Consolidation Memo of Points of Issue in Earlier ( or Tentative) Implementation of DVP (Delivery Versus Payment) for CP
December 5, 2001
Working Group on Promoting Reform of the Securities Settlement SystemPoints
1.Settle ment

Opinions and Views
verification•system

2. Issuing scheme•

Comments

Even with earlier implementation, it is desirable that a settlement •We will continue to consider factors involved in the expansion of theverification system be in place, assuming a multi-layered system andsettlement verification system of the CSD, including the development andT+0.

testing periods and the burden on users.

As proposed by the Japan CP Association, it is preferable to implement a •For early implementation, we are considering a scheme utilizing an “issuing

CSD-based DVP scheme to ensure a solid link between cash settlement

account” for issuing agents.

and initial security record.
•3. DVP settlement•There are no objections to proceeding in the direction of having the CSD •This should also apply to straight bonds and others.

use the real time numbering system needed to make T+0 issuance •We will need to discuss the matter with the Securities Code Committee,possible.

which is recognized by the ISO as Japan’s security code management body.

Assuming that the CP market expands after early implementation, it is•

Independent of the queue function, it would be worthwhile in considering

desirable that the financial services industry also proceeds separately with

developed scheme of cash payment input by CSD and payment approval bydeliberations on making the BOJ-Net based cash settlement systempurchasers.

(queue system, etc.) more sophisticated.
•4. Redemption scheme•

Considering the positioning of the CP settlement payments and the money •For the time being, we expect to maintain daily liquidity by utilizing themarket products, it will be necessary to achieve immediate completion ofbusinesses of practitioners. In the future, however, if maintaining liquidity

transactions. As proposed by the Japan CP Association, we will consider

becomes a problem because of the substantial increase in volume, we plansystem and procedural aspects of the DVP method assuming BIS Modelto have BOJ supply liquidity to the market or consider introducing schemes

1 (RTGS).

to save liquidity, etc.

To accurately link money transfers with deregistration procedures •For early implementation, we are considering a scheme utilizing a(redemption), we believe that a CSD-based DVP-type scheme should be“redemption account” for paying agents.

Points

Opinions and Views

Comments

introduced.
5. Market changes•

We believe that when conducting tests of the different types of costs and•In discussing these issues, in order to develop a market that attracts

business volume in future, it will be necessary to discuss these issues withparticipants, it is necessary to assume that those involved with the marketthose involved, including the issue of allocation of the cost burden by

will act positively in fulfilling their individual roles.

setting several projected scenarios on the CP market•

Since forecasts of market size, etc., will influence the development of thesystem, it is desirable that people involved are included in CSD’s
discussions about its structure.

6. Implementation timeframe•

Companies and financial institutions have been wishing for an electronic
CP settlement system for some time now. Moreover, as a matter of policy,
after the realization of a legal framework for an electronic CP settlement
system, it is not acceptable that electronic CP settlement system is notready in operation for a long period of time and, as members of thefinancial services industry, we also want to quickly realize this CP
settlement system.

•Because it will be necessary to consider development and test periods,•etc., it is currently difficult to accurately fix a date for release of the actual

System and procedural aspects will have to be taken into consideration in
deciding the schedule for implementing T+0, T+1 issuance.

system, but based on the above points, we plan to aim for sometime
during the fiscal year ending March 2003.
•Because participants will not be able to agree on functions that canonly be •We cannot rule out a system release under a single layered legal framework.

used in a single layered system due to concerns of doubling up on required

However, even under a single layered system, it should be possible tocapital investment. Therefore, no matter when the release period, we wantrelease the system in stages.

to proceed based on the assumption that the system will be a multi-layeredsystem.
•We request the CSD to prepare an organization that they could announce
the scheme for system as soon as possible in 2002, cooperated with thePoints

Opinions and Views

Comments

market participants, and to get market participants started on systemdevelopment, based on the proposal by the Japan CP Association and theabove points.
Notes:For information on the “Grand Design for an Electronic CP, etc., Settlement System” (Corporate Finance Association and Japan CP Association), see the home page of the Committee for Smooth Fund
Raising by Corporations (http://www.enkt.org/katudou/index.html) (Japanese only).
Prepared by the support organization of this working group, this consolidation memo represents the results of the intense and short -term deliberations of market-related people regarding “EarlyImplementation” as stated in the “Grand Design for an Electronic CP, etc., Settlement System” proposed by the Corporate Finance Association and Japan CP Association to the DVP Settlement Schemefor CP Task Force, which was established on November 8, 2001. The memo was approved in a meeting held by the working group on December 5, 2001.