Securities Finance
ANNUAL REPORT 2017

PROFILE
Growing in step with the securities industry and supporting
its future development
In June 1951, Japan Securities Finance Co., Ltd. (JSF) launched its loaning operations,dealing with funds and stock certiﬁcates needed by securities companies for delivery andsettlement of margin transactions.
This margin loan business can be transacted solely by securities ﬁnance companies
licensed in accordance with the Financial Instruments and Exchange Law.
As Japan’s largest securities ﬁnance company designated by the Tokyo, Sapporo, andFukuoka Stock Exchanges, JSF is contributing signiﬁcantly to improving the fairness ofstock price formation and liquidity of stocks in the secondary equity markets.

CONTENTS
Financial Highlights ･･･････････････････････････････････････････････････････････････････････････････････････ 2
Message From The President ･ ･･････････････････････････････････････････････････････････････････････････ 4
Business Review ･ ･･･････････････････････････････････････････････････････････････････････････････････････････ 5Management Policy ･･････････････････････････････････････････････････････････････････････････････････････ 10
Our Business Development ････････････････････････････････････････････････････････････････････････････ 15
Our Business Field ････････････････････････････････････････････････････････････････････････････････････ 16
Corporate Governance ･･････････････････････････････････････････････････････････････････････････････････ 23
Risk Management ･ ･･･････････････････････････････････････････････････････････････････････････････････････ 32
Financial Section ･･････････････････････････････････････････････････････････････････････････････････････････ 37
Outline Of JSF Group ････････････････････････････････････････････････････････････････････････････････････ 74
Corporate Data ････････････････････････････････････････････････････････････････････････････････････････････ 75

1

FINANCIAL HIGHLIGHTS

Thousands of
U.S. dollars*Millions of yen*
2013

2014

2015

2016

2017

2017

Operating Results:
Operating revenues￥

17,676￥

19,566￥

20,300￥22,035￥23,066＄

205,598

Operating income

1,788

2,568

3,025

2,558

2,802

24,976

Net income

1,778

6,211

3,520

2,646

3,078

27,436

Total assets￥ 3,433,456￥ 3,914,388￥ 3,482,602￥ 3,249,170￥ 4,645,052＄41,403,441

Net assets

118,591

135,227

137,145

142,031

139,712

1,245,316

3.45

3.45

3.94

4.37

3.00

3.00

Financial Position:

Shareholders' equity ratio (%)
Per Share Data:
Net income￥

Net assets

19.10

￥

60.35

￥

33.94

￥

26.90

￥

31.91

＄

0.28

1,274.67

1,260.43

1,373.94

1,467.01

1,452.64

12.95

14

14

15

16

18

0.16

Cash dividend* except per share amountOperating revenues

Operating income(millions of yen)(millions of yen)

25,00022,03520,00019,5663,500

23,066

3,025

3,000

20,30017,676

2,802
2,568

2,500

15,000

2,000

2,558

1,788

1,500

10,000

1,000
5,000

0

500

13

14

15

16

0

17

2

13

14

15

16

17

FINANCIAL HIGHLIGHTSNet income

Net income per share(millions of yen)

(yen)

7,000

70
6,211

6,000

60

5,000

50

4,000

2,000

40

3,520

3,000

60.4

3,078

33.9

31.9

30

2,646
1,778

26.9

20
19.1

1,000
0

10

13

14

15

16

0

17

Net assets per share

16

17

20

1,453

18

1,374
15
1,275

15

(yen)

1,467

1,400
1,300

14

Cash dividend per share

(yen)

1,500

13

14

14

13

14

15

16

1,260

10

1,200
1,100

5
1,000
900

13

14

15

16

0

17

15

16

17

Note: 1. Yen amounts have been translated into United States dollars, solely for the convenience of the reader, at the rate of￥112.19=U.S.$1 in effect on March 31, 2017.
2. Net income per share is calculated based on the weighted average number of shares outstanding during each
respective year. Net assets per share is calculated based on the number of shares outstanding at the end of each
respective year.
3. Shareholders’ equity ratio is calculated by using following formula.Total net assets / Total liabilities* and net assets*except for securities accounts such as Collateral securities deposited3

MESSAGE FROM THE PRESIDENT

In fiscal 2016, the final fiscal year of the 4th MidTerm Management Plan, we endeavored to strengthen
our system infrastructure while deepening our existing
businesses.
Since the securities market turned bullish last summer,
the stock loan balance on loans for margin transactions
have recovered to a level surpassing that of the previous
year. Moreover, other than seeing a halt of decrease in
the main outstanding balance of loans due to detailed
countermeasures to our customers’ needs, diversified
securities operations that we have continued as partof responding to the ultra-low interest rates havesucceeded, resulting in an increase of both revenues andearnings.
In order to respond to the expectations of all of our
stakeholders, the Company believes that it is important
to maintain a stable earnings base and strong financial
standing. On this premise, under our new Mid-Term
Eizo Kobayashi
President

Management Plan published in March 2017, our basic
policy is “To enhance enterprise value while [giving]

comprehensive consideration to the earnings environment, investment plans, etc., and to ensure are returned toshareholders.”
Under the policy that the year-end dividend “consolidated payout ratio shall not fall below the 60% level,” wecomprehensively considered the earnings conditions and increased dividends by two yen per share to ten yen per sharefor fiscal 2016 (annual dividend per share of 18 yen). For fiscal 2017, although the outstanding balance of margintransactions are anticipated to have an annual average margin of 300 billion yen exceeding the previous fiscal period forboth margin loans and stock loans, we forecast a decrease in earnings due to a decrease in revenues against the backdrop
of a decrease in the balance of investment securities holdings, an increase in the non-operating funds in the trust accountof JSF Trust and Banking, a subsidiary of JSF, an increase in tax expenses, etc., leading to a forecast dividend per share of
16 yen. As for share buybacks, we set a ceiling of 1.5 million shares at an acquisition price of up to 1 billion yen.
Going forward, the Company will continue to implement our shareholder return policies while considering the share priceconditions, etc. We ask our shareholders for your continued support and guidance for the JSF Group.

Eizo Kobayashi
President

4

BUSINESS REVIEW

BUSINESS REVIEW
closing deals on March 31.

Business Environment
Looking back at the fiscal year ended March 31, 2017,
the Japanese economy continued to show modest growth

During this period, the average daily trading volume on

given improvements in corporate earnings, employment andthe First Section of the Tokyo Stock Exchange was 2.252

income environments, etc., underpinned by the government’billion shares, a year-on-year decrease of 353 million shares,s economic policies.

while the average daily value traded was 2.5424 trillion yen,a year-on-year decrease of 340.9 billion yen.

As for the equity market, the Nikkei 225 stock average
started the term at 16,164 yen, however, due to rising

Meanwhile, the outstanding balance of standardized

concerns over Europe’s state of affairs following Brexit inmargin buying on the Tokyo market largely followed alate June, the Nikkei 225 plunged while the yen appreciated,decreasing trend from the 2.2 trillion yen level at thehitting the term low of 14,952 yen on June 24. After mid-

beginning of the term, due to profit-taking driven by rising

July, the average rose with high stock prices in Europe andshare prices in mid-November, falling to the term low at the

the U.S., and because large-scale economic stimulus was

1.5 trillion yen level. Subsequently, it experienced a rising

expected in Japan. Furthermore, after the U.S. presidential

trend as market sentiments improved, recovering to the 2election in early November, there were expectations fortrillion yen level by the end of the term. On the other hand,proactive fiscal policies by the U.S., leading to a strong

the outstanding balance of standardized margin selling,dollar and weak yen which became the underlying cause ofwhich was at the 390 billion yen level at the beginning ofan upward trend for the Nikkei 225, resulting in the term

the term, fell to the low for the term in late June to 340

high of 19,633 yen on March 13, settling at 18,909 yen inbillion yen due to profit-taking buybacks as share prices

Nikkei Indexyen
22,00020,00018,00016,00014,000
Apr
2016

May

Jun

Jul

Aug

Sep

5

Oct

Nov

Dec

Jan
2017

Feb

Mar

Outstanding balance of Standardized Margin Transactions(billions of yen)

2.500
Margin Buying

Margin Selling

2.000

1.500

1.000

0.500

0.000
Apr
2016

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
2017

Feb

Mar

plummeted. Later, as share prices rose, new sales increased,transaction business and bond lending business, increased,

and the balance recovered to the 750 billion yen level forthe consolidated operating expenses were 11.892 billion

the first time in approximately seven and a half years inyen (3.1% year-on-year increase). Moreover, general andmid-December, but this tapered off in the New Year, falling

administrative expenses amounted to 8,371 million yen

to 620 billion yen by the end of March.

(5.4% year-on-year increase).
As a result, the consolidated operating income was 2,802

Business Results of the JSF Group
Under these market trends, the total value of outstanding

million yen (9.5% year-on-year increase). The consolidatedloans for the JSF Group (term average) was 467.2 billion

ordinary income increased to 3,611 million yen (7.8% year-

yen, a year-on-year decrease of 179.7 billion yen.

on-year increase) due to an increase in dividend income inaddition to an increase of equity in earnings of affiliates,

The consolidated operating revenues were 23,066

and net income attributable to the owners of the parent was

million yen (4.7% year-on-year increase) due to increased

3,078 million yen (16.3% year-on-year increase).

revenue from securities lending fees in bond lending
business, etc. On the other hand, although funds
procurement costs decreased with the implementation

1) Securities Finance Business
Loans for Margin Transactionsof the Quantitative and Qualitative Monetary Easing withIn the loans for margin transaction business, the terma Negative Interest Rate policy by the Bank of Japan,

average for the outstanding balance of margin loans was

because securities lending fees in the loans for margin

265.4 billion yen, a 135.9 billion yen year-on-year decrease,

6

BUSINESS REVIEW

resulting in a decrease in income from interest on loans.

Securities lending

On the other hand, the term average for the outstanding

In the securities lending business, operating revenues forbalance of stock loans was 291.3 billion yen, a year-on-

the service were 4.453 billion yen (98.7% year-on-year

year increase of 63.9 billion yen, and as stock lending fees

increase) as a result of large increased profits due to theand premium charges on over-lent issues increased, etc., thebullish general stock lending section in addition to increased

service’s operating revenues were 10,721 million yen (1.3%

outstanding balance of bond lending, etc., in the bondyear-on-year increase).

services section.

Bond Financing and General Loans

Other business

As for bond financing and general loans, the term

Other operating revenues were 3,325 million yen (3.9%

average for loans was 44.8 billion yen, a year-on-yearyear-on-year increase) due to increases in both dividend

decrease of 117.5 billion yen, due to sluggish loans toincome on investment trusts and gains on sales offinancial instruments business operators, individuals, andgovernment bond holdings, despite a decrease in interest

companies. Moreover, the use of loans such as equity repos

income on government bonds holdings.

decreased due to a decline in demand for funds by financial
instruments business operators. As a result, the service’s2) Trust Banking Business

operating revenues were 907 million yen (48.3% year-on-

In the trust banking business, the term average loan balanceyear decrease).

was 149.9 billion yen, a year-on-year increase of 95.3 billion
yen, causing an increase in revenue from interest on loans

Average outstanding balance of Loans for Margin Transactions(billions of yen)

600

Margin Loans
490

500

428

401

400
300
200

Stock Loans

214

222
183

227

265

291

176

100
0

13

14

15

7

16

17

Breakdown of JSF Group operating revenues
2017

2016

( ￥ million)( ￥ million)

19,407

17,776

10,721

10,579

1,694

2,720

887

575

Fees on lending securities

7,771

6,840

Bond financing and general loans

907

1,753

4,453

2,241

Stocks

941

907

Bonds

3,512

1,334

Other business

3,325

3,201

Trust Banking Business

2,792

3,451

Interest on loans

147

144

Trust charges

668

627

Real Estate Leasing Business

865

807

Total Operating Revenues

23,06622,035

Securities Finance Business
Loans for margin transactions
Interest on loans
Interest on collateral money for securities borrowed

Securities lendingin addition to increased trust charges. However, as gains onsales of government bond holdings decreased, the operating

In the midst of these changes, bearing in mind therevenues of the service were 2,792 million yen (19.1% year-

possibility that the current ultra-low interest rates may

on-year increase).

continue, the Company will strengthen our existing
businesses by leveraging the management capabilities

3) Real Estate Leasing Businessand creditworthiness that we have acquired over time in

In the real estate leasing business, operating revenues were

finance and securities business management, as well as our

865 million yen (7.3% year-on-year decrease).

market neutrality; at the same time, we intend to enhance
the fundamental stability of our businesses by proactively
addressing new Japanese and overseas transaction needs

Future challenges
In recent years, along with technological improvements

and thereby maintain the trust of markets and investors.

such as the application of artificial intelligence (AI) to

Based on these approaches, we formulated the 5th Mid-products and services, the globalization and development

Term Management Plan in March, 2017.

of finance has accelerated. Furthermore, as international
financial regulations and securities clearing systems are

Under the 5th Mid-Term Management Plan, for theundergoing reviews with the aim of stabilization, themargin loans business as part of the securities market

environment in which our company operates has seen major

infrastructure, we aim to pursue stable managementchanges.

and improve convenience, while working to enhance the8BUSINESS REVIEW

provision of information relating to systems of margintransactions and loans for margin transactions, expanding
the range of investors. Furthermore, we aim to enhance our
profit opportunities by proactively addressing the diverse
transaction needs of Japanese and overseas financial
instrument companies by increasing direct transactions
with customers based outside Japan, accepting collateral forforeign securities, etc., and we intend to proactively address
new transaction needs that correspond to shorter settlement
intervals for securities. Moreover, other than further
enhancing our structure for continuing business in the eventthat major disasters occur, we will also continue to prepare
and strengthen our cybersecurity measures.
Through the aforementioned measures, our Groupwill improve our mid- to long-term business results,
enhance enterprise value, and ensure a return of profits toshareholders.

9MANAGEMENT POLICYMANAGEMENT POLICY
Corporate Philosophy

activities, organization, and system and to create an efficient,

As an institution specializing in securities finance, JSF has adynamic structure.

mission to contribute to the development of the securities

At the same time, there have been major changes in themarket by proactively meeting the diverse needs of theenvironment in which our company operates. Specifically,

securities and financial sectors and to enhance the long-

along with technological improvements such as theterm interests of users, while always maintaining a keen

application of artificial intelligence (AI) to products andawareness of its public role.

services, the globalization and development of finance haveincreased speed and international financial regulations andManagement Principles

securities clearing systems have undergone further reviews

・ To practice sound business management by thoroughly

aimed at stabilizing financial markets. As a result, newimplementing compliance, corporate governance, andfinancial transaction needs are also emerging.

risk management and thereby establish solid credibility,

While bearing in mind the possibility that the current

while always maintaining a keen awareness of our social

ultra-low interest rates may continue, our Group will work

responsibilities as a securities finance company.

to strengthen our existing business by leveraging themanagement capabilities and creditworthiness that we・ To enhance enterprise value while maintaining solid

have acquired over time in finance and securities business

equity capital in order to ensure the management

management as well as our market neutrality; at the samestability and financial health required of a company

time, we intend to enhance the fundamental stability ofthat is a key player in securities market infrastructure,

our business by proactively addressing new domestic andto give comprehensive consideration to the earnings

overseas transaction needs and thereby maintain the trust

environment, investment plans, etc., and to ensure profits

of markets and investors.

are returned to shareholders.

In line with this approach, we have formulated a new
medium-term management plan that begins in FY2017.

・ To further enhance JSF’s core customer loans businesswhile also striving to expand the finance- and securities-[Strategies]i) Enhancing the Margin Loan Business as part ofrelated services provided by JSF and Group companies,
develop new business, and to further grow and solidify

securities market infrastructure

the entire Group’s base.

We aim to pursue stable management of our marginloan business and improve profitability by appropriately

・ To further improve the efficiency of organizational andresponding to changes in the stock market environment.

business management within the Group in order toMoreover, we aim to carefully monitor trends among market

flexibly address changes in the business environment.

participants, promote the use of margin loans, enhance theprovision of information relating to margin transactions andmargin loans, and expand the range of investors.

Management Plan
Fifth Mid-term Management Planii）Flexibly addressing the needs of domestic and[Concept]

We aim to enhance our profit opportunities by proactively

It has been over three years since JSF merged with theaddressing the diverse transaction needs of domestic andOsaka Securities Finance Company, Ltd. During that time,

foreign financial instrument companies, through increasing

our group has moved forward with efforts to integrate ourdirect transactions with clients based outside of Japan,

foreign financial instrument companies

10

MANAGEMENT POLICY

including foreign companies that are already customers

continue to upgrade our remote backup arrangementsof JSF, accepting collateral for foreign securities, etc.

while closely monitoring trends in the finance and securities

Moreover, we aim to expand our securities lending businesssectors.

by proactively addressing new needs and reducing thevii） Developing an employee-friendly work

settlement interval for securities.

environment and making the company moreiii）Developing new businessdynamic

We will leverage our strengths as a company with a history

We will increase the productivity of individual personnel

in the securities finance field, and develop new businessand make the company more dynamic by developing a

based on a long-term perspective in collaboration withrewarding and employee-friendly workplace.

Group companies and domestic and foreign partners.

Shareholder Return Policyiv）Diversified management of securities as an

To enhance enterprise value while maintaining solid equity

efficient use of capital

capital in order to ensure the management stability andWe will secure stable revenues by responding to changes

financial health required of a company that is a key player

in the external environment and revising our portfolio in a

in securities market infrastructure, to give comprehensive

flexible manner while maintaining appropriate risk controls.

consideration to the earnings environment, investment plans,Moreover, we will move forward with expandingetc., and to ensure profits are returned to shareholders.

management based on foreign currency-denominated

Our dividend policy is to return profits to shareholders

securit ies such as foreign government bonds andbasically in accordance with the “consolidated payout ratio”

establishing foreign currency funding methods, in order to

as a standard that reflect our business performance, but also

support the development of business using foreign currency.

taking account of “dividend on equity ratio”.

v）Enhancing collaboration with Group companies[Basic Policy]

We will proactively address diversifying transaction

To enhance enterprise value while maintaining solid equity

needs by enhancing collaboration with Group companies,

capital in order to ensure the management stability andespecially subsidiaries. Moreover, we will further solidify thefinancial health required of a company that is a key player

revenue base for the Group as a whole through integrated

in securities market infrastructure, to give comprehensive

initiatives involving JSF and its subsidiaries.

consideration to the earnings environment, investment plans,etc., and to ensure profits are returned to shareholders.

vi）Strengthening business management structure
We will proactively address our social obligations and[Basic Dividend Payment Policy]

ensure that compliance is positioned as a prerequisite of

Our policy is that the consolidated payout ratio, as amanagement, in order to achieve our corporate philosophy.

standard that reflects our business performance, shall not

To establish unwavering social trust in our company, we

fall below the 60% level and that we shall return profits to

aim to secure the effectiveness of our internal auditing

shareholders while taking into account the consolidated

and further enhance our risk management in response todividend on equity ratio (DOE = ratio of the dividend amountthe increasingly diverse and complex risks associated withto shareholder equity).

finance business.
In order to maintain the loan business that is our top[Share Buyback Policy]
With a view to offering even more rewarding returns topriority in the event that a major disaster occurs, we will

11

shareholders, we will buy back shares as needed in future
while considering the company’s financial situation, stock
price levels, and so forth.

12

MANAGEMENT POLICY

Special Figure : The President's Comments
Reviewing the 4th Mid-Term Management Plan

we generally achieved results as planned in expanding

First, I will review the 4th Mid-Term Management Plan

the number of loanable stock issues and informationalthat has been in place since fiscal 2014, and ended inoutreach activities to improve the ease of use for the

March 2017.

loans for margin transactions. Influenced by trends in“Expanding the loans for margin transactions businessthe equity market and monetary easing, the margin loan

as key infrastructure for the securities market,” was one

balance experienced a decreasing trend, while the stockof our business strategies for this Management Plan, andloan balance followed a trend of increase.

FY2013

FY2014FY2015FY2016

Margin Loan Balance (Ave: ￥100 mil)

4,906

4,283

4,014

2,654

Stock Loan Balance (Ave: ￥100 mil)

1,764

2,220

2,274

2,913

No. of Loanable Issues

2,059

2,202

2,300

2,322

Moreover, for “Responding to the diversifying needs

struggled with the introduction of the negative interestof financial instruments companies and other customers,”

rate policy last year. On the other hand, securities lending

flexible responses to conditions for loans and schemes

has seen smooth progress, as we have been able tofor money lending were a success at the beginning of theapprehend the needs of the times.

Plan, leading to an increased loan balance, but have since

FY2013

FY2014FY2015FY2016

Sec Lending (Revenue: ￥mil)

2,216

2,293

2,241

4,453

Loan Balance (Ave: ￥100 mil)

1,368

2,016

1,434

286

With regard to, “Strengthening system infrastructure,”

although repayments will begin in full from fiscal

we invested a total of 4.5 billion yen and revamped

2017, the running costs will be reduced significantly.

our core system, establishing a structure that provides

Accordingly, after the repayments are completed in fiscal

customer convenience and supports our business

2022, we anticipate a large reduction in the system’s

strategies. As for the new system’s impact on profits,

overall costs.

● Estimated Cost ( ￥mil)
FY2013

FY2014FY2015FY2016

Depreciation Cost

266

221

471

1,136

Maintenance Cost

1,761

1,772

1,591

1,041

Lastly, for “Improving fund management efficiency,”

appropriately controlling for risks, and this has smoothly

we aimed to diversify investments by going beyond

produced results.

only managing Japanese government bonds, while13

● Transition of income from securities investment ( ￥mil)
FY2013

FY2014FY2015FY2016

2,838

2,979

3,111

3,305

Eyeing the 5th Mid-Term Management Planby cultivating peripheral services that were developed

Building off the previous plan, we launched the 5th

as new or existing services in the 4th Mid-Term

Mid-Term Management Plan in fiscal 2017. We haveManagement Plan

placed the strengthening of foundations as the principle

The seven strategies of the 5th Mid-Termobjective of the business strategy, which we aim to do

Management Plan are indicated below.

Strategies

Chief Examples

Enhancing the Margin Loan Business as part of
securities market infrastructure

・Expand the number of loanable stock issues, andstrengthen procurement capabilities
・Participate in discussions to reduce the settlement
interval (T+2) in the stock market.

Flexibly addressing the needs of domestic andforeign financial instrument companies

・Promote direct transactions with customers basedoutside of Japan and transactions with foreign
securities (securities loaning, accepting collateral)

Developing new business・Support the founding of a securities financecompany in Indonesia

Diversified management of securities as an efficientuse of capital・Secure stable and regular periodic revenue

Enhancing collaboration with group companies

・Enhance collaboration in operating business andfor systems

Strengthening business management structure

・Strengthen the compliance structure
・Establish a risk management structure capable ofhandling diversified operations
・Promote the establishment of a structure
anticipating cyberattacks

Developing an employee-friendly work environment
and making the company more dynamic

・Increase productivity and make the company more
dynamic through work-friendly reforms, etc.

The company is participating in various ongoingloans directly with customers outside of Japan, anddiscussions in the securities business circle such as thehave conducted loans and received foreign securities asaforementioned, “reduce the settlement interval (T+2).”

collateral over the past one to two years on a trial-and-

Although reducing the settlement interval in the stock

error basis, but this is a field that we hope to tackle head-market is a sizeable challenge, the company will respondon in the new Management Plan

to the new policies in loans for margin transactions,Through the aforementioned measures, we aim to

the infrastructure for the securities market, but we also

take on the myriads of needs in the securities businessintend to expand stock loan services and contribute tosuch as loans for margin transactions, our mainstay, andfacilitating stock exchange clearing.

will expand our revenue base in order to complement

Moreover, we have conducted funds and securities

loans for margin transactions.

14

OUR BUSINESS DEVELOPMENT

Services for securities companies and ﬁnancial institutions
Funds loan
Loans for margintransactions

Loan funds needed to settle standardized margintransactions

Stock loan
Loan stock needed to settle standardized
margin transactions

General stock lending

Bond services

Loans for negotiablemargin transactions

Lending stock needed to settle stock trading

Brokerage between borrowers and lenders in bondborrowing and lending market

Loan funds needed to settle negotiable margintransactions

Bond ﬁnancing

Loan funds needed in bond underwriting, trading, etc.

General loans

Loan working funds, etc., to securities companies

Secured loans on securities for individual and corporate investors

COM - STOCK Loan

A loan aimed at individual investors, for which loan
applications are made through the Internet

Business Loan

A large loan aimed at people such as owners of listedcompanies

Peripheral services
Securities custody

Custody services for securities owned byinstitutional investors, etc.

Government bonddebt servicing

Designated by the Bank of Japan, repayment services
for principal and interest on government bonds

15

OUR BUSINESS FIELDLOANS FOR MARGIN TRANSACTIONSWhat is Margin Transactions?
In margin transactions, an investor trades stocks after

Apart from the purpose of obtaining margins as described(1) depositing a certain amount of collateral (margin

above, an investor can use margin transactions as a means

requirements) with a securities company and (2) borrowing

for hedging. In other words, in the event that, although anfunds for purchasing stock or stock for sale. Margin

investor expects that the stock price in hand may decline,transactions help investors to expand their trading volumes

the stock is not to be sold for some reasons, such as thatby enabling them to purchase stock which value is in excess

convertible bond is within its convertible period or that itof their available funds, or to sell stock that they do not own.

is a publicly-offered stock just purchased, the investor canThus, margin transactions broaden and strengthen stock

avoid loss with hedging sale by using margin transactions.

trading and contribute to the smooth circulation of stocks
and the fair stock prices formation.

There are two types of margin transactions, standardized
margin transactions and negotiable margin transactions. In

Margin transactions is used, for example, when an

standardized margin transactions, terms of repayment areinvestor considers that the stock price of a certain issue will

determined by stock exchanges, and a securities company

rise or decline sharply in a short period of time.

can borrow funds for purchasing and stock for sale needed
to settle transactions from a securities finance company

・When it is expected that the stock price will rise, an(loans for margin transactions).

investor borrows funds for purchasing stock from a

In negotiable margin transactions, which is limited to cases

securities company (margin buying), and if the stockin which a securities company can procure funds and stock

price rises as expected within a term of repayment (6to be lent to customers by internal matching (Note) ormonths), the investor sells the stock, repays the funds

external procurement without borrowing from a securities

borrowed (reversing transaction) and receives the margin.

finance company, the condition of margin transactions

The investor may also receive the stock (actual receipt)

may be decided freely in negotiations between a securities

by procuring funds separately and depositing it with acompany and its customer.

securities company.

(Note) This is a system of appropriating purchased stock received from buy
side as collateral to sell side's stock for sale within a company or,conversely, of appropriating sell side's proceeds of sale to buy side's

・Conversely, when it is expected that the stock price willfunds for purchasing stocks.

decline, an investor borrows stock from a securities
company and sells them (margin selling). If the stock
price declines as expected within the term of repayment(6 months), the investor buys back the stock, returns it
to a securities company and receives the margin. The
investor may also receive the equivalent money to stock
sold by procuring stock separately and offering them to asecurities company (actual delivery).

16

OUR BUSINESS FIELD

JSF receives loan applications for each issue from a

What is Loans for Margin Transactions?
Loans for margin transactions is a system in which asecurities company on the trading date of standardized

securities finance company receives a certain amount ofmargin transactions (5).To execute the loan, JSF, in place ofmargin (margin requirements) from a securities company,

the securities company, delivers funds or stock to clearing

who is a general trading participant of stock exchanges (3)facilities of stock exchanges (6). The stock purchased

and lends funds or stock necessary for margin transactions(collateral stock for loans) or proceeds from sale (collateral(4). This is executed through the clearing facilities of stockmoney for stock loans) are received by JSF (7), and thenexchanges. Loans for margin transactions is authorized only

each collateral is appropriated.

for the securities finance companies with a license given by
the Prime Minister. We, Japan Securities Finance Co., Ltd.
conduct loans for margin transactions through the stock
exchange in Tokyo, Sapporo, and Fukuoka.

Standardized margin transactions and Loans for margin transactions

Loans for margin transactions

Standardized margin transactions

Loan funds for purchasing
stock or stock to sell (2)Deposit collateral for margintransaction (3)JSF

Customer

Deposit brokerage margin (1)Loan funds for purchasing stock
or stock to sell (4)Receive purchased stockor sale proceeds
(6)

(7)

Stock exchange
clearing facilities

17

Japan Securities Finance

Submit application (5)Securities company

Place trade orderHandling of over-lent issues

and non-life insurance companies, banks and other sources.

JSF usually appropriates stock received as collateral for

The highest bidding rate becomes the lending rate (Premiumloans to stock loans. However, should the outstanding

Charges) of that issue. This premium charge is applied tostock loans exceed the outstanding loans, it is necessary to

all users of standardized margin transactions, and should

procure the stock needed for settlement by bidding withbe collected by all sell sides and paid to all buy sides or

securities companies or institutional investors such as life

successful bidders.

In case of Premium Charge may apply
Loans for margin transactions

Standardized margin transactions
Issue A
7,000shares

Funds loan application

2,000
shares5,000shares

7,000shares
Amount matchedwithin each ﬁrm

5,000
sharesMargin selling Margin buying
balancebalance2,000shares

Securities company A
Stock loanbalance

Margin loanbalanceJSF

10,000shares
Stock loan application
7,000
sharesStock procurement through bidding

3,000shares
Amount matchedwithin each ﬁrm

Stock loan application for bidding
Margin selling Margin buying
balancebalanceSecurities company B

Securities companies / Institutional investors

18

OUR BUSINESS FIELD

BOND SERVICES
In bond borrowing and lending transactions, a lender lends

matches the needs of both lender and borrower, maintaining

bonds to a borrower, and after mutually agreed period, thehigh confidentiality of information to ensure the complete

borrower repays the lender with bonds of the same typeprivacy of both parities, and transferring all counterpartyand quantity. JSF serves as a broker between borrowers andcredit risk to JSF. The arrangement also contributes tolenders.

creating fair and stable market by publicly disclosing
indication via QUICK, Bloomberg, and other information

The bond borrowing and lending transactions market

services.

was established in May 1990 for the purpose of covering
bonds sold short, and was followed in April 1996 by theTransaction types

introduction of REPO (cash-collateral bond borrowing and

REPO transactions

lending transactions). JSF was the first company in Japan

JSF borrows bonds after depositing cash collateral with ato be authorized to offer such brokerage services, because

lender and then lends bonds after receiving cash collateral

JSF can link securities industries and financial industries

from a borrower. This transaction can be either a Special

on neutral ground and is well versed in handling of bond

Collateral transaction that specifies an issue or a Generaltransactions.

Collateral transaction that does not specify an issue.

JSF receives applications from both parties and, on

Ordinary bond borrowing and lending transactions

their behalf, lends and borrows bonds on the basis of

JSF, in principle, borrows bonds without collateral from aloan agreement. This type of arrangement has several

lender and then lends bonds after receiving collateral from aadvantages, including helping to form a transaction thatborrower.

Types of bond transactions

LenderLending rate

Cash collateral

Cash collateralInterest

Interest

JSF(Fund raising)

Borrowing rate

Borrower

Bonds

Bonds

(Fund investment)

REPO transactions

Ordinary transaction

Lender

Bonds

Bonds
Securities collateral
Lending rate

Borrowing rate

19

Borrower(securities-collateral transaction)

GENERAL STOCK LENDING
This business lends stock needed to settle trades to

In February 2002, we implemented offer-bid borrowing

securities companies. A securities company would use

and lending transactions (e Stock Lending) by expanding theGeneral Stock Lending when it has no stock on hand, foronline network that is linked with securities companies, so

the purpose of hedge sale of convertible bonds or arbitrage

as to include institutional investors, such as life and non-lifetransactions with spots and futures, and so forth. JSF has

insurance companies.

done its utmost to increase the number of eligible issues
and shares for brokerage services since the business waslaunched in 1977.
JSF procures stock for lending from institutional
investors such as life and non-life insurance companies. JSF
also receives stock in advance for quick stock lending.

Mechanism of stock lending business
Stocks (deposit)

Stocklenders
Institutional
investors

Stocks (lend)

JSF
Borrowing fee

Collateral deposit
Lending fee

20

Securities
companies

OUR BUSINESS FIELDLOANS FOR NEGOTIABLE MARGIN
TRANSACTIONSWhat is Loans for Negotiable Margin Transactions?

Loan Period

Loans for negotiable margin transactions is a system

In principle, the due date of loan is the day following thewhich lends the necessary funds for securities companies

lending date, but it can be extended to the deferment

to purchase stocks in negotiable margin transactions on

deadline for repayment of negotiable margin transactions

behalf of its customer (3), receiving stock purchased (1) andfor securities companies.

certain margin requirement (2) as collateral for loans

Interest rate
The interest rate on loans is determined individually

Conditions of loans

Loanable stock Issues

between JSF and securities companies.

In principle, loanable stock issues are those listed on stock
exchange. (However, they can be limited to those we admit

Collateralavailable.) Newly listed stocks can be accepted from the 1st

JSF receive sto ck purchased in negot iable marg in

day of its listing.

transactions and certain margin requirement as collateralfor loans. Margin requirement can be substituted by acertain ratio of cash or by securities.

Negotiable margin transactions and Loans for negotiable margin transactions
Loans for negotiable margin transactions

Negotiable margin transactions
Place an order for negotiablemargin buying

JSF

Loan funds forpurchasing stocks

Deposit margin requirement (2)Loan funds (3)Deposit stock as collateral (1)Payment for the purchaseReceive purchased stock

Stock exchange
clearing facilities

21

Japan Securities Finance

Customer

Deposit margin requirement

Securities company

Application

BOND FINANCING
The aim of bond financing is to contribute to smoothutilizing investment securities for shares, etc. as collateral.

underwriting, circulation and fair price formation in bond

We are expanding "COM-STOCK Loans" for individuals,

markets. This business offers low-interest loans by using

which do not require applicants to come to a branch,government and other bonds as collateral to provide funds"Business Loans" aimed at owners of listed companies.

required by securities companies in bond operations.

COM-STOCK Loan

GENERAL LOANS

A loan aimed at individual investors, for which loan

This business loans working funds required by securities

applications can be made through the Internet, andcompanies by using stocks, bonds, and other securities as

for which investors do not need to come to a branch.

collateral, and aims to respond quickly and flexibly to theApplications can be made through a special JSF website.

needs of securities companies.

Business loan

SECURED LOANS ON SECURITIES FOR
INDIVIDUAL AND CORPORATE INVESTORS

A large loan aimed at people such as owners of listedcompanies.

We provide loans to individuals and companies for any use,

22

CORPORATE GOVERNANCECORPORATE GOVERNANCE
・ Attendance of corporate auditors at internal meetings andBASIC CONCEPT OF CORPORATE GOVERNANCE
As an institution specializing in the securities financeinstigation of necessary checks

business, Japan Securities Finance has a mission, while

・ Internal audit by the Audit Department, which isalways maintaining a keen awareness of our public role,

independent from other departments

to contribute to the development of the securities industry
by proactively meeting the diverse needs of securities andFurthermore, from the perspect ive of ensuring

financial circles and working to boost the long-term interests

management transparency, we are committed to makingof securities markets users and participants. The company

active and timely disclosure of management information

believes gaining the firm trust of society through soundthat goes beyond legal requirements via our website.

business operations is our most important management
directive.

CORPORATE GOVERNANCE STRUCTURE
1. Management Structure

・ Establishment of compliance system

Below is an outline of JSF's management structure.

・ Establishment and implementation of risk management

・ The Board of Directors is the decision-making body for all
matters related to management policy and the execution

policiesof operations, and it appoints executive officers who are

・ Active invitation of outside directors (three directors, twocharged with the execution of operations in accordance

auditors)

Corporate Governance System Structure
Decision Making of Management
General Meetingof Shareholders

Inspection System
Board ofAuditors

Board of Directors

Nomination and Remuneration
Advisory Committee

ReportCorporate
Auditors

External
Financial
AuditorBusiness
Operation
Audit

President
Management Committee

Compliance
Committee

Executive Oﬃcers
Meeting
Audit
Department

Audit
Subsidiaries
AﬃliatesManagement
Administration& Report. etc.

Executive Oﬃcers in Charge

Compliance Department
Personnel in chargeof compliance

Mutual CheckBusiness
Departments

Risk Management
Department

JSF Group
Company

23

External Reporting
Contact Desk

Consultation and Report for Compliance

Audit

All Departments

with its decisions.
・ Directors are members of the Board of Directors and2) Nomination and Remuneration Advisory Committee

supervise the company's decision-making and the activities

The Nomination and Remuneration Advisory Committeeof representative directors. Executive officers execute theinvestigates such matters as election of candidates for

operations of the Company in line with decisions made bydirectors, auditors and executive officers as well as their

the Board of Directors.

remunerations, in response to consultations from the Board of
Directors, and provides advices and proposals to the Board. A・ Directors may concurrently serve as executive officers

majority of the members of the Nomination and Remuneration(executive directors).

Advisory Committee are outside directors and outside auditors.

・ Executive officers comprise executive directors andexecutive officers.
・ Executive officers are appointed for a term of 1 year.

3) Board of Auditors

・ The Company has established a Nominat ion and

The Board of Auditors may have up to four members, ofwhich the majority must be outside auditors.

Remuneration Advisory Committee in order to reinforce

The Board of Auditors shall make a decision on thethe supervisory functions of the Board of Directors.

execution of the duties of auditors and shall discuss the

2. Organization

exercise of authority by auditors. Meetings of the Board

To strengthen management supervisory functions, theof Auditors are convened from time to time as necessary.

Company stipulates that three of the ten directors must

During fiscal 2016, the Board of Auditors met ten times.

be outside directors, and outside directors serve as theTwo outside auditors are appointed and are expected tocenter of the Board of Directors. In addition, two of the four

provide supervision based on a wealth of experience andauditors on the Board of Auditors must be outside auditors.

broad knowledge and expertise.

The Management Committee and Executive Officers Meeting

4) Management Committee

serve as management-level decision-making bodies.

The purpose of the Management Committee is to deliberate

Below are outlines of these organizations.

important matters related to the execution of company

1) Board of Directors

operations.

The Board of Directors may have up to ten members

Members of the Management Committee are executive(including three outside directors).

directors. When necessary, directors who are not executive

Meetings of the Board of Directors shall in principle

directors and auditors may attend meetings of thebe convened once per month but may be convened at

Management Committee.

other times as necessary. During fiscal 2016, the Board of

The Management Committee is in principle convened

Directors met ten times.

once per week. The Management Committee may also meet

Positions on the Board of Directors shall consist of theother times as necessary.

chairperson, vice chairperson, president, executive vicepresident, senior managing directors, managing directors5) Executive Officers Meetingand directors. The Board of Directors may appoint directors

The purpose of the Executive Officers Meeting is to reportto execute operations (executive directors).

on the status of operations.

Three outside directors appointed are expected to ensure

Members of the Executive Officers Meeting are all

the appropriateness of company operations and provide

executive officers, including executive directors. Directors

objective, neutral, outside supervision of management

who are not executive directors and auditors may also

through advice and comments with a wealth of experienceattend the Executive Officers Meeting.
The Executive Officers Meeting is in principle convened

in management and professional knowledge and expertise.

24

CORPORATE GOVERNANCE

once per week. The Executive Officers Meeting may also

management system in respect of control and management

meet other times as necessary.

of risk and other factors in individual business units.
Internal audits, auditor audits and accounting audits

3. Outside directors and outside auditors

are mutually coordinated. All who are responsible for these

The Company has three outside directors and two outside

audits and internal control may exchange information etc.

auditors.

when necessary for closer coordination.

The outside directors and outside auditors have no

Auditor Toshio Kamiyama is a certified public accountant

interest in the Company other than owning shares in theand certified tax accountant and provides considerable

Company. There are not now nor have there ever been factors

insight on financial and accounting matters.

requiring a determination of potential conflict of interest withgeneral shareholders by the Tokyo Stock Exchange.

5. Status of accounting audits

Outside directors are expected to ensure the

Accounting audits of the Company are performed byappropriateness of company operations and provide

certified public accountants Mitsuhiro Fukuda, Hironobu

objective, neutral, outside supervision of management

Sakai and Wataru Kobayashi of BDO Toyo & Co. Accounting

through advice and comments based on their abundant

audits are assisted by 15 certified public accountants andexperience in management and professional knowledge and10 others, and care is taken to eliminate bias in years ofexpertise. They are in an objective position independent ofexperience.

the executive directors and have no potential conflicts ofinterest with general shareholders.
Outside auditors are expected to provide supervision

6. Policy regarding the remuneration of
directors and auditors

based on a wealth of experience and broad knowledge and

The Company has established its policy on the remuneration

expertise. They have a high degree of independence andof directors and auditors as follows, in accordance with its

no conflicts of interest with general shareholders and are“Basic Policy on Corporate Governance.”

therefore judged to contribute to auditing operations andcompliance. They endeavor to mutually coordinate internal[Remuneration of directors, auditors and executive officers]

audit section etc.

・ With a view to enhancing the correlation with the

Furthermore, the Company has established the following

Company’s business performance and share value, thecriteria for independence in appointing outside directors

remuneration of executive directors and executive officers

and outside auditors.

shall comprise a fixed monthly remuneration, officers’
bonuses linked to business performance and share-

4. Status of internal audits and auditor audits

based remuneration. For the officers’ bonuses, an amountThe internal audit structure consists of Audit Department

determined in accordance with the business performancethat is independent of all other business units (approximatelyof each fiscal year shall be paid, with the purpose often members).

clarifying the management’s responsibility.

Its duties are not only the internal audits of compliance・ As for the share-based remuneration, the Board Benefit

with all applicable laws, regulations, contracts etc. It

Trust (BBT) scheme shall be used to provide points, which

also figures out the management of risks and so forth by

are determined in correlation with medium-term businessrigorous internal audits of the effectiveness and efficiency

performances, to the executive directors and executiveof operation, the accuracy and reliability of financial andofficers, to whom the Company’s shares will be issued upon

operational information and the assets safeguarding/their retirement from office in accordance with the points.

conservation. Through these activities, Audit Department

Outside directors and auditors shall receive only the fixedverifies the appropriateness and effectiveness of internalmonthly remuneration, and the officers’ bonuses or the25

share-based remuneration shall not be provided to them.

group compliance system.

・ Specific amounts of the remuneration for the directors
and executive officers shall be determined by the Board ofConsulting and reporting system regarding complianceDirectors based on the results of investigations made by

In order to strengthen the compliance system, the company

the Nomination and Remuneration Advisory Committee.

has its external consulting and reporting contact desk by

Modifications to the remuneration framework and thelawyers, in addition to the Compliance Committee, theremuneration system, etc. shall also be investigated by theCompliance Department and personal in charge of compliance.
The external consulting and reporting contact desk

Nomination and Remuneration Advisory Committee.

guarantees the complete anonymity of any person

COMPLIANCE SYSTEM

consulting or reporting matters regarding the company,

The following details our compliance system and consulting

thereby reducing the psychological burden on those persons

and reporting system in regard to complianceand making consulting and reporting easier.

The company’s compliance system centers on our Boardof Directors, the Management Committee, the Compliance

BUSINESS CONDUCT GUIDELINES

Committee and the Compliance Department. The situation

1) As an institution specializing in securities-related

regarding internal compliance is constantly studied by thefinancing, the company recognizes its social

Compliance Department and the results are regularly reported

responsibility and its public mission. It aims to establish

to the Board of Directors and the Management Committee.

firm trust through sound business operation.

The Compliance Committee deliberates importantmatters concerning compliance.

2) The company will comply strictly with relevant rules and

The Complianceregulations. It will conduct its business activities in a fair

Department makes all possible efforts to promote andand reliable manner, in accordance with social norms.

thoroughly establish compliance through such measures as3) In the interests of its shareholders, the company will

urging managers and employees alike to take faithful andmaximize its communications with a broad spectrum ofhonest actions based on clear ethical standards.

society and will disclose information on the management

In addition, the company takes the initiative in theof the organization in a fair and positive manner.

promotion of the establishment and strengthening of overall

Consulting and Reporting
Board of Directors
Management Committee
Compliance Committee

Deliberation of thecountermeasure(Chairman : Executive oﬃcer in charge ofCompliance Department)

Compliance Department

ReportPersonnel in charge ofcompliance

External reporting contact desk
Consult & report

Consult & report

Consulting & Reporting personnel(Managers and employees)

26

CORPORATE GOVERNANCE

Appendix

meeting of shareholders.

Basic Policy on Corporate Governancemeeting of shareholders from such viewpoints as

The Company has established the Basic Policy onof accurate information for that purpose.

Corporate Governance as follows in order to achieve its2) Send and disclose a notice of convocation of thesustained growth and enhancement of its corporate value

general meeting of shareholders as early as possible inover a medium to long term.

order to secure enough time for shareholders to study

1) Appropriately set the schedules related to the generalenhancement of dialogue with shareholders and provision

the content.
1. Fundamental Views on Corporate Governance3) Provide information (such as information on the

As an institution specializing in the securities finance

Company’s operating results) that is necessary forbusiness, the Company is keenly aware of its public roleshareholders to make proper judgments at the general

at all times, and makes it a mission to contribute to themeeting of shareholders on its website and through otherdevelopment of the securities market by proactively

means.

addressing the diverse needs of the securities and4) Establish an environment in which all shareholders

financial circles and working to enhance the long-term

including those who do not attend the general meetinginterests of the securities market participants and users.

of shareholders can exercise their voting rights

Based on this thinking, the Company aims to gain the firm

appropriately, such as utilizing the Electronic Voting

trust of the society through sound business operations.

Platform for Foreign and Institutional Investors.

With this corporate philosophy, the Company has

In addition, when there are a large number of votes

adopted the Board of Company Auditors system as anagainst any of the agendas proposed by the Company atinstitution under the Companies Act, and will proactively

the general meeting of shareholders, the Company shallinvite outside directors and outside auditors from a wide

analyze the reasons and report the analysis results torange of economic circles including the securities andthe Board of Directors as well as investigate necessaryfinance industries, in an effort to establish a system that

responses.

enables implementation of supervision and audits from
(3) Protecting the rights of shareholders

multi-faceted viewpoints.

When implementing the capital policies that may
2. Securing the Rights, Etc. of Shareholders

cause changes in the controlling interest or cause a(1) Securing the rights and equality of shareholders

significant share dilution, the Company shall investigate

The Company shall take appropriate measures tothe necessity and rationality of implementing them andeffectively secure the rights of its shareholders, andsecure appropriate procedures so that they should cause

endeavor to establish an environment in which the rights

no unjust harm to the interests of existing shareholders,of shareholders are effectively secured.

and shall appropriately disclose the details of the policies
to be implemented.

Moreover, the Company recognizes that every
shareholder is equal in accordance with his/her equity

As for introducing and conducting anti-takeoverinterest, and will secure the substantial equality ofmeasures, the Company shall investigate the necessity

shareholders

and rationality of such measures and secure appropriate
procedures as well as provide sufficient explanations to(2) General meeting of shareholders

the shareholders.

The Company shall endeavor to set schedules related
to the general meeting of shareholders and expand

If the Company’s shares become subject to a takeover

the means for shareholders to execute their voting

bid, the Company shall appropriately disclose the view ofrights, etc., as provided below, so that a larger number

the Board of Directors regarding the takeover bid to theof shareholders can execute their rights at the generalshareholders. Moreover, the Company shall not unduly

27

preclude the shareholders’ rights to sell the Company’s

medium- to long-term economic rationality of strategic

shares they own in response to the takeover bid.

shareholdings and verify them.

(4) Dialogue with shareholders, etc.

With regard to the exercise of voting rights of shares

The Company shall respond to requests for dialogue fromthe Company holds in strategic shareholdings, theits shareholders and investors (hereinafter referred to as

Company shall exercise the rights for all agendas as

the “shareholders, etc.”) to the extent and by the methods

a rule. Judgment of approval or disapproval for eachconsidered to be appropriate by the Company.

agenda shall be made by comprehensively consideringsuch factors as whether the subject will contribute to

Policies on establishing a system and implementing

the medium- to long-term enhancement of the corporate

measures for promoting constructive dialogues with thevalue of the relevant company and common interests ofshareholders, etc. are as follows:

its shareholders, and whether the subject will not lessen

1) Dialogues with the shareholders, etc. shall be managed

the significance of holding the relevant shares by theby the Corporate Planning Department and supervisedCompany.

by the officer in charge of the Corporate Planning
Department.

(6) Transactions among related parties

2) When conducting dialogues with the shareholders,

When the Company conducts transactions with its

etc., the Corporate Planning Department shall be central

officers and principal shareholders, etc., the Company

in making appropriate coordination with internal

shall submit the matter as agenda to the Board ofdepartments, including the Business Development

Directors in advance and have it approved by the Board

Department, and affiliate companies through informationof Directors so that the relevant transaction will not harmexchange and other measures.

the Company’s interests and common interests of the3) The Company shall hold operating results briefing

shareholders, except for cases where it is evident thatsessions on a regular basis, among other measures,the transaction is conducted under the similar terms andin order to enhance the means of dialogues with theconditions as ordinary transactions in general.

shareholders, etc.
4) Opinions, etc. obtained through dialogues with the

3. Relationship with Stakeholders other thanShareholders

shareholders shall be reported to the Board of Directors,
etc. on a regular basis.

In order to achieve sustained growth and enhancement

5) Dialogues with the shareholders, etc. shall beof its corporate value over medium to long term, theconducted in compliance with laws and regulations as

Company shall respect not only the shareholders but also

well as internal rules, and the insider information shall bea variety of its stakeholders including customers, officers

managed appropriately.

and employees and local communities, and endeavors to6) The Company shall endeavor to understand themaintain good and smooth relationships with them.

shareholder structure through shareholder identification
surveys and other means in order to promote constructive

The Company shall establish the “Code of Conduct

dialogues with the shareholders, etc.

for Officers and Employees” and make all of its officers
and employees understand that they are to respect the(5) Strategic shareholdings

stakeholders’ positions.

The Company may hold the shares of the companies
that are considered to be necessary for such purposes

Moreover, in view of the importance of the issues

as strengthening the business relationship with them, in

related to sustainability, the Company shall endeavor toorder to achieve sustained growth and enhancement oftake appropriate measures to address such issues, andits corporate value over the medium to long term.

work to secure diversity, including promotion of women’s
active engagement.

The Company shall make a report to the Board of
Directors regarding the investment efficiency and28

CORPORATE GOVERNANCE

Moreover, multiple outside directors independent

4. Information Disclosure

F r o m t h e p e r s p e c t i ve o f e n s u r i n g m a n a g e m e n tfrom the Company shall be appointed to constitute thetransparency, the Company shall endeavor to proactively

Board of Directors where it is expected that, through theirmake fair, t imely and appropriate disclosure ofadvices and comments based on abundant experiences

management information by using its website andand expert knowledge on business management andthrough other means, not limited to information

other issues, appropriateness of the Company’s businessdisclosure based on the Companies Act, the Financial

operations is secured and business management

Instruments Exchange Act and listing rules of the security

supervisory functions from external viewpoints is

exchange, etc.

performed in an objective and neutral manner.
(3) Board of Company Auditors and Auditors

In making information disclosure, the Company shallwork to provide plain and concrete descriptions.

In performing their roles and responsibilities such as
auditing the execution of the duties of the directors, the5. Corporate Governance System

auditors and the Board of Company Auditors endeavor to(1) Board of Directors and other systems

make appropriate judgment from their independent and

The Board of Directors, which is positioned by theobjective standpoint, with their fiduciary duties to theCompany as the decision-making inst itut ion onshareholders in mind.

management policies and other issues, deliberates not
only the matters designated by laws and regulations or(4) Nomination and Remuneration Advisory Committee

the Articles of Incorporation but also important matters

The Company has established the Nomination andon business management.

Remuneration Advisory Committee in order to reinforce
the supervisory functions of the Board of Directors. The

In order to enhance business management efficiency

Nomination and Remuneration Advisory Committee

and speed up execution of operations, the Board ofinvestigates such matters as election of candidates for

Directors appoints executive officers to entrust them

directors, auditors and executive officers as well as theirwith execution of operations other than the matters to be

remunerations, in response to consultations from thedeliberated by the Board of Directors.

Board of Directors, and provides advices and proposals to
the Board.

The executive officers execute operations basedon the decisions made by the Board of Directors.

A majority of the members of the Nomination and

Furthermore, a Director may concurrently take office as

Remuneration Advisory Committee shall be outside

an executive officer.

directors and outside auditors (hereinafter referred to as
the “outside officers”).

The Company has established the Management(5) Candidates for directors, auditors and executive

Committee, which deliberates important matters related

officers

to the execution of company operations, and the
Executive Officers Meeting where the status of execution

The Company elects persons who are believed toof operations is reported, among other purposes.

contribute to achieving its sustained growth andenhancement of its corporate value over a medium to(2) Board of Directors

long term as candidates for the directors, auditors and

The Board of Directors comprises a variety of directors

executive officers, taking into account their personality,

w ith different expert ise, experiences and otherknowledge, capacity and experiences, etc. and with their

qualifications. The Company secures the appropriate

fiduciary duties to the shareholders in mind.

number of the Board of Directors members at which thefunctions of the Board of Directors can be exerted most

For the outside officers, the Company shall electeffectively and efficiently, to the extent designated in the

persons who, on top of the above, satisfy the criteria for

Articles of Incorporation.

independence the Company sets forth separately.

29Election of candidates for the directors, auditors andtime required for the attendees of the meeting to makeexecutive officers shall be determined by the Board ofprior preparations, in order to help deepen deliberations

Directors based on the results of investigations made byat the meeting. In addition, prior explanations may be

the Nomination and Remuneration Advisory Committee,

given to them depending on the content of the agendas.

pursuant to the provisions of laws and regulations.
Schedules of holding the Board of Directors(6) Remuneration of directors, auditors and executive

meeting and assumed agendas for the meeting shall be

officers

determined and notified in advance.

With a view to enhancing the correlation with theCompany’s business performance and share value,

Aside from the Board of Directors meeting and thethe remuneration of executive directors and executive

Board of Auditors meeting, a meeting by outside officers

officers shall comprise a fixed monthly remuneration,

shall be held periodically to exchange information andofficers’ bonuses linked to the business performance

share recognitions, so that they can exert functions fromand share-based remuneration. For the officers’ bonuses,

their standpoint that is independent from the Company.

an amount determined in accordance with the business(8) Evaluation and assessment of effectiveness of theperformance of each fiscal year shall be paid, with theBoard of Directors

purpose of clarifying the management’s responsibility. As
for the share-based remuneration, the Board Benefit Trust

The Company shall make self-assessment as to the(BBT) scheme shall be used to provide points, which are

effectiveness of the Board of Directors once a year, anddetermined in correlation with medium-term businessdisclose the outline of the results. Furthermore, theperformances, to the executive directors and executive

Company shall make appropriate review of the Board of

officers, to whom the Company’s shares will be issued

Directors based on the assessment.

upon their retirement from office in accordance with the(9) Support system and training policies for directors

points.

and auditors
Outside directors and auditors shall receive only the

In order for the directors and auditors to effectively

fixed monthly remuneration, and the officers’ bonuses or

perform their roles and responsibilities, related

the share-based remuneration shall not be provided todepartments and sections of the Company, including thethem.

Corporate Planning Division of the Corporate Planning
Department that is in charge of the work related to theSpecific amounts of the remuneration for the directors

Board of Directors, shall coordinate with each other toand executive officers shall be determined by the Board of

exchange information and conduct other tasks.

Directors based on the results of investigations made by
the Nomination and Remuneration Advisory Committee.

When it is necessary to make communications

Modifications to the remuneration framework and theand adjustments between the outside officers and the

remuneration system, etc. shall also be investigated bymanagement team or coordination with the auditors andthe Nomination and Remuneration Advisory Committee.

the Board of Auditors, the secretariat of the Board of
Directors shall be central in addressing such matters.

(7) Operation of the Board of Directors
The agendas and deliberation time of the Board of

In order for the directors and auditors to effectively

Directors shall be set in a manner that should allow

perform their roles and responsibilities, the Company

deliberations necessary and sufficient for deciding onshall set the opportunity to provide them, when they

important execution of operations and supervision oftake office, with information regarding the Company’

execution of operations.

s operations, finance, organization and others as wellas knowledge on laws and regulations, etc., taking into

As a rule, materials for the Board of Directors meeting

account the careers and experiences, etc. of the directors

shall be delivered in advance, taking into account theor auditors who are taking office. Moreover, the Company

30

CORPORATE GOVERNANCE

shall provide opportunities, as needed, to continuously

Criteria for Independence of Outside Officers

update such information or knowledge.

The Company shall determine that, on top of the criteria(10) Accounting Auditor

for independence set forth by the Tokyo Stock Exchange,

The Company shall understand the responsibilities

a person who falls under any of the following categories

the accounting auditor owes to the shareholders andis not independent of the Company.

investors, and endeavors to secure appropriate audits asstated below.

1. A person who currently falls under any of thefollowing (1) through (5)(1) The Board of Auditors shall establish criteria to(1) Principal shareholder

appropriately assess the accounting auditor. Moreover,・ A person who is a principal shareholder of thethe Board of Auditors shall check whether the accounting

Company (a shareholder holding shares that represent

auditor has independence and expertise required for an

at least 10% of the total voting rights) or, if the person

accounting auditor.

is a corporation, etc., its conducting representative(2) The Company shall endeavor to provide the(2) Principal business partner

accounting auditor with an audit environment that・ A person for whom the Company is a principal

should allow high-quality audits, including provisioncustomer (a person whose transaction amount withof opportunities to interview senior members of thethe Company accounts for at least 2% of the person’s

management team, auditors and other departments

consolidated operating revenues in the latest fiscal year)

required for auditing and securing sufficient time foror, if the person is a corporation, etc., its conducting

conducting audits.

representative・ A person who is a principal customer of the Company (aWhen the accounting auditor points out injustice,customer with whom the Company conducts businessflaws or problems, etc., the Company shall accept what isfor an amount that accounts for at least 2% of thepointed out in earnest and take appropriate measures.

Company’s consolidated operating revenues in thelatest fiscal year) or, if the person is a corporation, etc.,
its conducting representative(3) Experts, etc.
・ Consultant, accountant or legal professional who
receives monies or other economic benefits (excluding
officers’ remunerations) amounting to 10 million yen or
more per fiscal year from the Company or, if the person
is a corporation, etc., its conducting representative(4) Donation
・ A person who has received donation from the Company
for the amount of 10 million or more per fiscal year
or, if the person is a corporation, etc., its conducting
representative(5) Close relatives
・ A close relative (spouse or a relative within the second
degree of kinship) who falls under the categories of (1)through (4) above
2. A person who falls under any of the categories in
1. at any time in the past three years

31

RISK MANAGEMENTRISK MANAGEMENT
Basic policies in risk management

Method of risk management

With environmental changes such as financial deregulation

We classify expected risks broadly into 5 categories andand globalization as well as striking advances in information

then set these categories as management objectives; credit

technologies, risks which financial institutions face haverisks, market risks, liquidity risks, processing risks, andbecome diversified and more complicated. Accordingly,

system risks. Among these categories, for credit risks

risk management has become more important in theand market risks, we are striving to secure profits while

management of financial institutions than ever before.

quantitatively grasping the risks and controlling themwithin proper levels as feasible for our management vitality

In this situation, in order to increase profitability while(integrated risk management).

maintaining sound management, we have positioned risk
management at the highest priority and have establishedOn the other hand, for liquidity risks, processing risks

basic policies in risk management at our Board of Directors.

and system risks, we are taking preventive measures against
occurrences of these risks by executing proper management

More precisely, we have established basic policies

according to risk characteristics.

for risk management; “Keeping all employees informedof company’s emphasis on risk management”, “Proper
management of each category of risk”, “Promotion of
integrated risk management”, “Establishing a system ofmutual checks and balances”, and so forth.

Risk Categories
Risk Category
Credit Risk

Risk Description
Credit risks are risks to suffer losses by decreasing or losing the values of the assets due tocredit events such as deterioration in the financial standing of counterparty.
Market risk refers to the risk that owned assets (bonds, stocks) or derivative values will fluctuateMarket Risk

and losses will be incurred due to fluctuations in various market risk factors such as interest
rates, securities prices, and exchange rates.
Liquidity risks are risks to suffer losses caused by failures of raising necessary funds or by

Liquidity Risk

procurement of funds with unusually high interest rates or risks caused by halt of transactions
due to market disruptions or by forced transactions with unusually unfavorable prices.

Processing Risk

Processing risks are risks to suffer losses from failed processing due to negligence, accidents or
fraud by officers and employees.
System risks are risks to suffer losses due to system defects such as failures or malfunctions,

System Risk

etc., of computer systems or due to unauthorized uses (including cyberattacks) of computer
systems, etc.

32

Integrated risk management

said amounts for transaction limitation. In addition, eachIntegrated risk management is a method to quantify various

department implements rigid self-assessment of those assets

risks with unified methodology and to manage the total

for which they hold jurisdiction.

amount of risks within the realm of management vitality.
For credit risks and market risks, after allocating risk

Additionally, for each loan transaction, as a general

capital to each risk operation department by risk category

rule, we take adequate collateral. By implementing a

within the realm of our own capital, we quantify risks withdaily marking to the market of the relevant collaterals, we

the methodology of Value at Risk (VaR) and manage thesuppress occurrences of impaired loans. In a case where

calculated volume of risks within the range of that allocateda borrower falls into bankruptcy, by selling off collateralrisk capital. With corresponding to Basel II regulation

securities and so forth, we collect receivables in an

enforced in March 2008, operational risks, which consists

expeditious manner.

of processing risks and system risks, is measured by basic
method and we allocate risk capital amounts on it.

Market risk management
In our company, the Risk Management Department

Allocated amounts of risk capital are determined as final

quantifies and manages market risks, and to complement

at the Management Committee, with prior deliberation at

management by quantification, it implements stress tests.

regular “Risk Capital Meeting” in every March.

Furthermore, to validate the reliability of the market
risk quantification model we are adapting, we are also
implementing back testing to compare the calculated VaR

Each risk operation department controls the risks

with the portfolio-fixed virtual profit and loss

within the realm of the allocated risk capital. The Risk
Management Department, which is independent of risk
operation departments, quantifies the risks, monitors risk

Liquidity risk management

operation conditions, and report to board members.

In our company, the Treasury Department has jurisdiction
over the management of liquidity risks and attempts

In case a possible rise for a risk may exceed the allocatedto diversify procurement methods and to secure stableamount of the risk capital, an extraordinary “Risk Capital

supplies. As for cash flow management, while we are

Meeting” will be held to deliberate responses to the case andimplementing development of cash flow projection, graspingthen consult the Management Committee.

the amount which can be procured or liquidity of assets,
and paying attention to concentrated settlement dates for

Credit risk management

large capital, we have a system to report to our management

We try to sustain and improve the soundness of the assets

with daily cash flow status. Furthermore, to be preparedby strictly managing overall credit risks.

for unforeseeable circumstances, we take measures tosupplement liquidity such as possessing a certain amount ofMore precisely, the Risk Management Department

government bonds with high liquidity.

assesses credit risks according to in-house ratings, andquantifies and manages credit risks using a default rate

In addition, at the “ALM Committee” held in every

for each in-house rating. Furthermore, to complement

quarter, we develop cash flow projection based on forecasts

management by quantification, we implement stress tests.

of loans outstanding, deliberate policies for ALM (Asset

On the other hand, for credit control, the Risk Management

Liability Management) such as revenue management for

Department screens client companies and loan transactions

assets and liabilities of the company as a whole and thus

and sets the amounts for transaction limitation for eachreport to the Management Committee.

client, while business operation department manages the33Processing risk managementmonitoring system is facilitated. Moreover, in preparation

In our company, each department has jurisdiction over theagainst the threat of cyberattacks, countermeasures for

management of processing risks. To lessen processing risks,computer systems and cybersecurity measures have been

through facilitation of regulations and manuals and also

implemented. In addition, concerning the protection ofthrough trainings, all employees are familiarized with proper

our own information assets (information and information

handling of operational work. In addition, by ensuring thatsystems), necessary regulations are consolidated and alleach department implements its own voluntary inspection

officers and employees are familiarized with handlingon a regular basis, we endeavor to prevent occurrence of

information assets. Furthermore, to minimize the effects ofaccidents and improve our business processing system.

system failures, measures are taken such as the facilitationof various handling manuals, implementation of drills, etc.

System risk management
In our company, the Information Systems Planning

Internal auditing system

Department holds jurisdiction over system risks

In our company, the Audit Department, which is independent

management. To ensure stable operations of our computerfrom other departments, implements strict internal auditing

systems, the department takes preventive measures againstof overall business operation on management status of eachsystem failures such as duplicating networks and equipment.

category of risk along with regulatory compliance status and

To develop and operate our computer systems safely andvalidates the appropriateness and efficacy of our internal

effectively, all of our operation procedures are clear and ourcontrol system in each department.

34

RISK MANAGEMENT

Appendix

In-house rating system

We introduced a rating system which segmentalizes credit
ratings of client companies into 6 ranks, based on ratings
by external credit rating agencies, quantitative assessmentof financial standing, obligor classifications used in selfassessment, and so forth. With this system, we assess thelevels of credit risks properly, quantify credit risks, and set
up amount for transaction limitation.

Risk capital

Risk capital is capital necessary to cover losses caused byrisks generated from business operation.

Value at Risk (VaR)

VaR is the maximum expected loss on an asset calculatedwith a certain period (holding period) and a certain
probability (confidence level). This is calculated based ondata in the past with statistical method. In our company,
VaR is calculated based on confidence level of 99% andholding period of one year.

Stress tests

Since VaR is statistical estimated figure, it cannot include
possible losses, which can be caused by extreme market
fluctuation such as Black Monday or economic crisis (stressevent). In this situation, to be prepared for unforeseeable
circumstances, we implement stress tests to calculate amountof losses in a case of occurrence of stress event based ondata in the past or on hypothetical scenarios and assess thesoundness of our financial management.

Risk Capital Meeting

The meeting is organized by the officers in charge of the
Risk Management Department, Business Development
Department, Corporate Planning Department, Treasury
Department, Margin Loan Department, Institutional Sales
Department and Retail Business Department, managers of
the Risk Management Department, Business Development
Department and Corporate Planning Department and, whenconcerned with the deliberation matters of the meeting,the managers of the Treasury Department, Margin Loan
Department, Institutional Sales Department and Retail
Business Department. The meeting is supervised by theofficer in charge of the Risk Management Department.

ALM Committee

This is a committee to deliberate ALM (asset liability
management), such as development of fund procurement
and management plans and revenue management, for assets
and liabilities of the company as a whole. The committee
is organized by the officer in charge of the Treasury
Department (serving as chairperson), officers in charge ofthe concerned departments and managers of respective
departments.

35

Risk Management System

Board of Auditors,
Corporate Auditors

Board of Directors

Management
Committee
Executive Oﬃcers Meeting

Executive Oﬃcer incharge of Treasury
Department

ALM
Committee

Risk Operation Sector

Executive Oﬃcer in charge of
Risk Management
Department and Information
Systems Planning Department

Executive Oﬃcer incharge of Department

Executive Oﬃcer
in charge of Audit
Department

Risk Capital
Meeting

Liquidity
Risk

MarketRisk

CreditRisk

SystemRisk

Processing
Risk

Treasury
Department

Risk
Management
Department

Risk
Management
Department

Information
Systems
Planning
Department

Each
Department

Treasury
Department

・Treasury
Department
・Margin Loan
Department

Each
Department

Each
Department

・Institutional
Sales
Department
・Retail Business
Department
・Margin Loan
Department
・Tresury
Department
・Branch36

Internal Audit Sector

Risk Management
Department

Audit Department

Risk Management
SectorRisk
Categories

Integrated Risk
Management Sector

Meeting

Management

President

FINANCIAL SECTION

Consolidated Financial Statements ･･････････････････････････････････････････････････････････････････ 38
Consolidated Balance Sheet ･ ･･･････････････････････････････････････････････････････････････････････ 38
Consolidated Statement of Income ･･･････････････････････････････････････････････････････････････ 40
Consolidated Statement of Other Comprehensive Income ･････････････････････････････････ 40
Consolidated Statement of Changes in Net Assets ･ ･･････････････････････････････････････････ 41
Consolidated Statement of Cash Flows ･･････････････････････････････････････････････････････････ 42
Notes to Consolidated Financial Statements ･･･････････････････････････････････････････････････ 43
Independent Auditors' Report ･････････････････････････････････････････････････････････････････････････ 73

37

CONSOLIDATED BALANCE SHEETJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2017
Millions of yen

2017

AssetsCurrent assets:
Cash (notes 3 and 16)
Call loans
Short-term investments (notes 4 and 16)
Short-term loans receivable (note 16)
Deferred tax assets (note 9)
Collateral money for securities borrowed
Other current assets (note 16)
Allowance for doubtful receivables
Total current assets

2016¥ 1,076,762 ¥ 266,378
33,000–238,498
431,565
587,752
567,749279
167
1,930,722
1,025,617
75,68245,123(254)(236)
3,942,441
2,336,363

Property, plant and equipment:
Buildings and structures
Tools, furniture and fixtures
Land (note 6)
Leased assets
Construction in progress

9,597,665
294,144
2,125,840
5,238,898
2,487
17,209,395
674,587(2,264)35,140,752
78,403
13,78029,102––
121,285(62,260)
59,025

4,347

4,229

38,747690,208
2,592(1,158)691,642

900,167
2,987(1,558)
901,596

6,152,135
23,104(10,322)
6,164,917¥ 4,645,052 ¥ 3,249,170$ 41,403,441

Investments and other assets:
Investments in securities (notes 4, 5 and 16)
Other investments and other assets
Allowance for doubtful receivables
Total investments and other assets

See accompanying notes to consolidated financial statements.

38

$

8,792
1,431
3,265
367
535
14,390(7,408)
6,982

Intangible assets, net

36

2017

8,796
1,546
3,265
–
–
13,607(6,985)
6,622

Accumulated depreciation
Net property, plant and equipment

Total assets

Thousands of U.S.
dollars(note 2)

Millions of yen

2017

Liabilities and Net Assets

2016

Current liabilities:
Call money (notes 7 and 16)¥ 626,899 ¥ 720,900
Short-term borrowings and current installments of
13,010198,010long-term borrowings (notes 7 and 16)
Commercial paper (note 7)
185,000
122,000
Accrued income taxes (note 9)387
298
Collateral money received for securities lent
2,492,579
1,549,653
Other current liabilities (note 7)
1,159,566
484,592
Total current liabilities
4,477,441
3,075,453
Non-current liabilities:
Long-term borrowings (note 7)
Deferred tax liabilities (note 9)
Deferred tax liabilities for land revaluation (note 6)
Liability for retirement benefits (note 8)
Other non-current liabilities (note 21)
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock (note 10):
Authorized 200,000,000 shares;
issued 100,000,000 shares in 2017 and 2016
Capital surplus (note 10)
Retained earnings (note 11)
Treasury stock, at cost; 3,821,515 shares in 2017and 3,183,566 shares in 2016
Total stockholders’ equity
Accumulated other comprehensive income (loss):
Net unrealized gain on other securities(note 4)
Deferred losses on hedges (note 18)
Gain on revaluation of land (note 6)
Remeasurements of defined benefit plans (note 8)
Total accumulated other comprehensive
incomeTotal net assets

Thousands of
U.S. dollars(note 2)

2017$

5,587,833
115,964
1,648,988
3,450
22,217,479
10,335,734
39,909,448

4,000
9,411
74
2,983
11,431
27,8993,000
11,55374
3,425
13,634
31,68635,654
83,885660
26,589101,889
248,677

4,505,340

3,107,139

40,158,125

10,00010,00089,134

11,326106,196(2,207)

11,471
104,669(2,054)

100,954
946,573(19,672)

125,315

124,086

1,116,989

19,737

27,877

175,925(5,084)168(424)
14,397(9,248)168(852)
17,945(45,316)
1,497(3,779)128,327

139,712142,031

1,245,316¥ 4,645,052 ¥ 3,249,170$ 41,403,441

Commitments and contingencies (note 19)
Total liabilities and net assets

37
39

CONSOLIDATED STATEMENT OF INCOME
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2017
Millions of yen

Operating revenues
Operating expenses
Operating profit
General and administrative expenses (note 12)
Operating income¥

Other income (deductions):
Interest income
Dividend income
Interest expenses
Equity in earnings of affiliates
Gain on bad debt recovered
Gain on sale of investments in securities
Loss on disposal of property, plant and equipment
Other, net
Income before income taxes andnon-controlling interests
Income taxes (note 9):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent

¥

2017

2016

Thousands of
U.S. dollars(note 2)
2017

23,066 ¥11,893
11,1738,371
2,802

22,035
11,538
10,497
7,939
2,558

$

205,598
106,008
99,59074,614
24,976

230
423
(0)
93
5
63
(114)
57
757
3,559

259
392
(0)
55
17
–
–
69
792
3,350

2,050
3,770
(0)
829
45
561
(1,016)508
6,747
31,723

578
(97)
481
3,078
–
3,078 ¥

459
245
704
2,646
–
2,646

5,152
(865)
4,287
27,436–27,436$

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2017

Net income
Other comprehensive income (loss) arising during
the year (note 13):
Net unrealized gain on other securities (note 4)
Deferred losses on hedges (note 18)
Gain on revaluation of land (note 6)
Remeasurements of defined benefit plans (note 8)
Other comprehensive loss of affiliates accounted
for by the equity method
Total other comprehensive income (loss)arising during the year
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of parent
Non-controlling interests

See accompanying notes to consolidated financial statements.

38
40

¥

¥
¥

Millions of yen
2017
2016
3,078 ¥
2,646
(8,097)
4,165
–
413
(28)

13,152(6,482)
4
(758)
(152)

(3,547)(469) ¥

5,764
8,410

(469) ¥–

8,410–

Thousands of
U.S. dollars(note 2)
2017$27,436(72,172)
37,125
–
3,681
(250)
$
$

(31,616)(4,180)(4,180)–CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2017

Millions of yen
Stockholders’ equity

Balance at March 31, 2015¥

Commonstock

CapitalsurplusRetainedearnings(note 10)

(note 10)

(note 11)

10,000 ¥11,471 ¥103,608 ¥Accumulated other comprehensive income (losses)

Treasury
stock

Total

(114) ¥ 124,965 ¥Netunrealize
d gain on
othersecurities

Deferred
losses onhedgesGain onrevaluationof land

Remeasurementsof defined
benefit plans(note 4)(note 18)

(note 6)(note 8)14,787 ¥(2,766) ¥

164 ¥

(5) ¥

Total

Total net
assets12,180 ¥137,145

Changes arising during year:
Cash dividends(1,585)(1,585)(1,585)

Net income attribute to owners of

2,646

2,646

2,646

parentPurchase of treasury stock(1,940)(1,940)Net changes other than

(1,940)13,090(6,482)

4

(847)

5,765

5,765

stockholders' equity
Total changes during the year
Balance at March 31, 2016

–

–

1,061

(1,940)(879)

13,090(6,482)

4

(847)

5,765

4,886

10,00011,471

104,669(2,054)

124,086

27,877(9,248)

168

(852)

17,945142,031

Changes arising during year:
Cash dividends(1,551)(1,551)(1,551)

Net income attribute to owners of

3,078

3,078

3,078

(566)

(566)

(566)

413

268

parentPurchase of treasury stock
Disposition of treasury stock

(145)

268

Net changes other than

(8,140)

4,164

–

428

(3,548)(3,548)stockholders’ equity
Total changes during the year
Balance at March 31, 2017–¥

10,000 ¥

(145)

1,527

11,326 ¥106,196 ¥

(153)

1,229

(2,207) ¥ 125,315 ¥(8,140)

4,164

–

428

(3,548)(2,319)19,737 ¥(5,084) ¥168 ¥(424) ¥

14,397 ¥

139,712

Total

Total net
assetsThousands of U.S. dollars(note 2)
Accumulated other comprehensive income (losses)

Stockholders’ equity

Commonstock

Balance at March 31, 2016$

89,134 $CapitalsurplusRetainedearnings

Treasurystock

102,246 $932,962 $(18,308) $ 1,106,034 $

Total

Net
unrealize
d gain on
othersecurities

Deferred
losses onhedges248,480 $(82,431) $Gain onrevaluationof land1,497 $

Remeasurementsof defined
benefit plans(7,594) $ 159,952 $ 1,265,986

Changes arising during year:
Cash dividends(13,825)(13,825)(13,825)

Net income attributable to owners of

27,43627,43627,436(5,045)(5,045)(5,045)

3,681

2,389

parentPurchase of treasury stock
Disposition of treasury stock(1,292)

Net changes other than

2,389
(72,555)

37,115–

3,815(31,625)(31,625)

3,815(31,625)(20,670)

stockholders' equity
Total changes during the year
Balance at March 31, 2017$–

(1,292)

13,611(1,364)

89,134 $100,954 $

946,573 $(19,672) $ 1,116,989 $

10,955

See accompanying notes to consolidated financial statements.

39
41(72,555)

37,115–

175,925 $(45,316) $1,497 $

(3,779) $ 128,327 $ 1,245,316

CONSOLIDATED STATEMENT OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2017
Thousands of
U.S. dollars

Millions of yen
2017
2016
Cash flows from operating activities:¥

Income before income taxes and non-controlling interests
Adjustments to reconcile income before income taxes and non-controllinginterests to net cash provided by operating activities:
Depreciation and amortization
Loss on sale/disposal of property, plant and equipment
Gains relating to short-term investments and investments in securities
Allowance for doubtful receivables
Increase (decrease) in liability for retirement benefits
Interest and dividend income
Interest expenses
Equity in earnings of affiliates(Increase) decrease in short-term loans receivable
Increase in call loans
Increase in collateral money for securities borrowed
Decrease in call money
Decrease in short-term borrowings
Increase (decrease) in commercial paper
Increase in collateral money received for securities lent
Increase (decrease) in collateral money received for loan transactions
Increase (decrease) in long-term debt
Purchase of short-term investments and investments in securities
Proceeds from sale/redemption of short-term investments
and investments in securities
Other, net
Sub totalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investments in securities
Proceeds from sale/redemption of investments in securities
Capital expenditures
Purchase of intangible assets
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid to stockholders
Purchase of treasury stock
Disposition of treasury stock
Other, net
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year¥

Cash and cash equivalents at end of year (note 3)

See accompanying notes to consolidated financial statements.

40
42

3,559

¥

3,350

(note 2)
2017$

31,723

807
115
(88)
(381)
(442)
(8,762)
1,217(93)(20,004)(33,000)(905,105)(94,001)(185,000)
63,000942,926
37,5971,000(66,169)
463,347

626
15
(625)
(339)
836
(10,441)2,870(55)
315,353–(50,643)(866,100)(238,500)(318,000)
760,937(15,061)(2,000)(449,143)
689,754

7,193
1,025
(784)
(3,396)(3,940)(78,100)
10,848(829)(178,305)(294,144)(8,067,608)(837,873)(1,648,988)
561,547
8,404,724
335,119
8,913(589,794)
4,130,021

610,439
810,962
8,917(1,150)(540)
818,189

417,113
239,947
10,526(2,809)(516)
247,148

5,441,118
7,228,470
79,481(10,251)(4,813)
7,292,887(11,217)
4,403
(34)
(661)
1
(7,508)(7,653)200(612)(1,896)
1(9,960)(99,982)
39,246(303)(5,892)
9(66,922)(1,551)
(566)
268
(53)
(1,902)808,779
260,371
1,069,150(1,585)(1,939)–(80)(3,604)
233,584
26,787260,371(13,825)(5,045)
2,389(473)(16,954)
7,209,011
2,320,804
9,529,815¥$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2017(1)(a)

Summary of Significant Accounting Policies
Basis of Presenting Consolidated Financial Statements
Japan Securities Finance Co., Ltd. (the Company) and its consolidated subsidiaries maintain their books ofaccount and prepare their financial statements in conformity with financial accounting standards of Japan.
The accompanying consolidated financial statements have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting
regulations, and in conformity with accounting principles and practices generally accepted in Japan, which may
differ in certain respects from accounting principles and practices generally accepted in countries andjurisdictions other than Japan.
In preparing the accompanying consolidated financial statements, certain reclassifications have been madein the financial statements issued domestically in Japan in order to present them in a form which is morefamiliar to readers outside Japan. In addition, the notes to the consolidated financial statements include
information which is not required under accounting principles generally accepted in Japan but is presented
herein as additional information.
(b)

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its 2
subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Investments in affiliates are accounted for by the equity method.
The Accounting Standards for Consolidation require the control or influence concept for the consolidation
scope of subsidiaries and affiliates. Under the control or influence concept, a company in which the parent
company or its consolidated subsidiaries, directly or indirectly, are able to exercise control over operations isfully consolidated, and a company over which the parent company and/or its consolidated subsidiaries have theability to exercise significant influence is accounted for by the equity method.
(c)Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly liquid investments withinsignificant risk of changes in value which have maturities of generally three months or less when purchased
to be cash equivalents.
(d)

Short-term Investments and Investments in Securities
Under the Accounting Standards for Financial Instruments, securities are classified into four categories –“trading securities,” “held-to-maturity securities,” “investments in affiliates” and “other securities.” Securities
classified as “trading securities” are stated at fair value and unrealized gains or losses are recorded in the
consolidated statement of income. Securities classified as “held-to-maturity securities” are stated at amortizedcost. Securities classified as “other securities” with fair value are stated at fair value and unrealized gains orlosses, net of related taxes, are excluded from earnings and recorded in a separate component of net assets.
Realized gains or losses on the other securities are determined by the moving average method. Securities
classified as “other securities” for which fair value is not available are stated at the moving-average cost.
(e)Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is provided principally by the
declining-balance method based on the estimated useful lives, except for the buildings acquired on or after
April 1, 1998 and the leasehold improvements and structures acquired on or after April 1, 2016, which are
depreciated based on the straight-line method.

41
43

The estimated useful lives are as follows:
Buildings and structures
3–50 years
According to the amendment of Corporation Tax Law, the Company applied Practical Solution on a
Change in Depreciation Method Due to Tax Reform 2016 (ASBJ Practical Issues Task Force (PITF) No. 32,
June 17, 2016) from the year ended March 31, 2017, and the depreciation method for leasehold improvements
and structures acquired on or after April 1, 2016 has been changed from the declining-balance method to thestraight-line method. The effect on net income of this change is immaterial.
(f)Intangible Assets
Intangible assets are carried at cost less accumulated amortization. Software development expenses aredeferred and amortized by the straight-line method over estimated useful lives (5 years). Intangible assets
other than software are deferred and amortized by the straight-line method at rates based on the estimateduseful lives of the respective assets.
(g)

Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided at an amount of uncollectible receivables based on
historical loss ratios and an amount that takes into consideration the possibility of specific liabilities.
(h)Retirement and Severance Benefits
The Company and its consolidated subsidiaries have retirement benefit plans covering substantially all
employees.
Liability for retirement benefits have been made in the accompanying consolidated financial statements
based on the present value of the projected future retirement benefits attributable to employee services renderedby the end of the year, less amounts funded under contributory and noncontributory pension plans.
The retirement benefit obligation is attributed to each period by the benefit formula basis.
Actuarial gain or loss is amortized in the subsequent year that it occurs by the declining-balance method
within the average remaining years (15 years) of service of the employees.
Certain consolidated subsidiaries calculate retirement benefit obligation based on a simplified method,which is permitted for small size companies in conformity with the Accounting Standard for Retirement
Benefits for calculating retirement benefit liability and retirement benefit expenses.
(i)LeasesAll finance lease transactions are capitalized.
Leased assets related to finance lease transactions without title transfer are depreciated on a straight-line
basis, with the lease periods as their useful lives and no residual value.
(j)

Income Taxes
The Accounting Standards for Deferred Income Taxes require that deferred income taxes should be
accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled, andthe effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company applied the Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ
Guidance No.26, issued March 28, 2016) from the year ended March 31, 2017.
(k)Directors’ Bonus
Directors’ bonuses are accounted for as an expense when such bonuses are accrued.

42
44

(l)

Provision for Share Remuneration Plan
Provision for share remuneration plan is provided for delivery of the Company’s shares to directors andexecutive officers at an amount of estimated obligation for share remuneration based on the internal rule.
Reclassifications
Certain reclassifications have been made to the prior years’ consolidated financial statements to conformto the presentation used as of and for the year ended March 31, 2017.
(m)

(2)

Financial Statement Translation
The translations of the yen amounts into U.S. dollars are included solely for the convenience of the reader,using the prevailing exchange rate as of March 31, 2017, which was ¥112.19 to U.S. $1. This translation
should not be construed as a representation that the amounts shown could be converted into U.S. dollars at such
rate.
(3)

Cash and Cash Equivalents
Reconciliation between “Cash” in the accompanying consolidated balance sheet and “Cash and cash
equivalents” in the accompanying consolidated statement of cash flows as of March 31, 2017 and 2016 are as
follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Cash
¥ 1,076,762¥
266,378$ 9,597,665
Certificate of deposits with maturities of(7,612)(6,007)(67,850)
over three months
Cash and cash equivalents¥ 1,069,150¥
260,371$ 9,529,815(4)

Short-term Investments and Investments in Securities
No trading securities were held both as of March 31, 2017 and 2016.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity
securities as of March 31, 2017 and 2016 are summarized as follows:
Millions of yen
Balance
Gross
Gross
sheet
unrealized
unrealized
amountgain
loss
Fair value
March 31, 2017
Government bond securities ¥
1,515
¥
179
¥
1,694
－ ¥
¥
1,515
¥
179
¥
1,694
－ ¥
March 31, 2016
Government bond securities¥¥

41,45541,455¥¥$$

13,504
13,504

¥
¥

(1)
(1)

¥
¥

Thousands of U.S. dollars
Gross
Gross
unrealized
unrealized
gain
loss

Balancesheet
amountMarch 31, 2017
Government bond securities

585
585

$
$

43
45

1,596
1,596

$
$

－
－

42,03942,039Fair value$$

15,10015,100Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of othersecurities with fair value as of March 31, 2017 and 2016 are summarized as follows:
Millions of yen
Gross
Gross
unrealized
unrealized
gain
loss

Acquisition
cost
March 31, 2017
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other
Other securities

March 31, 2016
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other
Other securities

¥

5,307

¥

6,574

¥

630,558
197,392
44,865
4,911
883,033

¥

5,530

¥

971,241204,257
55,7671,939
1,238,734¥(57) ¥

11,824¥

24,643175
23
919
32,334

¥

(118)
(8)
(3,814)(39)(4,036) ¥655,083
197,559
41,074
5,791
911,331

¥

6,661

¥

(111) ¥

12,080¥32,629
233
1,067
676
41,266¥(1)(15)(1,093)－(1,220) ¥1,003,869
204,475
55,741
2,615
1,278,780

Thousands of U.S. dollars
Gross
Gross
unrealized
unrealized
gain
loss

Acquisition
cost
March 31, 2017
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other
Other securities$

47,304$5,620,447
1,759,444
399,90243,7747,870,871

Balancesheet
amount$58,597$

219,654
1,560
205
8,192
288,208

Balancesheet
amount$(508) $

105,393$(1,051)(72)(33,996)(348)(35,975) $5,839,050
1,760,932
366,11151,618
8,123,104

Securities classified as other securities for which fair value is not available are summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Unlisted equity securities¥
Unlisted REITs
Investments in investment limited partnership

44
46

2,900
9,232
130

¥

2,900
5,031
－

$

25,84982,2891,159

For the years ended March 31, 2017 and 2016, proceeds from sale of other securities, the grossrealized gains and the gross realized losses are summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Proceeds from sale of other securities¥
36,066¥437,441$
321,473
Gross realized gains
1,215
1,750
10,830Gross realized losses
619
6
5,517
For the year ended March 31, 2017, held-to-maturity securities of ¥40,171 million ($358,062
thousand) have been reclassified as other securities because there is no reasonable reason to hold the
securities until maturity due to introduction of negative interest rate policy. As a result of thisreclassification, investments in securities increased by ¥222 million ($1,979 thousand), deferred tax
liabilities increased by ¥68 million ($606 thousand) and net unrealized gain on other securities increased by¥154 million ($1,373 thousand).
Financial assets received as collateral on which the Company has a right of disposal as of March 31,2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
The fair value of the securities received¥
1,327,416¥
1,549,741$ 11,831,857
as collateral
Securities lent
195,192
127,083
1,739,834
Collateral provided
304,572
394,104
2,714,788
On hand827,652
1,028,554
7,377,235
Balance sheet amount of securities lent under loan for consumption agreement, etc. as of March 31,2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Short-term investments¥
64,541¥
344,742$575,283
Investments in securities
423,620
330,321
3,775,916
The fair value of the securities borrowed under loan for consumption agreement, etc. as of March 31,2017 and 2016 was as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
The fair value of the securities borrowed$
18,290,641¥ 2,052,027 ¥ 1,135,294
Securities loaned
2,017,692
1,131,462
17,984,597
Securities pledged as collateral
2,338
20,840－On hand
31,997
3,832
285,204

45
47

(5)

Investments in Affiliates
The aggregate carrying amount of investments in affiliates as of March 31, 2017 and 2016 are ¥3,597
million ($32,062 thousand) and ¥3,566 million, respectively.

(6)Land Revaluation
The Company revaluated its land at fair value, pursuant to the Enforcement Ordinance for the Law
Concerning Land Revaluation and its amendments (the “Law”). According to the Law, net unrealized
gain was reported in a separate component of net assets, net of related taxes, and the related taxes arereported in liabilities as deferred tax liabilities for land revaluation as of March 31, 2002.
The value of the land as of March 31, 2017 decreased by ¥23 million ($205 thousand) in comparison
with the book value of the land after revaluation.

(7)

Debt
The composition of debt and the weighted average interest rate on debt as of March 31, 2017 and2016 are as follows:
WeightedThousands
Millions
averageof U.S.
of yenrate
dollars
March 31, 2017
Short-term borrowings¥
13,010 $115,9640.031%
Long-term borrowings
4,000
35,6540.542
Call money
626,899
5,587,833(0.028)Commercial paper
185,000
1,648,988(0.000)¥828,909 $ 7,388,439
March 31, 2016
Short-term borrowings
Current portion of lease liabilities
Long-term borrowings
Call money
Commercial paper¥

198,01053
3,000
720,900
122,000¥ 1,043,963

0.088%
－
0.638
0.000
0.042

(8) Retirement and Severance Benefits
The Company has defined benefit retirement and pension plans, which consist of a defined benefit
corporate retirement and pension plan and an unfunded retirement and severance plan that provide forlump-sum payment of benefits, and a defined contribution plan.
Consolidated subsidiaries’ main retirement plans are unfunded retirement and severance plans thatprovide for lump-sum payment of benefits as defined benefit retirement and pension plans and thesimplified method has been adopted for the calculation of liability for retirement benefits and retirement
benefit expenses of lump-sum payment plans.
Defined benefit plans
Followings are the information for the Company’s and the consolidated subsidiaries’ defined benefit
plans as of March 31, 2017 and 2016 and for the years then ended.

46
48

(1) Reconciliation of changes in retirement benefit obligation (the following table excludes certain plans
mentioned in (3))
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Retirement benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gains or losses
Benefits paid
Retirement benefit obligation at end of year

¥

¥

8,714
348
18
(240)
(296)
8,544

¥

¥

7,946
304
64
756
(356)
8,714

$

$

77,672
3,102
160(2,139)(2,638)76,157(2) Reconciliation of changes in plan assets (the following table excludes certain plans mentioned in (3))
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Plan assets at beginning of year
Expected return on plan assets
Actuarial gains or losses
Employer contributions
Benefits paid
Plan assets at end of year

¥

¥

5,464
109
205
229
(259)
5,748

¥

¥

5,534
111
(332)
412
(261)
5,464

$

$

48,703
972
1,827
2,041
(2,308)51,235(3) Reconciliation of changes in liability for retirement benefits whose plans adopted the simplified method
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Liability for retirement benefits at beginning of year ¥Retirement benefit expenses
Benefits paid
Contributions
Liability for retirement benefits at end of year
¥

47
49

133
13
－
(0)
146

¥

¥

127
15
(8)
(1)
133

$

$

1,185
116
－
(0)
1,301

(4) Reconciliation between retirement benefit obligation and plan assets and liability for retirement benefit
and asset for retirement benefit recognized in consolidated balance sheet
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Funded retirement benefit obligation
Plan assets

¥

¥

6,767
(5,748)
1,019
1,922
2,941

¥
¥

2,941
2,941

¥

Unfunded retirement benefit obligation
Net liability for retirement benefit recognizedin consolidated balance sheet
Liability for retirement benefit
Net liability for retirement benefit recognizedin consolidated balance sheet

$

¥

6,978
(5,464)
1,514
1,869
3,383

$

60,318(51,235)
9,083
17,132
26,215

¥
¥

3,383
3,383

$
$

26,215
26,215(5) The components of retirement benefit expenses
Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gains or losses
Retirement benefit expenses calculated by
the simplified method
Retirement benefit expenses

¥

348
18
(109)
150
13

¥

304
64
(111)
(5)
15

$

3,102
160
(971)
1,337
116

¥

420

¥

267

$

3,744

(6) Remeasurements of retirement benefit plans before related tax effects
Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Actuarial gains or losses
Total

¥
¥

596
596

¥
¥

(1,093)(1,093)

$
$

5,312
5,312

(7) Accumulated remeasurements of retirement benefit plans before related tax effects
Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Unamortized actuarial gains or losses
Total

¥
¥

48
50

463
463

¥
¥

1,059
1,059

$
$

4,127
4,127

(8) Plan assets(a) Percentage by major category of plan assets

Debt securities
Equity securities
General account
Other
Total

2017

2016

34.8%
45.6
17.2
2.4
100.0%

30.8%
48.4
17.9
2.9
100.0%(b) Determination procedure of long-term expected rate of return on plan assets
In determining long-term expected rate of return on plan assets, the Company considers the current andprojected asset allocation, as well as current and future long-term rate of returns for various categories ofthe plan assets.
(9) Basis for calculation of actuarial assumptions
The assumptions used in accounting for the above plans as of March 31, 2017 and 2016 are as follows:
2017
2016
(a) Discount rate(b) Long-term expected rate of return(c) Expected salary increase rate

0.4%
2.0%
5.2%

0.2%
2.0%
5.2%

Defined contribution plans
For the years ended March 31, 2017 and 2016, the amount to be paid by the consolidated subsidiaries tothe defined contribution plans was ¥36 million ($321 thousand) and ¥38 million, respectively.
Liability for retirement benefits (directors and corporate auditors)
Directors and corporate auditors are not covered by the plans described above. The Company and all
consolidated subsidiaries had abolished retirement benefit system for directors and corporate auditors.
Directors and corporate auditors were entitled to lump-sum payment up to the date of the abolishment
when they leave the Company or subsidiaries.
As of March 31, 2017 and 2016, the liability for retirement benefits related to the plans were ¥42
million ($374 thousand) and ¥42 million which include the lump-sum payments mentioned above,
respectively.
(9)

Income Taxes
The Company and its consolidated subsidiaries are subject to Japanese corporate, inhabitant andbusiness taxes based on income which, in the aggregate, result in a statutory tax rate of approximately
30.9% and 33.1% in 2017 and 2016, respectively.

49
51

The reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before
income taxes and non-controlling interests for the years ended March 31, 2017 and 2016 is follows:
2017
2016
Statutory tax rate
Equity in gains of affiliates
Expenses not deductible for tax purposes
Valuation allowance
Income not credited for tax purposes
Adjustments of deferred tax assets due to change instatutory tax rate
Other
Effective tax rate

30.9%
(0.8)
0.7
(17.4)
(2.0)
－

33.1%
(0.5)
0.8
(13.1)
(2.2)
0.8

2.1
13.5%

2.1
21.0%

Significant components of deferred tax assets and liabilities as of March 31, 2017 and 2016 are as
follows:
Thousands of
U.S. dollars
Millions of yen
2017
2016
2017
Deferred tax assets:
Accrued business tax
64
43
570
¥
¥
$
Accrued bonuses
166
150
1,480
Liability for retirement benefits (employees)
904
1,039
8,058
Liability for retirement benefits (directors andcorporate auditors)
13
13
116
Allowance for doubtful receivables
294
424
2,621
Tax loss carryforward
3,626
4,103
32,320
Deferred losses on hedges
3,807
4,549
33,934
Net unrealized loss on other securities
1,197
369
10,669
Other
308
306
2,745
10,37910,996
92,513
Valuation allowance(5,955)(7,000)(53,080)
4,424
3,996
39,433
Deferred tax liabilities:
Gain on evaluation of subsidiaries’ assets
(155)
(155)
(1,382)Net unrealized gain on other securities(9,877)(12,591)(88,038)
Gain on transfer of investment in an affiliate
(359)
(359)
(3,200)Gain on evaluation of acquired assets by merger
(603)
(603)
(5,375)
Deferred losses on hedges(2,541)(1,653)(22,649)
(21)
(21)
(187)
Other
(13,556)(15,382)(120,831)
Net deferred tax liabilities(9,132) ¥ (11,386)¥$ (81,398)

50
52

Net deferred tax assets and liabilities as of March 31, 2017 and 2016 are reflected in theaccompanying consolidated balance sheet under the following captions:Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Current assets - Deferred tax assets
Non-current liabilities- Deferred tax liabilities¥

279(9,411)¥

167$(11,553)

2,487(83,885)(10) Common Stock
Under the Companies Act, the entire amount of the issue price of shares is required to be designatedas stated common stock account although a company in Japan may, by resolution of its Board of Directors,
account for an amount not exceeding 50% of the issue price of new shares as additional paid-in capital,
which is included in capital surplus.
(11) Retained Earnings and Dividends
The Companies Act provides that an amount equal to 10% of distributions from retained earnings
paid by the Company and its Japanese subsidiaries be appropriated as a legal reserve. No further
appropriations are required when the total amount of the additional paid-in capital and the legal reserve
equals 25% of their respective stated capital. The Companies Act also provides that capital surplus andlegal reserve are available for appropriations by the resolution of the stockholders. Balances of the legal
reserve are included in retained earnings in the accompanying consolidated balance sheet.
Cash dividends charged to retained earnings for the years ended March 31, 2017 and 2016 represent
dividends paid out during those years. The amount available for dividends is based on the amountrecorded in the Company’s non-consolidated books of account in accordance with the Companies Act.
(a) Dividends paid during the year ended March 31, 2016
The following was approved by the general meeting of stockholders held on June 24, 2015.
(a) Total dividends¥799 million¥8(b) Cash dividends per common share(c) Record date
March 31, 2015(d) Effective dateJune 25, 2015
The following was approved by the Board of Directors held on November 9, 2015.
(a) Total dividends¥787million¥8(b) Cash dividends per common share(c) Record date
September 30, 2015(d) Effective date
December 7, 2015(b) Dividends paid during the year ended March 31, 2017
The following was approved by the general meeting of stockholders held on June 24, 2016.
(a) Total dividends¥775 million ($6,908 thousand)¥8 ($0.07)(b) Cash dividends per common share(c) Record date
March 31, 2016(d) Effective dateJune 27, 2016

51
53

The following was approved by the Board of Directors held on November 7, 2016.
(a) Total dividends¥775 million ($6,908 thousand)¥8 ($0.07)(b) Cash dividends per common share(c) Record date
September 30, 2016(d) Effective date
December 5, 2016(c) Dividends to be paid after the balance sheet date but the record date for the payment belongs to theyear ended March 31, 2017
The following was approved by the general meeting of stockholders held on June 23, 2017.
(a) Total dividends¥968 million ($8,628 thousand)(b) Dividend source
Retained earnings¥10 ($0.09)(c) Cash dividends per common share(d) Record date
March 31, 2017(e) Effective dateJune 26, 2017(12) General and Administrative Expenses
Significant components of general and administrative expenses are as follows:
Millions of yen
2017
2016
Salaries
Retirement benefit expenses
Administrative and computer expenses
Depreciation
(13)

¥

3,113
456
1,150
807

¥

3,172
305
1,331
626

Thousands of
U.S. dollars
2017$

27,748
4,065
10,2507,193

Other Comprehensive Income (Loss)
The reclassification adjustment and the related income tax effects allocated to each component of othercomprehensive income (loss) for the years ended March 31, 2017 and 2016 are as follows:

52
54

Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Net unrealized gain on other securities:
Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount¥ (10,996) ¥(596)(11,592)
3,495(8,097)

19,969(1,693)
18,276(5,124)
13,152$ (98,012)(5,313)(103,325)
31,153(72,172)

Deferred losses on hedges:
Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount

5,320
－
5,320
(1,155)4,165(6,929)－(6,929)447(6,482)47,420－47,420(10,295)
37,125Gain on revaluation of land:Tax benefit

－

4

－

445
150
595
(182)
413

(1,088)(5)(1,093)
335
(758)

3,966
1,337
5,303
(1,622)
3,681

Share of other comprehensive income (loss) of affiliates accounted for by equity method:
53(162)
Arising during the year
(81)
10
Reclassification adjustment
(28)
(152)

472
(722)
(250)

Remeasurements of defined benefit plans:Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount¥

Total other comprehensive income (loss)(3,547) ¥5,764$ (31,616)(14) Per Share Information(a) Net Income per Share
Basic net income per share, and reconciliation of the numbers and the amounts used in the basic net
income per share computations for the years ended March 31, 2017 and 2016 are as follows:
Yen
U.S. dollars
2017
2016
2017
Basic net income per share

¥

53
55

31.91

¥

26.90

$

0.28

Millions of yen
2017
2016
Net income attributable to owners of parent
Net income not applicable to common
stockholders
Net income attributable to owners of parent
applicable to common stockholders

Thousands of
U.S. dollars
2017

¥

3,078
－

¥

2,646
－

$

27,436
－

¥

3,078

¥

2,646

$

27,436

Number of shares (Thousands)
2017
2016
Weighted average number of shares outstandingon which basic net income per share is calculated

96,481

98,344The Company’s own stocks which are held by the trust are included in the treasury stocks which
are excluded from the calculation of weighted average number of shares outstanding on which basic
net income per share is calculated.
(b) Net Assets per Share
Net assets per share, and reconciliation of the numbers and the amounts used in the net assets per
share computations as of March 31, 2017 and 2016 are as follows:
Yen
U.S. dollars
2017
2016
2017
Net assets per share

Total net assets
Amount deducted from total net assets
Net assets applicable to common stockholders¥¥¥

1,452.64¥

1,467.01$

12.95

Millions of yen
2017
2016

Thousands of
U.S. dollars
2017

139,712－
139,712$ 1,245,316－$ 1,245,316¥¥

142,031－
142,031

Number of shares (Thousands)
2017
2016
Number of shares outstanding at end of year
on which net assets per share is calculated

96,17896,816The Company’s own stocks which are held by“Board Benefit Trust” are included in the treasury
stocks which are excluded from the calculation of number of shares outstanding at end of year on
which net assets per share is calculated.

54
56

(15) Leases
Operating Lease
Future minimum lease payments required under noncancellable operating leases as of March 31, 2016
were as follows:
Millions ofyen
Future minimum lease payments:
Within one year
Over one year

¥
¥

(16)

1
－
1

Pledged Assets
The carrying value and classification of assets owned by the Company that have been pledged tocounterparties as of March 31, 2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Short-term investments
Short-term loans receivable
Investments in securities¥

171,757
160,329
129,231¥85,059113,642466,275$

1,530,947
1,429,085
1,151,894

Assets in the above table were pledged for the followings:
Millions of yen
2017
2016
Call money
Short-term borrowings¥

232,300
5,000¥

450,900
20,000Thousands of
U.S. dollars
2017$

2,070,595
44,567

In addition to the above, followings are deposited for the Clearing Fund of Japan Securities Clearing
Corporation and Japan Government Bond Clearing Corporation, etc.
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Cash
Other current assets
Investments in securities¥

25
61,801
1,668¥－
30,001
1,502

$

223
550,860
14,868(17) Financial Instruments
Conditions of Financial instruments(1) Management policy
The Company and a consolidated subsidiary, JSF Trust and Banking Co., Ltd. (“JSFTB”) mainly deal infinancial instruments. The Company is engaged in providing loan services, mainly loans for margintransactions. The loans for margin transaction are loan services which are money lending or stock loan for

55
57

settlement of standardized margin transactions. The transaction is strongly effected by security market
condition, therefore, the Company raises money flexibly from short-term finance market, primarily from callmarket. The Company owns securities such as Japanese Government Bonds to maintain daytime liquidity.
A consolidated subsidiary, JSFTB is engaged in providing credit services such as loans as banking businessand finance and securities activities. JSFTB invests in highly liquid and safe-and-secure securities such as
government bonds, government-backed bonds, local government bonds and public corporation bonds as
securities investment activities and usually raises money through a trust account.
(2) Financial instruments and risks
Main financial instrument that the Company holds are trade loans receivable, collateral money forsecurities borrowed, short-term investments and investments in securities such as government bonds and equity
securities. Main financial instrument that JSFTB holds are loans to government and business corporations andsecurities such as government bonds, government-backed bonds, local government bonds and public
corporation bonds. Trade loans receivable held by the Company and JSFTB are exposed to credit risks thatcaused from counterparties’ default of contract. Securities are exposed to market risks. Collateral money forsecurities borrowed is collateral money mainly for repurchase transaction and securities borrowed of loans for
margin transactions. Regarding raising money such as call money and short-term borrowings of the Company
and JSFTB, the liabilities are exposed to liquidity risks that caused from turmoil in the financial markets or acredit rating down.
JSFTB has entered into interest rate swaps for hedging fixed-rate loans and bonds, and variable-rateborrowings as a part of interest risk control (ALM). Hedge accounting is applied to the derivatives held for
ALM purpose, and the Company regularly monitors the hedge effectiveness whether the relationship between
hedging derivatives and hedged assets or liabilities are appropriate and the interest rate risk of hedged items areoffset by hedging derivatives.
(3) Financial instruments risk management
The Company places risk management as top priority of management. Basic policy of risk management
is approved at the Board of Directors, and various rules for risk management according to the basic policy are
established for concrete risk management method or system. The Company regularly receives a report fromJSFTB concerning its risk management.
1) Integrated risk management
The Company quantizes the risk by Value at Risk (VaR) approach after allocating risk capital within equity
capital, and controls the quantized risk amount within the allocated risk capital. Each business operation
department controls a risk within the allocated risk capital, risk management department that is independent
from each operational section quantizes the risk, monitors the risk management and reports to the management.
2) Credit risk
The Company manages all of the credit risk strictly to maintain and improve assets quality. The Risk
Management Department evaluates credit risks according to the in-house rating and quantizes and controls thecredit risk using the default rate by each in-house rating category. Stress tests are also performed forcompensating the quantization control. The Risk Management Department evaluates customers or loans, andsets up the credit limits, while business operation department monitors the credit limit. Assets owned bybusiness operation departments are assessed by themselves strictly. The Company receives collateral
securities for each loan and revaluates the securities daily to mitigate the collectability issues, and the Company
collects the claims quickly through sale of the collaterals when the customer bankrupts.

56583) Market risk
The Risk Management Department quantizes and controls market risks, and performs stress tests tocompensate the quantization control. Back-testing which is the test compared calculated VaR and estimatedprofit or loss by using the fixed portfolio is performed to test the reliability of the Company’s market risk
quantization model.
4) Quantitative information of market risk
The Company calculates VaR of short-term investments and investments in securities byusing Delta method (holding period: 10-120 days (depending on purposes in holding), confidence interval:
99%, observation period: mainly 1 year, the Company changed its holding period for debt and equity securities
held for investments from 120 days to 60 days from the year ended March 31, 2017). Market risk amount(possible losses) of the Company is ¥14,181 million ($126,402 thousand) as of March 31, 2017.
Because VaR is a statistical estimate of market risk amount at a particular probability using past market
movement data, VaR may not capture the risk during radical market movements that are extreme in nature.
5) Liquidity risk
The Treasury Department of the Company seeks to diversify financing channels and to secure stablefinancing sources. For sound cash flow management, the Company develops cash flow forecast, understands
the amount can be raised or future liquidity and also understands dates of a large payment concentration, theCompany has a system to report to the management with daily cash flow status. The Company tries to holdenough liquidity, for example, to possess a certain amount of government bonds, makes a contingency plan andbuilds a company-wide emergency response system against contingencies. Liquidity stress tests are
performed monthly for ascertaining whether consolidated liquidity held by the Company and JSFTB is
adequate. At the “ALM Committee” held in every quarter, the Company develops cash flow forecast based on
estimates of loans outstanding, studies policies for ALM (Asset Liability Management) such as revenue
management for assets and liabilities of the Company and the Company has a system to report to the
management.
6) Subsidiary’s risk control system
JSFTB basic policy of risk management is approved at the Board of Directors, and various rules for risk
management according to the basic policy are established for concrete risk management method or system, andthe Risk Management Department controls the risks totally. The Risk Management Department measures andmonitors the risk quantity, collects and analyzes information and reports the risk condition to the management
for maintaining the proper risk management.
JSFTB calculates market risk amount for all market transactions. Interest rate risk amount which is amajor risk variable is calculated by VaR (Delta method; holding period: 1 year, confidence interval: 99%,
observation period: 5 years). JSFTB market risk amount is ¥5,969 million ($53,204 thousand) as of March 31,
2017.
(4) Supplemental explanation regarding fair value of financial instruments
Fair value of financial instruments are measured based on the quoted market price, if available, or
reasonably assessed value if a quoted market price is not available. Fair value of financial instruments whichquoted market price is not available is calculated based on certain assumptions, and the fair value might differ
if different assumptions are used. In addition, the contract amount of the derivative transactions described
below in note “(18) Derivative financial instruments” does not represent the market risk of the derivativetransactions.

57
59

Fair value of financial instruments
The carrying value on the consolidated balance sheet, fair value, and differences as of March 31, 2017 and2016 are as follows.
Financial instruments, of which it is extremely difficult to measure the fair value, are not included. (Pleasesee “<2> Financial instruments of which the fair value is extremely difficult to measure”)
Millions of yen
2017
2016
Carrying
value
Assets:(1) Cash(2) Call loan *1(3) Trade loans receivable
Allowance for doubtfulreceivables *1(4) Collateral money forsecurities borrowed *1(5) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities
Total

Fair value¥ 1,076,762 ¥ 1,076,762
32,96332,963587,752(119)

Differences¥

Carrying
value

Fair value－ ¥－266,378 ¥ 266,378－－
567,749(127)

Differences¥－－

587,633

587,633－

567,622567,65129

1,930,624

1,930,624－

1,025,508

1,025,508－

179
41,455
1,278,780－
179 ¥ 3,179,743

42,0391,278,780¥ 3,180,356

¥

584
－
613

－ ¥ 720,900
198,010－122,000－
1,549,653
－

¥

¥

3,000
－
－ ¥ 2,593,563

3,000¥ 2,593,563

¥

－
－

(－) ¥

¥

¥

(－)

1,515
1,694
911,331911,331¥ 4,540,828 ¥ 4,541,007

¥

¥

¥

(1) Call money(2) Short-term borrowings(3) Commercial paper(4) Collateral money received
for securities lent
(5) Long-term borrowings
Total

626,899
13,010185,000
2,492,579

4,000¥ 3,321,488

Derivative transactions *2¥¥

626,899
13,010185,000
2,492,579

4,000¥ 3,321,488(9,380) ¥¥(9,380) ¥58
60(11,608)

720,900
198,010122,000
1,549,653(11,608)－－－－

Thousands of U.S. dollars
2017
Carrying
value
Assets:(1) Cash(2) Call loan *1(3) Trade loans receivable
Allowance for doubtfulreceivables *1(4) Collateral money forsecurities borrowed *1(5) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities
Total

$

Fair value

9,597,665 $ 9,597,665
293,814
293,8145,238,898(1,061)

Difference
s
$

－
－

5,237,837
17,208,521

5,237,837
17,208,521－－

13,504
8,123,104$ 40,474,445

15,1008,123,104$ 40,476,041

1,596
－
1,596

$

(1) Call money(2) Short-term borrowings(3) Commercial paper(4) Collateral money received
for securities lent
(5) Long-term borrowings
Total

5,587,833
115,964
1,648,988
22,217,479$ 5,587,833
115,964
1,648,988
22,217,479

35,654$ 29,605,918

35,654$ 29,605,918

Derivative transactions *2$(83,608) $(83,608)

$
$

－
－
－
－

$

－
－

$

(－)

*1 Allowance for doubtful accounts associated with trade loans receivable is deducted. Carrying value of callloan and collateral money for securities borrowed is net amount of related allowance for doubtful accounts,
because the allowance for doubtful accounts for these accounts is not material.
*2 Derivative receivables and payables are on net basis. Items that are net payables are shown in parenthesis.
<1> Fair value measurement of financial instruments
Assets:(1) Cash and (2) Call loan
The fair value approximates carrying amount because of the short maturity of these instruments.
(3) Trade loans receivable
The fair value of trade loans receivable with variable interest rate approximates carrying amount because
the fair value is reflected a fluctuation of interest market in a short period and unless credit status of theborrower does not change so much from when the Company lent. Allowance for doubtful receivables are
estimated based on collectable amounts by collaterals and guarantee and thus the fair value approximates the
carrying amount minus allowance for doubtful receivables amounts.
(4) Collateral money for securities borrowed
The fair value approximates carrying amount because of the short maturity of these instruments.

59
61

(5) Short-term investments and investments in securities
The fair value of equity securities and bond securities is calculated by quoted market price and quotes
from information venders. The fair value of government bonds with variable interest rate held by theCompany and JSFTB is estimated based on quotes from information venders in accordance with the “Practical
Solution on Measurement of Fair Value of Financial Assets” (ASBJ Practical Issue Task Force (PITF) No. 25,
October 28, 2008), because based on our determination that their market prices cannot be deemed fair value
due to the market situation where the number of transactions is extremely small. The pricing model used by
the information vendors is forward pricing model, and the price determinant variables are the spot rate forJapanese government bonds and the swaption volatility.
The fair value of investment trust is calculated by quoted market price.
Please see note “(4) Short-term Investments and Investments in Securities” for information by
category.
Liabilities:(1) Call money, (2) Short-term borrowings, (3) Commercial paper and (4) Collateral money received for
securities lent
The fair value approximates carrying amount because of the short maturity of these instruments.
(5) Long-term borrowings
The fair value of long-term borrowings with variable interest rate approximates carrying amount because
the fair value is reflected a fluctuation of interest market in a short period and credit status of the Company does
not change very much from when the Company borrowed.
Derivatives:
Please see note “(18) Derivative Financial Instruments.”<2> Financial instruments of which the fair value is extremely difficult to measure
Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Unlisted equity securities
Other securities
Investments in affiliates
Unlisted REITs
Investments in investment limited partnership

¥

2,900
3,597
9,232
130

¥

2,900
3,566
5,031
－

$

25,84932,06282,289
1,159

Above securities have no market value and the fair value is extremely difficult to measure, therefore are notincluded in “Assets: (5) Short-term investments and investments in securities.”60
62

<3> Projected future redemption of monetary claim and securities with maturities as of March 31, 2017
Millions of yen
Due after
Due after
one yearfive years
Due within
throughthrough ten
Due after
one yearfive years
years
ten years(1) Cash¥ 1,076,762(2) Call loan
33,000(3) Trade loans receivable
519,452(4) Collateral money for securities
1,910,722
borrowed(5) Short-term investments andinvestments in securities :Held-to-maturity securities :Government bonds－
Other securities with maturities :Bond securities :Government bonds
70,279Corporate bonds
167,748
Other
－
Total
¥ 3,777,963

¥

¥

－
－
67,611
20,000

¥

－
－
689
－

¥

－

－

1,500

351,344
29,541－
468,496

26,000－37,53664,225

178,000－
1,209
180,709¥¥

Thousands of U.S. dollars
Due after
Due after
one yearfive years
throughthrough ten
five years
years

Due within
one year(1) Cash$ 9,597,665 $－(2) Call loan
294,144－(3) Trade loans receivable
4,630,110
602,647(4) Collateral money for securities
17,031,126
178,269
borrowed(5) Short-term investments andinvestments in securities :Held-to-maturity securities :Government bonds－－
Other securities with maturities :Bond securities
Government bonds
626,428
3,131,688
Corporate bonds
1,495,213
263,312
Other
－
－
Total
$ 33,674,686 $ 4,175,916

61
63

－
－
－
－

$

$

－
－
6,141
－

Due after
ten years
$

－
－
－
－

－

13,370231,750－
334,575
572,466

1,586,594－
10,777$ 1,610,741

<4> The annual maturities of the long-term borrowings, lease liabilities and other interest bearing liabilities asof March 31, 2017
Millions of yen
Due after
Due after
Due after
Due after
two years
three
four
one yearthroughyears
years
Due within
throughthree
throughthroughDue after
one year
two years
years
four years
five years
five years
Call money
Short-termborrowings
Commercial paper
Collateral money
received for
securities lentLong-term
borrowings
Total

¥

626,899 ¥

¥

－

¥

－

¥

－

¥

－

13,010185,000
2,492,579

－
－
－

－
－
－

－
－
－

－
－
－

－
－
－

－

1,000

－

－

－

3,000

¥ 3,317,488 ¥Duewithinone yearCall money
Short-termborrowings
Commercial paper
Collateral money
received for
securities lentLong-term
borrowings
Total

－

1,000

Due after
one yearthrough
two years

¥

－

¥

－

¥

Thousands of U.S. dollars
Due after
Due after
two years
three
throughyears
three
through
years
four years

Due after
four
years
throughfive years

Due after
five years

1,648,988
22,217,479

－
－

－
－

－
－

－
－

－
－

－

8,914

－

－

－

26,74029,570,264 $

8,914

$

62
64

－

$

－

$

$

－
－

3,000

－
－

$

－
－

¥

$ 5,587,833 $
115,964

$

－
－

－

－

$

$

－
－

26,740(18) Derivative Financial Instruments
Derivative transactions to which hedge accounting are applied as of March 31, 2017 and 2016 aresummarized as follows:(a) Exchange rate derivatives

Hedge
accounting
method*1

Nature of transaction
Forward exchange
contract:
Sell:
U.S. dollars
Euro

Hedge
accounting
method*1

Nature of transaction
Forward exchange
contract:
Sell:
Euro

Hedged items

Investments
in securities
Investments
in securities

Hedged items

Investments
in securities

63
65

Millions of yen
2016
2017
Contract orContract ornotional
notional
amounts Fair value
amounts Fair value¥－ ¥38,744－(446)

Thousands of U.S.
dollars
2017
Contract ornotional
amounts Fair value$ 345,343 $(3,975)¥

12,982 ¥687

39,760207

(b) Interest rate derivatives
Millions of yen
Hedge
accounting
method
*1

*2

Hedge
accounting
method

*1

*2

2017
Contract ornotional
amounts Fair value

2016
Contract ornotional
amounts Fair value

Investments
in securities
Trade loans¥ 312,150 ¥¥ 246,150 ¥ (12,458)

Trade loans

74,711*3

111,595*3

Long-term
borrowings

3,000

*3

2,000

*3

Hedged items
Nature of transaction
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate received
for fixed rate
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate paid forvariable rate

Nature of transaction
Interest rate swaps:
Variable rate received
for fixed rate
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate paid forvariable rate

Hedged items

Investments
in securities－(8,934)
－

7,500

(44)

Thousands of U.S.
dollars
2017
Contract ornotional Fair value
amounts$ 2,782,334 $ (79,633)

Trade loans

665,933*3

Long-term
borrowings

26,740*3*1 Deferred hedge accounting is applied.
*2 The difference in amounts to be paid or received on interest rate swaps is recognized over the life of
the agreements as an adjustment to interest expense.
*3 For the assets and liabilities for which interest rate swap contracts are used to hedge the interest rate
fluctuations, fair value of derivative financial instrument is included in fair value of the respective
assets and liabilities as hedged items.
The fair value of interest rate swaps are estimated based on quotes from counterparties.

6466

(19) Commitments and Contingencies
As of March 31, 2017 and 2016, undrawn amount of general loan for securities companies andcustomers, overdraft loan and loan commitment line are as follows:

Millions of yen
2017
2016
Total credit line
Drawn amount
Undrawn amount¥¥

744,768
15,730729,038¥¥

738,467
68,847
669,620

Thousands of
U.S. dollars
2017
$
$

6,638,453
140,2096,498,244

Since some of these contracts expire without the rights exercised, the undrawn amount itself does notnecessarily affect future cash flows.
(20) Segment Information
The reported segments of the Company are the business units for which the Company is able toobtain respective financial information separately in order for the Board of Directors to conduct periodic
investigation to determine distribution of management resources and evaluate their business results.
“Securities finance business” conducted by the Company, “Trust banking business” conducted by JSF
Trust and Banking Co., Ltd. and “Real estate leasing business” conducted by Nihon Building Co., Ltd. are
the Company’s reported segments. JSF Trust and Banking Co., Ltd. and Nihon Building Co., Ltd. areconsolidated subsidiaries of the Company.
“Securities finance business” is engaged in providing loan services, which are loans for margin transaction,bond financing and general loans, bond lending and stock lending. “Trust banking business” is engaged
in providing trust services such as securities trust and banking services such as deposit or loan. “Realestate leasing business” is mainly engaged in providing services for leasing and managing real estate
owned by JSF Group.
Segment revenues, income, assets, liabilities and others are calculated by accounting methods similar
to those employed to prepare the accompanying consolidated financial statements. Segment income iscalculated based on “Keijo-soneki.” Under accounting principles generally accepted in Japan, an
ordinary income or loss, “Keijo-soneki” should be disclosed in the income statement.
The ordinary
income or loss is an income or loss figure with certain adjustments, which are categorized as extraordinary
items in accordance with accounting principles generally accepted in Japan, made to income or loss before
income taxes and non-controlling interests. Therefore, ordinary income or loss is operating income or loss
plus non-operating income from interest and dividend income and other items less non-operating expenses,
such as interest expenses. Intersegment revenue and transfer are based on arms-length transactions.

65
67

The reported segment information for the Company and its consolidated subsidiaries for the years ended
March 31, 2017 and 2016 is summarized as follows:
Millions of yen
2017
Securities
Real estate
finance
Trust banking
leasing
Total
Revenues:
Revenues to third parties ¥19,407 ¥2,793 ¥
866 ¥
23,066
Intersegment revenues and
11
7
392
410
transfers
Total¥
19,418 ¥2,800 ¥
1,258 ¥
23,476
Segment income

¥

2,636

¥

426

¥

590

¥

3,652

Segment assets¥

3,417,970¥

1,259,394

¥

9,509

¥

4,686,873

544

¥

114

¥

140

¥

798

Others:Depreciation and¥amortization
Interest income
Income taxes
Increase in property, plantand equipment andintangible assets

－
75
44

229
184
644

239
481
696

Thousands of U.S. dollars
2017Real estate
Trust banking
leasing

Securities
finance
Revenues:
Revenues to third parties $Intersegment revenues andtransfers
Total
$

10
222
8

Total

172,983
98$

24,896
62

$

7,719
3,494

$

205,598
3,654

173,081$

24,958$

11,213$

209,252

Segment income$

23,496

$

3,797

$

5,259

$

32,552

Segment assets$

30,465,906$

11,225,546$

84,758$41,776,210

4,849

$

1,016

$

1,248

$

7,113

Others:Depreciation and$amortization
Interest income
Income taxes
Increase in property, plantand equipment andintangible assets

－
668
392

2,041
1,640
5,740

66
68

89
1,979
72

2,130
4,287
6,204

Millions of yen
2016
Real estate
Trust banking
leasing

Securities
finance
Revenues:
Revenues to third parties ¥Intersegment revenues andtransfers
Total
¥

Total

17,776
22

¥

3,452
25

¥

807
393

¥

22,035440

17,798

¥

3,477

¥

1,200

¥

22,475

Segment income

¥

2,508

¥

470

¥

467

¥

3,445

Segment assets¥

2,633,332¥

649,149

¥

8,856

¥

3,291,337

352

¥

113

¥

152

¥

617

Others:Depreciation and¥amortization
Interest income
Income taxes
Increase in property, plantand equipment andintangible assets

－
19
53

259
537
2,420

13
151
35

272
707
2,508

Reconciliation between total segment revenues in the table above and revenues in the accompanying
consolidated statement of income for the years ended March 31, 2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Total segment revenues¥

23,476

Intersegment revenues
Revenues in the accompanying consolidated ¥statement of income(410)
23,066¥22,475¥(440)
22,035$

209,252$(3,654)
205,598

Reconciliation between total segment income in the table above and ordinary income for the years ended March
31, 2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Total segment income¥

Intersegment income
Equity in earnings of affiliates
Ordinary income

¥

3,652

¥

3,445

$

32,552

(133)

(149)

(1,186)

93

54

829

3,612

67
69

¥

3,350

$

32,195

Reconciliation between total segment assets in the table above and assets in the consolidated
accompanying balance sheet as of March 31, 2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Total segment assets¥
Intersegment accounts
Intersegment investments
Other
Assets in the accompanying consolidated ¥balance sheet

4,686,873(18,765)(26,269)3,213
4,645,052¥¥

3,291,337(19,072)(26,269)
3,174
3,249,170$$

41,776,210(167,261)(234,147)
28,63941,403,441

Reconciliation between others in the table above and amounts in the consolidated financial statements asof and for the years ended March 31, 2017 and 2016 are as follows:
Millions of yen
Amounts intheconsolidated
financial
Segment total
Adjustments
statements
March 31, 2017
Depreciation and amortization
¥
798
¥
9
¥
807
Interest income
239
(9)
230
Income taxes
481
(0)
481
696
Increase in property, plant and equipmen
696－
and intangible assets
March 31, 2016¥
Depreciation and amortization
Interest income
Income taxes
Increase in property, plant and equipmen
and intangible assets

617
272
707
2,508

¥

9
(13)
(3)
－

¥

626
259
704
2,508

Thousands of U.S. dollars

Segment total
March 31, 2017
Depreciation and amortization$
Interest income
Income taxes
Increase in property, plant and equipmen
and intangible assets

7,113
2,130
4,287
6,204

68
70

Amounts intheconsolidated
financialstatements

Adjustments
$

80
(80)
(0)
－

$

7,193
2,050
4,278
6,204

Related Information(a) Information by services
Sales by services for the years ended March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Loans for margin transaction
Bond lending
Other

¥

¥

10,721
3,512
8,833
23,066¥¥

10,5801,334
10,121
22,035$$95,561
31,30478,733
205,598(b) Geographic information
Because revenues from customers inside Japan are over 90% of revenues in the consolidated statement ofincome and no property, plant and equipment located outside Japan, the geographic information is not disclosed
for the year ended March 31, 2017, and there are no revenues from customers outside Japan and no property,
plant and equipment located outside Japan, the geographic information is not disclosed for the year ended
March 31, 2016.
(c) Information by major customers
Because no particular third party whose revenues are over 10% of revenues in the consolidated statementof income exists, the information by major customers is not disclosed for the years ended March 31, 2017 and2016.
Information of impairment loss on fixed assets by reported segments
The information is not applicable for the years ended March 31, 2017 and 2016.
Goodwill by reported segments
The information is not applicable for the years ended March 31, 2017 and 2016.
Negative goodwill incurred by reported segments
The information is not applicable for the years ended March 31, 2017 and 2016.
(21) Transactions of Delivering the Company’s Own Stock to Directors through Trust
The Company has introduced a performance-based share remuneration plan called “Board Benefit
Trust” in order to further clarify the linkage between remuneration for directors (other than outside
directors) and executive officers (collectively “directors”) and the performance and share value of theCompany, thereby enhancing their awareness of the need to contribute to the efforts to archive improved
business performance and greater enterprise value in the medium to long term.
1. Outline of the plan
The Plan is a performance-based share remuneration plan under which the Company’s shares will beacquired through a trust using money contributed by the Company and the Company’s shares and themoney equivalent to the market value of the shares will be delivered by the Trust to directors pursuant to
the “Rules for Delivery of Shares to Directors” to be established by the board of directors.
In principle, the Shares, etc. will be delivered when he/she resigns as director.

69
71

2. Stock remaining in the trust
In accordance with the “Practical Solution on Transactions of delivering the Company’s Own Stock to
Employees etc. through Trust (ASBJ Practical Issue Task Force (PITF) No.30, March 26, 2015)”, theCompany recorded assets and liabilities of the trust on the Company’s balance sheet as assets andliabilities of the Company. The Company recorded own stocks in the trust as treasury stocks under net
assets at book value in the trust excluding associated costs. The book value of the own stocks was ¥268
million ($2,389 thousand) and the number of the stocks was 640 thousand shares at March 31, 2017.
(22) Subsequent Event
Acquisition of treasury stocks
The Board of Directors of the Company approved at May 11, 2017 to acquire treasury stocks pursuant
to the provisions of Article 165 Paragraph 3 of the Companies Act by replacing the provisions stipulated in
Article 156 of the same Act.
1. Reasons for the acquisition of treasury stocks
The acquisition of treasury stocks is to be conducted in an aim to prepare for flexible capital policies.
2. Details of the acquisition of treasury stocks(1) Type of shares to be acquired: Common stocks(2) Number of shares to be acquired: 1,500,000 shares (upper limit)(3) Total acquisition costs: ¥1,000 million ($8,013 thousand) (upper limit)(4) Acquisition schedule: From May 12, 2017 to March 16, 2018

70
72

INDEPENDENT AUDITORS' REPORT73

OUTLINE OF JSF GROUP

Japan Securities Finance Co., Ltd.

Subsidiaries

Aﬃliates

JSF Trust and Banking Co., Ltd.

Japan Information Processing
Service Co., Ltd.

Nihon Building Co., Ltd.

JSF Information Technology Co., Ltd.

Name

(millions of yen)

Ratio ofshareholding

14,000100

Trust service, Banking services

100

100

Real estate ownership and leasing
Real estate trading and brokerage

2,460

20.00

Information processing services
Software development and sales

100

20.75

Information processing services
Software development and sales

CapitalBusiness overview

Subsidiaries
JSF Trust and Banking Co., Ltd.
Nihon Building Co., Ltd.
Affiliates
Japan Information Processing Service Co., Ltd.
JSF Information Technology Co., Ltd.

74

CORPORATE DATA

(as of March 31, 2017)

Establishment

President

July 1927

Eizo Kobayashi

Head office

Capital1-2-10 Nihonbashi-Kayabacho, Chuo-ku, Tokyo￥10 billion

103-0025
Tel: +81-3-3666-3184

Number of employees

Fax: +81-3-3666-1403

252

Share Information
Shares outstanding

Stock exchange listing

100,000,000 shares（as of March 31, 2017）

Tokyo Stock Exchange, 1st section (Code:8511)

Number of shareholders

Transfer agent

12,515（as of March 31, 2017）

Japan Securities Agents, Ltd.
1-2-4 Nihonbashi-Kayabacho, Chuo-ku, Tokyo
103-8202
Tel: +81-3-3668-9211

Major shareholders

Number ofshares held(Thousands)

Ratio ofshareholding

Japan Trustee Services Bank, Ltd.
(Trust account)

6,184

6.18

Shihon-Shijo Shinko Foundation

4,810

4.81

JP Morgan Chase Bank 385632

4,739

4.73

Mizuho Bank, Ltd.

4,536

4.53

Japan Trustee Services Bank, Ltd.
(Trust account 4)

2,975

2.97

The Master Trust Bank of Japan, Ltd.
(Trust account)

2,563

2.56

State Street Bank And Trust Company
505001

2,443

2.44

Japan Trustee Services Bank, Ltd.
(Trust account 9)

2,432

2.43

Japan Trustee Services Bank, Ltd.
(Trust account 5)

1,594

1.59

Japan Securities Agents, Ltd.

1,460

1.46

75

Composition of shareholders(by number of shares)Securities
Companies
7.7%

Other JapaneseCompanies
8.0%

Financial
Institutions
29.7%
Individuals
25.4%

ForeignInvestors
29.2%

Executives(As of June 23, 2017)

Directors

Executive Officers

Chairperson

Minoru Masubuchi *Chairperson

Minoru Masubuchi

President

Eizo Kobayashi *President

Eizo Kobayashi

Vice President

Shunichiro Higuchi *Vice President

Shunichiro Higuchi

Senior Managing Director

Toshihiro Oritate

Senior Managing Director

Toshihiro Oritate

Managing Director

Kenji Fukushima

Managing Director

Kenji Fukushima

Kazuhiro Maeda
Director

Kazuhiro Maeda
Executive Officer

Takashi Imai **Yasuhiro Hirama

Tetsuo Mae **Teruo Murasawa

Eiko Shinotsuka **Tetsuya Tawara(* Representative Directors)

Morikuni Shimoyamada(** Outside Directors)

Audit & Supervisory Board Member
Masayuki Hamada
Shuuya Iimura *Toshio Kamiyama *(* Outside Audit & Supervisory Board Member)

Rating Information
Long-term rating

Short-term ratingStandard and Poor’s (S&P)

A

A-1

Rating and Investment Information, Inc. (R&I)

AA －

a-1+

Japan Credit Rating Agency (JCR)

AA －

J-1+

76

CORPORATE DATAORGANIZATION

General Meetingof Shareholders

Audit & Supervisory Board
Board of Directors(Chairperson, Vice Chairperson)

Nomination and Remuneration
Advisory Committee

President
Management committee

Compliance Committee
Executive Oﬃcers Meeting

Executive Oﬃcers in Charge

Audit Department
Compliance Department
Risk Management Department

ALM Committee

Human Resources Department

Risk Capital Meeting

Corporate Planning Department

System Committee

Business Development Department
Treasury Department
Margin Loan Department
Institutional Sales Department
Retail Business Department
Settlement & Custody Department
Information Systems Planning Department
Osaka Branch77