Corporate Governance

Our Basic Policy on Corporate Governance
As Japan’s only central securities depository, JASDEC
basically operates its business with a social obligation
to provide a highly secure, efficient, and convenient
infrastructure for securities clearing and settlement. Our
principal policy on corporate governance requires us toensure that our systems meet the wide-ranging needs ofour clients, which include participants (securities companies, banks, and other users of our book-entry

transfer services) and investors. We also make sure that
our activities promote highly corporate transparency andthat our business operates with fairness and accountability, in line with the public needs of our function. As
an organization responsible for creating and operating
infrastructure of securities clearing and settlement inJapan, we strive to earn and maintain a solid reputation forreliability.

Overview of implementation of corporate governance practices
Framework for management structure and corporate
governance to exercise business judgements, manage
operations and implement audits
Corporate Structure
Board of Directors The Board of Directors comprises 19
members and is basically structured to achieve a balanced
approach to business with user-oriented views, as wellas business-oriented ideas on maintaining operational
neutrality and fairness. To fully reflect the opinions ofusers in our operations, ten of the 14 external directors are
selected from JASDEC participants. The remaining four
external directors belong to issuing companies and relatedorganization, academia and the legal profession.
In principle, the Board meets once a month to decidebasic management policies and discuss other key issues.

Board of Auditors JASDEC has adopted a corporate
auditor system, as stipulated in Companies Act. The Boardof Auditors is made up of three auditors, two of whomare selected from eligible participants (one each from asecurities company and a bank) and all three (includingan auditor who is serving on a full-time basis) are external
auditors.
The Board of Auditors has a regular meeting eachmonth. In line with auditing plans and the basic policies
established by the Board of Auditors, auditors also attend
important meetings, including those of the Board ofDirectors and will perform audits of directors by assessing
the status of services and assets to ascertain the validity
and reliability of directors in executing their respective
responsibilities.
To ensure that audits are effective, auditors areworking closely with directors, through communications
including meeting with the representative directors.

20 Japan Securities Depository Center, Inc. ANNUAL REPORT 2008

Business Operational Committees To fully reflect theneeds of system users in our operations, the Board ofDirectors established the Business Operational Committee.
The Committee independently examines important issues
related to the business of JASDEC, based on queries fromthe Board of Directors, and has eight subcommittees underits control.
Each subcommittee is responsible for a specificsegment of operations, and comprises members who areactually involved in the field. JASDEC applies the opinions
provided by each subcommittee to various operational issues
that will facilitate early realization of securities clearing
and settlement system reform in Japan. JASDEC properly
posts summaries of discussions and other information by
the committees on its website to foster greater operationaltransparency.
As a key infrastructure for the securities market, we areincreasingly focusing on an extremely high level of fairness
and accountability in our activities. To achieve this end,
we established the Advisory Committee, which comprises
experts in financial and securities systems. The committee
advices JASDEC’s president from a broaden perspective
about wide-ranging issues of securities clearing and settlement system operations.
JASDEC DVP Clearing Corporation (JDCC),JASDEC’s wholly-owned subsidiary, maintains a businessphilosophy similar to that of JASDEC. JDCC has also setup a committee for reviewing important issues regarding
DVP operations to reflect the needs of users of the DVP
settlement system for NETDs. In addition, JASDEC’s Boardof Directors received reports regarding issues decided byJDCC’s Board of Directors to ensure consistency in theactivities of the two companies.
An outline of JADSEC’s management structure andcorporate governance systems is presented next page.

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

Appointments/Dismissals

Appointments/
Dismissals

Audit onoperation

Board of corporate auditors(Three including one standing auditor)
Auditing

Audit onoperation

Corporate auditors’
assistants

Board of directors(five full-time, 14 outside)

Subcommittees
Consultation
Opinions,reports

Appointment/Supervision

Existing BusinessCP
PSMS* (Domestic Trade)
PSMS* (Non-Residents’ Trade)
Corporate bonds
Investment trust
Dematerialization of Equities
Foreign stocks

President & CEO

Accounting auditors
Auditing

Business Operations Committee

Risk ManagementCommittee
Monitoring

Conveying
information

Compliance OfficeInternal audit

Departments

Risk Management System
JASDEC has set up a Risk Management Committee,
chaired by the president. It promotes to strengthen overallrisk management, and regularly monitors internal control
systems for various risks.
Internal Audits, Corporate Audits, and Accounting Audits
JASDEC established the Compliance Office and issteadily reinforcing its internal audit by practical survey
based on the audit plan to ascertain the validity of business
operations. For corporate audits, standing auditor routinely
attends important meetings, such as those of the Board ofDirectors and the Executive Committee (comprising managing directors) and examines circulars intended to getapprovals of decisions by persons in charge. The standing
auditor performs audits in accordance with the auditing
plans established by the Board of Auditors, and reports
other corporate auditors with updates on the progress ofauditing activities at the meeting of corporate auditors,
which is scheduled to take place monthly.
Auditors serving on a part-time basis attend Board ofDirectors’ meetings and check the responsibilities carriedout by directors. They also assess the legality by reviewing
reports from the full-time auditor on auditing activities.
JASDEC assigns staff specifically to assist corporate
auditors in their audits.
Corporate auditors perform audits in close cooperation with the Company’s accounting auditors. This
includes hearing reports from accounting auditors onauditing plans and the results of the audits.
JASDEC has two certified public accountants who
perform accounting audits for JASDEC in the capacityof accounting auditor under Companies Act: Yohei Kishi
and Naoto Saito (designated partners under Article 34,

AdviceAdvisory Committee

Paragraph 10-4 of the Certified Public Accountant Law).
They are employed by Ernst & Young ShinNihon, a member firm of Ernst & Young Global, and execute accounting
audits, including checks of financial documents, basedon the Companies Act. Mr. Kishi and Mr. Saito areassisted in their accounting audit by seven certified public
accountants and 13 others (junior accountants and otherassistants).
We recognize that no items of particular regard, suchas serious irregularities or instances of illegal behavior,have been found through the execution of accounting
audits.
Directors’ and Corporate Auditors’ Limit of Liability
To fully demonstrate the skills involved in successfully
executing the responsibilities of directors and corporate
auditors, and to retain top-level professionals, limits havebeen set on liability for damages incurred by directors andcorporate auditors.
Resolutions on Election/Dismissal of Directors
The election of directors by resolution at the general
meeting of shareholders is conducted in the presence ofshareholders representing no less than one-third of voting
rights held by eligible shareholders, and directors areelected by a majority vote of said shareholders.
The dismissal of directors by resolution at a general
meeting of shareholders is conducted in the presence ofshareholders representing no less than one-third of voting
rights held by eligible shareholders, and directors aredismissed on a vote of no less than two-thirds of voting
rights held by said shareholders.

Japan Securities Depository Center, Inc. ANNUAL REPORT 200821