President’s Message

T OWARD THE F INAL S TAGE OF
D OMESTIC S ECURITIES AND
S ETTLEMENT S YSTEM R EFORM
Fiscal 2004 Review

In fiscal 2004, ended March 31, 2005, JASDEC continued to concentrate on the realization of amore user-friendly infrastructure for securities settlement and clearing in Japan. Concerted efforts
were directed toward reform of this system through improved safety, efficiency and convenience insecurities clearing and settlement.
Of note, in May 2004, JASDEC launched the DVP settlement system for NETD, and in lessthan a year settlement and clearing through this system already accounts for about 60% of all bookentry transfers for NETD. This result indicates that participants recognize the value of the system as akey to better settlement and clearing activities.
In addition, we have marked a steady increase in the volume of transactions handled throughthe book-entry transfer system for dematerialized CP, which went online in March 2003. Of note,the March 2005 end to a special stamp duty exemption for paper-based CP

THE INTRODUCTION OF A

prompted a dramatic rise in the dematerialization of CP, equivalent to ¥13

DVP SETTLEMENT SYSTEM FORtrillion.

NETD EXEMPLIFIES PROGRESS
IN CLEARING AND SETTLEMENTSYSTEM REFORM IN JAPAN.

To make this system more convenient to users, we are pushing ahead
with preparations for the introduction of a book-entry transfer system for
Corporate Bonds in January 2006.
Coinciding with the May 2004 implementation of the DVP settlement system for NETD, we linked the book-entry transfer system to the pre-settlement

matching system (PSMS) so that DVP transfer request data will, if trades are confirmed , automatically route to the book-entry transfer account and bring DVP settlement to a conclusion.
In February 2005, we added PSMS for domestic government bond repos and gensaki with
undertaking settlement guarantee by the Japan Government Bond Clearing Corporation.

HIGHLIGHTS OF THE YEARMay 2004

Implemented the DVP settlement system for NETD
November 2004

Signed a memorandum of understanding with Taiwan Securities Central Depository Co., Ltd.
February 2005

Established PSMS for domestic government bond repos and gensaki.
Signed a memorandum of understanding with Korea Securities Depository

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President’s Message

To encourage investors and issuers to use our services, we ran advertisements in newspapers,
on television and through other media. Our efforts were rewarded as the number of shares in custody climbed to 262.1 billion, as of March 31, 2005, accounting for 71.7% of all outstanding sharesin Japan.

Progress in Securities Clearing andSettlement Reform

In 2000, the Financial Services Agency released a report highlighting “safety” and “efficiency” insecurities clearing and settlement system reform, and Japan embarked on the task of creating aninternationally competitive financial infrastructure to the world’s highest standards.
We emphasize two issues in our response to system reform.
First, to improve efficiency in the systems used in securities clearing and settlement, we havedirected efforts into four areas:
1 promoting STP for PSMS;
2 broadening the range of eligible securities accepted;
3 using our demutualization to revitalize corporate governance capabilities as a central securities depository; and4 elevating our profile through advertising to attract more investors and issuers to ourservices.
Second, to minimize principal risk, we prioritized the development of our DVP settlement
system, and in May 2004, we successfully linked our DVP settlement system for NETD to PSMS.
Through these efforts, we have contributed to the establishment of an internationally competitive financial market infrastructure in Japan and achievement of first-half objectives set out for
securities clearing and settlement system reform.

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President’s Message

Medium-term Themes andFuture Tasks

Management has identified five business themes JASDEC will address over the medium term, fromfiscal 2005 through fiscal 2007. They are:1 to endorse dematerialization of securities;
2 to facilitate wider use of STP;
3 to persuade more investors and issuers to grant us custody of securities;
4 to promote the DVP settlement system for NETD; and5 to enhance the Group’s capabilities.
While all five themes are important, we will spotlight dematerialization as the cornerstone ofsecurities clearing and settlement reform in Japan.
We are making progress on the development of a book-entry transfer system for Corporate
Bonds, scheduled to go online in January 2006. To facilitate implementation, we are preparing
explanations for issuing companies about the system and formulating measures to ensure smoothconversion of paper securities from the outstanding registered format to book-entry bond status.
Concurrently, we have started working on a book-entry transfer system

OF MEDIUM-TERM OBJECTIVES,

for investment trusts, which will go online in January 2007. As with the bookentry transfer system for Corporate Bonds, we are looking at ways to ensure aOUR PRIORITY IS STOCK
DEMATERIALIZATION — THEsmooth conversion of existing paper certificates to dematerialized form.
Dematerialization of stock certificates will mark the final stage of domestic

FINAL STAGE OF CLEARING AND

securities clearing and settlement system reform. To wrap up the transformation

SETTLEMENT SYSTEM REFORM

on a positive note, we are exploring suitable processing formats and conversion

IN JAPAN.

techniques, in line with the needs of participants, investors and users affected by
the June 2004 promulgation of the Stock Settlement Rationalization Law —legislation for partial amendments to the law concerning book-entry transfer of Corporate Bonds andother securities for the purpose of streamlining settlement for trades of stocks and other securities.
We are also putting together summaries of the new book-entry systems to help users understandthem better.
A higher custody ratio will support conversion of paper stocks into dematerialized form, soJASDEC will strive to boost its custody ratio into the 80-percentile range through advertising
designed to capture the attention of more investors, including individual investors.

A memorandum of understanding
with Taiwan Securities Central
Depository Co., Ltd.

Straight-through processing (STP) An electronic system that eliminates humanintervention from all trade-to-settlement processes involved in securities transactions.
Pre-Settlement Matching System (PSMS) Please refer to page 18.
A system that automatically matches various information, including the name andvalue of trades and settlements.

Delivery versus payment (DVP) Please refer to page 17.

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President’s Message

Addressing Corporate SocialResponsibility

The basic management direction at JASDEC hinges on the execution of businessactivities that meet the needs of the investors and issuers who use securities deposi-

A memorandum of understanding
with Korea Securities Depository

tory transfer systems through direct governance by shareholder participants.
Of the 17 members on the Board of Directors, 13 are external directors, including
10 who are representatives of eligible participants in the Company. Of the three auditors, one is a standing auditor. This structure supports management stability and transparency.
With the Bank for International Settlements’ Lamfalussy Standards in mind, JASDEC established a backup center in September 2000, to secure its systems. To reinforce in-house information
systems still further, we formulated a security policy of our own, based on such international standards as BS ISO/IEC17799 for information security management. In addition, in March 2005, we drew
up a policy on protecting personal information to ensure such information is handled appropriately.
The Group has always endeavored to reduce fees to participants, which led it to adjust thestandard for determining stock transfer fees from the number of shares involved to the number oftransfers executed. We will continue to cut costs by making operations more efficient, thereby lightening the cost burden carried by participants.
JASDEC strives to cultivate and further strengthen its ties to central
securities depositories abroad. During fiscal 2004, we signed memorandums

OUR MISSION AS A GROUP IS
TO PROVIDE A HIGHLY SECURE,of understanding with Taiwan Securities Central Depository Co., Ltd., inEFFICIENT AND EASY TO

November 2004, and with Korea Securities Depository in February 2005,

USE INFRASTRUCTURE FOR

which will underpin business cooperation mutually beneficial to respective

SECURITIES CLEARING AND

parties and generate opportunities for information exchange.
Guided by management policies devised to ensure highly transparent

SETTLEMENT.

business activities that put users before all else and to extend services that are reliable and exceedingly cost-efficient, JASDEC will strive to pinpoint user needs with greater accuracy, lay a moreuser–friendly infrastructure for clearing and settlement and polish its capabilities as a central securities depository. These efforts will lead to a higher custody ratio and act as the driving force to accelerate securities clearing and settlement reform.
On behalf of the Board and employees of JASDEC, I ask for the continued support of ourusers, participants and investors.
June 2005

Yoshinobu Takeuchi
President and Chief Executive Officer5