Japan Securities Depository Center, Inc.

REVIEW OF OPERATIONSParticipants and Accounts
The securities depository and book-entry transfer system involves JASDEC, its participants, participants’ customers and issuing companies.
Entities eligible to become JASDEC participants are stipulated by the CSD Law, and include
securities companies, banks, trust banks, insurance companies, securities finance companies,
stock exchanges and the Japan Securities Dealers Association (JSDA). Investors use the system via
customer accounts opened on their behalf by participants. Participants may open up to 99 subaccounts with JASDEC.
As of March 31, 2002, 290 participants held 477 accounts with JASDEC, representing lossesof 6 in the number of participants and gains of 24 in the number of accounts opened, comparedwith fiscal 2000.

Issuing Companies
Participating to JASDEC system is voluntary, and JASDEC is, therefore, required to have consent ofissuing companies to handle their shares at JASDEC.
As of March 31, 2002, 3,610 issuers of public companies in Japan have consented, up 112
companies from the previous year.

Participants by Category
311848220

Securities companies

220 (75.9%)

Banks

48 (16.5%)

Life and non-life insurance companies8(2.8%)

Securities finance companies

3(1.0%)

Stock exchanges, etc.

11(3.8%)Total

290 (100%)ANUUAL REPORT 2002

1415

Deposits and Withdrawals
Participants may deposit their own shares and those of their customers (with their consent) withJASDEC. Customers may only deposit shares with JASDEC indirectly through a participant.
Deposited share certificates are taken into custody and records of all deposits are entered in theparticipant accounts at JASDEC as well as in the accounts set up for customers by participants. The
deposit of shares is entirely voluntary, and participants and customers may withdraw those sharesat any time. Like deposit requests, customers’ withdrawal requests must be filed through a participant.
In fiscal 2001, a total of 56,215 million shares were deposited, an increase of 8,890 million
shares, or 18.8% from the previous year. Shares withdrawn totaled 21,727 million, a year-on-yearincrease of 1,702 million shares, or 8.5 % from the previous year.

De p o s its a n d Withdraw als(Millions of shares)

Withdrawal ratio

60,000

Deposits

50,000Withdrawals

54.0%
46.5%

40,000

40.0%

42.3%
38.6%

30,00020,00010,0000

1998

1999

2000

2001

2002

Japan Securities Depository Center, Inc.

REVIEW OF OPERATIONSJASDEC
Account of participant A
Own shares

Customer's shares+100,000 shares+3,000 shares–1,000 shares

Deposit ofown 100,000shares

Deposit ofcustomer’s
3,000 shares

Request forwithdrawalof customer's
sharesWithdrawal ofcertificate for
1,000 shares tocustomer

Securities Company A

Own shares

Customer aaccount

Customer b
account+1,000+2,000

Deposit of
1,000 shares–1,000
Request forwithdrawal ofshares

Deposit of
2,000 shares

Customer a

Custody

Customer caccount

Customer b

Withdrawal ofcertificate for
1,000 shares

Customer cShares deposited by participants are stored collectively by JASDEC and are not segregated byparticipant or by customer. In accordance with the CSD Law, participants and their customers arelegally regarded as having co-ownership of the shares in the proportions stated in their JASDEC
accounts or participant accounts, respectively.
The re-registration of share certificates in the name of JASDEC is nominal, and JASDEC’s rights
are limited to conducting administrative procedures. Shareholder’s rights, such as the right to claim
dividends and residual assets, vote, and request the resignation of directors or auditors, rest withthe beneficial shareholders (see the section on Beneficial Shareholder Notification).
Although deposited shares are kept collectively by JASDEC, JASDEC provides separate accounting for shares owned by participating firms (own shares) and their customers (shares receivedfrom customers for safekeeping). This provides legal protection for the shares held on behalf ofcustomers in the event of bankruptcy by a participant.
As of March 31, 2002, shares held in custody totaled 191,562 million shares, increased
34,488 million shares, or 22.0 % from the previous year. Ratio of shares held in custody to shares
outstanding increased 11.2 %, to 53.5 %, topped 50% mark in February, our long-time numeral
target. Compared with other major countries where securities depository systems have fully been
accepted, however, there is still room to improve the proportion of shares in custody, and we willfurther try to reduce the cost of operations and to continue wide-ranged promotion activities.

S h a re s in C us tody
(Millions of shares)

Custody ratio

200,000

Shares in custody

150,000
53.5%
42.3%

100,000

34.2%
28.8%
22.5%

50,000

01998

1999

2000

2001

2002

ANUUAL REPORT 2002

16
17

Uncertification of Shares
In Japan, shareholders may request issuers to replace their shares in an uncertificated form.
As a nominal shareholder, JASDEC is entitled to request this procedure under the CSD Law. By
exercising this right, JASDEC is able to rationalize administrative procedures and economize onspace, while reducing the risk of losing physical share certificates.
Elimination of physical share certificates also offers advantages for issuing companies. The
cost of issuing new share certificates and administrative costs related to stock splits or changes ofcompany name are reduced.
As of March 31, 2002, JASDEC requested issuing companies to replace 95,557 million shares,
an increase of 21,972 million shares, in uncertificated form, representing 49.9 % of all shares
held in custody with JASDEC, up 3.1 % from the previous year.

Portion of Shares Uncertificated(Millions of shares)

Portion of shares uncertificated100,000

Uncertificated shares
49.9%

80,00046.8%

60,00041.8%

40,00039.7%

20,000
36.2%

01998

1999

2000

2001

2002

Japan Securities Depository Center, Inc.

REVIEW OF OPERATIONS

Exchange Trade Transfers and Non-Exchange Trade Transfers
Non-Exchange

Trust Bank(Buyer)

Securities
Company B

Exchange Trade Transfers

Stock
Exchange

Non-Exchange

Securities
Company ABank(Seller)

Trade Transfers

Trade Transfers

Book-Entry Transfer
When a participant or customer trades shares held in custody by JASDEC, or transfers such sharesfor collateral or other purpose, delivery is effected by book entry transfer between accounts. JASDEC
offers two types of book-entry transfers: exchange trade transfers and non-exchange trade transfers.
Exchange trade transfers are transfers of shares between participants as a result of trades
executed on stock exchanges or over-the-counter market. Book-entry transfers for other purposes
are non-exchange trade transfers. Regulations of stock exchanges and JSDA require that trades inJASDEC-eligible issues executed in their respective markets shall be settled by book-entry transfers
between participant accounts with JASDEC.
The stock exchanges and Jasdaq Market Inc., operator of JASDAQ system established by JSDA,
issue transfer instructions for the settlement of their trades directly to JASDEC. In the case of anon-exchange trade transfer, the seller issues instructions to JASDEC.
Non-exchange trade transfers are most commonly used by institutional investors and non-resident investors, who keep shares in their accounts with custody bank participants.
In order to settle their trades executed on the stock exchanges or in the over-the-counter market, shares are transferred by book-entry between the custody bank participant and the securities
company participant.
In fiscal 2001, exchange trade transfers recorded 239.9 billion shares, up 16.9 % from theprevious year. Non-exchange trade transfers rose 17.2 % to 337.0 billion shares and accounted
58.4 % of aggregate book entry transfers.
The number of exchange trade transfers in fiscal 2001 was 21.5 million, up 40.3%, while thatof non-exchange trade transfers, which generally involve transfers of large amount of shares, was14.6 million, up 12.2%.
Book-Entry Transfers(Millions of shares)

Non-exchange trade transfer ratio

400,000

Exchange trade transfer
58.4%

300,000

57.7%
55.9%
54.7%

200,000
53.4%

100,000

01998

1999

2000

2001

2002

Non-exchange trade transfer

ANUUAL REPORT 20021819

Beneficial Shareholder Notification Flow
Issuing company (Transfer agent)
Registration into
JASDEC’s nameJASDEC

Customer nameBeneficial
Shareholder List

Beneficial
shareholder
notification

Beneficial
shareholder names

Deposit ofsharecertificatesBeneficial Shareholder Notification

Shareholder List

JASDEC’s name

Report ofbeneficialshareholders
Deposit ofsharecertificatesParticipants(securities company, etc.)

Exerciseof rights

Dividends
and notices

Matching ofshareholders

Exercise of rights
Dividends Transferand notices to individualtitle

Shareholders(beneficial shareholder)

Shareholders outside
this system

Under the securities custody and book-entry transfer system in Japan, issuers shall be informed of
the names of beneficial shareholders to facilitate the distribution of dividends and any other rights
directly to beneficial shareholders and beneficial shareholders shall exercise their rights directly tothe issuers. Accordingly, JASDEC prepares and provides issuers with beneficial shareholder data.
JASDEC’s beneficial shareholder notification service includes the collection of information on beneficial shareholders as of the record date in accordance with reports from participants, and thenotification of this information to issuers. The issuers draw up beneficial shareholder lists on abasis of this data and send notice of shareholder meetings and other information directly to thebeneficial shareholders. Beneficial shareholders thus receive dividends directly from the issuers,and exercise their voting rights directly to the issuers.
When new shares are distributed to beneficial shareholders, such as through a stock split,
JASDEC receives new stock allocation data from the issuer or its transfer agent, and notifies suchstock allocation data to all concerned participants. JASDEC and the participants then increase thebalance in their participant and customer account ledgers on a basis of this data.
JASDEC issued 47.8 million notifications in fiscal 2001, up 14.3% from fiscal 2000, representing 367.1 billion shares, up 19.4%. Reflecting an increase in shares in custody, notificationsof beneficial shareholders on which record date ended March 2002 rose 2.3, million, up 12.5 %,to 20.8 million notifications, which represented 175.7billion shares, an increase of 31.0 billion
shares, up 21.5 % from the year before, to record the highest figures since JASDEC’s businessinitiation.

Beneficial Shareholder Notification(Thousands of notifications)(Millions of shares)

50,000500,000

40,000400,000

30,000300,000

20,000200,000

10,000100,000

001998

1999

2000

2001

2002

Notified beneficial shareholders
Notified sharesJapan Securities Depository Center, Inc.

REVIEW OF OPERATIONSConvertible Bonds
Responding to the needs and the requests from the participants and market, JASDEC expanded its
services to include convertible bonds (CBs) in November 2001. With substantial numbers of CBs
deposited since the beginning of the services, reflecting the size of the CB market in Japan, thenumber of issues we handled at the end of March 2002 was 553 and the amount of the CBs incustody was ¥8,085.1 billion, representing 88.8 % of the amount outstanding.
From the start of the services in November 2001 to the end of March 2002, the amount ofdeposited CBs totaled ¥9,467.6 billion and the amount withdrawn totaled ¥1,382.4 billion. The
amount of exchange trade transfers was ¥1,016.1 billion, and that of non-exchange trade transfers
was ¥5,627.6 billion.
During the same period, JASDEC processed ¥870.8 billion of principal and interest paymenton the CBs in our custody.

Vo l u m e o f C B s i n C u s t o d y
Custody Vol.

(Billions of yen)

10,000No. of Issues((86.2%)8,000(88.8%)
73.5%

6,000
(51.5%)(55.4%)

4,000
656

655

652

651
553

2,0000Nov. 26

Nov. 30

Dec. 31

Feb. 28 ’02

Mar. 31 ’02) Custody RatioANUUAL REPORT 2002

2021Depository Services of Other JASDEC-Eligible Securities
Exchange Traded Funds (ETFs)
In July 2001, JASDEC started to provide the depository services for ETFs pegged with TOPIX and
the Nikkei Stock Price Average (Nikkei 225). During the period from July 2001 to March 2002,
703.9 million units were deposited while 50.8 million units were withdrawn. As a result, units heldin custody totaled 691.8 million, representing 14 issues at the end of March 2002. During thesame period, the number of units of exchange trade transfers was 371.3 million, and that of nonexchange trade transfers was 2,048.0 million.

Real Estate Investment Securities (REITs)
In September 2001, JASDEC started to deal with REITs. During the period from September 2001
to March 2002, 861,391 units were deposited and 101,707 units were withdrawn. Reflecting
these transactions, units held in custody totaled 759,684 units, representing 4 issues at the end ofMarch 2002. During the same period, exchange trade transfers recorded 395,236 units while nonexchange trade transfers amounted to 968,055 units.

Preferred Investment Bonds of Financial Institutions Established by Cooperative
Associations
In December 2000, JASDEC started to handle preferred investment bonds of financial institutions
established by cooperative associations. During fiscal 2001, 28,431 units were deposited and7,532 units were withdrawn. At the end of March 2002, preferred bonds held in custody recorded
210,528 units, representing 1 issue. During fiscal 2001, exchange trade transfers was 67,018
units, non-exchange trade transfers 62,085 units.