasters, etc.

• Continue to strengthen the BCP system and cyber security system to ensure stable business operations as a part of the infrastructure of securities
and financial markets

Compliance• Operate business based on a high awareness of compliance• Prepare manuals and establish Compliance Enhancement Month• Implement the risk appetite framework (RAF)• Implement RAF and establish a system to integrate business management and risk management

Human resources

Corporate governanceG

Risk management

52

Initiatives• Promote reduction in environmental impact

Education

S

IssuesJapan Securities Finance Co., Ltd.

Integrated Report 2023

Japan Securities Finance Co., Ltd.

Integrated Report 2023

53

Foundation Supporting Corporate Value

Sustainability Initiatives

Empirical Research on Securities Finance Transactions Using Distributed Ledger Technology
JSF and the Graduate School of Engineering of the Universityof Tokyo (University of Tokyo) have been conducting empiricalresearch since April 2021 to explore the feasibility of using
distributed ledger technology to facilitate transactions involving
tokenized securities or collateral in repo transactions andsecurities lending and borrowing transactions. The two parties
released a report on the results on May 30, 2023.*

JSF was responsible for conceptualization and scheme
planning, research of related market practices, and compilationof the final report, while the University of Tokyo was in chargeof data analysis and review of basic technologies and systems
concerning distributed ledger technology.
In this research, we evaluated the following three points
and identified five implications.

* https://www.jsf.co.jp/english/media/report_dlt_en.pdf

Points Evaluated• Feasibility of securities finance transactions execution (individual bilateral transactions)• System performance when processing transactions in market-wide scale• Impacts of collateralized securities diversification and threshold setting for margin call on net credit amount and necessary
liquidity, including the evaluation in the event of market turmoil

Conceptual Diagram of Individual Bilateral Transaction
Tokenized collateral pledge
Tokenized securities loan

CompanyA

Simultaneous fulfillment

Company
B

Daily mark-to-market andcollateral transfers

Implications(1) Transaction feasibility
Various types of securities finance transactions, including
those involving the exchange of assets denominated in different
currencies and securities tokens to securities tokens, can besmoothly implemented to the end of the transaction period,
from the start of transactions through margin calls.
(2) Reduction of settlement risks, especially in the case ofsimultaneous execution of transactions denominated indifferent currencies
Token-to-token exchanges can be automatically conductedsimultaneously without any time difference, even if theunderlying assets are denominated in different currencies.
In addition, margin calls can be automatically implemented
without the need for operations by transaction parties.
(3) Flexibility in reducing credit risk and enhancing the
economization of liquidity
Automation of margin calls reduces operational burden, making
it easier to make margin calls, and credit risk may be reduced.

In addition, the appropriate combination of collateralized securities
diversification effect and margin call threshold setting can reduce
credit risk and economize liquidity, especially during market turmoil.
(4) Streamlining of operation
Automation of settlement and margin call administration makes
it possible for straight through processing (STP) and to improvethe efficiency of securities finance transactions administrationand the management of operational risk. In particular, this has
the potential to significantly reduce operations and time requirements
for exchanging transaction information and checking status
with counterparties located in other countries, thereby improving
the efficiency of transactions.
(5) Utilization of assets with low liquidity
It will become easier to transfer rights of low-liquidity assets bytokenization, providing the potential to not only hold these assets,
but also to utilize them as collateral for securities finance transactions(the valuation of the underlying asset itself may improve as theutilization value increases).

We expect the findings of this research to be utilized for social implementation in a number of fields in the future, including the securities
industry. In addition, we believe that this research, through industry-academia collaboration, provided positive outcomes that address
important sustainability issues recognized by JSF, especially contributions to the promotion of academic research activities and theinfrastructure of securities and financial markets.

54

Japan Securities Finance Co., Ltd.

Integrated Report 2023

Cooperative Relationships with Indonesia’s Securities Market Infrastructure
Technical Cooperation and Investment in an Indonesian Securities Finance Company
In Indonesia, the government’s policy objectives are to strengthen
the financial services sector to contribute to medium- to longterm growth and to stabilize the financial system as a basis forsustainable economic development. A project to establish
and operate a securities finance company in Indonesia waslaunched in 2014, and in December 2016, PT Pendanaan
Efek Indonesia (PEI) was established with investments by
three companies, including the Indonesia Stock Exchange.
As part of the infrastructure of the Japanese securities
market, JSF has been actively supporting this project since

its beginning in ways such as providing knowledge of securities
financing, and acquired a 10% stake in PEI in August 2020
through an investment of ¥400 million. Going forward, we
will further utilize the knowledge we have accumulated in
the securities finance business to support PEI and Indonesia
Stock Exchange Group in their business development andmarket infrastructure improvements, and continue to strengthen
cooperative relationships with all parties involved as we
contribute to the sustainable development of Indonesia’s
economy as well as its financial and securities markets.

The Sixth Workshop for Participants in Indonesia’s Securities Sector
JSF regularly conducts workshops to deepen interaction withpeople involved in Indonesia’s securities sector. We held oursixth workshop at our Company headquarters from September
4-6, 2023. A total of 20 people came to Japan from organizations
including the Indonesia Stock Exchange (IDX), PEI, the Indonesia
Clearing and Guarantee Corporation (KPEI), the Indonesia
Central Securities Depository (KSEI), and the Indonesia Financial
Services Authority (OJK) for an exchange of opinions on a wide
range of topics including JSF’s loans for margin transactions

business, securities financing and trust business, Indonesia’s
economic and financial situation, capital markets, and an
overview of PEI’s business. At the workshop, young and midcareer employees played a central role in giving presentations.
Expanding networks and facilitating interaction with people
from different cultures and business environments is also usefulfor human resource development, as it helps our peopleacquire an international perspective.

Collaboration with Indonesia Securities Finance (PEI)
I have been involved in projects in Indonesia since summer 2019. Following the signing of amemorandum of understanding in 2014 to introduce a securities finance system to stimulate
Indonesia’s securities market, we have met with our Indonesian counterparts many times, sharedknowledge face-to-face, and had multiple discussions about investing in Indonesian securities
finance. Under these circumstances, the investment project gained momentum at the time of the
COVID-19 pandemic in 2020, and JSF made its investment in August 2020. During the pandemic,
negotiations were mainly conducted online, and the investment signing ceremony was also held
online, and I recall the challenges both parties dealt with. Currently, we continue to collaborateclosely by attending general meetings of shareholders and various other meetings, and holding
workshops for people from both countries involved in the securities sector.

Yusuke Tamai
Business Development
Department

Winner at the International Finance Awards and the Annual Global Economics Awards
JSF received the following awards sponsored by British financial media outlets International Finance Publications Limited and The
Global Economics Limited. These awards recognize outstanding companies in the field of international finance.
International Finance Awards 2022, Most Innovative Securities Finance Company (second consecutive year)T he Annual Global Economics Awards 2022 (AGEA), Best Client Services
Team in Securities Lending
The Annual Global Economics Awards 2023 (AGEA), Best Corporate
Governance Practices (Finance). This was JSF’s first award in a corporate
governance-related category.

Japan Securities Finance Co., Ltd.

Integrated Report 2023

55

Foundation Supporting Corporate Value

Addressing Climate Change and Environmental
Protection (Initiatives Based on the TCFD Recommendations)
In addition to engaging in initiatives aimed at bringing about a sustainable global environment through its business activities,
JSF is working to improve disclosure of climate change information in accordance with the TCFD* recommendations.
* Task Force on Climate-related Financial Disclosures: Established by the Financial Stability Board (FSB) in 2015 at the request of the G20 for the purpose of financial
stability. The final report on frameworks for disclosure of climate-related risks and opportunities (TCFD recommendations) published in 2017 calls on companies toassess the risks and opportunities of climate change, reflect them in their business strategy and risk management, understand their financial impact, and disclose
this information.

Type of risk

Description

Acute
risks
Physical risks

Governancerecognizes climate change as a material issue for its business.

• T he Management Committee (chaired by the Representative Executive Officer & President) deliberates and decides on sustainability
initiatives, including those concerning climate-related issues, and the Board of Directors oversees the progress on these initiatives.

• S pecific sustainability initiatives, including those concerning climate-related issues, are detailed in the action plan for the mediumterm management plan, and they are carried out across the organization under the oversight of the Corporate Governance Office.

MediumShort- tolong-term

Higher credit costs as a result of damage to counterparty business locations due
to major storm and flood damage

Indirect

Small

Short- tolong-term

Business relocation costs incurred due to rising sea levels

DirectMediumLong-term

Higher credit costs as a result of damage to counterparty business locations due
to rising sea levels

Indirect

Small

Long-term• JSF anticipates and recognizes the following opportunities associated with tackling climate-related issues.
 ur initiatives with respect to these climate-related issues are incorporated into the action plan for the medium-term management•O
plan, and we are monitoring the progress of their implementation.
Opportunity• As a company responsible for Japan’s securities and financial market infrastructure, JSF recognizes the importance of building
crucial for the continuation of our business activities, and that climate change is a material issue for our business.

DirectDrop in prices of securities held as a result of worsening financial and securities
markets due to the effects of extreme weather events

Recognized Opportunities

Markets for
products andservices

systems that operate reliably regardless of conditions. Therefore, we believe that realizing a sustainable global environment isTime frame

Note: Short-term, medium-term and long-term time frames are assumed to be 3 years or less, 3–10 years and 10 years or longer, respectively.

Resource-efficientenergy sources

Strategy

Scale

Damage to owned real estate and facilities due to major storm and flood damage,with damage to facilities affecting business continuity

Chronicrisks• To drive Group-wide climate-related efforts, the Board of Directors approved the “Basic Stance on Sustainability,” in which it

DamageDescription

Time frame• Promoting resource and energy savings• Utilizing renewable energy

Short- tolong-term• Offering financial services that support the transition to a carbon-free society• Contributing to an environmentally sustainable society through investments in green bonds and other instruments• Increased demand for funding due to the expanding market for ESG investment• Gaining the trust of counterparties and capital markets as a result of appropriate initiatives and disclosure in

Short- tolong-term

response to climate-related issues

Resilience• Ensuring business continuity in securities market infrastructure such as loans for margin transactions bybuilding a resilient BCP system

Short- tolong-term• After identifying the risks and opportunities of climate change that could impact our business activities, we qualitatively analyze
those impacts and verify the resilience of our management strategy.

Scenario Analysis• In responding to the transformation into a carbon-free society, we support the efforts of the securities and financial markets• A qualitative analysis of the impact of climate on the JSF Group, based on two scenarios, is presented below. Under the 2°C

participants that are grappling with climate-related issues by improving our financial services and the commercial appeal of ourscenario, global warming is curbed due to strict countermeasures, while under the 4°C scenario, global warming continues to

products. At the same time, we are aiming to enhance our own corporate value.

progress in the absence of drastic measures.

Recognized Risks

2°C scenario1• Climate change risks are divided into two categories for identification and recognition purposes. These are “transition risks,”• Greenhouse gas emissions are curtailed through policy

which are risks arising from the process of transitioning to a lower-carbon economy to address climate change, and “physicalrisks,” which are risks of losses arising directly from climate change.

• For recognized risks, assumptions have been made about the type of damage (direct or indirect), the scale of the risk (large,

Assumptions

medium or small), and the time frame (short- to medium- to long-term).

• JSF believes that the increase in its credit costs will be limited because most of its lending comprises securities-backed loans tosecurities firms and banks.
Type of risk

Higher operating costs due to taxation changes related to climate change, such as stricter
regulation and carbon taxes
Transition
risks

Decline in securities financing balance due to factors such as worsening economic conditions,weak financial and securities markets and declining demand for funding due to the effects ofglobal warming
Decline in share prices due to stakeholder criticism of JSF’s response to global warming andinadequate disclosure

DamageScale

Time frame

DirectSmall

Medium- tolong-term

IndirectMediumSmallemissions continue to increase at the current rate

• Sudden storm and flood damage occurs more frequently
and is larger in scale• Chronic changes, such as rising sea levels, have asignificant impact on economic activity• Demand increases for funding in connection withsecurities markets due to growing ESG investment• Need increases for financial products and services

investment in infrastructure for disaster preparedness• Stakeholders criticize JSF’s response to global
Transition risks

Medium- tolong-term
Medium- tolong-term• Without drastic policy measures, greenhouse gas

related to environmental protection

Risks
Directmeasures• There are advances in low-carbon technologies andthey are widely adopted• Sudden storm and flood damage occurs at a similar
scale and frequency as at present• Demand increases for funding in the financial andOpportunities

Description

4°C scenario2• Securities financing balances decline as the economy

warming, causing its share price to decline• Equipment costs rise as a result of measures to cut
greenhouse gas emissions and enhance BCP

and financial markets deteriorate due to the effects ofglobal warming• Sudden extreme weather events are similar to those at
Physical riskspresent, and no major financial impact is expected• There is no irreversible climate change, such as rising
sea levels, and no major financial impact is expected• There is damage to owned real estate and facilities due

to major storms and flooding, affecting business continuity(assumes limited increase in credit costs in conjunction
with damage to counterparty financial institutions)• Relocation expenses arise from damage to owned realestate due to rising sea levels

1. 2°C Scenario: International Energy Agency (IEA) 2°C Scenario (2DS)
2. 4°C Scenario: Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathway (RCP) 8.5

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Foundation Supporting Corporate Value

Risk Appetite Framework/Risk Management

Addressing Climate Change and Environmental Protection(Initiatives Based on the TCFD Recommendations)

Message from the Responsible Executive Officer

Risk Management• JSF recognizes that climate change not only poses the risk of a significant impact on the global environment, but it could also
affect its financial position in the future.

• Because these climate change risks could cause or amplify financial risks (credit risk and market risk, for example), we manage
the risks associated with climate change within an integrated risk management framework.

Risk appetite is the type and total amount of risk that a company takes on in orderto achieve its medium-term management plans. JSF’s management goals are capitalefficiency, profitability and shareholder returns, and we clearly identify risks that
we should be willing to take1 and risks that we should avoid2 in order to achieve
those goals within the scope of our management capabilities. Our risk appetite
framework (RAF) integrates business management and risk management. Determining
the management targets for the Seventh Medium-Term Management Plan involved
reviewing our risk appetite and relevant indicators, which we are now regularly monitoring.
In addition, the Company plays a public role as a provider of securities market

Metrics and Targets

infrastructure, so we are strongly aware that the risks we take on should in no way
impact our ability to maintain financial soundness or stably operate our loans for• We are working to save resources and energy by promoting telework, using web conferencing both inside and outside theCompany, introducing an electronic decision-making system and a paperless meeting system, and digitalizing document storage.

• In FY2022, we converted all lighting in our head office building to LED as an energy-saving measure. We also considered
initiatives for achieving carbon neutrality and reported the direction of such initiatives to the Board of Directors.

• The JSF Group’s CO2 emissions (combined Scope 1 and Scope 2 emissions*) are shown below. We have steadily reduced CO2
emissions and are implementing initiatives to reduce them still further.

margin transactions business.
We will continue strengthening our monitoring system, promoting a Groupwide RAF management system and taking other steps to improve the sophistication

Masaru Sekiguchi

of our RAF in order to increase corporate value over the medium to long term.

Managing Executive Officer
Responsible for Risk Management
Department

1. Risks to be taken: Risks associated with revenue-generating activities
2. Risks to be avoided: Unacceptable risks such as conduct risk

* Scope 1: Direct emissions (use of gas, gasoline, etc.); Scope 2: Indirect emissions (use of electric power)(t-CO2)CO2 emissions

FY2019FY2020

FY2021

FY2022

923

874

856

810

Risk Appetite Framework

RAF overview

Social andpublic role

Business characteristics (licensed business,
concurrent businesses), risk characteristics
Risk culture

RAF operation structure
Corporate philosophy and management strategy

Supervision

Board ofDirectors

Business management
Medium-term
management plan

Risk management
Integrated
management

Risk management policy
Type and amount of risk to
be taken (Risk appetite)

Execution

Management
Committee

Risk Management
Committee
Corporate Planning
Department
Risk Management
Department

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Risk appetite indicators

Improvement

Monitoring

Analysis andreportingManagement of capital adequacy
ratio (based on FIEA)

Integrated risk management

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Foundation Supporting Corporate Value

Risk Appetite Framework/Risk Management
Basic Policy for Risk Appetite Framework
The Group considers the RAF to be part of its corporate
governance framework. Our objective is to maintain the highdegree of financial soundness required of a securities financecompany responsible for the infrastructure functions of Japan’s
securities market, while improving medium- to long-term
corporate value as expected of a listed company. To thisFostering and Instilling a Risk Culture
end, the RAF improves the transparency of the review anddecision-making process for establishing the Company’s
overall risk-taking policy, including capital allocation andstrengthening of profitability. Furthermore, the RAF optimizes
allocation of management resources and strengthens themonitoring system.

Risk Appetite Framework GovernanceIn the execution of business management, we set moredetailed targets and decide plans for each business as we
promote the medium-term management plan, keeping in
mind our risk management policy, risk appetite and risk
appetite indicators decided by the Board of Directors.
The Board of Directors works to improve and strengthen
the effectiveness of the RAF on an ongoing basis by monitoringrisk appetite and risk appetite indicators as it supervises
the status of business execution. If risk appetite indicators
deviate from set levels, the board analyzes the causes
and formulates countermeasures.

Operation

We must provide risk management education and training
and share risk information to foster and inculcate a risk culture
throughout the Group. Therefore, we conduct regular in-housetraining to help employees deepen their understanding of
the RAF and employ it in our business operations. Regarding
risk information, we conduct surveys of market trends andmonitor business partners as needed, and collaborate withbusiness operations departments to share necessary information.

In addition, risk governance is further strengthened
through an ongoing cycle of reminders of risk culture throughthe operation of the RAF, which further fosters and instills
this culture.
We will continue to promote greater sophistication in
our risk governance, which constitutes part of our corporate
governance, with the aim of achieving sustainable growth andincreasing corporate value over the medium to long term.

Risk Management
Basic Policies

In the operation of the RAF, the Board of Directors establishes
a risk management policy for overall management based on
the social role that JSF should play as a company responsiblefor infrastructure functions of Japan’s securities market andits medium- to long-term vision for the future. At the sametime, the board determines the basic items of the RAF, suchas risk appetite and the risk appetite indicators that specificallyreflect its components, in conformance with the mediumterm management plan. Risk appetite is set from a wide
range of perspectives, including management stability andfinancial soundness, as well as the social responsibility forthe infrastructure functions of and contributing to Japan’s
securities market.

JSF plays a public role as a provider of infrastructure forsecurities and financial markets, so we are strongly awarethat the risks we take on should help maintain financial
soundness and increase corporate value. Furthermore, we
position risk management as one of our most importantmanagement issues, and through the JSF Business Conduct
Guidelines and our risk management policy, we instill amindset and risk culture that emphasizes risk management
throughout JSF.

Risk Management System

Process for Setting and Managing Risk Appetite(1) Confirm premises for management plan formulation
Formulate multiple scenarios that take into account changes in the domestic and overseas environment, and verify premises
for formulating medium-term management strategies, including capital and liquidity constraints.

(2) Consider medium-term management plan proposals
Consider business plans that encompass business goals, risk appetite, and business strategies in order to realize the Vision of
the Future Targeted by JSF.
Review as appropriate
based on verification results(3) Verify risk appetite

We broadly classify assumed risks for management as credit
risk, market risk, liquidity risk, operational risk and systemrisk. For credit risk and market risk, we strive to secure profits
while quantitatively identifying risks and keeping them within
levels that match our financial strength. For liquidity risk,
operational risk and system risk, we strive to prevent their
manifestation by implementing appropriate management
according to risk characteristics.

Regarding reporting, credit risk and market risk are reported
to the Management Committee following discussion at the
Risk Management Committee, and liquidity risk is reported
to the Management Committee following deliberations at theAsset Liability Management (ALM) Committee. The officers
responsible for each committee regularly report to the Boardof Directors on the status of risks and measures to improverisk management.

Evaluate the propriety of financial plans and risk appetite through stress tests, and revise business plan proposals, as necessary.

(4) Determine medium-term management plan
The Board of Directors discusses and decides management goals, risk appetite and management strategies.

(5) Monitor risk appetite compliance
Regularly monitor indicators for each aspect of risk appetite and check compliance status.
Upper limit exceeded or other reason(6) Reset risk appetite

Reset risk appetite in the case of discrepancies between risk appetite indicators and actual operations, or if significant changes
occur in the operating environment.

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Foundation Supporting Corporate Value

Risk Appetite Framework/Risk Management

Risk Management System

Market Risk Management
Board of Directors
President

Management

JSF quantifies and manages market risks. Furthermore, toa given portfolio. At the same time, we appropriately control

validate the reliability of the market risk quantification model

investment losses by setting loss limits based on overall

we have adopted, we also implement back testing to compare

profit and loss.

calculated value at risk (VaR) with virtual profit and loss fromManagement Committee

Liquidity Risk Management
Executive Officer
Responsible forTreasury Department

ChecksRisk Management
Committee

ALM Committee

Managing
departments

Risk Management Department(Supervising department for risk management)

Information Systems
Planning Department

ChecksInstitutional Sales
Department

Operation
departments

Executive Officer
Responsible for Internal
Audit Department

Treasury
Department

Treasury
Department

Retail Business
Department

Margin Loan
Department

Margin Loan
Department

Each department

Each department

Treasury Department

Supervising department for internal audits

department

Executive Officer
Responsible for Risk
Management Department

Internal Audit Department

Committee or

Executive Officer
Responsible
for Information Systems
Planning Department

JSF recognizes liquidity risk as a significant risk, and strives

management. Furthermore, we avoid fund shortages by

to ensure the funding liquidity necessary for stable businessconducting liquidity stress tests to address risks such as cash

operations by diversifying funding methods and maturities.

outflows when stress occurs in the funding environment.

For cash flow management, we set a minimum amountIn addition, we manage liquidity risk on a consolidatedof liquidity reserves based on the assumption that certain

basis by receiving daily reports from JSF Trust and Banking

stress events will occur in financial markets. We monitor thethat include cash flow forecasts and the status of its liquidity

state of liquidity reserves by formulating cash flow forecasts

reserves. Furthermore, we prepare for unforeseen circumstancesand confirming the amount of funding available, as well aswith measures to supplement liquidity, such as holding a certain

the status of highly liquid asset holdings, while confirming

amount of government bonds that we can immediately convert

concentrated maturities for large amounts of funds. We also

into cash.

have a system for reporting the status of daily cash flow to

Initiatives for BCP

Osaka Branch

Liquidity risk

Market risk

Credit risk

Operational risk

System risk

Based on this approach to risk management, we have developed a system that supports the expansion of our balance sheet byusing the risk appetite framework as described below.

Capital Adequacy Ratio (Adequacy of Equity Capital)
In participating in the Japanese Securities Clearing Corporation

We also verify our capital adequacy by using stress tests(JSCC) clearing and settlement system, we are required to

to calculate impacts on our equity capital, and formulate action

calculate, manage and maintain our capital adequacy ratio

plans, as necessary. We conduct two types of stress tests:

above a certain level in accordance with the Financial Instruments

monthly tests based on individual credit and market stressand Exchange Act. Specifically, we precisely calculate andscenarios, and semi-annual comprehensive stress tests based

manage this ratio on a monthly basis, monitor the impact ofon scenarios that reflect the current financial environment.

daily market fluctuations on equity capital, and quickly
report this information to management.

Integrated Risk Management
Credit Risk Management

62

JSF quantifies and manages credit risk using default rates

relevant collateral on a daily basis. In the event of borrower

for in-house ratings that it has calculated for each of its businessbankruptcy, we take steps including selling securities held as

partners. For credit management, we screen business partners,

collateral to promptly collect receivables. Additionally, we

securities accepted as collateral, and loans, and set and manage

manage large credit positions by calculating the stress exposuretransaction limits for each business partner. For each loan

for each business partner across our businesses on a dailytransaction, we reduce exposure by marking to market thebasis and sharing this information with business departments.

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Basic Concept for BCP
As a securities finance company with a social mission tocontinue operations that serve as infrastructure for the
securities market, such as loans for margin transactions, forthe handling of a possible disaster event such as a largescale earthquake, JSF has established a business continuity
plan (BCP) system so that operations can be continued orresumed as soon as possible, and so the impact of thedisaster on our business partners and related externalorganizations is minimized.

The Company has positioned the loans for margintransactions, loans for negotiable margin transactions andfund/securities settlement businesses as operations to becontinued on a priority basis. We have established a policy
assuming the respective cases of 1) injury (or threat of injury)
to officers and employees, and damage to buildings, etc.,2) damage to the Company’s main centers, and 3)
insufficient personnel.

Comments from the Osaka Branch about the Operational Status of BCP
The Osaka Branch was established as a BCP base in September
2018 with the aim of strengthening business continuity inthe event of a large-scale disaster such as an earthquake
directly beneath the Tokyo metropolitan area or a wide-areadisaster there. In normal times, the two locations conduct
operations in parallel with each other, so that in the eventof a disaster in the Tokyo metropolitan area, the Osaka Branch
can function as a remote backup office for the Tokyo head
office, handling important operations centered on loans for
margin transactions and their settlement, which are securities
market infrastructure.
In addition, in response to the widespread adoption of
remote work during the COVID-19 pandemic, we havepositioned remote work as a third BCP base, enabling
business continuity in collaboration with the Osaka Branchin the event of a disaster.

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