President’s Message

Yoshinobu Takeuchi
President & CEO

INDISPENSABLE TO SECURITIES CLEARINGAND SETTLEMENT SYSTEM REFORM
Overview

On June 17, 2002, JASDEC opened a new chapter in its corporate history with the commencement of services as a stock company. Through this transformation, we have gained the governance function of shareholders, which will increase management transparency and strengthen
our financial position. We are now able to engage in strategic
JASDEC posted a corporate
activities with greater flexibility, including the ability to diversify
milestone, and Japan achievedfinancial resources.
steady progress in securities
To more accurately address the needs of users under ournew structure, we assembled a Board of Directors on which theclearing and settlement system
majority of members are representatives from participant compareform.
nies. We also established the Committee for Business Operations
to ensure that comments from users are reflected in all aspects of our business activities.
Our transformation into a stock company has also afforded administrative merits, such asheightened awareness of the importance of cost reduction and improvement in operating efficiency.
It is our ongoing objective to provide users with an expedient securities clearing and settlement system. Toward this end, we have identified four goals—to promote securities clearing andsettlement system reform; to encourage greater use of securities depository and book-entry transfer services; to reinforce operating systems and ensure security; and to reduce the cost burden on
participants—and we have embarked on several strategic projects to ensure successful implementation of each goal.
As part of this effort, we began providing book-entry transfer services for commercial
paper in March 2003, in accordance with the amended Law Concerning Book-Entry Transfer of3

President’s Message

Corporate and Other Debt Securities (Transfer of Corporate Debt Securities Law). Also in March
2003, we implemented the Securities Information Tracing System (SITRAS) for lost stock certificates, paralleling revision of the Commercial Code and the subsequent introduction of a registration system for lost stock certificates.
Furthermore, we launched an advertising campaign using newspapers, television andother media to encourage individual investors to utilize our securities depository and book-entryservices.
As a result, the number of shares in custody topped 200 billion, settling at 203.1 billion,
as of March 31, 2003. This represented 59.1% of all outstanding shares in Japan.

Themes in the Reform of Japan’s Securities Clearing andSettlement System
Paralleling liberalization

In recent years, we have taken to compiling the many recommen-

dations and proposals for enhancing the safety and efficiency ofsecurities clearing and settlement systems that have been issued byand globalization ofsuch international organizations as the Committee on Payment
financial markets, JASDEC
and Settlement Systems and the International Organization ofhas made risk control andSecurities Commissions (CPSS/IOSCO), the International Securities Services Association (ISSA); and the Group of Thirty (G30).
higher efficiency in securities
JASDEC fully supports these recommendations and advocatessettlement its highest
appropriate responses and implementation of required processes
priorities.
in Japan. We have been successful in many areas already, and wewill strive to realize those areas still outstanding.
Of issues related to the securities clearing and settlement system that require attention inJapan, three are of particular importance.
The first issue is cost to users, in terms of both money and time, which arises because
clearing and settlement functions are divided according to type of securities, such as stocks, government bonds, corporate bonds and investment trusts.
The second issue is realization of STP, viewed as the key to reducing settlement risks andcurbing costs. Currently, the shift toward shorter settlement periods has become a worldwide
trend. Already, many markets in Europe and Asia have adopted the T+2 cycle. A shorter settlement period is also preferred for Japan to make the market safer, more convenient and morecompetitive with overseas markets. The introduction of STP is indispensable to shorter settlement
periods, but Japan lags behind other countries, especially in the establishment of an infrastructure for a delivery versus payment (DVP) settlement system for trades other than exchange trades,a crucial component of STP.

Straight-through processing (STP) An electronic system with little or no human intervention for handling all trade-to-settlement
processes involved in securities transactions.

4President’s Message

The third issue is the standardization of trading data and the harmonization of communication protocols that will facilitate the processing of securities clearing and settlement following
completion of securities transactions.
As Japan’s central securities depository, JASDEC will aggressively tackle these issues fromvarious approaches, including expansion of eligible securities and reform of the securities clearing
and settlement system infrastructure.

New Businesses

In the area of eligible securities, in 2001 we expanded our depository services to include Real
Estate Investment Trust (REIT) and Exchange Traded Fund (ETF) beneficiary certificates, as well
as bonds with subscription warrants for new shares (convertible bonds). We further augmented
the range of eligible securities in March 2003 with commercial paper issued in dematerialized
form. We are also making headway in our preparations to handle corporate straight bonds andinvestment trust beneficiary certificates, both of which will beSeeking to build a securities
issued and traded in a paperless environment.
In September 2001, we launched the Pre-Settlement
clearing and settlement system toMatching System (PSMS), which functions as an importantinternational standards, JASDEC
building block of the STP infrastructure. Since then, we haveis aggressively tackling various
expanded the scope of applicable securities and trades. The
first phase targeted stock transactions by domestic instituissues.
tional investors. The second phase focused on trades by nonresidents and trades on bonds with subscription warrants for new shares. In May 2003, we
implemented the third and final phase of the first stage of the PSMS with the addition of a matching function for government bonds and exchange-traded futures and options.
The second stage of PSMS development is now under way. In this stage, we aim to connect
to the DVP system for non-exchange transaction deliveries (NETD) that is scheduled to go online
in May 2004. With the establishment of a clearing agency for government bonds, we are looking
into the potential of a matching function used by the agency for government bonds and othersecurities.
In our effort to promote STP, we are pushing ahead with preparations geared toward
implementation of the DVP system for NETD. To date, we have identified major points for processing, established a subsidiary to act as a clearing agency, and continued system development
activities.
A revision of the Commercial Code has been broached that would lead to dematerialization of stocks in 2009. We are looking into the creation of an infrastructure that will facilitate theintroduction of this new paperless system.

Pre-Settlement Matching System (PSMS) Please refer to page 8.
Delivery versus payment (DVP) Please refer to page 8.

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President’s Message

User-Oriented Services

We have always endeavored to expand operations and cut costs to users through greater operating efficiency and steady fee reductions. Because profits were higher than initially anticipated forthe term in review, we offered refunds to participants at the fiscal year-end. Comparing averagecustody fees in 1991, when we began operations, and today after the recent refund, we find thatfees have dropped 94%. We plan additional reductions on fees, including custody, deposit andbook-entry transfer fees, to lessen the cost burden carried by participants.
We utilized the opportunity afforded by our transformation into a stock company to reaffirm three business principles. The first is to ensure highly transparent business activities thatplace the users first and foremost. This principle has always been absolutely fundamental to ouroperations. The second is to provide capabilities on a par with overseas central securities depositories. The third is to extend highly reliable, cost-effective
System fortification and security asservices.
JASDEC will redouble its efforts to raise its deposit
well as reduced cost burdens are theratio and realize securities clearing and settlement system
most valued aspects of the services
reform in Japan. Specifically, we will strive to pinpoint thewe provide to users.
needs of users, participants and investors with even greater
accuracy, make the clearing and settlement system infrastructure more user friendly, and further refine our capabilities.
On behalf of senior management and all the employees of JASDEC, I ask for the continued
support of all parties that utilize and benefit from our operations, including shareholders, participants and issuers.

June 2003
Yoshinobu Takeuchi
President and CEO6