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January 25, 2023
To whom it may concern
Company: Japan Securities Finance Co., Ltd.

Representative Executive Officer & President: Shigeki Kushida(Code No. 8511, TSE Prime)
Contact: Kentaro Hibi, General Manager, Corporate Governance Office(E-mail :info@jsf.co.jp)
Profit and Loss Recognition Classification of Shares held for net investment purposes
Japan Securities Finance Co., Ltd. (hereinafter “the Company”) announces that thefollowing is the opinion of the Company's Executives regarding the "Request for Filingan Action to Enforce Liability" sent to the Company's Audit Committee by theCompany’s shareholders as notified in the “Shareholder's Request for Filing to Enforce
Liability” dated January 20, 2023.
Furthermore, if the Company's Audit Committee decides whether or not to file an action
to enforce liability, the Company will promptly announce such decision.
1.

Background(1) The Company previously treated the shares of Japan Exchange Group, Inc. (“JPXShares”) as cross-shareholdings, but in light of the 2018 revision of the Corporate
Governance Code, the Board of Directors deliberated on the purpose of holding theshares and judged that there was no need to continue holding the shares as crossshareholdings and changed to them to shares held for net investment purpose. Since
that year, the significance of cross-shareholdings has been verified annually by theBoard of Directors, and there has actually been a change in the purpose of holding
shares other than JPX Shares.
(2) The Treasury Department makes specific decisions regarding the purchase, holding,sale, etc. of shares held for net investment purposes based on the Securities
Investment Policy, which is decided upon by the Company's ALM Committee,
approved by the Management Committee, and reported to the Board of Directors,
while taking market conditions and other factors into account.
(3) Also, shares held for net investment purposes and cross-shareholdings do notcoexist as the same securities, but are held for their respective purposes on an issueby-issue basis.

2.

Verification results(Conclusion)
As the trading of JPX Shares is acknowledged to be conducted as the Company's
primary business activity, it is appropriate to record the profit and losses from suchtrading as operating profit (loss). Even if a security is classified as “other securities” on
the balance sheet, it is appropriate under accounting standards to report it as an
operating profit (loss) on the income statement when it is traded as a primary businessactivity.
(Rationale)(1) Although the Company has positioned JPX Shares as being held for net investment
purposes, they are not held for dealing purposes (i.e., for the purpose of frequent
trading in a short period of time). For this reason, JPX Shares are classified as “othersecurities” rather than “trading securities” in the accounting classification ofsecurities. Furthermore, the Company does not have any securities that areclassified as trading securities in the first place.
(2) The Company is a securities finance company which is licensed under the Financial
Instruments and Exchange Law and is engaged in the securities finance businessas its principal business. In addition, as stated in the Articles of Incorporation,operating activities include the purchase and sale of securities, and even shares
held for net investment purposes, which are classified as “other securities” foraccounting purposes, are positioned as if the purchase and sale of such securities
were a principal operating activity.
(3) In “Corporate Accounting Principles” “No.2 Income Statement Principles” and “2Income Statement Classification,” “A: Operating Income and Loss Calculation
Classification” shall be used to calculate operating income by stating expenses andincome arising from the operating activities of the relevant corporation. For theCompany, dividends and gains or losses on sales of shares held for net investment
purpose, which are classified as “Other securities,” are reported in the operating
profit (loss) line item because the management of such securities is part of theCompany’s principal operating activities.
(4) Also, for the Company, both shares held for net investment purposes and crossshareholdings shares are classified as “Other securities,” and changing crossshareholdings to net investment purpose will not result in a change in theclassification of securities holdings.
(5) Q68 of the Q&A regarding Accounting for Financial Instruments (“Q68”) states thatgains or losses on trading securities “shall be included as an operating profit (loss)
item when the principal business is trading securities, and a component of non-

operating profit (loss) in other cases”. Since the judgment is made based on whether
or not the principal business is the trading of securities, it is appropriate that the profit(loss) from the trading of other securities should also be an operating profit (loss)
item if such trading can be considered as the principal business activity. Also, thedescription in Q68 regarding profit (loss) on trading of other securities states that it
is appropriate to report extraordinary profit (loss) as extraordinary transaction and toreport it as non-operating profit (loss) if it deemed to be ordinary transaction to acertain extent. This is, however, considered to assume a general businesscorporation that is not primarily engaged in financial transactions. For a company
such as our Company that is engaged in the securities finance business, it isappropriate to include in operating profit (loss) the income and losses on a recurring
basis from the sale and purchase of securities, which is one of its principal businessactivities.
This time, when the Company sought the opinion of Mr. Yoshihiko Terada, a certified
public accountant (representative of Trustees Terada & Matsuzaki Accounting Office), a
third party who has no interest in the Company, the Company received an opinion that
he has no objection to the above arrangement.
end