Towards Japan Securities Settlement Systems
and Infrastructure Reform(Summary)[English Translation]

November 2002

The Committee for Reform of Securities Clearing and Settlement System
The Securities Settlement System Reform Promotion Working Group1 Introduction
Maintaining Japan’s position as a leading international capital market requires thedevelopment of a more efficient, more accessible, and lower risk securities settlement
system. To achieve this goal, Japan will need to continuously promote reform of securities
settlement practices and the underlying infrastructure.
Proper implementation of such a large-scale, industry-wide reform program requires
strong commitment and agreement among all market participants.
The goal of this report is:(1) to share the strategic importance and goals of the Reform among industry participants(Chapter 3),(2) to recognize and understand the issues/challenges currently faced (Chapter 4),(3) to provide an overview of future securities settlement systems (Chapter 5), and(4) to define the master schedule and the Reform project organization structure to achieve
the Reform (Chapter 6).

2 Background and Premises of this Report
This report was created by the Securities Settlement System Reform Promotion Working
Group established by the Committee for Reform of Securities Clearing and Settlement
System1.
This report is based on interviews with industry participants conducted from late-Junethrough October, 2002 as well as weekly discussion meetings and continuous discussions
with core member firms and organizations of the Working Group throughout the project.
This report describes topics and issues in discussion from multiple industry working
groups and/or committees that will require final resolution in the near future.

1

Accenture and Tradewin collaborated in the research, discussion facilitation, and interviewing of industry participants, tocreate this report, as requested by the Working Group. The contractual format was that the Securities Settlement System
Reform Center that was established in the Japan Securities Dealers Association as the Project Management Office for theWorking Group requested the research, interviews, and reporting to Accenture as a primary contractor with collaborationfrom Tradewin as a subcontrator.

1

3 Significance and Goals of Securities Settlement Systems Reform
A clear understanding and agreement of the Securities Settlement Systems Reform’s
significance and goals is critical to the Reform’s future success. We have outlined theimportance of the Reform to the Japan capital markets and describe the Reform’s major
goals.

3.1

Significance of Securities Settlement Systems Reform
We believe the Reform is essential for two basic reasons: it creates an infrastructure thatenables future market growth and it advances Japan’s position in global capital markets.
(1) Contributes to the Japanese capital markets growth through the development of a moreconvenient, streamlined settlement system with reduced settlement risk.
• The Reform aims to provide a low risk, efficient and standardized securities
settlement infrastructure that reduces settlement risks, improves industry
participants’ convenience, and streamlines business processes.
• The Reform aims to encourage industry participants to proactively beginenhancing their settlement infrastructures to achieve these goals.
• The Reform aims to develop an advanced securities settlement infrastructure thatenables cost-efficient settlement services and provides new strategic opportunities
for industry participants.

(2) Reinforces Japan’s competitive position in the global capital markets.
• The Reform aims to create a “burning platform” for Japan to catch up with the
U.S. and European countries in the international capital markets.
• The Reform aims to exceed global standards for low risk and efficient securities
settlement systems taking into consideration future market growth and evolution.

Preparation of required legislation and laws for the Reform has proceeded quickly
including the passing of “The Law regarding Book-entry Transfer of Corporate Bonds,etc.” and development of legislation for the dematerialization of stocks. As the enactmentof the legislation and laws are imminent, the securities industry needs to swiftly drive theReform forward.
The Reform requires cooperation and strong initiative from all securities industry
segments and participants.

2

3.2

Goals of Securities Settlement Systems Reform
The Securities Settlement Systems Reform goals are as follows.
Goals and Major Milestones of Securities Settlement Systems Reform(1) To achieve globally competitive and advanced Paperless DVP Settlement• By end of FY 2002： DVP Book-entry Settlement of short-term bonds• By end of FY 2003： DVP Book-entry Settlement of Customer-side
Transactions of Stocks
1• By end of CY 2004 ： DVP Book-entry Settlement of Corporate Bonds• By end of CY 2004 1： DVP Book-entry Settlement of Investment Trusts• By end of FY 2004： JGB Clearing(2) To achieve Straight Through Processing that improves efficiency of theoverall systems and improves Japan’s competitive position• By end of CY 2004： Matching infrastructure for multiple products including
JGB, Corporate Bonds, and Short-term Bonds(3) To achieve Shortening of Settlement Cycles• To make shortening of settlement cycles a key goal of the Securities
Settlement Systems Reform in Japan and achieve this as soon as possible

Rapid development of “(1) Paperless DVP Settlement” for all instruments is of highest
priority in order reduce principal risks and align to global standards. In preparing newlegislation and laws for dematerialization, we target a globally competitive and advanced
securities settlement infrastructure that exceeds the level of the U.S. and major European
countries in terms of safety and efficiency.
“(2) Straight Through Processing” is an important goal to improve efficiency andreduce settlement costs. It is necessary for all industry participants to work together on
implementing STP business processes as part of the settlement infrastructure.
“(3) Shortening of Settlement Cycles” depends significantly on the successful
implementation of DVP/STP settlement infrastructures and market practices. So while thisis an important goal, we need to give priority to “(1) Paperless DVP Settlement” and “(2)Straight Through Processing” before proceeding to “(3) Shortening of Settlement Cycles”.

1

Although the JASDEC has set a tentative milestone for the new book-entry settlement system and the matching utilities,
etc. for corporate bonds and investment trusts to go live in December of 2004, the systems outline is now underconsideration in the Corporate Bonds Sub-committee and the Investment Funds Sub-committee in the JASDEC, and theschedule is to be adjusted and finalized hereafter based on the conclusions of the sub-committees.

3

The following two points can be raised as critical for Japan to achieve “(3) Shortening of
Settlement Cycles”:• It is necessary to implement a securities settlement infrastructure that enables
shortening of settlement cycles to maintain competitive position and keepplaying an important part of the global capital markets.
• The shortening of settlement cycles for financing such as JGB repo transactions
and issuance of short-term bonds will contribute to revitalization of short-term
fund transactions.

Although T+1 settlement decision has been deferred in U.S. markets, “Shortening of
Settlement Cycles” remains an important goal for the Securities Settlement Systems Reformin Japan.
In fact, for instruments such as JGB repo transactions and issuance of short-term bond,T+0 should be considered, so we set “Shortening of Settlement Cycles” as the Japan target
rather than “T+1”.

The table below describes guiding principles by instrument for the shortening ofsettlement cycles.

• A new settlement infrastructure should be implemented targeting T+1
for outright trades and T+0 for short-term fund transactions.
JGB

Short-term
Bond

Stock

• Business process issues and market practices issues will need to beresolved to achieve STP settlement with this new infrastructure.
• A new settlement infrastructure should be implemented aiming at T+1,
then T+0 settlement as soon as possible.
• Business process issues and market practices issues will need to beresolved to achieve STP settlement with this new infrastructure.
• A new DVP/STP infrastructure should be implemented as soon as
possible, during which the approach for shortening of the settlement
cycle should be considered.
• A new settlement infrastructure should be implemented aiming at
shortening of settlement cycles for priority instruments.

Corporate
Bond• Target timing for settlement cycle shortening should be defined
depending on requirements by instrument. Business process issues andmarket practices issues will need to be resolved to achieve STP
settlement with this new infrastructure.

44 State of the Japanese Securities Settlement Systems & Overseas Trends
4.1

Industry Discussions to Date and Current Status in Japan
Development of a DVP/STP securities settlement infrastructure for Japan has yet to berealized (see Figure 4-1). DVP settlements are available for JGB settlement, trades of stocks
at exchanges (Tokyo Stock Exchange and Osaka Securities Exchange), and for a portion
registered bonds in Japan. JASDEC is now implementing systems for DVP book-entry
settlements for customer-side transactions of stocks and short-term bonds. A systems
outline is also under consideration for corporate bonds and investment trusts based on the
Law regarding Book Entry Transfer of Corporate Bonds, etc.

4.2

Major Issues
A number of issues will need to be addressed to achieve the Reform objectives, changes
to existing legislation, upgrading of system infrastructures, and new rules definitions. A
summary of major issues is shown in Figure 4.2 and described in detail in Section 4.2 of thereport. Issues that have been noted as “To be discussed” should be assigned to beappropriate working groups (see Chapter 6 for the Reform Project Organization).

4.3

Overseas Trends
When implementing the Securities Settlement Systems Reform in Japan, it is crucial to
pay attention to trends of global market practice and systems and continuously monitor
overseas trends.
Other leading capital markets have already embarked on comprehensive programs toachieve improve their securities settlement systems. In the U.S., an industry-wide masterschedule was developed to aggressively pursue STP.
European countries have targeted improving efficiency of cross-border trades andsecurities settlement infrastructures. Market participants have developed larger and moresophisticated IT infrastructures has been emerging through mergers and alliances acrossborders.
Asian countries are also aggressively implementing/enhancing securities settlement
infrastructures. In particular, Hong Kong and Singapore have been executing their reform
plans aiming at establishing positions as global trade hub in Asia.

5

: Securities settlement infrastructure

Figure 4-1 Current Japan Securities Settlement Infrastructure: Infrastructure partly supporting functions concerned: Message transfer

Stock
Street-side

Customer-side

Corporate Bond

Short-term Bond

Investment Fund

JGB

Order,
Execution,
Trade
Exchanges,
etc.
Matching

JASDECJB-Net Functions

Registered JGB Only

(Matching System)(MAC Key Transfer)(MAC Key Transfer)

Trade information transfer supported by FIRST

Clearing

Exchanges,
etc.

Settlement

Book-entry
Transfer(Securities)

JASDECJB-NetTrade information transfer supported by FIRST

Exchange Trades(TSE, OSE) Only

Registration
登録機関
Agencies
JB-Net

BOJ

DVP
Settlement

Net-Net DVP

Gross-Gross DVP(Designated Time)

Gross-Gross DVP(RTGS)

Book-entry
Transfer(Fund)

BOJ,
Settlement
Banks

BOJ

BOJ

6

Figure 4-2 Major Issues Overview
Essential
Essential Issues
Issues inin Securities
Securities Settlement
Settlement Systems
Systems Reform
Reform (Excluding(Excludingthose
thoserelated
related totoshortening
shorteningof
ofsettlement
settlementcycles)
cycles)
Preparation
Preparation ofof Securities
Securities Settlement
Settlement Systems,
Systems, Processes,
Processes, andand Infrastructures
Infrastructures
Clearing
Matching
Settlement
Clearing
Matching
Settlement★ Settlement Matching System
in operation

Stock
Stock

【Japan Securities Clearing
Corporation】

Conversion
Conversion toto New
New
Settlement
Settlement Systems
Systems【JASDEC Customer-side★ Street-side DVP System in operation ●1-7 Increase of Securities Depository Ratio
DVP Sub-committee【JASDEC Existing Business Sub-committees】☆1-1 Customer-side DVP System Implementation☆1-2 JSCC Implementation○1-3 Consolidation of
Derivative Clearing Functions●1-4 Preparation for the Law regarding Dematerialization of Stocks○1-5 Business Scheme Definition for Dematerialization of Stocks○1-6 Settlement Scheme Definition for Listed Foreign Stocks○7-1 Preparation of T+0
Stock/Bond Lending
Repo Markets【JGB Clearing Corporation Establishment Working Group】●2-1 Definition of Matching
Functions Requirement

Corporate
Corporate
Bond
Bond

Issues by
by Instrument
Instrument
IssuesJGB
JGB●2-2 Discussion on
Establishment of
JGBCC【JASDEC Corporate Bond
Sub-committee】

ShortShortterm
term
Bond
Bond

+

IssuesIssues related
related totoShortening
Shortening ofof
Settlement
Settlement Cycles
Cycles【JASDEC CP Sub-committee】★ JGB RTGS System in operation【Bank of Japan】○2-3 Definition of Settlement Scheme for Book-keeping
Institutions under Multi-layered Account Structure☆2-4 Conversion Planning●3-1 DVP Scheme Definition●3-6 Conversion Flow
Definition for●3-2 Scope Definition for Target Bonds and Participants
Outstanding Bonds●3-3 Definition of Business Flows for Primary/Secondary●3-7 Conversion Planning
Markets Trade, Redemption, and Coupon Payment○3-4 Definition of Settlement Scheme for Book-keeping
Institutions under Multi-layered Account Structure○3-5 Fail Rules Definition☆4-1 Short-term Bond Settlement System Implementation○4-2 Short-term Bond Settlement System Impl. (Full-scale)【JASDEC Investment Fund Sub-committee】

Investment
Investment
Fund
Fund

●5-1 DVP Scheme Definition●5-2 Definition of Settlement Business Scheme under
Dematerialization○7-2 Definition of Cut-off
Time by Instrument
and Trade Types, etc.
○7-3 Realization of Foreign
Exchange Trades
enabling T+1○7-4 Definition of Target
Schedule for
Shortening of
Settlement Cycle byInstrument○7-5 Implementation ofAdvanced Collection
Rule for Personal
Investors●5-4 Conversion Flow
Definition for Outstanding
Investment Funds●5-5 Conversion Planning●5-3 Preparation for the Law regarding Dematerialization【JASDEC Settlement Matching Sub-committee】☆6-1 Enhancement of Matching
System’s Scope and Functionality

Other
Other
IssuesIssues☆6-2 Dissemination of Matching
System●6-3 Connectivity to Overseas
Matching Infrastructures○6-4 Network Infrastructure
Development and Format
Standardization for STP○6-5 Integration of Clearing
Organizations○6-6 Accounting Standards Definition for the New
Settlement Systems○6-7 Scope Definition of Services to be provided by Securities
Settlement Infrastructure and Book-keeping Institutions
under Multi-layered Account Structure●6-8 Preparation for the Law regarding Connectivity
with Overseas Securities Settlement Organizations○6-9 Consideration regarding Taxation System under
the New Settlement Systems

7★: Institutions and systems already in operation☆: Under development●: Under discussion/consideration○: To be discussed/considered hereafter5 Overview of Future Securities Settlement Scheme
5.1

Overall Picture of Securities Settlement Infrastructure / 5.2 Future Industry
Models by Instrument
This section provides an overview of the target securities settlement approaches. Figure
5-1 and Figure 5-2 respectively show “(1) Securities Settlement Systems Overview atCompletion of Current Infrastructure Initiatives” and “(2) Securities Settlement Systems
Overview at Completion of Current and Likely Initiatives” that includes initiatives currently
discussed in the working groups and committees.

Securities settlement systems initiatives currently ongoing/consideration by instrument

Stock

Corporate
Bond

Short-term
Bond

Investment
Fund

•
•
•

JSCC (the unified clearing organization) implementation
Customer-side DVP System implementation
JASDEC-PSMS Second Stage (Connection with theCustomer-side DVP System)•

Implementation of a book-entry settlement infrastructure anda matching infrastructure based on the Law regarding Book
Entry Transfer of Corporate Bonds, etc.

Under consideration••

Short-term bond book-entry system implementation
Short-term bond book-entry system implementation (Fullscale enhancement of DVP, etc.)

Ongoing
To be considered•

JASDEC-PSMS First Stage/Third Phase implementation(investment fund setting/cancellation, etc.)
Implementation of a book-entry settlement infrastructure anda matching infrastructure based on the Law regarding Book
Entry Transfer of Corporate Bonds, etc.

Ongoing

•

•

JGB

•

JASDEC-PSMS First Stage/Third Phase implementation(JGB trading)Establishment of a clearing organization and matching
infrastructure for JGB

Ongoing
Ongoing
Ongoing

Under consideration

Ongoing
Under consideration* The “Ongoing” initiatives shown above are reflected in both Figures 5-1 and 5-2, and theinitiatives either “Under consideration” or “To be considered” are reflected on Figure 5-2 only.

8

Figure 5-1 (1) Securities Settlement Systems Overview at Completion of Current Infrastructure Initiatives: Securities settlement infrastructure:：当該機能を部分的にサポートしているインフラ
Infrastructure partly supporting functions concerned: Enhancement from the current state (Figure 4-1)
: Message transfer

Stock
Street-side

Order,
Execution,
Trade

Customer-side

Short-term Bond

Exchanges,
etc.

Matching

Clearing

Corporate Bond

JGB

Registered JGB Only

JASDECJB-Net Functions(Matching System)(MAC Key Transfer)

JSCC

JASDEC
Clearing
Subsidiary(Japan Securities
Clearing
Corporation)

Settlement

Book-entry
Transfer(Securities)

Investment FundJASDEC(MAC Key Transfer)

JASDECJASDEC (substituting functions for FIRST)JB-NetExchange Trades(TSE, OSE) Only

Registration
登録機関
Agencies
JB-NetJASDEC

BOJ

DVP
Settlement

Net-Net DVP

Gross-Net DVP

Gross-Gross DVP(Designated Time)

Gross-Gross DVP

Gross-Gross DVP(RTGS)

Book-entry
Transfer(Fund)

BOJ,
Settlement Banks

BOJ

BOJ

BOJ

BOJ

• Unified Clearing
Organization (JSCC) will
start operation(in January, 2003 (plan))• JASDEC will start DVP
book-entry settlement for
short-term bond(by end of FY2002 (plan))• JASDEC will start Customerside DVP, JASDEC Clearing
Subsidiary will start operation（by end of FY2003 (plan))9• JASDEC-PSMS First Stage/Third Phase
will start operation(in May, 2003 (plan))Figure 5-2 (2) Securities Settlement Systems Overview at Completion of Current and Likely Infrastructure Initiatives: Securities settlement infrastructure：当該機能を部分的にサポートしているインフラ: Infrastructure partly supporting functions concerned: Enhancement from the current state (Figure 4-1)
: Message transfer

Stock
Street-side

Order,
Execution,
Trade

Customer-side

Corporate Bond

Short-term Bond

Investment Fund

JGB

Order Transfer System※ Systems provided by information services vendors, electronic trading systems (PTS), etc.

Exchanges,
etc.

Matching

Matching Infrastructure※ JASDEC-PSMS enhancement, etc.

Clearing

JSCC(Japan Securities
Clearing
Corporation)

JASDEC
Clearing
Subsidiary

Settlement

Book-entry
Transfer(Securities)(Necessity of clearingorganization depends on
DVP scheme, etc.)

JASDEC

DVP
Settlement

Net-Net DVP

Book-entry
Transfer(Fund)

BOJ,
Settlement Banks

Gross-Net DVP

DVP(Necessity of clearingorganization depends on
DVP scheme, etc.)

JGBCC(JGB Clearing
Corporation)

BOJ※ Book-entry settlement under the multi-layered account structure including book-keeping institutions
for corporate bonds, short-term bonds, investment funds, and JGB

Gross-Gross DVP

DVP

Gross-Gross DVP(RTGS)

BOJ• Dematerialization and DVP• Book-entry DVP settlement based on • Full-scale book-entry
settlement for issuance/system will be
the Law regarding Book Entry
redemption based on the Law
implemented.
Transfer of Corporate Bonds, etc.
regarding Book Entry Transfer(Enhancement ofwill be implemented
matching and DVP, etc.) of Corporate Bonds, etc. will be• Matching infrastructure will be
implemented
implemented• Matching infrastructure will be
10
implemented• JGB clearingorganization will start
operation• Matching infrastructure
will be implemented

5.3

Issues to be resolved
In moving forward with the proposed securities settlement systems, several cross-productissues exist, and are explained in the following table.

Major Cross-product Issues

Matching
Process

An STP architecture requires: (i) implementation/enhancement of trade- andsettlement-matching processes and (ii) agreement among institutional investors
and asset management firms to convert to the new matching infrastructure.
Users’ benefits need to be emphasized by implementing an accessible, efficient,and low-cost cross-product matching infrastructure.
Order transfer system vendors are expected to provide systems solutions for
asset managers and institutional investors that connect with the matching
infrastructure. It is also necessary to promote standardization of network
infrastructures and formats.

Clearing
Process

Book-entry
Settlement
Process

Stakeholders who will manage clearing organizations must discuss future
clearing systems coordination and clearing organization integration. Key points
to be considered include account efficiency, accounts accessibility by users,
maintenance cost-reduction, and risk management.
A new clearing model will need to be developed taking into consideration thecurrent clearing methods and discussions in the industry. Integration ofclearing functions and integration of clearing organizations would be two major
issues for discussion to define an optimal clearing model in Japan.
An efficient book-entry settlement process, considering smooth conversion
from book-keeping and book-entry settlement mechanisms, will need to be
developed based on the proposed law on dematerialization of stocks (targeted
for April, 2004), which is further based on the Law Concerning Depository andBook-entry for Share Certificates.
Book-entry rules will need to be defined for multi-layered account structures
for corporate bonds and other instruments under the new STP infrastructure.
New book-keeping entities supporting multi-layered accounts will be
introduced and details as to the specific services and each financial institution’s
usage of those services will need to be defined.

Conversion
to New
Systems

Conversion of outstanding bonds/investment funds to the new securities
settlement systems will need to be considered based on the Law Regarding
Book Entry Transfer of Corporate Bonds, etc. The conversion method shouldincorporate conversion costs and extra workloads during the transition period
when the old and new systems coexist.
An inexpensive conversion approach will be required for non-traded
instruments such as private subscription bonds and private placement bonds.

11

6 Master Schedule for Securities Settlement Systems Reform
6.1

Schedule toward Securities Settlement Systems Reform
This section describes the schedule for the Securities Settlement Systems reform. Figure
6-1 shows major milestones for the new securities settlement infrastructure implementation.
Figure 6-2 indicates the overall master schedule assuming that the Securities Settlement
Systems Reform is progressed at earliest opportunity, taking the major milestones into
account.

12

Figure 6-1 Securities Settlement Systems Reform Milestones (fixed or planned)● : Major milestone already set○ : Major milestone currently planned△ : Major milestone tentatively set by JASDEC

1〜3

2002 (H.14)
4〜6
7〜9

10〜12

1〜3

2003 (H.15)
4〜6
7〜9

10〜12

2004 (H.16)
4〜6
7〜9

1〜3

10〜12

2005 (H.17)
1〜6
7〜12

2006 (H.18)
1〜6
7〜12

2007 (H.19)
1〜6
7〜12

2008 (H.20)
1〜6
7〜12

This Report is created.
(Oct., 2002)

Legislation
Legislation●Law regarding
Transfer
Settlement of
Short-term Bonds
into effect(Apr., 2002)●Law regarding Book
Entry Transfer ofCorporate Bonds, etc.
into effect (Jan., 2003)○Bill regarding dematerialization of stocks to be submitted to the Diet (Fall of 2003)○Law regarding dematerialization of Stocks in effect (Apr., 2004)●Abolishment of theBond Registration
Law (By Jan., 2008)●Law revising the Law of Securities Transactions into effect(Legislation regarding clearing organizations) (Jan., 2003)●Launch of Securities Settlement System Reform Center (Apr., 2002)

CommonCommon acrossacrossAll
All Products
Products

Stock
Stock
JGB
JGB

●Commencement of operations of JASDEC, Inc. (June, 2002)●Commencement of operations of JSCC (Jan., 2003)
st stage/2nd phase●JASDEC-PSMS 1st stage/ ●JASDEC-PSMS 2nd stage (Target: End of FY2003)●JASDEC-PSMS 1(Feb., 2002)
3rd phase (Target: May,
(Connection with the Customer-side DVP System)2003) (JGB, futures/(convertible bonds, non-resident trades)
options, investment trusts)●DVP book-entry settlement for customer-side transactions of stocks(Target: End of FY2003)○Commencement of operations of JGB clearing organization (Target: End●Reporting of the JGB Clearing Organization
Establishment Working Group (Oct., 2002)
of FY2004)●Commencement of New JGB Book-entry Settlement System (Jan., 2003) (Target set by the JGB Clearing Organization Establishment Working Group)△DVP book-entry settlement of corporate bonds(Dec., 2004)

By
Corporate
By
Corporate
Product
Bond
Product Bond
Short-term
Short-term
Bond
Bond

(Target tentatively set by JASDEC)●Completion of
conversion to bookentry system(Target: Jan., 2008) *1●DVP book-entry settlement of short-term bonds(Target: End of FY2002)△DVP book-entry settlement of investment funds(Dec., 2004)

Investment
Investment
Fund
Fund

(Target tentatively set by JASDEC)●SIA (U.S.) will make a decision
about T+1 (2004)

OthersOthers13*1 The target for completion is January, 2008 due to taxation of outstanding corporate bonds
at abolishment of the Bond Registration Law.

Figure 6-2 Master Schedule for Securities Settlement Systems Reform (under current assumptions)2002 (H.14)
10〜12
Commencement of
JSCC operation(Jan., 2003)
Commencement of
New JGB Bookentry Settlement
System (Jan., 2003)

Major
Major Milestones
Milestones

1〜3

2003 (H.15)
4〜6
7〜9

10〜12

1〜3

2004 (H.16)
4〜6
7〜9

10〜12

2005 (H.17)
1〜6
7〜12

DVP book-entry
settlement of corporate
bonds and investment
funds (Dec., 2004)

DVP book-entry settlement DVP book-entryof short-term bonds (Target: settlement ofEnd of FY2002)
stocks (Target:
End of FY2003)

2006 (H.18)
1〜6
7〜12

2007 (H.19)
1〜6
7〜12

2008 (H.20)
1〜6
7〜12

Commencement ofoperation of JGB
clearing organization(Target: End of FY2004)

JASDEC-PSMS 1st stage/3rd phase (Target: May, 2003)

Timing at which Figure 5-1 is to be realized*2

Timing at which Figure 5-2 is to be realized*3

A-1 JASDEC-PSMS Enhancement (1st Stage/3rd Phase)
A-2 Connectivity with Customer-side DVP System: Milestone (already fixed)

A-3 Enhancement of Products Coverage and Functionality

A.
A. Matching
Matching Infrastructure
Infrastructure

A-4 Study and Implementation of Connectivity with Order Transfer Systems: Milestone (assumption) *1

A-5 Study and Implementation of Connectivity with Overseas Matching Infrastructures: Milestone (tentatively set by JASDEC) *1

A-6 Dissemination of Matching Infrastructure, etc.

: Task schedule (already fixed)

A-7 Standardization of Network Infrastructures and Formats: Task schedule (assumption)*1

B-1 Preparation for Customer-side DVP System Implementation (Systems, Business Processes, etc.)

B.
B. StockStock: Task schedule (indicated with some latitude
since the schedule is to be adjusted/finalized
hereafter) *1

B-2 Preparation for Commencement of JASDEC Clearing Subsidiary’s Operation
B-3 Preparation for Commencement of JSCC’s Operation
B-5 Systems/Business Processes Development
for Dematerialization of Stocks

B-4 Study for Dematerialization of Stocks

C-1 Preparation for Conversion to New JGB Book-entry Settlement SystemC.
C. JGBJGB
Securities
Securities
Settlement
Settlement
Infrastructure
Infrastructure
byby ProductProduct

C-2 Study of JGB Clearing Org. Outline
C-3 Continuous Studies of Other Issues

D.
Corporate
D. Corporate
Bond
Bond

E.
E. Short-term
Short-term
Bond
Bond

F.
F. Investment
Investment
Fund
Fund

G.
(Overallmanagement,
management,
G. Others
Others (Overall
cross-productcross-productconsiderations,considerations,etc.)
etc.)

C-4 Preparation for Commencement of JGB Clearing Organization’s Operation(Establishment of Entity, Systems Development, Business Process Definition, etc.)

D-1 Study of Corporate Bond Book-entry Outline

D-3 Preparation for Corporate Bond Book-entry Settlement (Systems, Business Processes, etc.)

D-2 Continuous Studies of Other Issues

D-4 Conversion of Outstanding Bonds

E-2 Study for Short-term Bond
E-1 Preparation for
E-3 Preparation for Short-term Bond Book-entry
Book-entry Settlement (FullShort-term Bond
Settlement (Full-scale Enhancement)
scale Enhancement) Outline
Book-entry
Settlement
F-1 Study of Investment Fund Book-entry Outline
F-2 Continuous Studies of Other Issues

F-3 Preparation for Investment Fund Book-entry Settlement(Systems, Business Processes, etc.)
F-4 Preparation for Conversion of
Outstanding Investment Funds※Corporate bond and investment fund bookentry settlement systems tentatively set for
December, 2004 by JASDEC.
Adjustment/finalization to be completed by
JASDEC sub-committees Phased approachby products may be considered.
※Conversion schedule for corporate bonds
and investment funds may be adjusted.

G-1 Management of Progress and Issues for Overall Securities Settlement Systems Reform
G-2 Study of Cross-products Issues, etc.
H-2 Implementation of Settlement Cycle Shortening (JGB)
H-4 Implementation of Settlement Cycle Shortening (Short-term Bond)

H-1 Study for Shortening of Settlement Cycle (JGB)H.
H. Shortening
Shortening ofof
Settlement
Settlement Cycles
Cycles: Task schedule (not yet fixed since the contentsof the task may be considerably changed as theresult of further discussions hereafter) *1

H-3 Study for Shortening of Settlement Cycle (Short-term Bond)
H-5 Study for Shortening of Settlement Cycles (Other Products)*1 Infrastructure detailed task schedules should be led by organization(s) that would provide eventual infrastructure,
based on users requirements, legislation, and system approaches.

*2 “(1) Securities Settlement Systems Overview at Completion of Current Infrastructure Initiatives” (shown in Section 5-1).
*3 “(2) Securities Settlement Systems Overview at Completion of Current and Likely Industry Initiatives” (shown in Section 5-1).

14

We believe that further development of the Master Schedule should take into thefollowing points:• Development of Phased Schedule
The securities settlement infrastructure implementation schedule has primarily been
discussed and determined by instrument. However, a phased schedule taking into
consideration system and personnel resource constraints and risks involved in multiple
product implementations should be developed.

• Update of the Master Schedule
Working groups and/or committees led by respective infrastructure provider(s) willconsider legislative, systems, and other issues in more detail. Durations to implement
the new infrastructure will need to be estimated and the Master Schedule will need tobe adjusted accordingly by the Project Management Organization proposed in Section
6.2.
In particular, target dates for the new settlement mechanisms should be clarified assoon as possible as these will greatly determine the start timing of industry participants
preparation.

15

6.2

Project Organization for the Securities Settlement Systems Reform
To manage the complexities of the Reform and to balance the needs of multiple industry
participants, two project management entities have been defined based on the following
principles:• An industry-wide project organization with representation from each industry
segment is required• Overall coordination and project management is needed to advance industry-wide
Reform.
We will establish a “Reform Project Management Committee”(tentatively referred to as
the “PM Committee”) under the Committee for Reform of Securities Clearing and
Settlement System as a reform promotion body at the practitioners’ level.
We will establish a “Project Management Office”(tentatively referred to as the “PM
Office”) as a cross-industry secretariat to support the PM Committee (see Figure 6-3).
・ Functions as a committee for promotion and coordination at the practitioners’
level and is expected to meet biweekly.
・ Includes participation from each industry segment: financial institutions(e.g., securities firms, banks, trust banks, etc. ), infrastructure providers(e.g., exchanges, JSDA, JSCC, JASDEC, etc.), the BOJ and executive
authorities.
PM
Committee

・ Conducts reviews of issues be discussed with an “Extended PM
Committee” including representatives of the Committee for Reform ofSecurities Clearing and Settlement System including issuing corporations
and institutional investors as required.
・ Defines working groups under the PM Committee as required and leads thediscussion and reform promotion in each working group.
・ Coordinates implementation of the overall Reform Program based on thediscussions, decisions, and progress of the working groups.
・ As a secretariat for the Committee for Reform of Securities Clearing and
Settlement System and the PM Committee, responsible for the following
project management:(1) Defines/updates the Reform Plan Overview and monitors the overall progress

PM Office(2) Prepares/updates the issue list and monitors progress of each issue(3) Facilitates information sharing and coordination among working groups andorganizations concerned(4) Identifies new issues and/or delays and takes necessary actions(5) Coordinates overall communication and develops updates for industry
participants

16Figure 6-3 Project Organization for Securities Settlement Systems Reform (under current assumptions)
Committee for Reform of Securities
Clearing and Settlement System

Responsible for coordinating private
sector discussions and agreements.

Project Management for Overall Reform

Project management forthe overall Reform.

Share issues and progress on an ongoing basis between the
PM Office and each working group/organization

Reform Project Management Committee (PM Committee) *1
Major
Securities
Firms

Major
Banks

Major
Trust
Banks

・・

Infrastructure
Providers

BOJ

Executive
Authorities(FSA, etc.)

PMO
Function*2
Matching

Stock

Clearing

Settlement

Exchanges

JSCC

Exchanges(Sections concerned)(Sections concerned)(Sections concerned)

JASDEC Customer-side DVP Sub-committee

WorkingGroup

WorkingGroup・・・

Major industry sectors, infrastructure providers(e.g., exchanges, JSDA, JSCC, JASDEC.), BOJ,
executive authorities (e.g.,FSA), and the PM
Office will participate in the PM Committee (tobe held approximately every two weeks))
The PM Committee will launch working groups,
allocate discussion topics/issues to them, andmonitor progress.
The “Extended PM Committee” consisting ofadditional representatives of the Committee for
Reform of Securities Clearing and Settlement
System will be also held as required forpresentations and review.

(1) Committee for Reform of Securities Clearing and Settlement System
and industry-wide working groups and organizations established hereunder- The industry-wide Reform project management committee (PM Committee) will
coordinate discussion topics and issues to be resolved. Working groups will beestablished as necessary.
- Each working group will be led by the PM Committee.
- The PM Office, as a secretariat of the PM Committee, will provide overall project
management for the industry-wide Reform.

Japan Securities
Dealers Association
Japanese Bankers
Association

Working Groupfor Establishmentof JGBCC

JGB

Corporate
Bond

JASDEC
Settlement
Matching
Sub-committee

Short-term
Bond

BOJ
(Sections concerned)

Regional Banks
Association of Japan• Executive
Authorities• Individual studies
and discussions

Second Associationof Regional BanksJASDEC Corporate Bond
Sub-committee

National Associationof Shinkinbanks
Trust Companies
Association of Japan

N/A(no clearing function)

JASDEC CP
Sub-committee

Investment Trusts
Association, Japan
Life Insurance
Association of JapanJASDEC Investment Fund
Sub-committee

Marine & Fire Insurance
Association of Japan, Inc.

(2) Infrastructure providers andsub-committees led by infrastructure providers(3) Related industry
association*3

Investment
Fund- Infrastructure providers will coordinate infrastructure development
discussions within in their respective product and settlement areas.
- Information should be shared on an on-going basis between eachworking group/organization and the PM Office.

・・

The PM Committee will establish
working groups as required.
Participation from cross-industry
participants selected based on the
topic.
Working groups will be led by the
PM Committee members based on
topic.

Working
Group

Japan Business
Federation(4) Others- Information should be shared on - Information should be
an on-going basis between
shared on an ongoing
industry associations and the PM basis between related
Office.
executive authorities/
parties concerned and- Reform Topics/issues need to be
the PM Office.
coordinated between industry
associations and working groups
under the Committee for Reformof Securities Clearing and
Settlement System.

*1 We assume the “Securities Settlement System Reform Promotion Working Group” will be expanded to a PM Committee to facilitate broader discussion of specific issues/topics.
*2 We assume the Securities Settlement Systems Reform Center which is the secretariat of the “Securities Settlement System Reform Promotion Working Group” will be reorganized to a PM Office, to facilitate industry-wide efforts and actively participate in the Reform.
*3 Working groups and committees established by each industry association are also included.

17

6.3

Changes in Industry Segments
Brokerage, asset management, and custody firms will need to evaluate the impact of theReform to their business. The following table describes points for each sector to consider.
Preparation for the Securities Settlement Systems Reform by industry segment
・ Prepare operational and system changes for the revised bookentry, clearing, and settlement infrastructure.
Brokerage/Dealing(e.g., Securities firms andbank treasury)

Asset Management(e.g., Insurance firms, trustbanks, institutional
investors, investment
funds, investment
management firms)

1・ Evaluate opportunities to subcontract components of thesettlement process mindful of core competencies.1
・ Evaluate opportunities to provide new settlement services toother firms.
・ Evaluate ways to use the matching infrastructure (e.g., connect
directly to the matching infrastructure, use systems provided
by vendors, subcontract components of back office processes(including matching)).

Custody・ Prepare operational and system changes for the revised bookentry, clearing, and settlement infrastructure.

(e.g., Trust banks,
custodians)

・ Evaluate opportunities to provide new settlement and agency
services to other firms.

* Including bookkeeping institution’s
business processes

・ Evaluate opportunities to utilize settlement services provided
by other book-keeping institutions.

Each industry participant needs to restructure its business processes and systems to meet the requirements of the securities
settlement systems reform as the securities settlement infrastructures are being implemented. There would be several
changes to settlement related businesses depending on the industry participants’ customer segments and strategies.
Some examples are described as follows:• Medium to small retail brokers/dealers may outsource their street-side settlement processes to reduce costs and efforts to
respond to the securities settlement systems changes. It will be necessary to prepare such environment that bothbrokers/dealers and service providers can efficiently and flexibly respond to the changes.
• Wholesale brokers/dealers may also decide to strategically outsource their settlement related processes both in street-side
and customer-side to reduce costs and efforts to respond to the securities settlement systems changes in the future, andfocusing on the front-side business as their core competence.
• Large institutions will keep their own settlement related processes within the four walls to maintain competitiveness intheir brokerage/dealing business in terms of operation costs and quality, etc.

18

Towards Japan Securities Settlement Systems
and Infrastructure Reform
Publication

November 2002

Edited and published by
REFORM PROMOTION CENTER FOR
SECURITIES CLEARING AND SETTLEMENT SYSTEM
１−５−８，KAYABACHO，NIHONBASHI CHUO-KU，TOKYO〒１０３−００２５，JAPANTEL．０３（５６４９）３９８０
FAX．０３（５６４９）３９３９e‑mail：kessaicenter@wan.jsda.or.jp
Homepage address of JAPAN SECURITIES DEALERS ASSOCIATION：http://www.jsda.or.jp＊

All rights reserved.