(Provisional English Translation)

Demutualization FrameworkofJapan Securities Depository Center(JASDEC)

November 2, 2001
Committee for Reform of Securities Clearing and Settlem ent System

Japan Securities Dealers Association

Demutualization Framework of Japan Securities Depository Center
November 2, 2001
Committee for Reform of Securities Clearing and Settlement System

Items

Description

１．Basic Management
Policy(1) Basic Management
Policy○ The basic management policy to be taken by the new company is to contributeto improving the functions of securities market by providing a highly secure,efficient and convenient infrastructure for the clearing and settlement of
securities, and to contribute to the further development of the national economy
by enhancing international competitiveness of the securities market, taking
into account the matters below;① Operating businesses that meet the needs of users of the securities depository
and book-entry transfer system through direct governance by participants as its
shareholders on the administration of the new company,② Maintaining to persistently improve existing businesses and flexibly
advance into new businesses so that internationally competitive functions of
the new company can be sustained, always taking into account the bestpractices of securities clearing and settlement systems in the world,③ Enhancing transparency of business operations, while performing the
responsibility to the public and attaining public interest by proactively
disclosing the businesses of the new company with the recognition that its
businesses make up an important foundation for securities market,④ Aiming for providing lower-risk securities clearing and settlement services
at a lower cost as possible.

(2) Basic Financial
Policies○ As a principle, the new company is run on a balanced revenue and expenditurebasis. However in order to secure flexible operation, the handling of excessive
revenue can be determined by the board of directors on a case by case basis.
−1−

Remarks

Items
２．Scope and Descriptions

Description

Remarks○ Services to be provided by the new company are those as prescribed in ・ A central securities depository in theof Businesses

the Law Concerning Central Securities Depository and Book-Entry

future is expected to provide a wider

Transfer, and those as prescribed in the Law Concerning Book-Entry

range of functions with increasing

Transfer of Short-Term Corporate Debts.

And, other services related

added values to its securities depository

thereto are also included in the scope of businesses of the newand book-entry transfer services, one ofcompany.

which functions is to expand the typesof eligible securities to all types of（Services designated）
ll

securities, taking into account the

Law Concerning Central Securities Depository and Book-Entry

functions provided by central securities

Transfer [Article４]

depositories overseas. As for deciding① Services relating to custody of stock certificatesthe scope of businesses, users will make② Services relating to book-entry transfer of stock certificatestheir③ Other services prescribed in the law as services which the central

responsibility as well as initiative,

own
into

decisionsaccount

andthesecurities depository is to provide

takingLaw Concerning Book-Entry Transfer of Short-Term Corporate Debts

already having been provided by otherentities, responsibilities to the public

・ Services relating to the book-entry transfer of short-term corporate

and public interests they discharge.
And the plan so decided and formalized
shall be successively launched.

（Related services）
Law Concerning Central Securities Depository and Book-Entry
Transfer [Article 4-2, Paragraph 1]
・ Services related to securities depository and book-entry transfer(Services approved as such)lservices,[Article 8, Paragraph 1]
debts

l

take

Law Concerning Book-Entry Transfer of Short-Term Corporate Debts[Article 9, Paragraph 1]
・ Services related to securities book-entry transfer (Services approved
as such)−2−

ItemsDescription

Remarks○ All types of securities will be handled. However, in actual practice, ・ For the time being, the businesses to be
the range of securities to be handled will be successively expanded to

implemented

will

include one after another when a scheme of such securities has been

depository

formalized.

services of stocks (including preferredandincludebook-entry

thetransfer

investment securities and exchange
traded funds (ETF) such as thoselinked to Nikkei 300; the same shallapply

hereinafter)andconvertible

bonds(CBs),

thebook-entry

andtransfer service of short-term corporate
bonds.

In

addition,

services,

pre-settlement

asrelatedmatching

system for stocks and CBs, delivery
versus payment system and agency
business for principal and interest
payments pertinent to CBs will also be
provided.
○ When competent authorities establish ministerial ordinances, it isrequested that those ordinances enable the flexible expansion of thebusiness scope of the company.

−3−

Item

Description

Remarks(1) Amount of Capital○ The amount of capital contribution shall, in principle, fall in・ Although it will depend on the scope ofContribution, etc.

the range from approximately 6 billion yen to 10 billion yen,businesses to be provided by the new company,

which includes the amount to be invested to the systemadevelopments, enabling the anticipated scope of businesses inproviderthe future, and shall eventually be determined, taking into

settlement system, is expected to secureaccount the actual amount of the funds to be invested to thefinancial soundness and to establish a healthysystem developments for new services.

financial

３．Capital, etc.

centralsecurities
of

the

base

depository,

securities

in

light

of

a

main

clearing

andthepublicresponsibility and public interests. For thisreason, at the time of foundation of the newcompany, it will be appropriate to raise thecapital so as to make a ratio of capital against
fixed assets higher than the average ratio oflisted companies.
The policies relating

・

to

fund

raising

subsequent to the establishment will be
determined by the board of directors from time
to time.
○ Half of the capital contribution will be allocated as the・ The tax on the license registration is assessednominal capital of the new company.

based on the amount of capital at the time offoundation.
○ When the government establishes cabinet ordinances, it isrequested that such ordinances prescribe the minimum
amount of capital and net assets of a central securities
depository at the level of 500 million yen, respectively.
(Eventually, the minimum amount of capital and net assets ofa central securities depository have been prescribed as 500
million yen in the cabinet ordinance effected on October 12,−4−

2001.)Item(2) Scope of Capital
Contributors

Description

Remarks○ Capital contributors to the new company at the time of ・It is assumed unnecessary that any ministerial
foundation will be securities companies, banks and other direct

ordinance prescribes provisions that rule out

users of the its services. However, as new businesses will becertain types of capital contributors to the new

added in the future, organizations, such as investment trust

company.

companies, will be included among the capital contributors. In
addition, it will be considered to seek capital contribution fromissuing companies, who are the users of the securities
depository and book-entry transfer system in a wider context.
(3) Proportion of Capital
Contribution○ It is appropriate to set the proportion of capital contribution ofeach user at the time of foundation in accordance with thedegree of its current usage of the services by each user, inprinciple.
○ The degree of the usage of the services, the basis fordetermining each proportionate capital contribution, will becalculated based on the total amount (prior to rebate) of fees
paid by the user for the services such as deposits, withdrawals,
book-entry transfers and custody of stocks and other securities.
○ The proportionate capital contribution will be reviewed atregular intervals (e.g. every two years).
○ It is not obligatory for users to make capital contributions.

・ Though it is assumed that there will be someparticipants who make no capital
contributions to the new company, thecalculation of each proportionate amount ofparticipant’s contribution for founding a new−5−

company, which will acquire the businesses of
t
Item

h

e

J

Description

a

p

a

n

Remarks
Securities

Depository

Center(hereinafterreferred to as “JASDEC”), will be based on 10
billion

yen,

the

upper

limit

of

capitalcontribution to the new company.
(4) Elimination of the○ In order to avoid substantial influence by small number of・ While referring to the Anti-Trust Law, upper

Control by Specificspecific persons, capital contribution by one user will belimit of capital contribution by one user shall

Persons

restricted to some certain level.

be 5 percent of the total capital contribution,in principle. However, the maximum amountof capital contribution per user shall be 500
million yen.

○ Restrictions on capital contribution will not be applied to stock ・ Even in a case stock exchanges, and securities
exchanges and securities dealers associations, etc. in light ofdealers associations, etc. hold a relatively

thelarge number of shares, the number ofpublicresponsibility

andpublicinterest

that

they

discharge, and of the functions to make additional capital

directors

contribution when some users refrain from contribution.

shall be one for each organization, in principle.

However, the number of shares such organizations may hold, inprinciple, shall not exceed one third of the outstanding sharesin relation to special resolution at the general meeting ofshareholders.
As an operation may become difficult because of the○complexity of the shareholders’ right structure when the typesof stocks are issued, only common stocks will be issued, andpreferred stocks will not be issued in principle.
(5) Incentives to Capital−6−

representing

suchorganizations

Contribution○ Certain amount of dividend to be regarded as the primary
incentive to capital contributions will
shareholders on the best effort basis.

−7−

be

paid

to

the

Item
４．Usage of Assets left in
JASDEC

Description

Remarks○ Usage of assets left in JASDEC will be deliberately discussed ・ Pursuant to the interpretation of the Civil
so as for such assets to be granted to public organizations of both

Code and according to the precedents of thefinancial and securities industries, or to be used effectively foradministration on public corporations, thethe reform of the securities clearing and settlement system. The

donation of the assets left in JASDEC to aSpecial Committee Concerning Demutualization of Securities
Depository

andBook-entry

Transfer

Organizationsprivate stock corporation is not allowed.
will ・ The Special Committee will continue to exist

determine the organization(s) to whom such assets should be

until the organization(s) to whom the assets

granted, in light of the direction of discussions pertaining to theleft in JASDEC is to be granted will bereform of the securities clearing and settlement system at thedetermined.

Financial Council of the Financial Services Agency.
○ The transfer of JASDEC’s remaining assets to the nationaltreasury, which is provided in the Civil Code as the last resort, is
not acceptable as it is contrary to the intention of initial
contributors of the fund.

５．Business Plan and○ While the new company, in principle, will be operated on a ・ At the time of a system development in

Forecast for Revenue

balanced revenue and expenditure basis, such measures as

anticipation of the expansion of the businessand Expenditure

reviewing the fee structure and revising the fee level will be

scope, the functions of each system should betaken from time to time if necessary, taking into account themade in common to the maximum extent so

conditions of the businesses expected to be newly launched andthat it could contribute to the efficient use of

the conditions of the securities market as well as the possible

the systems and to restraining of costs.

necessity of stable dividend payments.

−8−

Item

Description

Remarks

６．Composition of theBoard of Directors(1) Directors① Basic Policy○ The board of directors should be composed adequately sothat the user-oriented principle and neutrality and fairnessof company businesses could be attained.
○ Directors representing participants shall be appointed,
considering the balance among industries, on the basis of
the degree of the usage of the services and the capital
contribution.

② Number of○ The number of directors will be approximately 15, ・ There must be more than 3 directors. (Article 255,

Directors

altogether, including full-time and part-time (representing
Commercial Code).
both the participants and the interest of public).
・ The number of directors at DTC is 18, CREST Co, 16,
and SICOVAM, 12.
○ The number of full-time directors
representatives) will be approximately 3.

(non-participant ・ Currently there are 3 full-time directors in JASDEC: 1
president, 1 senior managing director and 1 managing
director.

○ The

numberofpart-time

directors(participant ・ If capital contribution is made based on the calculation

representatives) will be approximately 10.

of fees paid for services by each participant, the industry
compositionofpart-time
directors(participant
representatives) will be shown as in the table below:−9−

IndustryFees

No. Of Directors

Securities

42.4％

About 4

Banks

20.7％

About 2Trust banks

18.3％

About 2

Exchanges, etc.

18.6％

About 2

Item

Description

Remarks○ In principle, directors shall be appointed according to the ・ While it is anticipated that the integration of groupproportion of capital contributions aggregated by industry.

companies in the future will be furthered, such as theintroduction of a holding company, the method forappointment of directors will be deliberated in light ofchanges of the conditions.
・ In such a case, one of the alternative options for the
future will be to have one director per company group.

○ The number of part-time directors (other than participant
representatives) will be approximately 2 (from academia
and an organization related to issuing companies).
③ Qualification

In order to make the board of directors function○

effectively, it will be appropriate that the persons who are
to be appointed as directors shall have deep knowledge ofthe securities clearing and settlement.

(In case ofparticipant representatives, each of those to be appointed
shall be, in principle, a member of the board of aparticipant company and the like.)(2) Auditors① Number ofauditors

The number of auditors will be approximately 3 ・ There must be more than 3 auditors, and one or more of○altogether, including 1 full-time auditor and 2 part-time

the auditors should not be the persons who haveauditors.

assumed an office of director, executive officer or
employee of the company or its subsidiary in the last 5
years prior to the appointment (Article 18, Paragraph 1,
Special Law of Commercial Code).
・ Currently, there are 3 auditors in JASDEC: 1 full-time
auditor and 2 part-time auditors
−10−

Item

Description

Remarks○ Of two part-time auditors, one will be appointed from thesecurities industry and the other from the banking
industry, in accordance with the current practices.
② Qualification○ As well as in the case of appointment of members of theboard, it will be appropriate that the persons who will be
appointed as auditors shall have deep knowledge on the
securities clearing and settlement. (In case of participant
representatives, each of those to be appointed shall be, in
principle, a member of the board of a participant company
and the like).

(3) Committees① Committees○ Besides the company organizations such as the board of
directors, committees will be formed to reflect the opinionsof participants to the business operation of the newcompany (e.g. a committee for new business, or
subcommittees under it). In this case, the committees will
be composed of persons who could accurately and fairly
reflect the opinions and views of the practitioners (e.g.,general managers, assistant general managers, or manager
of a participant company).
It will be determined by the new company which
committees be established, including the management○advisory committee mentioned in the subsection ② below,
watching the next amendments to the Commercial Codeapplicable to the company organization and also thepractices of overseas central securities depositories, such as
DTC.
−11−

Item
② Management

Description

Remarks○ There was an opinion that a management advisory ・ There was an opinion that the new company’s decision

Advisory

committee should be formed for the following functions;on whether to establish a management advisory

Committee(1) To reflect minority opinions expressed by industries notcommittee is dependent on the effectiveness of corporate

represented by directors into the company operations,

governance by the directors including outside directors.

(2) To monitor and restrain the inducements of profit to be

In any case, attention must be paid to adequate

offered to specific participants or industries, and further,(3) To receive opinions and views on basic policy of thecompany management and operation of the securities
depository and book-entry transfer system from various
perspectives.
○ There was another opinion that it would not be necessary
to form a management advisory committee for thefollowing reasons;(1) The new company is to be run under the corporate
governance of shareholders and directors elected byparticipants,(2) The new company has a board of directors consisting ofoutside directors in order to secure the public interest,
besides the directors representing participants.

−12−

measures for securing full transparency.

Item

Description

Remarks

７．Basic Provisions in the
Articles of Incorporation(1) Company Name

○ In view of the continuity of the securities depository and book-entry
transfer business and the wide recognition of the present name, thename of the new company will be the “Japan Securities Depository
Center, Incorporated”, abbreviated to “JASDEC, Inc.”.

(2) Purpose○ As basically prescribed in the above paragraph, “2. Scope and ・

There was an opinion that the new

Descriptions of Businesses,” the provisions on business purposescompany should not make by itself any

should be prescribed so as to have wider possibility of furnishingprovisions in the Articles of Incorporation,

various functions, such as handling of all types of securities, in lightthat would restrain its businesses.
of the functions furnished by overseas securities clearing and ・ There was an opinion that the scope andsettlement organizations.

contents of businesses should fully bedeliberated by the board of directors andbe determined only when the consensus isattained.

(3) Others○ Restraints on the transferability of shares will be imposed.
○ In principle, no class stocks such as preferred stocks will be issued.
○ Interim dividend payment plan will not be adopted.

−13−

Item
８．Procedures for

Description

Remarks○ Hereafter, an ad hoc committee for the preparation of the

The procedures for the demutualization of・Foundation and Method

foundation of the new company should be formed shortly and

JASDEC should be followed along with the linesof Transfer of Businessnecessary preparatory works for the foundation, such asof this report.

deliberation on the appointment of initial promoters of the
new company and other items, should be proceeded.
○ The ad hoc committee for the preparation of the foundation of ・ The ad hoc committee will be composed of two
the new company will be made up of representative ofrepresentatives from the securities industry, andindustries which participants belong to (such representative

one

shall be a member of the board of a participant company andindustry, the trust bank industry, the stock

the like) and the directors of JASDEC.

exchanges, securities dealers association andrepresentative

each

from

the

banking

JASDEC.
○ Intending to file an application for the approval of transfer ofbusiness to the new company spontaneously responding to thefull enforcement of the Amended Law Concerning Central
Securities Depository and Book-Entry Transfer on April 1,
2002,

the

necessary

procedures

pertinenttothedemutualization should be expeditiously proceeded.
○ As the new company may not be able to commence the ・ Before the new company acquires the businesssecurities

depository

andbook-entry

transferbusinessfrom JASDEC and commences its businesses, a

immediately after the foundation, such a measure that capital

certainperiodcontribution is to be made in two stages should be deliberated,announcement of transfer of businesses to theso that the capital contribution could be effectively used. (It isnewnecessary to confirm the appropriateness of the detailed

inspectors of the assets to be acquired, and theschedule with competent authorities.)

examination by the authorities of the applicationcompany

of
by

time

is

JASDEC,requiredinspection

forbyfor the approval of the transfer of business to the
new company.
−14−

Item

Description

Remarks
・ Initially, the new company will be founded withlimited subscription for the convenience ofvarious procedures (The first stage of capital
contribution; The new company will be foundedby the initial promoters by the end of this year. ),and then the subscription up to full amount of
capital will be made by the participants at thetime when it becomes necessary.(The second
stage of capital contribution; It will be expectedshortly after the amended Law becomes effective
on April 1, 2002.)

In this process, deliberateconsideration should be made to procedures ofsubscription and relations to authorized capital.
・ Before the first stage of capital contribution iseffected, the detailed method of calculation forthe proportion of the capital contribution of eachparticipant (to be calculated based on the degreeof usage of services) will be determined.

−15−