Message from the President

JASDEC embarks on a new chapter following
the successful reform of Japan’s security
settlement system
As many of our readers will be aware, JASDEC haschanged significantly since launching its original depository and book-entry transfer business in 1991. We have
gradually increased our range of services to include
corporate bonds, investment trusts and foreign securities,
and at the same time transformed our functionality
with the introduction of the Pre-Settlement Matching
System (PSMS), DVP settlement services for nonexchange transaction deliveries (NETDs), and complete
dematerialization of stock certificates. Until now, ourobjective has been simple and clear: to pursue innovationin securities settlement systems. But now we must search
for new challenges, and create new objectives. And
while this search is in one sense a challenge in itself, wewill continue our efforts to optimize our systems as a
crucial element of social infrastructure that underpins theJapanese economy.
During the fiscal year ended March 31, 2010, weestablished the ISO20022 Subcommittee. The role ofthis committee is to consider the introduction of the nextgeneration message standard ISO20022 and the SWIFT
network, as part of our efforts to meet international
system standardization requirements. We are looking
closely at all areas of our business, both horizontally andvertically, with the aim of identifying specific initiatives
that can contribute to greater system efficiency.

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Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Globalization in our industry is continuing apace, andas the development of effective cross-border settlement
procedures progresses in the U.S. and Europe, similar
trends are beginning to appear in Asia. As one element of
our own efforts to address the globalization of securities
settlement, and to ensure that a Japanese viewpoint isrepresented in global discussions, we have been gatheringand sharing information through our participation in theconference of Central Securities Depositories (CSDs) andthe general meeting of Asia-Pacific Central Securities
Depository Group (ACG), and through attendance at
the Group of Experts (GoE) meetings of the Asian Bond
Markets Initiative (ABMI).
While supporting the rapidly growing Asian markets
overall, we aim to contribute to the development of theJapanese securities market. We have been strengthening
cooperative relations within the Asian region by expanding our information-sharing and cooperative alliances,including signing Memorandums of Understanding(MOU) with Mongolia, Vietnam, and Indonesia, launching regular discussions with current cooperative partners,
China and Korea, and accepting trainees from the CSD in
Thailand.

Looking ahead, for the year to March 2011 we intend
to continue smooth and reliable operation of our existing
systems and services, while acting on feedback fromusers relating to our system and management methods,
improving functionality and convenience, and optimizing
our infrastructure to meet the needs of a wide range ofmarket participants. We will also strengthen cooperation
with overseas CSDs to address the ongoing globalizationof settlement systems.
We remain keenly aware of our social responsibilities
as the central body for the provision of the securities
clearing and settlement infrastructure that underpins thecapital markets, and we are dedicated to providing ahighly secure, convenient and efficient services.
We very much appreciate your support over the past
year, and look forward to serving you in the future.

Yoshinobu Takeuchi
President & CEO
Japan Securities Depository Center, Inc.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 20103

Interview with the President‘JASDEC now
and in the future’

Yoshinobu Takeuchi
President & CEO

4

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Q1: Eighteen months have passed since the dematerialization of stock certificates in Japan. What key system issues
are you looking to address in the post-dematerialization environment?

Our top priority is to ensure the continued stable operation

although Japan’s settlement systems functioned effectively,of all our systems in the new dematerialized context. Having

centred on the Central Counterparty (CCP*2) system estab-said that, it is clear that the Central Securities Depositories

lished to avert risk and the Delivery versus Payment (DVP*3)(CSDs*1) of the main markets outside Japan provide a mul-system, the situation has now changed. Having witnessed

titude of services to deal with the complexity and sophistica-

the failure of major global financial institutions, we needtion of financial and securities transactions. In addition toto revise our assumptions that risk management could be

providing a framework to support book-entry transfers fora function of the mutual reliance between the international

settlement of simple securities transactions, they provide sys-

markets.

tems to support the book-entry transfer of securities associ-

At JASDEC, we aim to engage further in risk manage-

ated with various asset-backed financing structures, and havement by conducting feasibility studies on target areas,

systems aimed at optimizing the funds and securities usedclosely considering the operating environment and mar-for settlement. They implement international standards forket needs, and progressing issues to the next stage as

the sake of advancing the adoption of STP (Straight Throughappropriate.

Processing) as well as gathering and disseminating information on corporate actions and other key issues. So they offer
many services that we currently do not.
Given that the main players (the so-called ‘global players’) in all the systems operated by JASDEC command verylarge shares, we believe that reforms are needed to strengthen
and increase the competitiveness of our country’s settlement
systems by constantly keeping an eye on trends at overseas
CSDs.
There are lessons to be learned from the response by theclearing and settlement infrastructure agencies to the failureof Lehman Brothers in September 2008. Our belief is that,

Note 1: CSD
A Central Securities Depository is an organization that conducts administrative operations for account-based book-entry transfers related to the movement (and registration) of securities
corresponding to the delivery of spot stocks traded on securities exchanges. CSDs conduct safekeeping of such securities in a concentrated manner on behalf of individual investors in the
securities and thus help eliminate the ‘paper-crisis’ of back-office settlement by securities companies and other financial institutions.
Note 2: CCP
A Central Counterparty is an organization set up with the aim of reducing the risks of, and obstacles to, settlement by providing settlement guarantee services between the seller and thebuyer in securities transactions.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 20105

Q2: What specific measures are you are taking to forge stronger relationships with overseas CSDs?

In overseas markets, the movement toward smoother cross-Vietnam, in October and the main theme was ‘Promoting theborder settlement in Europe and the US continues to influence

Development of Cross-border Linkage between ACG Members.’

the securities markets of Asia. This has led to discussion on the

In addition to the discussion groups and presentations, further

formation or reorganization or a variety of bodies, character-consideration and debate was focussed on how to make the ACG

ized by the establishment of the International Central Securities

a more responsive and consistent organization. These interna-

Depository (ICSD*4) and the building of links between CSDs. As

tional meetings provide valuable opportunities for promoting in-globalization continues, information sharing between overseas

tercourse and coordination between CSDs, and we will continue

CSDs, CCPs and related international agencies has increased,

to play an active role in them.

and we think this issue is set to become even more important.

Moreover, in terms of relationships with individual CSDs,In May 2009, JASDEC took part in the 10th Conference of

we have formed MOUs with 12 overseas CSDs: DTCC in the

CSDs in Budapest, Hungary. We participated in panel discus-

USA, TDCC in Taiwan, KSD in Korea, SD&C in China, CDSL/

sions about the views of the CEOs of each region on future

NSDL in India, CDC in Pakistan, TSD in Thailand, MCDR inprospects for CSD and the regulatory problems faced from a

Egypt, MSCH&CD in Mongolia, VSD in Vietnam and KSEI in

CSD perspective, and we also hosted an ‘Interim Meeting,’Indonesia. On the basis of these memorandums, which are aimed

which we had proposed as a forum to allow the representatives

at furthering information exchange and mutual cooperation, weof regional CSDs to exchange views. Our focus here was to en-entered into fixed-term information exchange agreements withsure that a constant flow of information was maintained and that

Korea’s KSD and China’s SD&C last year and also accepted

discussions took place concerning topics based on a common

trainees from Thailand to facilitate the development of technicalawareness of the issues faced. Separately, JASDEC has acted as

support expertise in that country. In addition, we have constructedconvener of the Asia-Pacific Central Securities Depository

so-called CSD links with DTCC in the USA, Clearstream inGroup’s (ACG) ‘Information Exchange Task Force’ and hasGermany and KSD in Korea and are operating local custody fororganized cross-training seminars for administrative staff tooverseas securities along with other functions.

further interpersonal relationships and promote the exchange

JASDEC aims to contribute to the development of Japan’sof business-related information. The 11th such meeting was the

securities markets as well as provide support to the fast-growing

seminar held in July 2009, hosted by the Bangladesh CDBL in

securities markets of Asia, and we intend to continue deepening

Dhaka. The 13th General Meeting of ACG was held in Hanoi,

our relationships with all overseas organizations.

Note 3: DVP
Delivery versus Payment is the process of linking the delivery of securities and the payment of the consideration funds in a transaction (on the basis of mutually binding terms).
Note 4: ICSDAn International Central Securities Depository is a securities book-entry transfer organization conducting concentrated, network-based settlement of international transactions for securities from various countries. The ICSD itself does not conduct safekeeping of securities but operates book-entry transfers by linking together, either directly or indirectly, the CSDs ofvarious countries.

6

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Q3: Can you outline your approach to business continuity planning?

The fundamental aim of our Business Continuity Plan (BCP) is

Our BCP of course prioritizes the safety and security of ourto minimize the impact on all JASDEC’s participants and stake-staff in disaster situations, and we conduct regular training drills

holders in the settlement infrastructure if some kind of disasterbased on a number of disaster scenarios.

or compromising incident should occur. Our goal is to enable

The recent health scares over new strains of influenza viruses

business to continue to the greatest extent possible and to restore

have focused attention on this aspect of business continuity, andservices rapidly if disruption is unavoidable. Specific aspects ofwe were already well prepared with hygienic supplies and other

our business continuity structure include having back-up centre

necessary equipment when the global H1N1 virus became afacilities in remote locations to cover for any failure of the main

global concern, having incorporated this possibility into our BCP

centre, and a robust data centre that has built-in redundancy ofand implemented appropriate staff training. Looking ahead, we

core systems. We have clear BCP implementation, operation

intend to create an even more robust BCP structure, capable ofand emergency communication procedures, a disaster strategy

keeping JASDEC up and running in the widest possible range of

coordination headquarters on standby, and provisions in place

circumstances.

for the delegation of authority. Data at the main centre is backed
up remotely almost in real time, and the system is designed toenable a full switchover to the back-up system within about 90
minutes. We even have back-up office space to host our business
operations should the head office become unusable.

Switch within 90 minutes
Main Center

Backup Center

Dedicated line, ISDN, Wide Area Ethernet (Optical line)

Integrated
channel(Online real-timesystem,Channel file system)

File transfer

Integrated
Web terminal

Participant
information web
terminal

Japan Securities
Japan Government
Clearing Corporation
Bond Clearing(JSCC)
Corporation (JGBCC)

SWIFTnet

Bank of Japan
Financial Network
System (BOJ-NET)J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 20107

Corp or a t e G ove r na nc e

Our Basic Policy on Corporate Governance
JASDEC fully recognizes its social obligation as the central bodyfor the provision of the infrastructure for securities clearing andsettlement, which is an important base of the capital markets.
Accordingly, JASDEC has determined a basic management policyof providing a highly secure, convenient and efficient service. To
this end, we ensure that our system meets the needs of users,
including investors, issuing companies and market intermediaries.

We a l s o m a k e s u r e t h a t o u r a c t i v i t i e s p r o m o t e c o r p o r a t etransparency and that our business operates with fairness andaccountability, in line with the public needs of our function. Ourcommitment on corporate governance is to earn and maintain as o l i d r e p u t a t i o n f o r r e l i a b i l i t y a s t h e c e n t r a l o rg a n i z a t i o n
responsible for creating and operating the infrastructure forsecurities clearing and settlement in Japan.

Overview of implementation of corporate governance practices
Framework for management structure and corporate governance to exercise business judgments, manage operations and implement audits◆ Corporate Structure
Board of Directors

Business Operations Committee

The Board of Directors is composed of 19 members, and is basicallystructured to achieve a balanced approach to business with useroriented views, as well as business-oriented ideas on maintaining
operational neutrality and fairness. To fully reflect the opinions ofusers in our operations, nine of the 14 external directors are selectedfrom JASDEC participants. The remaining five external directors
belong to an issuing company and a related organization, or to theJapan Securities Dealers’ Association, academia and the legal
profession, enabling the Board to conduct vigorous discussions
from a broad perspective in consideration of the public good. In
principle, the Board meets once a month to decide basic
management policies and discuss other key issues.

Separately from the Board of Directors and the Board of Auditors,
JASDEC has set up the Business Operational Committee to fullyreflect the needs of system users in our operations. The Committee
examines important issues related to the business of JASDEC, basedon queries from the Board of Directors, and has ten subcommittees
under its control. Each subcommittee is responsible for a specificsegment of operations, and is composed of members who are
actually involved in the field. JASDEC applies the opinions provided
by each subcommittee to various operational issues. JASDEC postssummaries of discussions and other information by the committees
on its website to foster greater operational transparency.
As the provider of key infrastructure elements for the securities
market, we are required to operate the system with an extremely
high level of fairness and accountability. To achieve this end, we
have established the Advisory Committee, which is composed ofexperts in financial and securities systems. The committee advises
JASDEC’s president from a broad perspective about wide-ranging
issues relating to securities clearing and settlement system
operations.
JASDEC DVP Clearing Corporation (JDCC), JASDEC’s
wholly-owned subsidiary, operates in accordance with a businessphilosophy similar to that of JASDEC. JDCC has also set up acommittee for reviewing important issues regarding DVP operations
to reflect the needs of users of the DVP settlement system for nonexchange transaction deliveries (NETDs). In addition, JASDEC’s
Board of Directors receives reports regarding issues decided by
JDCC’s Board of Directors to ensure consistency in the activities of
the two companies.
An outline of JASDEC’s management structure and corporate
governance systems is presented on the next page.

Board of Auditors
JASDEC employs the corporate auditor system for corporate
governance instead of the committee system, as provided for in the
Companies Act. The Board of Auditors is made up of three auditors,
two of whom are selected from eligible participants (one each froma securities company and a bank) and all three (including an auditor
who is serving on a full-time basis) are external auditors.
In principle, the Board of Auditors holds a regular meeting eachmonth. In line with auditing plans and the basic policies establishedby the Board of Auditors, auditors attend important meetings,
including those of the Board of Directors, and assess the status ofservices and assets to perform audits of directors. To ensure that
audits are effective, auditors work closely with directors andconduct regular exchanges of opinions, including through meetings
with the representative directors.

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Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Overview of JASDEC’s Management Structure and Corporate Governance Framework
General Shareholders’ Meeting
Appointments/Dismissals

Appointments/Dismissals

Appointments/Dismissals

Board of Auditors

Board of Directors

Auditing(Three including one auditor
serving on a full-time basis)
Auditing

Reporting(Five full-time, fourteen external)

Subcommittees
Consultation

Opinions, reports

Appointment/
Supervision

Auditing

Auditors Offce

Business Operations Committee

President & CEO

Accounting auditors
Risk Management Committee
Monitoring

Conveying
information

Compliance Office

Stock
Bond with share option
ETF
Foreign stock
Corporate bondCP
Investment trust
PSMS (Domestic Trade)
PSMS (Non-Residents’ Trade)ISO 20022

Internal audit

Departments◆ Risk Management System
JASDEC has set up the Risk Management Committee, chaired by
the president. It takes measures to strengthen overall risk
management, and regularly monitors internal control systems forvarious risks.
◆ Internal Audits, Corporate Audits, and Accounting Audits
JASDEC has established the Compliance Office, and internal
auditing accomplished primarily through onsite surveys based on
the audit plan, to assess the effectiveness of operational procedures.
For corporate audits, an auditor serving on a full-time basis
routinely attends important meetings, such as those of the Board of
Directors and the Executive Committee (comprised of managing
directors serving on a full-time basis) and examines circulars
intended to obtain approvals of decisions by persons in charge. The
full-time auditor performs audits in accordance with the auditing
plans established by the Board of Auditors, and provides the othercorporate auditors with updates on the progress of auditing activities
at the meeting of corporate auditors, which takes place monthly.
Auditors serving on a part-time basis attend meetings of theBoard of Directors and monitor the directors’ execution of theirduties. They also assess the legality of business operations byreviewing reports on auditing activities from the full-time auditor.
JASDEC assigns staff specifically to assist corporate auditors intheir audits.
Corporate auditors perform audits in close cooperation with theCompany’s accounting auditors. This includes hearing reports fromthe accounting auditors on auditing plans and the results of theaudits.
JASDEC has two certified public accountants who perform
accounting audits for JASDEC in the capacity of accounting auditor
under the Companies Act: Yohei Kishi and Naoto Saito (designatedAdviceAdvisory Committee

members of a limited liability partnership under Article 34,
Paragraph 10-5 of the Certified Public Accountants Law).
They are employed by Ernst & Young ShinNihon LLC, amember firm of Ernst & Young Global, and execute accounting
audits, including checks of financial documents, based on the
Companies Act.
It is our understanding that no items of particular regard, such asserious irregularities or instances of illegal behavior, have beenfound through the execution of accounting audits.

◆ Directors’ and Corporate Auditors’ Limit of Liability
We expect directors and corporate auditors to fully demonstrate theskills involved in successfully executing their responsibilities.
Additionally, to retain top-level professionals, we have set limits on
liability for damages incurred by directors and corporate auditors.
◆ Resolutions on Election/Dismissal of Directors
The election of directors by resolution at the general meeting ofshareholders is conducted in the presence of shareholders
representing no less than one-third of voting rights held by eligible
shareholders, and directors are elected by a majority vote of said
shareholders.
The dismissal of directors by resolution at a general meeting ofshareholders is conducted in the presence of shareholders
representing no less than one-third of voting rights held by eligible
shareholders, and directors are dismissed on a vote of no less than
two-thirds of voting rights held by said shareholders.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 20109

Boar d Me mbe r s a nd Au d i to rs (A s o f J ul y 2010)

Board Members: 19
Auditors: 3

10

President & CEO

Senior Managing Director

Yoshinobu Takeuchi

Shoji Murata

President, JASDEC DVP Clearing
Corporation

Managing Director, JASDEC DVP
Clearing Corporation

Managing Director

Managing Director

Managing Director

Seikichi Ihara

Yoshinori Seyama

Munetaka Saito

Managing Director,
JASDEC DVP Clearing
Corporation

Managing Director,
JASDEC DVP Clearing
Corporation
Director, Tosho System Service
Co., Ltd.

Managing Director,
JASDEC DVP Clearing
Corporation

Director

Director

Director

Yoshijiro Adachi

Moriyuki Iwanaga

Tetsuya Kawagishi

Managing Executive Officer,
Mizuho Trust & Banking
Co., Ltd.

Executive Officer,
Tokyo Stock Exchange, Inc.

Managing Director,
Mizuho Corporate Bank, Ltd.

Director

Director

Director

Yukihiro Kitano

Masakazu Kubota

Ritsuro Koza

Executive Officer & Deputy
Division President of
Fiduciary Business Division,
The Sumitomo Trust & Banking
Co., Ltd.

Managing Director,
Japan Business Federation

Senior Managing Director,
Nomura Securities Co., Ltd.

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Director

Director

Masahiko Koyanagi

Masaru Takei

Yasushi Tachihara

Senior Executive Officer,
Japan Securities Dealers
Association

Executive Vice President,
Tokyo Electric Power
Company

Director,
Nikko Cordial Securities Inc.

Director

Director

Director

Takehiko Nemoto

Kunihisa Hama

Noriko Hill

Managing Director,
Chief Executive Information
Systems & Operations,
The Bank of Tokyo-Mitsubishi
UFJ, Ltd.

LawyerDirector, Head of Operations,Citigroup Global Markets JapanInc.

Director

DirectorStanding Auditor

Shigeyuki Maeda

Kenichi Miki

Tetsuo Oguchi

Professor of Law,
Professional School of Law(Law school),
Professional Course in Law
Gakushuin University

Managing Director,
Daiwa Securities Co. Ltd.

Auditor, JASDEC DVP Clearing
Corporation
Auditor, Tosho System Service
Co., Ltd.

Auditor

AuditorJun Ohta

Takashi Matsunaga

Director and General Manager,
Sumitomo Mitsui Banking
Corporation

Director and Senior Managing
Executive Officer,
Tokai Tokyo Securities
Co., Ltd.

DirectorJ a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201011

Business Overview

01

Book-Entry Transfer
System for Stocks, etc.

Total dematerialization began on January 1, 2009
Under the new dematerialized Book-entry Transfer System for
Stocks, etc., stock certificates issued by all Japanese companies
listed on Japanese stock exchanges were abolished and became
invalid. They have been replaced by electronic records registeredand managed by computer systems within accounts opened at
JASDEC or account management institutions (AMIs) such as
securities companies and banks. Instead of stock certificates,
records in computer systems represent share ownership. Transferof shareholders’ rights is also processed electronically basedon the records in the accounts. This dematerialization systemapplies not only to stock certificates, but also to bonds with shareoptions, share options, investment units of real estate investment
trusts (REIT), preferred equity investment of financial institutions established by cooperative associations, and Exchange
Traded Funds (ETFs).
As of March 2010, the total number of issues handled was
3,906, including 3,727 share issues, 50 bonds with share options,
11 share options, 40 investment units, one preferred share issue,
and 77 ETFs. The number of companies participating in the new
system, including JASDEC participants, indirect AMIs and fundsettlement corporations, was 412. Under the system, foreign
financial institutions designated by competent ministers can also
take part in the system. As of March 2010, 27 foreign financial
institutions were participating as indirect AMIs.

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Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

The Book-Entry Transfer System for Stocks, etc.
Issuing company
Shareholder registry
General Shareholders
Notification

JASDEC
Transfer Book-entry transfer Transfer
Account
Account
Book
Book
Direct AccountManagement Institution(securities companies, banks, etc.)

Direct AccountManagement Institution(securities companies, banks, etc.)

Indirect AccountManagement Institution(securities companies, banks, etc.)

Participants(shareholders)Participants(shareholders)Participants(shareholders)JASDEC participants and indirect AMIs (as of March 31, 2010)
JASDEC Participants by Category
Life & non-life
insurance companies
2 (1%)

Indirect AMIs by Category

Securities finance companies
3 (1%)
Stock exchanges, etc.
12 (5%)

Stock exchanges, etc.
1 (2%)
Banks, etc.
18 (27%)Banks, etc.
25 (10%)

Total

Total

245

66

Securities companies, etc.
203 (83%)

companies

Foreign indirect
AMIs
27 (41%)companies

Securities
companies, etc.
20 (30%)Note: “Banks, etc.” include The Norinchukin Bank, Tokyo Shoken Shinyou Kumiai, and Tokyo Bankers Association.
“Stock exchanges, etc.” include Japan Securities Dealers Association, Japan Securities Clearing Corporation, JASDEC DVP Clearing Corporation, three securities agents and three tanshi companies(which offer short-term credit brokerage services)

Stock account balance and number of issues
Balance in custody (end of FY or month)
Number of issues (end of FY or month)(Billion shares)

383.8

395.2 394.8 383.9

450

411.5 411.3 412.9
393.4 393.4 395.2 398.5 398.9 400.2 402.2 402.9 410.8
382.2 381.5 380.6 379.5 378.4 377.0 375.7
375.4 374.5
373.8 373.2 372.7

394.8

350
0

412.9
372.7

281.9 303.3
(FY)

320.0

2005 2006 2007 2008 2009

(Issues)

4,000
3,000

2009.4

5

6

7

8

9

10

11

12

2010.12

30*Figures include the Depository and Book-entry Transfer System for Stock Certificates.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201013

Bus ine s s O v er v i ew 01
Bo o k- En tr y T r a n sf er Sy stem f o r Sto c k s, etc .

New system also heralds other enhancements to user convenience
Since its introduction in January 2009, the new dematerialized
Book-entry Transfer System for Stocks, etc. has been operatingsmoothly, with no major problems. In April 2009, JASDEC organized three subcommittees to examine further improvement of
the new system: the Subcommittee for Stocks, the Subcommittee
for Bonds with Share Options, and the Subcommittee for ETFs.
These committees have promoted a number of initiatives.
As well as progressively responding to requests fromparticipants made prior to the introduction of the new system,
JASDEC has introduced additional transfer options as part ofits fail-safe measures, in accordance with the abolition of T+4
settlement of stocks, etc. on the financial instruments exchange.
For the issue of share options, we have upgraded the overallsystem, including improving the standard completion time for
new registration, developing a business scheme for exercising
share option rights, and taking steps to shorten the processing
time prior to the date of rights allocations.

For ETFs, we improved business process efficiency, reduced
settlement risk, reviewed the new registration process at the point
where trust is set, and reviewed the process involved with theexchange of stock basket investments such as beneficial rights ofinvestment trust and trust assets.
For Japanese Depositary Receipts (JDRs) and domestic
spot commodity ETFs, we investigated business processes andbegan preparation for the introduction of the dematerialized
Book-entry Transfer System in July 2010.
We have taken a number of other steps to ensure smootherprocessing, including developing a special system for accountnotifications in cases of new listings of large stock issues withparticularly high shareholder numbers, and implementing aliquidation service in connection with the termination of theprevious depository and book-entry transfer system.
We will continue our efforts to communicate effectively with
relevant parties, aiming to ensure stable operation while meetingthe needs of the market for convenience and user-friendliness.

Bond with Share Option account balance and number of issues
Balance in custody (end of FY or month)(Billion yen)

(Issues)Number of issues (end of FY or month)

1,540.5
1,408.1 1,154.5 1,211.5
146
117
1,689.2
96
70

3,000
2,000

200

1,235.7 1,235.7 1,211.5

150
50

62

2005 2006 2007 2008 20092009.41,000
01,165.2 1,149.1 1,148.9 1,132.6 1,125.2 1,084.1 1,080.8 1,169.7 1,241.7

62

59

59

60

59

50

51

49

50

48

48

100
50

(FY)

5

6

7

8

9

10

11

12

2010.1

2

3

0

73

75

77

77

(Issues)*Figures include the Depository and Book-entry Transfer System for Stock Certificates.

Exchange Traded Fund (ETF) account balance and number of issues
Account unit balance (end of FY or month)(Billion yen)

Number of issues (end of FY or month)

400

200.9

300
162.7

200

14

100
0

(FY)

192.7

38

77

67

66
187.3

230.6

180.1

68

70

70

71

71

72

80
230.6

179.4

174.7

174.7

169.5

167.0

168.7 172.5

169.8

174.4

174.9

2005 2006 2007 2008 2009

60
40

14

20
2009.4*Figures include the Depository and Book-entry Transfer System for Stock Certificates.

14

68

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

5

6

7

8

9

10

11

12

2010.12

30

Book-entry transfers
Stock-exchange transactions
Non-exchange transaction deliveries (NETDs)(Billion shares)

632.4

1,400
900

727.6 1,099.8 1,388.2 (Billion shares)
369.0
638.0
150
378.0 364.2
373.9

421.1

35.6

50

300
2005 2006 2007 2008 2009

(FY)

131.8

127.7
108.3 104.8

98.8

118.6

102.7

98.9

94.2

100

600
0

143.5

132.2

126.2

0

29.0

(FY) 2009.4

37.6

33.6

30.5

27.0

30.0

26.7

32.8

6

7

8

9

10

11

12

5

30.0

26.0

2010.1

2

29.7

3*Figures include the Depository and Book-entry Transfer System for Stock Certificates.

General shareholder notifications
Number of general shareholder notifications
Number of issues(Billion shares/Issues)

Total shareholders(Notifications, in thousands)

946.3 127,240

1,000

361.1

400

551
20.8

0

(FY) 2008

369.7

2.4

2009

2009.4130,000

2,846

11,689

939

1,107
761
127 204

4,094

50

12,099

2,894

9,260

300
100

45,64645,416

6

7

80.5
1,244
1,164
213
145
5.3
8.7

323
10.4

7.9

5.4

5

1,482 2,667
181

78.4

46,000

899

8

9

10

11

12

10.6
1,135 2,825
175
314
5.5

2010.1

2

13,000
5,000
2,500
0

3

*Figures are as of day of notification to issuers.
*FY2008 represents figures between January and March 2009.

Individual shareholder notifications Information requests
Number of notices(Total record) notifications(Partial record) notifications

Number of issues

2,656(Notifications)

3,000(Issues)448(Notifications)

40(FY) 20082009(Issues)

212
79

220

356

30

* Requests for information (total record) refer to requests fordata recorded on book-entry transfer registries of either
JASDEC participants (direct AMIs) or indirect AMIs where
shareholders in question have opened accounts.
Requests for information (partial record) refer to requests
for data recorded solely on book-entry registries of
JASDEC participants where shareholders in question haveopened accounts.
* FY2008 represents figures between January and March
2009.

16

200

200
0

27

400

80

72

1,155

1,200

500

359

400

(Total record) number of issues(Partial record) number of issues

0

0

20

131

100

10

45
(FY)

2008

0

2009

*FY2008 represents figures between January and March 2009.

Number of Shareholders (Data for Shareholder Notifications)(Thousand notifications)

17,00016,287

16,00014,935

14,951

15,002

15,061

15,092

15,216

15,401

14,941

2009.4

5

6

7

8

9

10

15,601

15,826

15,967

16,02012

2010.1

2

16,287

15,000
0

(FY)

2008

2009

11

3

*Number of shareholders (data for shareholder notifications) is comprised of participant information notified by AMIs.
*Figures are as of end of fiscal year or month.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201015

Business Overview

02

Book-Entry Transfer
System forCommercial Paper
and Corporate Bonds

Supporting seamless and secure CP and corporate bond settlement
In March 2003 JASDEC launched the Book-Entry Transfer
System for Short-Term Corporate Bonds (dematerialized CP),the first completely dematerialized book-entry transfer system
in Japan, and in January 2006 this was extended to include
corporate bonds. In each system, custody procedures—issuance,transfer (trading), and redemption—are conducted based on thebalance recorded in the transfer account books. In addition, alltransactions related to issuance, transfer and redemption of CP
and corporate bonds can be processed by the DVP settlementlink with the Bank of Japan’s Financial Network System.
By linking the book-entry transfer system with our PSMS
(Pre-Settlement Matching System; see page 30), JASDEC
has realized straight-through processing (STP), which fully
automates the entire process, including trade matching and fund/securities settlement.

16

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

As a means of managing participation in JASDEC’s bookentry transfer system, we set up a multilayer holding structure
for account management institutions (AMIs) to address thediverse needs of participating investors and financial institutions.
Direct AMIs can open an account directly at JASDEC, andindirect participation is possible by opening an account at an
AMI. Another option for indirect participation is through the
opening of an account at an indirect AMI. Principal and interest
payments to bondholders are made by paying agents via AMIs,
in accordance with the multilayered structure.

Flowchart for Book-Entry Transfer for CP/Corporate Bonds (in the case of DVP)

Trade

Seller

Buyer

JASDEC
Trade matching

Trade matching

Affirmation

Notice of settlement
matching status

Settlement
parties

Notice of settlement
status(Awaiting fundsettlement)

Settlement matching
Pre-Settlement Matching
SystemSecurities transfers
Book-entry Transfer System
for CP/Corporate Bonds

Notice of transfer
completion

Notice of settlement
status(Awaiting fundsettlement)

Payment instruction
Payment request

Bank of Japan
Notice of receipt
completion

Settlement
parties

Notice of transfer
completion
Notice of receipt
completion

Fund
settlementcompany

Notice of settlement
matching status

Payment instruction

Fund
settlementcompanyJ a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201017

Bus ine s s O v er v i ew 02
Bo o k- En tr y T r a n sf er Sy stem f o r C o m mer c i a l Pa p er

Upgrading settlement statistics data to enhance CP transaction transparency
Commercial paper (CP) currently refers to short-term bonds ina dematerialized form issued by corporate entities as a meansof procuring short-term funds. As CP was previously drawn
as a promissory note in a physical form, risks involved in thetransfer and deposit of notes for large amounts were not always
avoidable, and a documentary stamp tax was also payable.
Accordingly, demand developed for an electronic book-entry
system that would eliminate the need for paper certificates. The
result was the creation of our first fully electronic book-entry
transfer system for dematerialized CP. Since the launch of thesystem seven years ago, almost all CP issued in Japan has beenhandled by this system.
In fiscal 2009, there was an easing in the impact of the world
financial crisis triggered by the bankruptcies of financial institutions in the previous year, and the fund-raising environment
recovered as a result of measures taken by the Bank of Japan andother strategies. However, there was also a shift toward longerterm financing and an associated sharp decline in the issuance of
CP. As of March 31, 2010, the total CP account balance in thesystem was ¥14 trillion on 4,730 issues, compared to the recordbalance of ¥23 trillion recorded at the end of FY2007.

To improve market transparency, JASDEC actively discloses
information on settlement figures. In January 2008, we began
issuing weekly reports on the CP balance by issuer category.
Moreover, since October 1, 2009, JASDEC’s public website has
shown daily, weekly and monthly reports on average issuance
rates of CP, classified by maturity, industry and credit rating,in line with an agreement with the Bank of Japan. These newservices are designed to promote a fairer and more transparent
CP market in Japan.

Participants of Book-Entry Transfer for CP (as of the end of March 2010)

Issuers 490 companies

Issuing/
paying agents

JASDEC

21

Fund settlement corporations

18

JASDEC
Participants(Direct AMIs)

Indirect
AMIs

71

11

148

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

CP holders

CP Account balance and number of issues
Account balance (end of FY or month)
Number of issues (end of FY or month)(Trillion yen)

30

5,848

6,129

(Issues)

7,000

5,759 5,869
4,730

20

18.6

18.9

20.2

5,546 5,525 5,400 5,366
5,214 5,186 5,181 5,043 5,349 5,207 5,010

4,730

6,000
5,000

18.7

17.6

17.8

17.5

17.5

17.0

15.5

14.1

16.3

15.7

16.7

16.2

4,000

15.8
14.1

3,000
10

2,000
1,000

0

(FY)

2005 2006 2007 2008 20092009.4

5

6

7

8

9

10

11

12 2010.1203Issuance, transfer and redemption of CP (daily average)
Redemptions
Total: over
¥5 trillion

Transfers(Trillion yen)Issuance

6.0

0.7

0.6

0.7

4.0

2.0

0.4

0.5

0.5

0.4

0.4

0.4

0.5

0.4

0.4

0.4

0.5

3.9

3.9

4.0

4.0

0.4

0.4

0.5
0.4

0.5
3.7

4.1

4.3

0.7

0.7

0.6

4.2

4.6

4.5

4.4

4.5

4.2

4.0

3.7

4.0

2.5

0.6

0

Transfers: ¥4.2 trillion(Annual total: over ¥1,000 trillion)(FY) 2005

0.4

2006 2007 2008 2009

0.5

0.4

2009.4

5

0.5

6

0.4

7

0.4

8

0.4

9

0.4

10

0.4

11

12 2010.1

0.4

2

0.4

3

Continually adapting to CP market needs
The settlement amount of issuance, transfer, and redemptionof CP handled by JASDEC’s book-entry transfer system may
exceed ¥5 trillion per day, and in combination with month-end
settlements of more than ¥10 trillion this means that JASDEC
settlements surpass the trading value per day at the Tokyo
Stock Exchange. In fiscal 2009, the aggregate issuance amountdeclined but the aggregate settlement remained above the ¥1,000
trillion mark it had passed for the first time in fiscal 2008, settinga record for active trading since the start of the system.

This huge settlement amount reflects the importance ofCP, which plays a crucial role in fund procurement by business
entities in Japan. As the sole provider of infrastructure for thesettlement of securities transactions, JASDEC fully recognizes
its responsibility to secure a high level of reliability in the bookentry transfer system. As the market for CP transactions evolves,
we will continue to make every effort to ensure that our systemremains responsive, reliable and up-to-date.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201019

Bus ine s s O v er v i ew 02
Bo o k- En tr y T r a n sf er Sy stem f o r C o r p o r a te B o n d sExpanding functions to increase convenience and efficiency
JASDEC’s Book-entry Transfer System for Corporate Bonds
handles various types of bonds, both through public offeringsand private placements. These include corporate bonds, municipal bonds, bonds issued by investment firms, specified bonds
issued by special purpose companies (SPCs) and others, bondsof special corporations such as quasi-government and local
government bodies, and Samurai bonds (yen-denominated bonds
issued in the Japanese bond market by non-Japanese entities orforeign governments). In fiscal 2009 there was a rush to issue
bonds, in reaction to the difficulties companies faced raisingfinance in the previous fiscal year. In particular, there was a shift
from short-term to long-term financing and large volumes ofissuance of corporate bonds with strong credit ratings, as issuers
sought stable financing. There was also active issuance of corporate bonds aimed at individual investors, who were looking foropportunities to make an appropriate return in a low-interest-rateenvironment. Consequently, in mid-March, the highest balanceof bonds since the start of the Book-Entry Transfer System for
Corporate Bonds was recorded, at ¥247 trillion. As of the end of
March 2010, the number of bonds using the system was 71,202

issues, and the issue balance stood at ¥245 trillion. A new type ofbook-entry bond also emerged in the market: trust bonds, which
are issued by trustees. Starting in June 2008, a number of cases
began to emerge in which obligations relating to public offering
bonds went into default, reflecting the business downturn. To
ensure the smooth progress of civil rehabilitation proceedings inthese cases, JASDEC contacted the parties concerned at an earlystage, and worked with them to ensure optimal information flow
and understanding.
As part of measures to improve convenience for system
participants, we have revised the limits on transfers made on
issuance date, expanded the scope of application for certification
documentation in line with Article 86, Item 3 of the Act on BookEntry Transfer of Company Bonds, Shares, etc., and enabled
the issuance and redemption of securities products based on
non-cash underlying assets.

Participants of Book-Entry Transfer for Corporate Bonds (as of the end of March 2010)

Issuers 2,472 companies and organizations*

Issuing/
paying agents

JASDECJASDEC
Participants(Direct AMIs)

Indirect
AMIs

91

408

207

Fund settlement corporations

148*Issuers do not include unlisted companies, etc. that issued private offering bonds only.

20

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Bond holders

Outstanding balance of corporate bonds and number of issues
Outstanding balance (end of FY or month)(Trillion yen)

300

Number of issues (end of FY or month)

65,456(Issues)

72,817 73,298 71,202 73,001 72,402 71,900 71,889 71,738 72,126 71,943 71,768 71,776 71,774 71,664
71,202
241.0

240.2

245.5

240.0

243.7

243.1

241.4

240.0

245.7

244.9

244.5

243.7

247.0

246.3

80,000245.5

60,000200

181.3

40,000100
20,0000(FY) 2006

2007

2008

2009 2009.4

5

6

7

8

9

10

11

12

2010.12

30Promoting investments in Japanese bonds by non-residents
Investments in domestic securities by non-residents alreadyaccount for a significant proportion of the total investment inJapanese securities market. To raise the position of Japan’s
capital markets in the world, however, market functions must
be upgraded so as to attract more foreign investors. In January
2008, a system for tax exemption for non-residents on theinterest accrued on municipal bonds was inaugurated, followinga system similar to that used for Book-entry Transfer of Japanese
government bonds. Moreover, since June 1, 2010, in responseto the inclusion of bonds other than municipals in the scopeof tax exemptions for non-residents, we have begun to takeappropriate measures to promote the globalization of Japanese
capital markets and a greater degree of participation in them byoverseas investors.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201021

Business Overview

03

Book-Entry Transfer
System for
Investment Trusts

A faster, safer approach to investment trust administration
The Book-entry Transfer System for Investment Trusts is a computer system for managing beneficial rights of investment trusts.
Under the system, beneficial certificates are dematerialized,
and beneficial rights are recorded electronically in the transfer
account books. This facilitates fast and efficient administrationof beneficial rights, reducing issuance and custodial costs
associated with physical certificates and decreasing the risk ofloss, theft or fraud.
The system covers investment trusts managed by trustors(hereinafter, simply called “investment trusts”). These investment trusts are contract-type investment trusts with the involvement of three parties — a trustor, a trustee and a beneficiary
who is an investor in the investment trust. (Exchange tradedfunds (ETFs) and investment trusts of the non-trustor instruction
type are outside the scope of the system.) Since the system waslaunched on January 4, 2007, all trustors and trustees involved ininvestment trusts have participated in the system, and thus almost
all investment trusts issued in Japan have been dematerialized.

22

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

The participants are diverse, consisting of not only securities
companies but also entities such as banks, insurance companies,
shinkin banks, credit cooperatives, agricultural cooperatives,and investment trust management companies engaged in direct
marketing. The total number of AMIs and JASDEC participants
was 897 companies as of March 31, 2010.
The Book-entry Transfer System for Investment Trusts
enables direct or indirect connection between trustors, trustees,account management institutions, and JASDEC. This ensures
greater security, accuracy, and speed of processing throughthe electronic management of the accounts of investment trust
beneficiaries.

Basic Model of Book-entry Transfer System for Investment Trusts
Investors

Flow of funds
Flow of data

(beneficiary)

Private vendor financial network systems/fax

Issuers

Fund
distributors(trustors)(securities companies,
banks,
insurance companies,
etc.)

AMIs

Fund settlement
corporations（BOJ NET Fund
settlement
corporations）

JASDECBank of Japan
Japanese Bankers
Association financial
network system

Trustees

Fund settlement
corporations（BOJ NET Fund
settlement
corporations）

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201023

Bus ine s s O v er v i ew 03
Bo o k - En tr y T r a n sf er Sy stem f o r I n v estm en t T r u sts

Strong support from users
The total number of investment trusts handled by JASDEC as
of March 31, 2010 was 6,297 trusts, representing a year-on-yearincrease of 391 trusts and comprising 3,647 publicly-offeredand 2,650 privately-placed investment trusts. The number oftransactions undertaken for both new registrations (purchases)
and deletions (cancellations and redemptions) achieved newrecord highs, with the number of new registrations below that ofdeletions. On the other hand, the principal value of new registrations exceeded that of deletions, the reverse of the situation in
fiscal 2008. As a result, the outstanding balance at the end of
fiscal 2009 had increased ¥4 trillion year on year to ¥110 trillion,
comprising ¥78 trillion in publicly-offered and ¥31 trillion in
privately-placed investment trusts.

Fund settlement systems in the Book-entry Transfer System
for Investment Trusts include DVP settlement (using the Bank ofJapan financial network system) and non-DVP settlement (using
the Japanese Bankers Association financial network system foronline fund settlement between financial institutions). The useof DVP settlement, which involves less settlement risk, hasbeen increasing steadily among system users. In fiscal 2009, theproportion of settlements using DVP was 26% by number oftransactions and 61% by principal value.

Book-entry Transfer System for Investment Trusts – account balance and number of Issues
Account balance (end of FY or month)(Trillion yen)

Number of issues (end of FY or month)

200
5,603

150

105.8

(Issues)

5,906

6,297

5,957

5,968

5,978

6,041

105.5

110.2

105.7

106.2

106.5

107.3

6,057

6,110

6,146

6,199

6,244

6,236

6,280

6,297 8,000

108.1

108.5

109.0

109.2

109.4

109.8

110.2

110.2

6,000

100

4,000

50

2,000

0 (FY) 20072008
2009 2009.4
5
Account balance amounts are the sum of principal at the end of each period.

6

7

8

9

10

11

12

2010.12

3

0

Purchase and Cancellation/Redemption Transactions (Daily average)
Purchases(Transactions)

Cancellations/Redemptions

5,275

8,000
6,000

4,972

5,131

4,769

5,423

5,118

5,004

4,679
4,625

5,364

5,124

5,047

5,314

5

6

4,814
5,135
5,002

5,272

5,618

5,660

5,084

5,160

5,046

9

10

11

5,059

5,940
5,415
6,292
5,892
5,484
5,324
5,145

4,000
2,000
0

(FY) 2007

2008

2009

2009.47

8

12

2010.1

2

3

Principal Values of Investment Trusts for Purchases and Cancellations/Redemptions (Daily average)
Purchases(Billion yen)

Redemptions

600
400

280.7
289.1
274.4
302.3
314.2
249.7
303.7
275.3
301.0
278.9
248.1
282.8
261.4
273.8
334.0
313.5
314.4
314.0
309.5
305.7
301.9
305.2
300.5
285.7
284.4
284.4
270.5
260.3

312.5
364.8

200
0

24

(FY) 2007

2008

2009

2009.4

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

5

6

7

8

9

10

11

12

2010.1

2

3

Participants in Book-entry Transfer System for Investment Trusts(as of March 31, 2010: Numbers in parenthesis are for the previous year.)

Trustees 12 (12)Issuers 87(85)JASDECBOJ Net Fund settlement
corporations 46 (45)JASDEC Participants 187(191)
Designated fund distributors 382 (386)Indirect AMIs 710 (706)Indirect AMIs

Investment
trust management
3companies

Life and non-life
insurance companies

Financial institutions
for small businesses*

Securities
companies
92

Others** 8Others** 1
Total

710
100

Life and non-life
insurance companies
6

9

11

Banks

JASDEC Participants

Financial
institutions
for smallbusinesses*
503

Investment
trust
managementcompanies 17
Banks

38

Total

187
Securities
companies
109*Shinkin banks, Credit cooperatives, Agricultural cooperatives, Labor banks, etc.
**Others: Securities agents, securities exchanges, CCPs, call loan dealers, etc.

Dedicated to ongoing improvement
In response to requests made by system participants in aprevious survey, we have made particular efforts in fiscal 2009
to improve the functioning of the Book-entry Transfer System
for Investment Trusts. JASDEC is currently analyzing the resultsof a survey that focused on key matters such as the introductionof DVP settlement for redemptions and simplification of theprocedures for settlement for transfer between fund distributors,
and through fiscal 2010 and beyond will continue efforts tooptimize the functionality and user-friendliness of the system.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201025

Business Overview

04

DVP Settlement
System for NETDs

Delivering safe, secure securities transactions
The Non-Exchange Transaction Deliveries (NETDs) in the DVP
settlement system for NETDs refer to Book-entry Transfers for
Stocks, etc., carried out by JASDEC for non-exchange transactions, and the majority of them consist of such trades of domestic
and overseas institutional investors buying and selling Japanesestocks, etc., through the DVP settlement system for NETDs.
Previously, the delivery of the securities and the paymentof the settlement amounts for non-exchange transactions havemostly been processed separately, so the transactions have been
exposed to the risk (principal risk) that settlement payments may
not be made even though the securities have been delivered. The
use of the DVP settlement system for NETDs links the deliveryof the securities and the payment of the settlement amounts
through the system, diminishing risk and making it possible forsecurities settlements to be conducted safely and reliably. To
further support reliability, the entire administrative process ishandled automatically and electronically using Straight ThroughProcessing (STP).

26

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Since May 2004, the DVP settlement system for NETDs
has been administered by JASDEC’s wholly owned subsidiary,
JASDEC DVP Clearing Corporation (JDCC). JASDEC participants applying to make use of the system are examined fortheir suitability in terms of financial condition, organizational
structure and other such factors before receiving authorizationfrom JDCC.
In order to ensure stringent risk management of all participants, JDCC secures collateral in advance, comprising assets(assurance assets) with the appraisal value that exceeds thetotal liabilities payable by each participant, and sets an upper
limit to the value of the liabilities payable (the net debit cap) in
proportion to the trading status of each participant.
Settlement within the DVP settlement system for NETDs
is conducted in accordance with the so-called Gross = Net
DVP model system by which securities pass through the JDCC
account within JASDEC and the transfer of the securities fromthe seller’s into the buyer’s account is conducted separately foreach transaction (gross). Meanwhile, the settlement amounts
pass through the JDCC’s account within the BOJ-NET funds
transfer system and settlement is concluded by the appropriate
net calculated amount of funds being paid on each settlement
date (net).

Reducing principal risk by using the DVP settlement method

Delivery of securities

Seller

Buyer

Transfer of securities and payment carried out separately
Payment of settlement amount

Use of DVP settlement
Account delivery through JASDEC

Seller’s
account

Securities
data

Account of JASDEC
DVP Clearing Corp.

Stocks data transfer and payments are linked on

Buyer’s
account

Securities
data

the system, enabling secure and reliable settlement

Provision/receipt of funds through current accounts at the Bank of Japan

Seller’s
account

Funding data

Account of JASDEC
DVP Clearing Corp.

Funding data

Buyer’s
account

DVP system is a system that links the delivery of stocks with payments, enabling secure settlement.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201027

Bus ine s s O v er v i ew 04
DVP S e t tlem en t Sy stem f o r N E T D s

Establishing key settlement procedures on the customer side
The DVP settlement system for NETDs mainly deals withsecurities handled by JASDEC through its Book-entry Transfer
System for Stocks, etc., such as shares and bonds with shareoptions, etc.
As of the end of March 2010, 60 companies (comprising
16 banks and 44 securities companies) were participants in the
DVP settlement system for NETDs. Excluding internal transfers
within the same company, DVP transactions accounted forapproximately 60% of NETD transactions — evidence that useof the system has become firmly established as an importantcustomer-side settlement method. Reflecting the strong adoptionof the system, the DVP settlement commission payable pertransaction was reduced by ¥5 to ¥20 from April 2009. In
addition, a rebate of ¥5 per transaction was paid, in accordancewith the participant’s usage, against FY2009 DVP settlement
commission revenues in conformity with the policy of maintaining equilibrium between income and expenditure in financial
management.
Turning to the structure of the system, from September
2009 we decided to adopt margin levels adjusted for the typeand maturity period of each Japanese Government Bond (JGB)
held as collateral, based on greater scrutiny of these pledged
securities rather than a uniform application of a rate of 95%.

DVP Settlement for NETD Transactions (Daily average)
Non-DVP transactions(Transactions)

DVP transactions

300,000

100,411200,000

100,000

071,486

67,25559,37487,185(FY) 2007

96,301

2008

84,883

2009

77,78868,616

95,582

2009.4

66,311

86,07685,158

5

57,385

6

53,747

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 057,5888

9

1056,881

92,39478,866

77,267

DVP transactions are the number of transfers executed (transfer from DVP participants to JASDEC DVP Clearing Corporation)

28

59,145

95,69382,241

7

56,131

11

54,35985,17812

54,545 56,121

81,62280,5992010.1

2

3

DVP Settlement for NETD Fund Settlement (Daily average)
Total of payments(Billion yen)

2,500
2,000

Total value of net settlement payments

40
1,294.7

30
948.5

1,000
10.4

0

50

1,804.7

1,500

500

(%)

Rate of reduction (Total value of net settlement payments/Total payments × 100)187.0
(FY) 2007

931.3

964.0

1,032.1

12.8

12.3

11.1

10.7

166.3

116.6

103.4

103.4

5

2008

2009

2009.4

905.3

12.7

911.5

1,025.6

979.0 982.6 930.8
879.8
15.2
14.7
13.7 20
11.2
9.9

946.7

892.7
13.8

12.4

94.6

122.8

127.2

106.2

148.9

8

9

10

11

12

11.4

10.4

130.5

102.9

6

7

144.7

2010.1

91.8

120.9

2

3

10
0

Securities covered: Stocks, bonds with share options (convertible bonds), ETFs, REITs, share options (share subscription warrants), foreign stocks, etc.
Total payments is the total amount used for execution of securities transfers.
Total value of net settlement payments is the total amount used for account settlement on a net transaction basis.

Aiming for an even greater level of convenience in the operation of a safe and secure system
To provide for cases of default by participants, liquid assets
have been secured by the use of the participant fund and bankcredit lines. And in order to limit the risk to within the boundsof liquid assets, maximum upper limits (the net debit cap) havebeen set for the liabilities payable by each individual participant.
To optimize and refine the system structure, we continuously
assess the applicable levels to ensure that they are suitable for
its requirements.
Appraisal levels applied to the securities held as collateralare subject to regular reassessment to ensure their soundness

and suitability, and we constantly strive to maintain a stable andsecure operational structure.
JDCC, as the administrator of the DVP settlement system
for NETDs, remains committed to providing the best possible
system for participants and will continue to pursue even higher
levels of convenience and service.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201029

Business Overview

05

Pre-Settlement
Matching System(PSMS)

User numbers again hit record highMatching institutional investors’ transactions is a complex
undertaking, due to the wide range of organizations involved—
including investment trust management companies, securities
companies, trust banks and custody banks—and the hugeamount of transaction data exchanged between them.
In the past, matching was done manually by fax or telephone. Now, the process has been modernized and automated,with JASDEC providing centralized matching services usingsophisticated computer systems. Since launching the initialsystem in September 2001, JASDEC has been increasing therange of asset classes and services covered by the system. In
October 2007 we launched matching services for stock lending/borrowing transactions. We have expanded our services to makethem available for business entities as well as institutional
investors. As of the end of March 2010, 70 business entities wereusing the services.

30

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

In line with this expansion of asset classes and services, thenumber of transactions and users has been increasing year by
year. In fiscal 2009, the number of input /output transactions on adaily average basis was 1,326,883.
As of the end of March 2010, the number of registered users
had reached a new record of 694 companies, 57 more than therecord high set in the previous year. This was primarily as aresult of a steady increase in the number of business entity andlife and non-life insurance new users.
To promote further use of our services, in April 2009 we
reduced settlement matching fees in conjunction with the reduction in book-entry transfer fees for stocks, etc.

PSMS (for non-resident transactions)

Overseas
GlobalcustodiansJapan

Settlement
instruction

Investment
managers

Settlement
instruction

Order
Notice ofexecution
Allocation,
matching

Securities
companies

Settlement
instruction

Settlement
instruction

Subcustodians
Notice ofmatching status

Pre-settlement
matching
systemSettlement
instruction
Notice ofmatching status

Request for DVP transfer
Linkage with book-entry transfer systems for stocks and CBs, corporate bonds
and CP (excluding Japanese government bonds)

Notice ofexecution

Order

Securities
companies
Notice ofexecution

Order

Stock
exchanges

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201031

Bus ine s s O v er v i ew 05
Pre-Settlement Matching System (PSMS)

Steady progress in international system standardization toward introduction of ISO20022
The securities market is continuing to internationalize, and we
recognize that our computer systems do not yet fully conformto recent developments in this field. For example, although we
use ISO15022, the international standard for messaging, when
we adopted this standard we customized the formats in order tosatisfy unique requirements in the Japanese market community.
In doing so, however, we understood that ultimately we needed
to maximize user convenience by achieving the greatest possible
degree of harmonization with international standards and connectivity with overseas systems.
Accordingly, since fiscal 2007 JASDEC has been pursuinga project to achieve full conformity with international standards,
through initiatives in a number of areas. In message standards,
JASDEC became a member of ISO20022 Standards Evaluation
Group for Securities under Technical Committee 68 of theInternational Organization for Standardization. ISO20022 is
the new international standard that defines the ISO platform
for the development of financial message standards, which isdesigned to replace the current ISO15022, and as such we aremaking efforts to ensure that the conditions prevailing in Japan
will be reflected in it. We have also begun to consider expanding
the scope of application to encompass JASDEC’s overallsystem, including the book-entry transfer systems for stocks,

32

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0CP, and corporate bonds. In November 2009, we established an
ISO20022 Subcommittee to move forward with the developmentof efficient systems planned for introduction in 2014.
Turning to our communication network, our aim is tointroduce the SWIFT network, which is used widely around theworld, while running our existing communication network inparallel, enabling users to choose between them. Introductionof the SWIFT network will, we believe, enable smooth overseas
connectivity—further increasing user convenience and thenumber of the participants.
By expanding the range of asset classes and services handled
by PSMS, and by steadily building conformity with international
standards, we are contributing to greater efficiency in Japan’s
securities markets.

Centralized matching method for three parties (domestic transactions)

Stock exchanges
Notice of execution

Investment trust
management/
advisory
companies

Order

Order
Notice of execution
Allocation

Pre-settlement
matching system
Investment instruction

Trade report

Trade matching

Notice of matching status

Notice of matching status

Investment instruction andtrade report

Securities
companies

Affirmation/
Disaffirmation

Trade reportaffirmation

Notice of trade reportaffirmation status

SSI
Trust banks
Settlement
matching

Notice of matching status

Notice of matching status

Request for DVP transfer

Linkage with book-entry transfer systems for stocks and CBs, corporate bonds and CP(excluding Japanese government bonds)

Total number of PSMS input/output instructions using the PSMS system (daily average)(Thousand)

2,000
1,503
1,327

1,500

1,454

1,356

1,398

1,460
1,326
1,194

1,290

1,324

1,315

1,304

1,243

1,249

11

12

2010. 1

2

3

1,000

500

0

(FY)

2008

2009

2009. 4

5

6

7

8

9

10

Note: Total number of inputs of contract-type matching data and PSMS data relayed by users and number of transactions of data (outputs) reported to users as a result of matching processes.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201033

Business Overview

06

Custody Services for
Foreign Stock
Certificates, etc.

Improving custody services with new infrastructure and systems
Since inaugurating services to process deposits, transfers andownership rights for foreign stock certificates, etc. in April
2006 in addition to our existing services for Japanese securities
such as stock certificates listed on domestic stock exchanges,
JASDEC has continued to develop new systems and services. In
January 2009 we introduced an efficient new system for foreign
stock certificates, etc. and related items, which enables DVP
settlement for NETDs, as well as providing dividend payment
data to JASDEC participants.
Although foreign stock certificates, etc. are generally
deposited with central securities depositories or custodians in the
countries where the issuing companies are located, settlementsof transactions at the stock exchanges in Japan are conducted
through book-entry transfers in JASDEC. JASDEC entrusts
dividend payments to relevant share-handling service organizations. Information on shareholders (beneficial shareholders) at
the record date for dividend is transferred to the share-handlingservice organizations by the JASDEC participants through
JASDEC. Based on this information, the share-handling service

34

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0organizations calculate the amount of dividends, which are thenpaid directly to the beneficial shareholders from the dividendpayment handling bank. JASDEC also undertakes the necessary
procedures regarding dividend taxation for local tax authorities
and other such entities, to ensure reduced tax rates under tax
treaties with the countries concerned. Voting rights at general
meetings of shareholders can also be exercised by beneficial
shareholders through instructions issued to JASDEC.
JASDEC therefore provides the infrastructure and services
necessary for reliable settlement of trading activities in foreign
stock certificates, etc., smooth exercise of shareholder rights, anderror-free receipt of dividends and other payments.

Overview of the new system relating to foreign stocks (effective January 2009)

Share-handling services organization (trust banks)

Japan Securities Clearing Corporation

Notice ofDividend
beneficial
information
shareholders

Stockexchange
DVP

Shareholder notice host

Account transfer host(settlement)(handling of information concerning beneficial
shareholders, dividends etc.)

Collateral Beneficial
Dividend Notice ofshareholder
matching
information
balancereportStandard
non-DVP
transfer

Standard
DVP
transfer

Overseas CSDs/
custodian banks

Communication serverwith foreign CSDs/banks

Localcustody/transfer

AMIs (Securities companies and banks)
Beneficial shareholders of foreign stock certificates, etc.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201035

Bus ine s s O v er v i ew 06
C us t o d y Ser v i c es f o r Fo r ei gn Sto c k C er ti f i c a tes, etc .

ETF market growth expected with listing of ETCs
In recent years, foreign companies have come to regard Japanas a major market for their financing needs, and there has beena growing number of foreign companies choosing to list only on
Japanese exchanges such as the Tokyo Stock Exchange or the
Osaka Securities Exchange, with no home-country listing. We
are also seeing a steady increase in Japanese listings of ETFs
structured overseas. Responding to these developments, JASDEC
commenced custody services for ETFs linked to movements in
a South Korean stock index in November 2007. In addition, in
March 2008, we made amendments to our business regulations
to enable custody services for overseas ETFs and commenced
custody services for ETFs linked to gold prices and ETFs linked
to commodity indexes. In response to the August 2009 listing offive physical precious metal-backed ETCs, JASDEC made thenecessary amendments to our business regulations in order tohandle these overseas Exchange Traded Commodities (ETCs)

similar to investment corporation bonds. A further 14 ETCs
linked to commodities indices were listed in March 2010, and themarket is expected to continue expanding.
At present, the Book-entry Transfer System for foreign
stock certificates, etc. includes four categories: foreign stocks(including ADRs); overseas ETFs (including ETCs); country
funds; and foreign covered warrants. At the end of March 2010,
the number of different issues handled by JASDEC in the three
categories of overseas shares, overseas ETFs, and country funds
stood at 42, while the number of foreign covered warrants
handled stood at 26.

Foreign stocks, etc.– number of issues/balance in accounts (excluding foreign covered warrants)
Balance in accounts (end of month)
Number of issues (end of month)(Thousand shares)(Issues)

200,00042

42

150,000

130,692

100,000

25

115,793 118,165 115,270 113,614

151,403
139,816 147,625

79,531

25

116,638
25

25

24

29

29

29

29

50
40

29

28

80,23379,56928

30
79,182 79,531

20
50,000010(FY) 20082009

2009.4

5

6

7

8

9

10

11

12

2010.12

30Foreign covered warrants – number of issues/balance in accounts
Balance in accounts (end of month)
Number of issues (end of month)(Thousand warrants)

400,000(Issues)371,300

358,608

106

88

300,000100

46(FY) 2008

2009

75

188,000 182,0004226

100,000

36

80

296,200 296,200
228,200
258,200
76
76
70
62

102,000

200,000

0

125
316,216

102,000 102,000 102,000 102,00026

2009.4

5

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

6

7

8

9

10

11

26

12

2010.1

26

26

2

50
25

3

0

Number of shares deposited/withdrawn
Number of shares deposited
Number of shares withdrawn(Thousand shares)

931,198
480,307539,187
246,465

1,000,000

119,919

122,882
90,70893,03481,360100,000

36,531
32,23040,85840,93221,501

6,525
6,912

7,294

8,000

3,440

5,287
3,324

4,000

2,122

305

0

(FY)

2008

2009

2009.4

5

6

7

3,767

1,446
2,117

2,093

1,761

8

9

425

10

11

12

2010.1

2

3

Note: Transactions of less than 1 thousand shares are rounded to the nearest thousand shares.

Book-entry transfers
Non-exchange transaction deliveries
Exchange transaction transfers(Thousand shares)

486,660 469,524
274,120
171,468

500,000
100,000

79,09880,00067,29353,99660,00040,00050,26943,03633,74022,605
15,95520,000
0

(FY)

2008

2009

2009.45

6

10,35942,87236,377

7

33,91921,868831,84732,926

20,33817,153

18,127

13,072910

1117,47712

32,49919,48011,0882010.1

2

18,2503

Note: Transactions of less than 1 thousand shares are rounded to the nearest thousand shares.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201037

Business Overview

07

International
Relationships

Asian Bond Markets Initiative (ABMI)
Background
The Asian Bond Markets Initiative (ABMI) was adopted by
the ASEAN+3 (ASEAN plus China, Japan and Korea) Finance
Ministers’ Meeting as a measure to tackle the 1997 Asian financial crisis. Asian countries have been facing common difficulties
in the fund procurement required for medium- to long-term
investments within the region. Although savings rates arehigh in the region, capital markets are not yet fully developed.
In these circumstances, the region had depended heavily on
Western financial institutions for foreign currency-denominatedshort-term borrowings for long-term investments. This caused
maturity and currency mismatches in financing, which wereprimary factors in generating the Asian financial crisis.
The financial authorities of the countries participating in the
ABMI have been endeavoring to develop bond markets within
the region to enhance financial intermediary functions and allow
savings to be used for investment in the region. The successful
procurement of funds for long-term investments in the region
would significantly reduce currency and maturity mismatches inregional financing.
Under the supervision of the Finance Ministries and theCentral Banks of the ASEAN+3 countries, four Task Forces
have been established with the common goal of furthering thedevelopment of well-functioning bond markets with sufficientliquidity in the region.

38

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

For the past two years, JASDEC has been taking part (as arepresentative of Japan) in the Group of Experts (GoE),
which was established in April 2008 by Task Force 4 (whose
responsibility is to improve the bond market infrastructure) to
discuss key issues related to cross-border bond transaction andsettlement systems.

JASDEC engagement in GoE
In its turn, the GoE has set up two subcommittees: one to conduct
feasibility studies on proposals for the creation of settlement
systems for the region (Subcommittee A), and one to examine
possible barriers to cross-border transactions in ASEAN+3 Bond
Markets (Subcommittee B). These two subcommittees — comprising national and international central securities depositories
and major private-sector players such as custodian banks andsecurities companies, who have extensive expertise in the fieldof securities transactions in Asia — are carrying out intense
discussions of these questions. As a representative of Japan,
JASDEC is acting as the leader of Subcommittee B in pushing
forward with the project agenda.

In April 2009 the 5th meeting of the GoE was held in Tokyo
with the participation of 15 institutions, including the central
securities depositories, custodian banks for cross-border transactions, and the International Central Securities Depositories(ICSDs). Issues that were the subject of intense examination anddiscussion included analyses of cross border transaction costs,
settlement administration models, and issues selected fromsurveys (by questionnaire or interview) of market participants’views, such as the standardization of electronic message formats,tax systems, foreign exchange controls, capital controls, andother matters likely to present problems.
Subcommittee A continued to conduct feasibility studies on
the legal and regulatory aspects of the cross-border settlement
models, while Subcommittee B examined measures to remove
barriers, releasing a GoE Report in April of 2010.

ASEAN+3 Finance Ministers’ Meeting(China, Japan and Korea)

ABMI steering Group(coordination of efforts made by each Task Force)

Task Force 1

Task Force 2

Task Force 3

Task Force 4(Promoting the Issuance ofLocal Currency-DenominatedBonds (supply-side))(Facilitating the Demand for
Local Currency-DenominatedBonds (demand-side))(Improving theRegulatory Framework)(Improving the Related
Infrastructure for theBond Markets)

GOE (Group of Experts)
Chair: Korea, Vice-Chairs: Singapore, Thailand
Members: Representatives of Asian countries(Japanese representatives: JASDEC, etc.) and international players

Subcommittee A

Subcommittee B

Studies on establishment of regional settlement intermediary
Leader: Korea
Members: Representatives of Asian countries and international players

Identify settlement barriers in the Asian regional market(from practical and legal perspectives)
Leader: Japan
Members: Representatives of Asian countries and international players

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201039

Business Overview 07
International Relationships

Contribution to the development of the securities markets of Japan and Asia
In response to ongoing internationalization in the securities
settlement sector, JASDEC actively participates in international
forums such as regular CSD meetings and seminars, helping
ensure the timely exchange of securities market infrastructurerelated information on a global basis.

As one element of our efforts to build collaborative relationships with CSDs around the world, JASDEC has been following
a policy of signing MOUs on the exchange of information andthe undertaking of collaborative projects with overseas CSDs.
As of the end of March 2010, JASDEC had signed MOUs with

◆ July 3-4, 2009
11th ACG Cross Training Seminar
The 11th ACG (Asia Pacific CSD Group) Cross Training Seminar for
ACG members was held in Dhaka, Bangladesh, hosted by Central
Depository Bangladesh Limited (CDBL). In addition to ACG’s
original Information Exchange Task Force and the New Business Task
Force, the Legal Task Force — established in autumn 2009 — took
part in the seminar for the first time. The event was attended by 75
officials representing 16 organizations from 12 different countries.

Major International
Activities in
FY2009◆ April 28, 2009
MOU WITH MSCH&CD (MONGOLIA)JA S D E C a n d M o n g o l i a n
Securities Clearing House &Central Depository Co., Ltd(MSCH&CD) held a signing ceremony in Ulaanbaatar,
Mongolia for a Memorandum ofUnderstanding (MOU) on information sharing and cooperation.

April

May

June

July

August◆ May 20-22, 2009
10th Conference of CSDs
JASDEC attended the 10th Conference of CSDs in Budapest, Hungary and took part in a panel discussion concerning the role of CSD regulations.
JASDEC explained Japan’s regulatory framework, along with collaboration in regulatory authorities and market infrastructure, and the regulatory
trends in Asia. At the last session of the general meeting, the CEOs of CSDs around the world took part in a panel discussion concerning the future
outlook for CSDs. As a panelist in this discussion, Yoshinobu Takeuchi, president and CEO of JASDEC, explained the outlook for JASDEC’s
restructured settlement system and outlined collaborative projects in Asia, including the ASEAN Board and ABMI.

40

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

a total of 12 CSDs. We have also launched regular discussions
with current cooperative partners, accepted overseas trainees,and made other efforts to strengthen collaborative projects withoverseas CSDs. In addition, JASDEC is a participant in theInternational Securities Services Association (ISSA) corporate

action working group, serving as the coordinator for assessment
within the Asian region.
While supporting the rapidly growing Asian markets overall,
we aim to contribute to the development of the Japanese securities
market by strengthening cooperative relations around the globe.

◆ September 9-10, 2009
1st regular consultative meeting held with Korea’s KSD under MOU agreement
In an effort to strengthen relationships with MOU cooperative partners, JASDEC
launched regular discussions with Korea’s KSD. In the first meeting JASDEC explained
its compliance framework along with the book-entry transfer system and non-resident
tax exemption for corporate and government bonds, and engaged in an exchange ofideas with KSD.

◆ November 12, 2009
MOU with KSEI (INDONESIA)

October

JASDEC accepted four trainees from the Thailand
Securities Depository Company Limited (TSD), working in technical support for JASDECs Pre-Settlement
Matching System (PSMS) and other areas.

◆ December 15-16, 2009
1st regular consultative meeting held with
China SD&C
JASDEC held the first of what will be regular
discussions with China Securities Depository
and Clearing Corporation Limited (SD&C).
In the first meeting JASDEC explained its
Book-entry Transfer System for Stocks, etc.,
Book-entry Transfer System for Corporate
Bonds and Investment Trusts, DVP Settlement
System for Non-Exchange Transaction Deliveries(NETDs), and Custody Services for Foreign
Stock Certificates, etc.

JASDEC and PT Kustodian Sentral
Efek Indonesia (KSEI) held a signingceremony in Tokyo for a MOU.

September◆ November 16-20, 2009
Thailand TSD trainee program

November

December◆ October 8-9, 2009
The 13th ACG General Meeting
The 13th General Meeting of the ACG was held in Hanoi, Vietnam on
October 8-9, 2009, hosted by the Vietnam Securities Depository (VSD).
During the General Meeting, various panel discussions and presentations
were conducted under the main theme of “Facilitating the Developmentof Cross-border Linkages among ACG Members.” A Senior Management
Meeting was convened on the second day, where top management from
CSDs gathered to discuss issues concerning ACG’s future challenges
and deliberated the review of the organizational structure as a means offurther enhancing the ACG’s functions.

◆ October 9, 2009
MOU with VSD (VIETNAM)
JASDEC and Vietnam Securities Depository(VSD) held a signing ceremony for a MOU
in Vietnams capital, Hanoi, during the ACG
general meeting.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201041

Analysis of Business Performance and Financial Results
Note: In the following section, all comparisons are with the previous fiscal year (fiscal 2008, ended March 31, 2009) unless stated otherwise.

In fiscal 2009, the Japanese economy began to show signsof recovery, supported by factors such as a recovery inexports to China and other developing countries, and thebeneficial impact of government stimulus measures suchas eco car tax breaks, subsidies, and an eco-points system
for home appliances.
The stock market recovered in the first half of fiscal
2009, reflecting an easing of the credit crunch in US
and other financial markets amid signs that the global
economy was starting to bottom out. The Nikkei Averagerose to the ¥10,000 level from a low of ¥7,054 recordedon March 10, 2009. However, the subsequent strength of
the yen brought fears of downward revisions to corporate
earnings and, with the employment situation remaining
severe, the Nikkei Average fell back below the ¥10,000
mark. It regained the ¥10,000 level in the latter half of the
fiscal year, reflecting further signs of economic recovery.
For JASDEC, with average daily trading volume in excess of 2 billion shares on the Tokyo Stock Exchange andthe Nikkei Average generally around the ¥10,000 mark,transaction activity remained vigorous, and the number ofshares handled by JASDEC’s book-entry transfer system
maintained momentum.
JASDEC’s operating revenues for fiscal 2009 declined¥6,190 million, or 22.8%, year on year, to ¥20,973 million, primarily due to reductions in the rate of commission charged for book-entry transfers for stocks, etc.,
pre-settlement matching services and DVP settlement
services. Although operating expenses decreased ¥6,115
million, or 25.0%, to ¥18,338 million, a significant impact from lower operating revenues meant that operating
income declined ¥75 million, or 2.8%, to ¥2,634 million.
Income before income taxes increased ¥75 million, or
3.3%, to ¥2,407 million. However, net income for theperiod was ¥1,317 million, representing a year-on-year
decrease of ¥16 million, or 1.3%.
The earnings performance of each of JASDEC’s business segments is as follows.

42

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0Book-entry Transfer System for Stocks, etc.
In this business, JASDEC was handling a total of 3,906
issues as of March 31, 2010, representing 114 fewer issues than one year earlier. Account balances included
412.9 billion shares (up 18.1 billion shares compared to
one year earlier), ¥1.2 trillion for bonds with share options (up ¥57 billion), 2.3 billion account units for ETFs
(up 433 million account units), 10.6 million account units
for REITs (up 2.5 million account units), and 700,000
account units for preferred equity investment of financial
institutions established by cooperative associations (up350,000 account units). The total number of book-entry
transfers handled increased by 14.2 million to 84.8 million transactions, with increases in both account balancesand number of transactions. However, the impact of the
reduction in commission rates, as noted above, meant thatearnings in this business segment for the year declined¥3,395 million, or 15.6%, to ¥18,334 million. During
the period under review, refunds of ¥2,741 million weremade on book-entry transfers and account management.
After deduction of this amount, earnings from the Bookentry Transfer System for Stocks, etc. decreased ¥5,365
million, or 25.6%, to ¥15,593 million.
It should be noted that the new Book-entry Transfer
System for Stocks, etc. came on stream on January 5,
2009. Accordingly, in calculating the year-on-year comparison of earnings in this segment, figures for the previous year have been based on the combined earnings fromboth systems used during that year.

Book-entry Transfer for Commercial Paper
This business segment had a total of 490 corporate issuers
as of March 31, 2010, unchanged from the end of the previous fiscal year. Total transaction value was ¥14.1 trillion, down ¥4.6 trillion year on year, and the total number
of issuance, transfer and redemption transactions handled
was 304,659 transactions, a decrease of 26,729 transactions. Earnings from this business segment declined ¥106
million, or 17.9%, to ¥487 million.

Book-entry Transfer System for Corporate Bonds

DVP Settlement Services for NETDs

This business segment was handling a total of 71,202
issues as of March 31, 2010, representing 2,096 fewer
issues than one year earlier. Total transaction value was¥245.5 trillion, an increase of ¥5.2 trillion year on year,
and the total number of issuance, transfer and redemption
transactions handled was 481,090 transactions, a decrease of 84,095 transactions. Earnings from this businesssegment were essentially flat at ¥1,296 million.

This business segment handled a total of 20.7 million NETD
DVP settlements during the year ended March 31, 2010, a
year-on year decrease of 2.8 million settlements. As a resultof reduced commission rates, earnings from this segment
declined ¥352 million, or 26.9%, to ¥957 million.
During the year under review JDCC made refunds on
DVP settlement commissions totaling ¥190 million. After
deduction of this amount, earnings from DVP settlement
services decreased ¥110 million, or 12.6%, to ¥767 million.

Book-entry Transfer System for Investment Trusts
This business segment was handling a total of 6,297 issues as of March 31, 2010, representing 391 more issues
than one year earlier, and comprising 3,647 publicly offered investment trusts and 2,650 privately placed investment trusts. The total account balance, based on principle
value, was ¥110.2 trillion, representing a ¥4.6 trillion increase from one year earlier and comprising ¥78.6 trillion
in publicly offered investment trusts and ¥31.5 trillion in
privately placed investment trusts. The total number ofissuance, purchase and redemption transactions handled
was 3,940,808 transactions, an increase of 119,061 transactions. Earnings from this business segment increased¥13.2 million, or 1.3%, to ¥1,040 million.

Pre-settlement Matching System
Earnings from this business segment declined ¥359
million, or 15.2%, to ¥2,010 million, due to the reductionof the commission rate. During the year under review
JASDEC made refunds on pre-settlement matching
services totaling ¥485 million. After deduction of thisamount, earnings from this business segment decreased¥588 million, or 27.9%, to ¥1,524 million.

Custody Services for Foreign Stock Certificates, etc.
This business segment had an account balance of 79
million foreign stocks, etc., excluding foreign covered
warrants, as of March 31, 2010, a decrease of 51 million
compared to one year earlier. The account balance forforeign covered warrants was 102 million warrants.
The total number of transactions (including foreign
covered warrants) was 149,915 transactions, 85,868 morethan in the previous year. Earnings from this business segment declined ¥33 million, or 11.2%, to ¥263 million.

Financial results (consolidated)
Operating revenues

Net income

Operating income(Million of yen)

30,00026,022(Million of yen)

27,163
20,973

3,000
2,000

0
(FY ended)

Net assets(Million of yen)

400,000

80,000

182,082.62
300,000
156,934.33
154,949.18
200,000
2,651
1,547
1,333 1,317

60,000100,000

20,0004,000

20,000

4,671

Total assets(Yen)

311,995.13

22,55910,000Net income per share

4,292

2,709

2,634

3/2007 3/2008 3/2009 3/2010

1,000
0 3/2007 3/2008 3/2009 3/2010(FY ended)

61,615056,037

54,83959,92540,0000

16,6893/2007

17,8973/200818,8903/200919,8683/2010(FY ended)

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201043

Consolidated Financial Statements
Consolidated Balance Sheets (As of March 31, 2009 and 2010)¥ (thousands)$ (thousands)(Note 4)
2010

2009

2010

¥ 2,355,978
3,161,085
561,386
31,531,872
519,023(6,895)
38,122,450¥ 3,468,876
3,318,125
87,514
33,121,473
355,804(6,480)40,345,313$ 37,284
35,663940
355,9923,824(69)433,634

Less: Accumulated depreciation
Total Property and Equipment

1,062,907
5,560,074
56,023
6,679,004(4,170,881)
2,508,121

842,948
5,386,775
81,823
6,311,546(4,502,678)
1,808,867

9,060
57,897879
67,836(48,395)
19,441Intangible Assets, Net:
SoftwareConstruction in progress (Software)
Lease assets
Other intangible assets
Total Intangible Assets

19,759,147
67,821
9,517
18,15419,854,639

15,988,208
43,0559,165
18,03816,058,467

171,842463
98
194
172,597

Investment and Other Assets:
Investment securities
Long-term prepaid expenses
Deferred income taxes (Note 12)Long-term refundable lease deposits
Claims provable in bankruptcy, rehabilitation and other
OthersAllowance for doubtful accounts
Total Investment and Other Assets

308,418
86,770
194,434
514,775
41,394—(15,878)
1,129,914

356,179
46,642774,595
506,282
44,356
1,000(16,621)
1,712,434

3,828
501
8,325
5,441
477
11
(178)
18,405¥61,615,125¥59,925,084$644,078

ASSETS
Current Assets:
Cash and deposits
Accounts receivable – trade
Deferred income taxes (Note 12)
Designated assets for clearing funds (Note 3)
Other current assets
Allowance for doubtful accounts
Total Current Assets

Property and Equipment:
Buildings and structures
Tools and furniture
Lease assets

Total Assets

The accompanying notes are an integral part of these statements.

44

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

$ (thousands)(Note 4)2010

¥ (thousands)
2009

2010

LIABILITIESCurrent Liabilities:
Accounts payable – trade
Short-term borrowings (Note 5 and 9)¥

868,426¥

823,303$8,849

8,400,000

4,800,000

51,591

13,84220,003

215—

101,677

1,093

Allowance for employees’ bonuses

185,102

182,234

1,958

Allowance for executives’ bonuses

20,30020,700222—

391,978

4,213

31,531,872

33,121,473

355,992

Allowance for loss on business trust agreement cancellation

940,103——

Allowance for loss on computer center transfer

242,379——

Other current liabilities

235,736

182,401

1,960

42,437,763

39,643,774

426,093

Lease obligations (Note 9)45,78552,668566

Allowance for employees’ retirement benefits (Note 10)

199,422

256,723

2,759

Allowance for executives’ retirement benefits

41,16041,160442—

62,694674

286,367

413,246

4,441

42,724,131

40,057,021

430,535

Lease obligations (Note 9)
Income taxes payable

Consumption taxes payable
Deposits received for clearing funds (Note 3)

Total Current Liabilities
Long-term Liabilities:

Allowance for loss on business trust agreement cancellation
Total Long-term Liabilities
Total Liabilities

42,724,131
NET ASSETS
Shareholders’ Equity:
Common stock
Authorized: 10,000 shares
Issued: 8,500 shares

4,250,000

4,250,000

45,679

Capital surplus

4,250,000

4,250,000

45,679Retained earnings

10,390,994

11,368,062

122,185

Total Shareholders’ Equity

18,890,994

19,868,062

213,543

Total Net Assets

18,890,994

19,868,062

213,543

Total Liabilities and Net Assets¥61,615,125¥59,925,084$644,078

The accompanying notes are an integral part of these statements.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201045

Consolidated Financial Statements
Consolidated Statements of Income (For the years ended March 31, 2009 and 2010)

2009

2010

$ (thousands)(Note 4)
2010

¥27,163,871¥20,973,007$225,419

206,738
1,972,209
97,3208,424,000
2,463,436
1,523,801
6,362,311
525,941
668,434
2,210,250
24,454,444
2,709,427

209,497
1,918,927
102,9706,868,608
358,300—
6,386,058
670,626
109,835
1,713,850
18,338,677
2,634,330

2,251
20,625
1,107
73,824
3,852—
68,6387,208
1,180
18,420
197,105
28,314254

219,76759,261(66,265)(43,900)

212
637
(712)
(471)

(7,794)(178,610)(83)(1,919)

—

—

1,010
33,200(52,878)—
9,091(226,865)
2,407,464

11
356
(568)
—
97
(2,438)25,875

224,403
972,282(106,289)¥ 1,317,068

2,412
10,450(1,142)$ 14,155¥ (thousands)

Operating Revenues
Operating Expenses:
Executives’ compensation and bonuses
Salaries and bonuses
Severance costs for employees (Note 10)
Maintenance of systems
Outside services
Registration fees
Depreciation and amortization
Rent
Advertisements
OthersTotal Operating Expenses
Operating Income

Other Income (Expenses):
Interest income
212
Operational revenue on designated assets
for clearing funds
75,684Equity in earnings (losses) of affiliates(28,229)
Interest expenses (Note 9)(93,932)
Commitment fees
(43,011)Fees for fund operation of designated assets
for clearing funds(7,558)Loss on disposal of fixed assets (Note 11)(43,350)
Non-recurring depreciation of property andequipment(78,430)(Provision) reversal of allowance for loss on business trust
agreement cancellation(112,402)(Provision) reversal of allowance for loss on computer center transfer(35,835)
Loss on business trust agreement cancellation—
Provision of allowance for doubtful accounts(15,878)
4,978
Others, net
Total(377,755)
Income before Income Taxes
2,331,672
Income Taxes (Note 12)
Current
659,662
Prior years—
338,068
Deferred¥ 1,333,941
Net Income

U.S.Dollars(Note 4)Yen
Per Share (Note 17)
Net income – primary
Dividends
Weighted-average number of common
stock shares outstanding (in shares)¥156,934.33
40,000¥154,949.18
40,000

8,500

8,500

$1,665429—

The accompanying notes are an integral part of these statements.

46

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Consolidated Statements of Changes in Net Assets (For the years ended March 31, 2009 and 2010)¥ (thousands)
Number ofcommon stock
sharesCommonstock

CapitalsurplusRetainedearnings

Total
shareholders’equityTotal
net assets

8,500¥4,250,000¥4,250,000¥ 9,397,052¥17,897,052¥17,897,052

Cash dividends

—

—

—

(340,000)(340,000)(340,000)

Net income for the year

—

—

—

1,333,941

1,333,941

1,333,941

Balance as of March 31, 2009

8,500

¥4,250,000¥4,250,000¥10,390,994¥18,890,994¥18,890,994

Cash dividends

—

—

—

(340,000)(340,000)(340,000)

Net income for the year

—

—

—

1,317,068

1,317,068

1,317,068

Balance as of March 31, 2010

8,500

¥4,250,000¥4,250,000¥11,368,062¥19,868,062¥19,868,062

Balance as of March 31, 2008

$ (thousands) (Note 4)
Number ofcommon stock
sharesCommonstock

CapitalsurplusRetainedearnings

Total
shareholders’equityTotal
net assets

8,500$45,679$45,679$111,683$203,041$203,041

Cash dividends

—

—

—

(3,654)(3,654)(3,654)

Net income for the year

—

—

—

14,15614,15614,156

Balance as of March 31, 2010

8,500

$45,679$45,679$122,185$213,543$213,543

Balance as of March 31, 2009

The accompanying notes are an integral part of these statements.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201047

Consolidated Financial Statements
Consolidated Statements of Cash Flows (For the years ended March 31, 2009 and 2010)¥ (thousands)

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Non-recurring depreciation of property and equipment
Increase in allowance for doubtful accounts
Increase (decrease) in allowance for employees’ bonuses
Increase in allowance for employees’ retirement benefits
Increase in allowance for executives’ retirement benefits
Increase (decrease) in allowance for loss on business trust
agreement cancellation
Increase (decrease) in allowance for loss on computer centertransfer
Interest income
Interest expenses
Equity in losses (earnings) of affiliates
Foreign exchange loss
Loss on sale of property and equipment
Loss on disposal of property and equipment
Loss on disposal of intangible assets
Decrease (increase) in accounts receivable – trade
Decrease in accounts payable – trade
Decrease (increase) in other assets
Decrease (increase) in other liabilities
Sub-totalInterest and dividends received
Interest paid
Income taxes paid
Income taxes paid for prior years
Income taxes refunded
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchase of property and equipment
Payments for purchase of intangible assets
Proceeds from repayment of lease deposits
Payment of lease deposits
Other payments
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Short-term borrowings
Repayment of short-term borrowings
Repayment of lease obligations
Cash dividends paid
Net Cash Provided by (Used in) Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year$ (thousands)(Note 4)

2009

2010

¥ 2,331,672
6,362,311
78,43022,774
6,193
51,267—¥ 2,407,464
6,386,058—
327(2,867)57,300400$ 25,875
68,637
—
3
(30)
616
4

112,402(940,103)(10,104)(77,977)(242,379)(2,605)(212)
93,932(28,229)
666
—
9,998
33,352(130,383)(688,057)
52,137(20,677)
8,266,061
212(66,543)(1,788,073)——
6,411,657(254)
66,265(59,261)294
730
47,232
131,378(157,039)(45,122)
98,970828,786
8,578,181
11,754(92,300)(685,984)(903,351)
200,702
7,109,001

(2)
712
(636)
3
7
507
1,412
(1,687)
(484)
1,063
8,907
92,198127(992)(7,373)(9,709)2,157
76,408(370,597)(11,153,312)———(11,523,909)(314,290)(1,734,155)
266,575(258,082)(1,000)(2,040,953)(3,378)(18,638)
2,865(2,775)(10)(21,936)

20,400,000(14,400,000)(7,779)(340,000)
5,652,220(666)
539,301
1,816,676¥ 2,355,97822,800,000(26,400,000)(14,855)(340,000)(3,954,855)(294)
1,112,897
2,355,978¥ 3,468,876

245,055(283,748)(159)(3,654)(42,507)(4)
11,961
25,322$ 37,283

2010

The accompanying notes are an integral part of these statements.

48

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Notes to the Consolidated Financial Statements
1. Basis of Presenting the Consolidated Financial
Statements
The accompanying consolidated financial statements
have been compiled from the accounts maintainedby Japan Securities Depository Center, Inc. (“theCompany”) and its subsidiary in accordance with theprovisions set forth in the Financial Instruments andExchange Act in conformity with accounting principles
and practices generally accepted in Japan, which
are different in certain respects as to the applicationand disclosure requirements of International Finance
Reporting Standards.

2. Summary of Significant Accounting Principles(1) Consolidation
The consolidated financial statements include theaccounts of Japan Securities Depository Center,
Inc. and its wholly owned subsidiary, JASDEC
DVP Clearing Corporation (hereafter, “JDCC”)
which is the only subsidiary of the Company.
JDCC operates under a fiscal year ending March
31, which is the same as that of the Company.

(2) Application of equity method
The equity method is applied to shares of Tosho
System Services Co., Ltd. (hereafter, “TSS”).

(3) Property and equipment(except lease assets)
Depreciation for buildings, excluding improvements, is calculated using the straight-line method.
Depreciation for other capital assets is calculatedusing the declining-balance method.
The main estimated useful lives are as follows:
Buildings and structures 3-50 years
Tools and furniture
2-15 years(4) Intangible assets (except lease assets)
Costs of software for internal use are capitalized
and amortized on a straight-line basis over an estimated useful life of 5 years. Other intangible assets
are amortized using the straight-line method overthe period registered by the Corporate Taxes Law.

(5) Lease assets
The straight-line method is applied to leased assetsof finance leases without ownership transfer and theresidual value is zero. The Company accounts forfinance lease without ownership transfer as operating leases if the transaction commenced prior to theprevious financial year ended March 31, 2009.

(6) Allowance for doubtful accounts
The allowance for doubtful accounts is provided
at an amount determined based on the Company’s
historical average charge-off ratio for ordinary
receivables, and estimates of uncollectible amounts
determined by reference to specific doubtfulreceivables from customers which are experiencing
financial difficulties.

(7) Allowance for bonuses
Allowance for employees’ bonuses and allowancefor executives’ bonuses are provided for bonuses
attributable to each fiscal year based on theestimated amount of the respective payments.

(8) Allowance for loss on business trust agreement cancellation
Allowance is provided for an adjustment fee on
cancellation of entrusted operations due to dematerialization of stock certificates.

(9) Consumption taxes
The consumption taxes withheld by the Company
and its subsidiary on sales and the consumption
taxes paid by the Company and its subsidiary onpurchases of goods and services are not included in
the amounts of the relevant accounts in the accompanying statements of income. The consumption
taxes withheld and paid are recorded as an asset ora liability, as the case may be, and the net balanceis shown in the balance sheets.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201049

3. Assets and Liabilities Held for Sound
Settlement System Operation and Management
In order to secure the Delivery Versus Payment(“DVP”) for Non-Exchange Transaction Deliveries(“NETDs”) settlement system, JDCC, a consolidated
subsidiary of the Company, receives cash or securities
as collateral from the DVP participants whom JDCC
officially acknowledge as parties who undertake
securities obligations in accordance with the provisions
set forth in JDCC’s general provisions in accordancewith Article 156, Paragraph 7-1, of the Financial
Instruments and Exchange Act (Law No. 25, 1948).
JDCC manages cash and securities entrusted by the
DVP participants as clearing funds defined in Article
156-11 of the Financial Instruments and Exchange
Act separately from other assets in accordance with
JDCC’s general provisions and Article 7 of the Cabinet
Office Ordinance on Financial Instruments Clearing
Organization. (Cabinet Office Ordinance No. 76,
2002).

(1) Participant fund specified assets andparticipant funds under management
Under the DVP for NETDs settlement system,
when JDCC accepts DVP participants’ obligations
to counterparties, the DVP participants involved in
the transactions shall assume the same obligations
to JDCC.
JDCC requires each DVP participant to establish
a participant fund in excess of the minimum
amount set forth in JDCC’s general provisions
to ensure that the respective obligations of DVP
participants are covered. The aggregate amount ofminimum participant funds required by JDCC’s
general provisions as of March 31, 2009 and 2010was ¥15,000,000 thousand ($161,220 thousand). In
the event a DVP participant defaults on the required
payment obligations of the DVP for the NETDs
settlement system, JDCC shall take deposits fromthe participant fund of this DVP participant tofulfill its obligations to other DVP participants.

50

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

The participant funds entrusted to JDCC will be
managed as money trusts, in line with the statedgeneral provisions of JDCC.
These money trusts are evaluated at cost, just as
available-for-sale securities with no market value.
Assets and liabilities pertaining to participant
funds are presented as designated assets for clearing assets and deposits received for clearing funds,
respectively.

(2) Collateral securities
Under the DVP for NETDs settlement system, DVP
participants are able to entrust marketable securities
listed in JDCC’s general provisions (hereafter,“collateral securities”) to ensure that obligations to
JDCC are met.
When a DVP participant fails to meet its obligations to JDCC, JDCC is authorized to dispose of
the entrusted collateral securities by selling themin securities markets or through other methods
deemed appropriate by JDCC.
As of March 31, 2009 and 2010, the market valueof collateral securities entrusted to JDCC was¥99,489,867 thousand and ¥109,579,182 thousand($1,177,764 thousand), respectively.

4. U.S. Dollar Amounts
Amounts in U.S. dollars are included solely for theconvenience of readers outside Japan. The rate of¥93.04=US $1, the rate of exchange as of March 31,
2010, has been used in translation. The inclusion ofsuch amounts is not intended to imply that Japanese
yen have been or could be readily converted, realized
or settled in U.S. dollars at this or any other rate.

5. Commitment Line and Overdraft Contracts
To ensure agile and stable fund raising, the Company
has overdraft contracts (¥7,000,000 thousand ($75,236
thousand) in total) with four banks. To prepare fora possible deficiency of funds due to a default by
DVP participants, JDCC has concluded commitmentline agreements (¥45,000,000 thousand ($483,662
thousand) in total) with three banks, as part of a liquid
fund for completing fund settlement on the required
day. As of March 31, 2009 and 2010, the Company
was utilizing ¥8,400,000 thousand ($90,283 thousand)and ¥4,800,000 thousand ($51,591 thousand) of therespective commitment lines. In addition, ¥3,600,000
thousand ($38,693 thousand) of the ¥4,800,000 thousand ($51,591 thousand) utilized as of March 31, 2010
will be repaid after the maturity date of the commitmentline.

6. Net Assets
The Companies Act of Japan provides that an amountequal to 10% of the amount to be distributed as
distributions of capital surplus (other than the capitalreserve) and retained earnings (other than the legal
reserve) be transferred to the capital reserve andthe legal reserve, respectively, until the sum of thecapital reserve and the legal reserve equals 25% of
the common stock account. Such distributions can bemade at any time by resolution of the shareholders orby the Board of Directors if certain conditions are met,
but neither the capital reserve nor the legal reserve isavailable for distributions.

7. Lease Transactions
Finance lease transactions, other than those in which
the ownership of the leased asset is transferred to thelessee that commenced before the first fiscal year inwhich the new accounting standard is applied continue
to be accounted for as operating lease transactions. The
following table shows the amounts which would havebeen recorded as finance leases as of March 31, 2009
and 2010 and for the years then ended:¥ (thousands)
2009

2010

Tools and furniture:
Acquisition cost ¥1,882,666 ¥1,882,666
Accumulated(558,663) (935,196)
depreciation
Net book value ¥1,324,003 ¥ 947,469
Software:Acquisition cost ¥ 216,774 ¥ 216,774
Accumulated(65,029) (108,384)
depreciation
Net book value ¥ 151,744 ¥ (108,389)$ (thousands)
2010$20,235(10,052)$10,183$ 2,329(1,164)$ (1,165)

Lease obligations
including interest
thereon:Due within one year ¥ 422,218 ¥ 421,227
1,067,833
642,797
Due over one year
Total
¥1,490,052 ¥1,064,075$ 4,527
6,909$11,436

Finance leasecharges$ 4,501

Depreciation
expenseInterest portion¥ 557,408 ¥ 418,839
550,187
11,876412,437
7,557

4,432
81

(Note) 1. Methods applied in calculating the above data are as follows:
Depreciation: Straight-line method with zero residual value over thelease contract period
Interest: Computed as the difference between the lease obligations andthe acquisition cost, allocated over the lease term based on theinterest rate method.
2. Finance lease transactions
 Lease assets: Property and equipment: Backup system hardware
Intangible assets: Back up system software Depreciation: Based on zero residual value over the lease term

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201051

8. Fair value measurements for financial
instruments(Additional Information)
From the current fiscal year, the Company has appliedthe “Accounting Standards for Financial Instruments”(Accounting Standards Board of Japan Statement
No.10, revised March 10, 2008) and the associated“Guidance on Disclosures about Fair Value of
Financial Instruments” (Accounting Standards Boardof Japan Guidance No.19, March, 2008).
1. Basic policies for financial instruments(1) Cash and deposits(2) Accounts receivable-trade
Allowance for doubtful accounts (*1)
(3) Designated assets for clearing funds(4) Accounts payable-trade(5) Short-term borrowings(6) Deposits received for clearing funds

The Company limits financial investment to short-term
deposits, and fund raising to borrowings from banks
and others. Because accounts receivable are subject tocounterparty risk from participants in the book-entry
transfer system, the Company continuously monitors
the financial conditions of the participants.
2. Estimated fair value of financial instruments
The following table presents carrying amount on thebalance sheet, fair value and difference between carrying amount and fair value as of March 31, 2010.

Carrying amount on the
Fair value (*2)
balance sheet¥ (thousand) $ (thousand) ¥ (thousand) $ (thousand)¥ 3,468,876$ 37,283¥ 3,468,876$ 37,283
3,318,125
35,663(6,480)(69)
3,311,644
35,594
3,311,644
35,594
33,121,473
355,992
33,121,473
355,992(823,303)(8,849)(823,303)(8,849)(4,800,000)(51,591)(4,800,000)(51,591)(33,121,473) (355,992) (33,121,473) (355,992)

Difference
—
—
—
—
—
—
—

*1: Allowance for doubtful accounts is deducted from Accounts receivable-trade.
*2: Figures in brackets indicate liabilities.

(Note) 1: Calculation methods for fair value of financial
instruments(1) Cash and deposits, and (2) Accounts
receivable-trade
The book value was deemed to be fair value forthese items since the book value approximatesfair value because of the short settlement
period.
(4) Accounts payable-trade, and (5) Short-termborrowings
The book value was deemed to be fair value forthese items since the book value approximatesfair value because of the short settlement
period.
(3) Designated assets for clearing funds, and(6) Deposits received for clearing funds
The book value was deemed to be fair value
since these items represent assets and liabilities
reflecting their roles in maintaining a stablesecurities trading environment.
2: Investment securities totaling ¥356,179 thousand($3,828 thousand) as of March 31, 2010 are
affiliated companies’ stocks for which market
quotes are not available and future cash flow
is extremely difficult to estimate. Accordingly,
such Investment securities are not included in the52

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

above table.
3: Estimated redemptions for monetary claims andsecurities with maturities after the end of theconsolidated financial period:
All deposits and accounts receivable-trade in
the above table have settlement dates within oneyear.
4: Estimated repayments for bonds, long-termloans payable, lease obligations and otherinterest-bearing liabilities after the end of theconsolidated financial period:
There were no material long-term liabilities.
Short-term borrowings are due within one year.

9. Borrowings
Short-term borrowings comprised loans from bankswith a weighted average interest rate of 0.9% perannum. The Company had short-term borrowings of¥4,800,000 thousand ($51,590 thousand) as of March
31, 2010. The current portion of lease obligations was¥20,003 thousand ($215 thousand) and of long-termlease obligations was ¥52,668 thousand ($566
thousand). The weighted average interest rate of leaseobligations was 2.8% per annum. Total borrowings
were ¥4,872,672 thousand ($52,371 thousand) as ofMarch 31, 2010.

10. Allowance for severance indemnities for
employees

13. Income Taxes(1) Deferred tax assets

Allowance for employees’ retirement benefits on
March 31, 2009 and 2010 represented the amountthat would be payable by the Company if all eligible
employees voluntarily terminated their employment at
the balance sheet dates. Severance costs for employeescharged to income for the years ended March 31, 2009
and 2010 amounted to ¥97,320 thousand and ¥102,970
thousand ($1,106 thousand), respectively.

11. Non-recurring depreciation of property andequipment
Non-recurring depreciation of fixed assets arose due toa decision to move computer sites and the dematerialization of stock certificates.
¥ (thousands)$ (thousands)

Buildings
Tools and furniture
Software2009¥19,32258,685
421

2010
¥
—
—
—

2010
$ —
—
—

Long-term prepaid
expenses

—

—

—

Total

¥78,430

¥

—

$

—

12. Loss on disposal of fixed assets
The following table shows disposal of fixed assets:¥ (thousands)$ (thousands)

2009

2010

2010

Buildings andequipments¥ 1,236¥ 32,723$ 351

Tools and furniture
Software

8,761
33,352

14,508125,594156
1,350

Long-term prepaid
expenses
Total

—

5,783

62

¥43,350¥178,610$1,919The following table shows the breakdown ofdeferred tax assets:¥ (thousands)
2009
2010

$ (thousands)
2010

Deferred tax assets:
Allowance for
employees’ bonuses¥ 73,987$ 795

Business facility taxes¥ 75,151
4,212

4,364

46

Accrued social
insurance premiums

10,489

9,502

102

Allowance forloss onbusiness trust
agreement cancellation

381,681——

98,405

—

—

2,799

3,035

32

80,965104,229

1,120

—

4,005

43

Allowance for
executives’retirement benefits—

16,710

179

Excess depreciationof fixed assets

113,468

666,360

7,162

Total deferred tax
assets¥767,175¥882,195$9,481—(16,710)(179)

Enterprise taxes
payable11,354

3,375

36

Net deferred tax
assets¥755,820¥862,109$9,266

Allowance forloss on computer
center transfer
Allowance for
doubtfulaccounts
Allowance for
employees’
retirement benefits
Excess amortizationof deferred charges
for tax purposes

Valuation
allowance
Deferred tax
liabilities:

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201053

(2) Reconciliation between the nominal
statutory income tax rate and the effective
income taxes rate
No disclosure is required under this item, as thedifference between the statutory tax rate and theeffective tax rate for the years ended March 31,
2009 and 2010 is less than 5% of the statutory tax
rate.

14. Notes to the consolidated statements ofchanges in net assets(1) Outstanding shares

2 Dividends for which the record date is in the year
ended March 31, 2010 and for which the effective
date is in the year ended March 31, 2011

Resolution

Total of
Dividends Dividend
Class of Payment¥
Per Share Record Effective
Share Source (thousands)
¥
Date
Date

Ordinary General¥340,000¥ 40,000 March 31, June 22,
Shareholders Ordinary Retained($3,654
2010
2010
Meeting
Shares Earnings($429)
thousand)(June 21, 2010)15. Stock Options
Not applicable.

Class ofshare
OrdinarysharesClass ofshare
OrdinarysharesMarch 31,
2008

Increase

Decrease

March 31,
2009

8,500

—

—

8,500

March 31,
2009

Increase

Decrease

March 31,
2010

8,500

—

—

8,500

(2) Treasury Stock
Not applicable.

(3) Stock Subscription Rights and Other
Securities
Not applicable.

(4) Dividends
1 Payment of the dividends

Resolution

Total of
Dividends Dividend
Class of Payment¥
per Share Record Effective
Share Source (thousands)
¥
Date
Date

Ordinary General
Shareholders Ordinary Retained
March 31, June 23,¥340,000 ¥40,000
Meeting
Shares Earnings
2009
2009
(June 22, 2009)54

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

16. Segment Information(1) Business segment
Disclosure is omitted because the Company operates a single business unit, the book-entry transfer
system for securities.

(2) Geographic information
Disclosure is omitted because the Company had
neither overseas consolidated subsidiaries nor
overseas branches for the years ended March 31,
2009 and 2010.

(3) Overseas sales
Disclosure is omitted because the Company did nothave any overseas sales for the years ended March
31, 2009 and 2010.

17. Related party transactions
The material transactions of the Company with related companies or individuals, excluding transactions with the consolidated subsidiary that are eliminated in the consolidation and those disclosed elsewhere in these financial statements,
for the years ended March 31, 2009 and 2010 are as follows:

For the year ended March 31, 2009
(Additional Information)
Commencing with the current fiscal year, the consolidated financial statements confirm to “Accounting Standard for
Related Party Disclosures” (Accounting Standards Board of Japan Statement No.11) and “Guidance on AccountingStandard for Related Party Disclosures” (Accounting Standards Board of Japan Guidance No.13). There are no additional matters to disclose.

Related party transactions(1) Subsidiaries and affiliates
Relationship
CapitalNames ofcompanies¥
Address (thousands)

Tosho System
Koto-ku,
Service Co. Ltd.
Tokyo
(An affiliate)¥100,000

Principal
businessAmountEnding(Note 1)
Balance
Percentage Directorsof owner- holding
Descriptions¥
ship with concurrent
Business¥voting right positions relationship Transactions (thousands) (Note 2) (thousands)

Design &20% directly
development
heldof software

Two

Purchasing
softwarePurchase of¥6,188,427
and system
softwaremaintenance——(Note) 1. The transaction amounts above exclude consumption taxes. However, the ending balance includes consumption taxes.
2. The terms and conditions of the above transactions are on an arm’s-length basis.

(2) Others

CapitalNames ofcompanies¥
Address (thousands)

Principal
business

Japan Securities
Chuo-ku,¥1,700,000
Clearing
Tokyo
Corporation

Clearing
securities

RelationshipAmountEndingPercentage(Note 1)
Balanceof owner- Directors
holding
ship with
Descriptions¥
voting concurrent
Business¥
positions relationship Transaction (thousands) (Note 2) (thousands)
rights—Two

Commission Commission¥3,645,891
incomeincomeAccounts
receivabletrade¥297,755(Note) 1. The transaction amounts above exclude consumption taxes. However, the ending balance includes consumption taxes.
2. The terms and conditions of the above transactions are on an arm’s-length basis.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201055

For the year ended March 31, 2010
(1) Subsidiaries and affiliates
Relationship
CapitalNames ofcompanies¥
Address (thousands)

Principal
businessAmountEndingPercentage Directors(Note 1)
Balanceof owner- holding
Descriptions
ship with concurrent
Business¥¥voting right positions relationship Transactions (thousands) (Note 2) (thousands)¥100,000
Design &Tosho System Koto-ku,($1,074 development ofService Co. Ltd. Tokyo
thousands)
software20%
directly
held

Two

Purchasing
softwareand system
maintenance

Payment ofcomputermaintenancefee¥1,830,588($19,675
thousands)¥246,133
Accounts
payable-trade($2,645thousands)¥431,170
Purchase ofsoftware—($4,634
thousands)—(Note) 1. The transaction amounts above exclude consumption taxes. However, the ending balances include consumption taxes.
2. The terms and conditions of the above transactions are on an arm’s-length basis.

(2) Subsidiaries of Other Consolidated Financial Statements companies and Related Parties
Relationship
CapitalNames ofcompanies¥
Address (thousands)

Principal
business

Japan Securities¥1,700,000
Clearing
Chuo-ku,
Corporation
Tokyo ($18,271(Subsidiary of
thousands)
other affiliates)

Clearing
securities

EndingAmountBalance(Note 1)
Percentage Directorsof owner- holding¥
Descriptions
ship with concurrent
Business¥voting right positions relationship Transaction (thousands) (Note 2) (thousands)

—

Three

Commission Commission
incomeincome¥2,459,261($26,432
thousands)¥293,347
Accounts($3,152
receivablethousands)
trade(Note) 1. The transaction amounts above exclude consumption taxes. However, ending balance includes consumption taxes.
2. The terms and conditions of the above transactions are on an arm’s-length basis.

18. Earnings Per Share
The basis for calculating earnings per share for the years ended March 31, 2009 and 2010 is as follows:$ (thousands)¥ (thousands)
2009

2010

2010

Net income as reported in the consolidated statements of income¥1,333,941¥1,317,068$14,155

Net income pertaining to common stock shareholders¥1,333,941¥1,317,068$14,155

8,500

8,500

—

Weighted-average number ofcommon stock shares outstanding (in shares)

56

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Report of Independent Auditors
The Board of Directors and Shareholders ofJapan Securities Depository Center, Incoporated
We have audited the accompanying consolidated balance sheets of Japan Securities Depository
Center, Incoporated and consolidated subsidiaries as of March 31, 2010 and 2009, and the related
consolidated statements of income, changes in net assets, and cash flows for the years thenended, all expressed in yen. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Japan Securities Depository Center, Incoporated andconsolidated subsidiaries at March 31, 2010 and 2009, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting principles
generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe year ended March 31, 2010 are presented solely for convenience. Our audit also included thetranslation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made on the basis described in Note 4.

June 18, 2010

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201057

History

1984
Relevant
Legislation

Organizationof JASDEC
and its
Subsidiaries

1985

1991

1992

2000

2001

May 15thJune 27th

Law Concerning Central Securities
Depository and Book-Entry Transfer ofStock Certificates and Other Securities(CSD Law) was promulgated (effective
on November 14th)

The Law for Partial Amendments to the Law
Concerning Book-Entry Transfer of Stock
Certificates, etc. was promulgated(fully effective on April 1st, 2002)

Dec. 6th

May 27th

Nov. 2nd

Japan Securities
Depository Center(JASDEC), wasestablished as afoundation

JASDEC wasdesignated as thedepositoryorganization under
the CSD Law

Detailed plan forconversion of JASDEC to a
joint-stock company wasannounced

Operation of
the System

Sept. 10th
Pre-Settlement Matching System(PSMS) started

Oct. 9th

Oct. 9th

Nov. 26th

Depository and book-entry
Full-scale depository and book-entry
transfer business started (initially transfer business started
for 50 listed stocks on the TSE)

Name of Bridge

58

12-15 Book-Entry Transfer System for
Stocks, etc.
Sant’Angelo Bridge, Italy

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0

Handling of convertible
bonds started

Oct. 9th

May 8th

May 1stComputer system for depository andbook-entry transfer began operation

New depository andbook-entry transfer system
launched

JASDEC launched proprietary system for DVP
settlement of exchange trades

16-21 Book-Entry Transfer System forCommercial Paper and Corporate Bonds
Hercilio Luz Bridge, Brazil

22-25 Book-Entry Transfer System for
Investment Trusts
Sydney Harbour Bridge, Australia

2002

2003

2004

2005

2006

2007

2008

2009

June 9th

Jan. 5th

The Law for Partial Amendments to the Law Concerning
Book-entry Transfer of Corporate Bonds and Other
Securities for the Purpose of Streamlining the Settlement
for Trades of Stocks and Other Securities (Securities Trade
Settlement Streamlining Law) was promulgated

The Securities Trade Settlement
Streamlining Law was enacted

Jan. 4th

Jan. 10th

Japan Securities
Depository Center,
Inc. wasestablished

JASDEC received official designation as
Book-Entry Transfer Institution under the
stipulations of the Law Concerning Book-Entry
Transfer of Corporate Bonds, etc.

June 17th

June 6th

April 6th

Japan Securities Depository Center, Inc.
took over all depository and book-entry
transfer operations from the JASDEC
Foundation, which was dissolved

JASDEC DVP Clearing
Corporation (JDCC) wasestablishedJDCC obtained a license forsecurities obligation assumption
business to act as a securities
clearing agency

March 31st

Jan. 10th

JASDEC inaugurated Short-Term
Corporate Bonds (Commercial
Paper) Book-entry Transfer System

JASDEC inaugurated
Book-entry Transfer System for
Corporate Bonds

May 17th
DVP settlement system for
Non-Exchange Transaction
Deliveries (NETDs) started

Jan. 4th
JASDEC inaugurated Book-entry
Transfer System for Investment
TrustsFeb. 14th
JGB repo and gensaki(transactions with repurchaseagreement) were added to thelist of targets of PSMS

May 1stJASDEC inaugurated
Custody services for
Foreign Stocks

Jan. 4th

Jan. 5th

JASDEC inaugurated Book-entry
Transfer System for Investment
Trusts listed on the stock exchanges,
i.e. for Exchange-Traded Funds (ETFs).

JASDEC inaugurated Book-entry
Transfer System for Stocks, etc.

Jan. 4th

Jan. 4th

JASDEC launched Securities
Information Tracing System(SITRAS) for lost stocks

Operations of SITRAS were
terminated26-29 DVP Settlement System for NETDs
Newcastle upon Tyne Bridge, U.K.

30-33 Pre-Settlement Matching System(PSMS)
Shinkyo Bridge, Japan

34-37 Custody Services for Foreign Stock
Certificates, etc.
Burrard Street Bridge, Canada

38-41 International Relationships
Alsea Bay Bridge, U.S.A.

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201059

Corporate Data (as of March 31, 2010)
Profile of the company
Corporate Name
Registered Office Address
Established
Representative
Major Businesses

Operational Office
Consolidated Subsidiary
Number of Employees

Japan Securities Depository Center, Incorporated
1-1 Nihombashi-Kayaba-cho, 2-chome, Chuo-ku, Tokyo, Japan
January 4, 2002
President and CEO Yoshinobu Takeuchi(1) Book-entry transfer for stocks, etc.
(2) Book-entry transfer for commercial paper(3) Book-entry transfer for corporate bonds(4) Book-entry transfer for investment trusts(5) DVP settlement services for NETDs(6) Pre-settlement matching system(7) Custody services for foreign stocks, etc.
(8) Other businesses
Tokyo
JASDEC DVP Clearing Corporation (Chuo-ku, Tokyo)
192

SharesTotal shares approved for issue

10,000Total issued shares

8,500

Paid-in capital¥4,250,000,000

Shareholders

170

Major shareholders
Number of shares
held

60

Stake inCompany(%)

Tokyo Stock Exchange Group, Inc.

1,918

22.56

Japan Securities Dealers Association

1,043

12.27

Nomura Holdings, Inc.

485

5.70

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

425

5.00

Mizuho Corporate Bank, Ltd.

425

5.00

Mitsubishi UFJ Trust and Banking Corporation

424

4.98

Citigroup Global Markets Japan Inc.

321

3.77

Japan Trustee Services Bank, Ltd.

320

3.76

Trust & Custody Services Bank, Ltd.

284

3.34

Daiwa Securities Capital Markets Co. Ltd.

230

2.70

Jap an Secu ritie s Deposito ry C e n te r, I n c . A NNUA L R E P O RT 2 0 1 0Organization (as of June 30, 2010)
Meeting of Shareholders
Board of Auditors
Auditors Office
Board of Directors
President & CEO
Compliance Office
General Administration Department
Corporate Planning Department
Equity Department
Shareholders Notification Office
Fixed Income and Investment Trust Department
International Department
Post–trade Services Department
Information Services Department
First Systems Department
Second Systems Department

J a p a n S e c u r i t i e s D e p o s i t o r y C e n t e r , I n c . A N N U A L REPORT 201061