Report by Forum Towards Making Effective Use of the New BOJ-NET

14 March 2014
Forum Towards Making Effective Use of the New BOJ-NET

This report is an English translation of the Japanese original released on 14 March 2014.

Table of Contents

1. Introduction

2. Surrounding Factors

3. Value of extended operating hours of the new BOJ-NET in its effective use

4. Types of Night-time Transactions

5. Operating Hours

6. Further Actions

Attachment. List of Forum Members

Report by Forum Towards Making Effective Use of the New BOJ-NET
1. Introduction
This forum (the Forum) was established for discussion among market participants,
including financial institutions that use the BOJ-NET, about how to make the most of
the new BOJ-NET and, for that purpose, how long, if at all, its operating hours should
be extended and when such extension should be implemented.
The new BOJ-NET now under development will be equipped with the technicalcapacity to operate substantially longer hours. 1 In January this year, the new
BOJ-NET launched part of its services. All the remaining services are scheduled tomigrate to the new BOJ-NET some time between the autumn of 2015 and the beginningof 2016.
The Bank of Japan has published a consultative document that explains its plan on theoperating hours of the new BOJ-NET upon the completion of its development. The
plan is as follows: 1) the new BOJ-NET Funds Transfer Services (FTS) and JGB
Services (JGBS) will start their daily operation earlier than at present, namely at 8:30
(7:30 on the last business day of the month); and 2) the new BOJ-NET will maintain thecurrent operating hours for FTS and extend those for JGBS resulting in the same
operating hours until 19:00 for both services. In the document, the Bank made clear its
intention of contributing to a range of policy objectives, including improvements in thesafety and efficiency of Japan’s payment and settlement system, the revitalisation of thefinancial market and enhancement of financial services, with financial institutions
making effective use of the new BOJ-NET as essential infrastructure in Japan’s payment
and settlement system. The Forum was created in response to this invitation from the
Bank of Japan. The Bank mentioned the possibility of further extension of theoperating hours of the new BOJ-NET not only after but also upon the completion of its
full launch on the conditions that the discussions of the Forum clearly demonstrate theneed (for further extension) among BOJ-NET users and that such further extension is
operationally feasible.
Against this background, discussions of the Forum focussed on the length of thepossible extension of the operating hours of the new BOJ-NET and the timing of such
1

Please go to the website of the Bank of Japan for detailed information (in Japanese only) on thefeatures of the new BOJ-NET and the schedule for its development and implementation.
1

extension.2 This report summarises the results of the discussions by the financial
institutions and the associations of financial institutions that participate in the Forum.

2. Surrounding Factors
Factors that are expected to exist around the time of the full launch of the new
BOJ-NET (i.e. some time between the autumn of 2015 and the beginning of 2016)
include: further development of overseas business by Japanese companies and financial
institutions, increasing JGB holdings by non-residents and increasing global need forcollateral assets. These factors are likely to lead to cross-border use of abundantdomestic financial assets in Japanese yen as collateral and greater opportunities forenhancing payment and settlement services for companies developing business overseas
or for non-residents.
(1) Provision of payment services for Japanese companies developing businessoverseas
As Japanese companies are expanding their business in Asia and other regions, there is a
growing need for such companies to transfer funds within Asia. In the future there will
also be a greater need for Japanese companies to pool funds among affiliated entities.
Financial institutions in Japan could provide services that support such needs ofcompanies for cross-border payments. However, there are some obstacles forsame-day settlement in Japanese yen at the moment while same-day settlement services
in US dollars within Asia are already available.
(2) Development of overseas business by Japanese financial institutions
As Japanese financial institutions increase overseas lending and other assets
denominated in foreign currencies, there will be a greater need for stable sources offunding in foreign currencies. Against this background, it will be more valuable iffinancial institutions in Japan can strengthen funding in foreign currencies by means ofcross-currency repos and foreign exchange swaps, using the abundant domestic
financial assets denominated in Japanese yen that they have on their balance sheets.
Further in the future, it is worth noting the possibility of wider use of same-day foreignexchange swaps for funding in foreign currencies. For example, after the introduction
2

The Forum had its first meeting in August and has held nine meetings altogether. Please go to thewebsite of the Bank for the minutes of each meeting (in Japanese only).
2

of the same-day settlement session for North American currencies in September 2013,
CLS has started to examine the possibility of adding new currencies for a same-day
session. It is conceivable that the Japanese yen will join such an additional session in
the future.
(3) Increasing JGB holdings and transactions by non-residents
As more and more non-residents invest in JGBs, there are growing opportunities forfinancial institutions in Japan to extend their JGB (global or sub-) custody services by
providing safe, efficient and convenient settlement services in response to non-residents’needs for settlement.
In this respect, the changes to the tax system concerning Japanese bonds, which will be
put into effect in January 2016, will simplify related tax procedures and can be expected
to help to increase the volume of JGB transactions by non-residents. In the future, thesettlement of JGB transactions by non-residents may be facilitated further by possible
changes in market practices and creation of a market infrastructure that are underconsideration in the context of the possible further shortening of JGB settlement at theearliest possible time after 2017.
(4) Increasing global need for collateral assets
The forthcoming implementation of various international regulations would increasedemand for high-quality collateral assets. For example, demand for high-quality liquid
assets is expected to increase as a result of the Liquidity Coverage Ratio (LCR), whichis scheduled to phase in from January 2015 onward. As for the regulations forover-the-counter (OTC) derivatives transactions, mandatory central clearing ofstandardised OTC derivatives transactions would increase demand for collateral to beposted to central counterparties (CCP). In addition, margin requirements for
non-centrally cleared derivatives, which are scheduled to phase in from December 2015
onward, are likely to increase the total amount of posted collateral and have asignificant operational impact because of the resulting frequent deliveries of collateral.
Meanwhile, reflecting recent developments including the European sovereign debt crisis,
it is pointed out in Europe and elsewhere that there is a higher dependency on securedtransactions and an uneven distribution of high-quality assets.
Against thisbackground, there is a growing interest in “collateral swap” transactions, where JGBs
owned by financial institutions in Japan are swapped for foreign securities owned by3

financial institutions in Japan or abroad.
As explained above, it is becoming more important to optimize the use of collateralacross borders and to move collateral flexibly. Under these circumstances, enabling
the greater use of JGBs as high-quality collateral assets will benefit not only financial
institutions in Japan but also financial institutions abroad and ultimately global financial
systems.
(5) Preparation for future changes in financial environments
Under low interest rates and abundant liquidity, Japanese financial institutions andcompanies have not necessarily been keen to increase efficiency in the use of their funds
and collateral by improving financial market infrastructure and the payment andsettlement services offered by financial institutions. After the completion of the fulllaunch of the new BOJ-NET, however, together with the phased-in implementation ofinternational regulations mentioned above, such environments may change substantially.

3. Value of extended operating hours of the new BOJ-NET in its effective use
In light of the surrounding factors mentioned in Section 2, it is necessary to consider
extending the operating hours of the new BOJ-NET as one of the preconditions in orderto make effective use of the new BOJ-NET with the aim of improving the safety andefficiency of Japan’s payment and settlement system. As global financial transactions
continue to increase, the safety and efficiency of Japan’s payment and settlement system
will be further enhanced, for example, if the time lag between two legs of cross-bordertransactions is shortened, or if cross-border customer transfers are completed faster, byincreasing the overlap of the operating hours of the new BOJ-NET with those ofoverseas payment and settlement systems. In addition, extending the operating hours
will improve the ability to deal with contingency situations affecting payment andsettlement systems, financial markets, or individual financial institutions in Japan.
Moreover, improving the convenience of the settlement in Japanese yen will expand theuse of Japanese yen globally and this in turn will improve the convenience of JPY
settlement, creating a virtuous cycle.
Meanwhile, the Recommendations for Vitalizing Financial and Capital Markets releasedby the Panel for Vitalizing Financial and Capital Markets of the Japanese Government
in December 2013 also points out as follows: “Further improvements must be made to4

Japan’s financial market infrastructures, such as extension of the operating hours of the
Bank of Japan Financial Network System (BOJ-net), to foster an environment to makeit easier for Japanese companies and financial institutions to smoothly access local
currencies and manage cash efficiency on a global basis, including their overseas
business locations.”
Improvement of the safety of Japan’s payment and settlement system
If the new BOJ-NET operates during the night, there will be a larger overlap between
the operating hours of overseas payment and securities settlement systems and those of
the new BOJ-NET FTS and JGBS. This will make it possible, for example, to shorten
the time lag between the delivery of JGBs and the receipt of foreign currency orcollateral assets denominated in foreign currency, which will contribute to the reductionof the principal risks arising from the payment of funds or delivery of securities made toa counterparty in advance of receiving securities or funds in exchange from thecounterparty. It will also help financial institutions in Japan to improve their credit
risk management if they can receive JGBs as collateral promptly at night time when
they make collateral calls to financial institutions in Europe or the US.
The extension of the operating hours of the new BOJ-NET can also help financial
institutions to strengthen their ability to deal with liquidity risk if the extension makes it
easier for them to transfer funds or deliver collateral for funding transactions promptly
at night time.
Furthermore, if night-time operation of the new BOJ-NET facilitates the settlement ofcustomer transfers on a same-day basis, not on the next business day (which is currently
the case), risks associated with a back-log of unsettled transactions will be reduced.
Improvement of the efficiency of Japan’s payment and settlement system andexpansion of profit opportunities for Japanese financial institutions
The extension of the operating hours of the new BOJ-NET will enable financial
institutions to improve efficiency in their use of funds and collateral. Under thecurrent operating hours, cross-border transactions face certain challenges: funds canonly be received on the next business day at the earliest; funds can only be invested on
the next business day at the earliest, leaving the funds idle without earning interest; andcollateral needs to be delivered in advance on the previous business day at the latest.
The extension of the operating hours of the new BOJ-NET provides one of the5preconditions for realising the same-day settlement of these cross border transactions.
Financial institutions could make good use of the new BOJ-NET at night time inexpanding their business. For instance, supporting their corporate customers with theirglobal cash management by providing faster fund transfers from overseas under thenight-time operation of the new BOJ-NET is likely to have a positive impact on the
expansion of overall customer business. If financial institutions can diversify theirmeans of funding in foreign currencies by increasing cross-currency repos and foreignexchange swaps under night-time operation, this will help them to strengthen thefoundations for extending their overseas business.
Improving the ability to deal with market-wide or idiosyncratic stresses
In addition to the benefits discussed above, night-time operation of the new BOJ-NET
could improve the ability of financial institutions in Japan to deal with disruptions atpayment and settlement systems or the whole financial market, which will ultimately
help to contribute to the stability of the global financial system. In March 2003, forinstance, a system disruption in CLS left approximately 30 percent of foreign exchangetransactions of that date unsettled until the next business day, which affected JPY
funding of financial institutions on the day of the incident. The extension of theoperating hours of the new BOJ-NET will extend the scope for dealing with suchsituations more effectively. In light of this experience, longer operating hours of the
BOJ-NET will lead to higher readiness of financial institutions in an emergency.
Further, individual financial institutions will find it beneficial if there is a payment andsettlement infrastructure that they can always use at night by their own decision andchoice in the event of an idiosyncratic stress.
Benefits for financial system and financial markets as a whole in Japan
The improvement of the safety and efficiency in the payment and settlement system inJapan through effective use of the new BOJ-NET as discussed above will help toglobalise JPY settlement, strengthen the stability and international competitiveness of
the Japanese financial system through more effective use of JPY-denominated assets,
revitalise Japanese financial markets, and enhance financial services provided byfinancial institutions in Japan.

6

4. Types of Night-time Transactions
Typical types of transactions using the new BOJ-NET at night time include: 1) the
greater use of JGBs in global financial markets and 2) cross-border customer transfers
in Japanese yen.
(1) Greater use of JGBs in global financial markets
An illustration of possible transactions for the greater use of JGBs in global
financial markets and the value of such transactions
There are two possibilities for the greater use of JGBs in global financial markets that
could be achieved with the extension of the operating hours: 1) diversifying sources offunding in foreign currencies by using JGBs as collateral and 2) expanding derivatives
business in global financial markets by using JGBs as collateral (see Chart 1).
Examples of the diversification of sources of funding in foreign currencies by using
JGBs as collateral are: 1) a repo transaction to make prompt funding in foreign currency
that is needed during the day in local time in Europe (which involves a transfer of JGBs
to an overseas entity at night time in Japan); and 2) a combination of a repo transaction
to raise funds in Japanese yen and a foreign exchange swap transaction to swap thesefunds for foreign currency (to purchase corporate bonds in the US market). As for the
first example, since the size of each settlement tends to be very large in value, extensionof the operating hours makes it possible to reduce settlement risk associated with thetime lags between the delivery of JGBs and the receipt of foreign currency. Likewise,
extension of the operating hours enables substitutions of JGBs for foreign securities in
the repo market in a flexible and safe way, which is regarded as a benefit.
Examples of the expansion of derivatives business in global financial markets by using
JGBs as collateral are: 1) posting JGBs as collateral promptly to foreign CCPs, inparticular, when margin requirements are made during the day in local time; and 2)
posting JGBs as margin for non-centrally cleared derivatives as required by regulations.
Issues to be addressed to enable transactions
In order to enable greater use of JGBs in global financial markets, it is required toreview a range of issues including possible impacts on the batch processing of eachparticipant after the closing of the BOJ-NET, how to address the operational burden atnight time, possible impacts that night-time DVP transactions may have on liquidity
management, and the possible need for changes to the current market practices for JGB
7

settlement (see 5. (3) for detail).
Furthermore, it is required to request and induce relevant parties such as CCPs,
international central securities depositories (ICSDs) and their sub-custodians, clearing
brokers, and trading counterparties in Asia and Europe to adjust their operation(including changes to cut-off time and collateral hair-cut rates) in accordance with theextension of operating hours.
In addition, it is important to share broadly common views among market participants
on how to choose settlement with ICSDs or with global custodians who compete in the
improvement of service level, and to discuss possible improvements such as measures
to enhance the mobility of securities across settlement systems and custodians.
It is also useful to promote the use of “Shin-gensaki,”3 which is in line with the global
standard, in order to enable greater use of JGBs in global financial markets.
(2) Cross-border customer transfers in Japanese yen at night time
An illustration of transactions of customer transfers at night time and the value ofsuch transactions
There would be broadly two patterns of customer transfer that involve the new
BOJ-NET: 1) customer transfers from an overseas customer to a domestic customer and2) customer transfers from an overseas customer to another overseas customer throughan intermediary bank in Japan. In the first case, an overseas customer transfers funds
from a local sending bank to a customer who holds an account with a receiving bank inJapan. In the second case, funds in Japanese yen are transferred, for example, from abank in Indonesia to a bank in Thailand via financial institutions in Japan (see Chart 2).
These transactions enable same-day crediting on the receiver’s account and same-day
delivery of funds between the sending and receiving banks, and are expected to enhance
the convenience of the settlement of JPY funds. Faster cross-border customer transfersin this manner enable cash pooling among affiliated companies and contribute toimprove efficiency in funding by companies and reduce the legal risk (associated withthe acceptance of funds transfer instructions) by a faster completion of transfers.
Furthermore, these would help to further globalise JPY settlement as the volume of JPY
3

A “Shin-gensaki” contract is a repo transaction under the Master Agreement on the Transaction
with Repurchase Agreement of the Bonds, etc. as revised in 2001.
8

transactions will increase.
With regard to these transactions, it is desirable to consider not only transfers fromabroad to Japan but also those from Japan to abroad. In addition, it will bring more
benefit if the scope of services covers not only cross-border customer transfers in theafternoon in Asia but also those in the morning in Europe.
Issues to be addressed to enable transactions
In enabling overseas customer transfers at night time, it is necessary to consider: 1) the
possible impact on the batch processing of each participant after the closing of the
BOJ-NET; and 2) the operational procedures at night time. As for the second issue,
the operational burden could be reduced in the mid-to-long term by achieving a higher
level of STP (straight-through processing) or by establishing global operation,
depending on the length of the possible extension of the operating hours. In addition,
it will promote the use of new night-time services to inform financial institutions andcustomers not only in Asia but also in Europe of the new services well in advance.
Further, with an aim of facilitating initiatives by individual members of the Forum,
several action points have been identified and discussed. These points include: 1)
issues to be decided upon and addressed by each financial institution; 2) issues to bebilaterally agreed upon among financial institutions sharing common objectives; and 3)
issues to be discussed among multiple financial institutions and possibly agreed as
multilateral agreements once it becomes clear that the volume of transactions is likely toreach a considerable size.
Going forward, it is expected that individual financial institutions will continue their
preparation of the operational procedures and coordinate with each other on concrete
issues in light of the details of discussions at the Forum with the aim of enabling
cross-border customer transfers at night time.
(3) Other types of transactions
In addition to the types of transactions discussed above, there will be greater scope forsame-day foreign exchange transactions used for funding purposes if the extension of
the operating hours is realised. Further, the settlement of funds in Japanese yen will
become more convenient if the CLS expands its settlement currencies to include
Japanese yen for its same-day settlement, enabling the US dollar to be borrowed against
9Japanese yen by same-day foreign exchange swaps under longer operating hours.
In addition, it is important to take a flexible approach that does not exclude types ofnight-time transaction that are currently not expected to occur. For example, it isuseful to view cross-border and domestic transactions in an integrated manner andconsider possible future ways to make good use of the new BOJ-NET for the purpose ofdomestic retail payments, including bank credit transfers, in addition to cross-bordercustomer transfers in Japanese yen.

5. Operating Hours
The operating hours of the new BOJ-NET would need to be extended further beyond
19:00 in order to enable the ways of effective use of the new BOJ-NET examined in the
Forum. In doing so, it is desirable to take a phased approach based on a roadmap
which has both short-term and mid-to-long-term perspectives. Specifically, theoperating hours could be extended to 21:00 soon after the full launch of the new
BOJ-NET as an initial step and the possibility of further extension could be explored in
the future.
(1) Approach to the extension of operating hours
When the Bank of Japan intends to extend the operating hours of the BOJ-NET, which
is a primary payment and settlement infrastructure in Japan, an announcement made by
the Bank with sufficient lead time will assist BOJ-NET user financial institutions intheir efforts to build up new and better payment and settlement services (ahead of theextension of the operating hours).
One possible approach would be to leave it to each user financial institution to decide
whether or not to use the BOJ-NET at night time upon the extension of the operating
hours and to expand in a step-by-step manner its payment and settlement operation andcustomer services at night time considering issues which need to be addressed, such as
operational procedures and system developments. At the same time, it should be notedthat in the field of payment and settlement, the provision of payment and settlement
services will only be possible once both parties of the transaction, such as a buyer and aseller of JGBs or a sender and a receiver of funds, have addressed the issues associatedwith the extension.

10

In addition to short-term measures to be taken after the full launch of the new BOJ-NET,
mid-to-long-term measures would be worth considering in anticipation of futurechanges in the relevant framework or financial environments. Under the current low
interest rates, it may be difficult to see positive effects of improving the efficiency in theuse of funds. However, because it takes time to implement changes to IT systems andoperational procedures that would be required to enable night-time use of the BOJ-NET,
it is important to keep a long-term perspective in exploring possible new ways of using
the BOJ-NET at night time.
Based on these points, the Forum made a roadmap (Chart 3) with an understanding that
it is useful for interested parties to share the goals, including mid-to-long-term goals.
(2) Approximate target of the length of extended operating hours
As shown on the roadmap, the phased approach will be appropriate in extending theoperating hours of the new BOJ-NET, based on the anticipated future progress in theefforts to enable transactions including those types mentioned in Section 4.
Specifically, in Phase I (a period between some time around the full launch of the new
BOJ-NET and the beginning of Phase II), the operating hours would need to beextended until 21:00. In Phase II (after the start of the shortening of the JGB
settlement cycle and the full implementation of the international regulations mentioned
in Section 2.(4)), the possibility of further extension in the future will be explored inlight of night-time traffic, changes in surrounding factors and other relevant factors.
Phase IIn Phase I, the extension until 21:00 will enable financial institutions to make fundtransfers on a same-day basis in the evening in Asia as well as in the morning in Europe.
The extension will result in a larger overlap in operating hours between Japanese andEuropean payment and settlement systems, which will greatly benefit financial
institutions given that it is mainly in the London market that JGBs are used extensively
outside Japan. In addition, as major CCPs are located in Europe, it is expected that theextension will also help financial institutions to post and receive JGBs as collateral toand from the CCPs in a prompt manner. It will also enable them to do same-day
foreign exchange swaps both at normal times and in an emergency.
Financial institutions would be able to establish operational procedures that may beneeded for the extension until 21:00, including those action points identified by the11Forum (see (3) below). Each financial institution is required to make continuous
efforts to establish the necessary operational procedures by the time of the extension incooperation with other interested parties.
Phase IIIn Phase II, in light of night-time traffic, changes in surrounding factors, the shorteningof the JGB settlement cycle and developments in other payment and settlement systems
in Japan, the possibility of further extension could be explored with a view to creating
an overlap with US markets, which would lead to drastic improvements in funding on a
global basis. The possible use of the BOJ-NET includes posting/receiving JGBs as
collateral to/from CCPs and counterparties of repo transactions in the US and thesettlement of same-day foreign exchange swaps.
The extension of the operating hours beyond 21:00 will require financial institutions toestablish a global operational structure. This issue together with others needs to beaddressed if further extension of the operating hours beyond 21:00 should be realised.
In addition, the possibility of DVP linkage with overseas payment and settlement
systems and the way of accessing the BOJ-NET will also need to be reviewed.
(3) Operational procedures
IT system and staffing
A majority of the Forum members consider it possible to address the requirements interms of the IT system to enable the extension of the operating hours up to 21:00 withno or minimal changes to the existing IT system. For transactions at BOJ-NET JGB
services (in particular, FOP JGB transactions), the size of necessary IT developments
would be relatively small. Given the expected volume of transactions, some pragmatic
operational procedures can be an option for an interim solution before the developmentof an IT system of considerable size is done, such as manual processing (e.g. BOJ-NET
users that otherwise use computer-to-computer connections use BOJ-NET terminals fornight-time transactions) or the use of a separate system where night-time transactions
are booked on a same-day basis and rebooked into a main booking system on the next
business day with the transaction date of the day before.
In terms of staffing, financial institutions and the Bank could establish operational
procedures and decide on the content and level of their services in a flexible manneraccording to the volume and types of transactions.
12Liquidity management at night time
Considering the types of transactions that are expected if the operating hours areextended up to 21:00 in Phase I, there would be little need to create money markets or
JGB repo markets for liquidity management at night time by the start of Phase I.
 The main purpose of the use of the BOJ-NET FTS would be cross-border customertransfers in Japanese yen. Financial institutions could address possible market
impacts on their liquidity management arising from those transactions by entering
into a new interbank transaction (with the receiving bank), as needed, to create an
opposite flow of funds that offsets that of the customer transfers.
 The main purpose of the use of the BOJ-NET JGBS would be FOP transactions(which transfer securities only). While there will possibly be some DVP
transactions that transfer JPY funds against JGBs, it is assumed these transactions
would take place only to the extent that such transactions would cause no
unmanageable impacts on funding.
It is conceivable to start reviewing the need of new market practices in light of thevolume of transactions in Phase I after the extension up to 21:00 and in view of Phase II.
As for cross-border customer transfers in Japanese yen, for example, as soon as it
becomes clear that the volume of transactions is likely to become considerable, review
work could start with regard to: 1) whether or not it is needed to integrate bilaterally
established, concrete procedures for doing the offsetting interbank transactions
described above into market-wide practices in money markets; and 2) whether or not anight-time money market needs to be created.4
Market practices of JGB settlements
With regard to market practices of JGB settlements, assuming that there would be only alimited need to do night-time transactions to address failed transactions under the
possible extension of the operating hours up to 21:00 in Phase I, market practices thatwould also take into account (night-time) transactions after the end of Core Hours, inlight of the manner in which transactions will be done in Phase I, would be explored inview of Phase II.5
4

Under the draft money market practices that address the features and specifications that will be
introduced upon the full launch of the net BOJ-NET, it is possible for financial institutions to
conduct money market transactions at night time if both parties agree to do so.
5Under the new market practices for JGB settlement that address the features and specifications thatwill be introduced upon the full launch of the net BOJ-NET, it is possible for financial institutions
to settle failed transactions at night time if both parties agree to do so.
13The Forum notes the possibility of benefiting in Phase II from the potential synergies
between the further shortening of the JGB settlement cycle and the extension of theoperating hours. Given that the views expressed in the Forum that it is desirable toshorten the settlement cycle for transactions with non-residents, it would be necessary toreview whether or not the current market practices could remain unchanged.
(4) Timing of the start of extension of operating hours
In view of the surrounding environments identified above, the value of the extended
operating hours under such environments and the expected types of transactions, it isdesirable to extend the operating hours up to 21:00 as soon as possible.
However, in the period between the autumn of 2015 and the beginning of 2016, during
which the full launch of the new BOJ-NET is scheduled, major IT system developments
and changes to operational procedures will occur, e.g. in the preparation of the plannedchanges to the taxation on earnings from holdings of Japanese bonds in January 2016.
It is acknowledged that it is difficult to have informed discussion before the date of thefull launch of the new BOJ-NET is determined. Therefore, it is desirable for theconcrete date of the start of the extension to be announced as soon as the date of the fulllaunch is determined.

6. Further Actions
The Forum identified action points that need to be addressed with regard to the several
types of transaction that are currently expected to take place. Going forward,
individual financial institutions, together with possible counterparties, will address theaction points in order to enable these transactions. In doing so, it is important for theForum members and relevant market participants to continue active exchanges of theirviews and experiences.
Further, after the expansion of the operating hours up to 21:00 has been implemented, it
is desirable for the Forum members and relevant market participants to monitor
night-time transactions and review the need for additional ways to make effective use of
the BOJ-NET and the need for changes to market practices.
*** ***
14

Chart 1

Greater Use of JGBs in Global Financial Markets(1) Funding in foreign currency by using JGB collateral(2) Posting JGBs as collateral to foreign CCPs

The New BOJ－NET JGB①
services

Securities
firm XThe New BOJ－NET JGB⑥④

Sub custodian

Sub custodian

Securities
firm ＸICSD orglobal custodians＜Japan＞＜Japan＞＜Overseas＞＜Overseas＞

ICSD orglobal custodians

ICSD or global custodians

ICSD or global custodians
Intra-groupadjustments of
JGB holdings

Securities
firm Ｘ

Securities
firm Ｘ③

Sub custodian②⑤
Securities
firm Ｘ③
services

Securities
firm Ｘ

Sub custodian

Information sharing

Local bank Ａ④

Securities
firm Ｘ

⑤

CCP

②

③’
Local Bank Ａ

Securities
firm Ｘ④’

Underlying transactions:- Cross-currency repo against JGB collateral- Posting of JGB collateral to foreign CCPs and trading partners

15

①

CCP

Chart 2

Transaction Flows of Cross-border Customer Transfers●

Two types of cross-border customer transfer using the new BOJ-NET at night time

①Remittance from overseas to Japan②Remittance from overseas to overseas＜Japan＞＜Overseas＞＜Overseas＞

New BOJ-NET Funds Transfer Services
Bank XBank XBank X（Order bank）（Order bank）（Sending bank）

Customer A

Customer C（Overseas）（Overseas）

Bank YBank Y（Beneficiary bank）（Intermediary bank）

Flow of remittance

Customer (corporation)（Beneficiary bank）
Customer D

Arrival of remitted funds
Bank

Bank Y or Z

（Overseas）
Customer B（Japan）

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Chart 3

Roadmap of Extension of Operating Hours of New BOJ-NET
Phase I

Surrounding
factors

Phase II～

◇ Launching of the second phase of the new BOJ-NET（sometime between the autumn of 2015 and the beginning of2016）◆ Extension of operating hours of Euroclear Bank（Jan.
2014）◆ Introduction of the Liquidity Coverage Ratio（after Jan.
2015～）◆ Introduction of the regulations for the margin requirements
for non-centrally cleared derivatives（after Dec. 2015～）◆ Changes to the tax system concerning Japanese bonds（Jan.
2016）◆ CLS’s review of the possibility of adding new currencies
for a same-day session （after 2014）
・ The operating hours for both BOJ-NET Funds
Transfer Services (FTS) and JGB Services (JGBS)
extend up to 21:00.

◆ Settlement cycle for JGB outright transactions is shortened to T+1（by the earliest possible time after 2017）（to be gradually implemented）

Full implementationof international
regulations in 2019

・Further extension of the operating hours is possible based on the night-time traffic in Phase I.
―Establishing the operational procedures on a global basis and access tothe new BOJ-NET from overseas, etc. are to be considered.

Posting and returning of JGB collateral to CCPs and trading partners in Europe

Possible types oftransactions of
BOJ-NET JGBS

Posting and returning of JGB collateral to CCPs
and trading partners in the US
Addressing failed JGB transactions with non-residents
Cross-border customer transfers in Japanese yen （interbank funds transfer）
Funds transfer on behalf of customers at night time

Possible types oftransactions of
BOJ-NET FTS

Cross-border customer transfers in Japanese yen （crediting on the receiver’s account）
Same-day foreign exchange swap in Europe

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Same-day foreign exchange swap in the US

Transaction scale（volume ornumber offinancial
institutions taking
part）Attachment

List of Forum Members
Financial Institutions
Barclays Securities Japan Limited
Citibank Japan Ltd.
Daiwa Securities Co. Ltd.
Goldman Sachs Japan Co., Ltd.
JPMorgan Chase Bank, N.A., Tokyo Branch
Mizuho Bank, Ltd.
Mizuho Securities Co., Ltd.
Morgan Stanley MUFG Securities Co., Ltd.
Nomura Securities Co., Ltd.
Resona Bank, Limited.
SMBC Nikko Securities Inc.
Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
The Norinchukin Bank
Industry Associations
Association of Call Loan and Discount Companies
International Bankers Association of Japan
Japan Securities Dealers Association
Japanese Bankers Association
Regional Banks Association of Japan

Tanki Kinyu-shijou Torihiki Kasseika Kenkyukai6
The National Association of Shinkin BanksThe Second Association of Regional Banks
Trust Companies Association of Japan
Guest Speakers
Euroclear Bank Tokyo Representative Office (2nd Meeting)
Clearstream Banking Japan, Ltd.

(3rd Meeting)

CLS Tokyo Representative Office(4th Meeting)

Forum Secretariat
Payment and Settlement Systems Department, Bank of Japan
6

A group of market participants that discusses issues regarding money market transactions.

18