Japan Securities Depository Center, Inc.

Annual Report
2006
For the year ended March 31, 2006
Printed in Japan on recycled paper
Uses soybean ink inconsideration of the environment

Corporate Information
As of June 30, 2006

Contents
1 Financial Highlights
2 President’s Message

Revenues by Operations
Year ended March 31, 2006

4 Rapid Progress in Dematerialization

Other services¥2,702 million

11 International Activities
Pre-settlement matching services¥2,007 million

12 Corporate Governance
14 Business Overview
19 Financial Statements

DVP settlement services for NETDs¥1,513 million

29 Report of Independent Auditors

Bonds

30 Board Members and Auditors

Book-entry transfer for CP¥281 million
Book-entry transfer for
Corporate Bonds¥269 million

32 History
33 Corporate Information
33 Organization Structure

Custody¥5,167 million

COMPANY NAME:

Japan Securities Depository Center, Inc.

DATE OF INCORPORATION:

January 4, 2002

DATE OPERATIONS BEGAN:

June 17, 2002

CAPITAL:¥4.25 billion (shareholders’ equity ¥11.4 billion)

COMMON STOCK ISSUED:

8,500 shares

NUMBER OF SHAREHOLDERS:

189

NUMBER OF EMPLOYEES:

140 (As of March 31, 2006)REGISTERED HEAD OFFICE

1-1, Nihombashi-Kayaba-cho 2-chome
Chuo-ku, Tokyo 103-0025, Japan

Book-entry transfer¥16,594 million

Phone:

Facsimile: +81-3-3661-2810

EquityEstablished
December 6, 1984

January 4, 2002

The Japan Securities
Depository Center(JASDEC) established as a
not-for-profit foundationin line with the November
1984 enforcement of the
Law Concerning Central
Securities Depository andBook-Entry Transfer ofStock Certificates andOther Securities (the“CSD Law”).

The Japan Securities
Depository Center, Inc.,
incorporated as a stockcompany.

Our Mission
In view of our duty to serve the public, our mission asa group is to provide a highly secure, efficient andeasy-to-use infrastructure for securities clearing andsettlement, which in turn contributes to functional
improvement of the securities market.
Toward this end, we seek to establish a bookentry transfer system for investment trusts, and torespond more extensively to the dematerialization ofstock certificates as this process continues to unfold inJapan. We will also complement efforts to encourage
greater use of the book-entry transfer systems for commercial paper (CP) as well as Corporate Bonds* withefforts to promote straight-through processing (STP),
the enhancement of the pre-settlement matching system (PSMS) for wider use of depository services forstock certificates, and more extensive application of
the DVP settlement system for NETDs.
To achieve these goals, we will build andreplace systems, in line with our medium-term management plan, and strive to cement a stronger foundation for improved stability and reliability in ourbusiness activities. We will also endeavor to make ourservices more convenient for overseas investors using
our clearing and settlement systems, and we will reinforce ties with international counterparts to foster
cooperation mutually beneficial to both sides.

June 17, 2002
Assumed all thebusinesses of the Japan
Securities Depository
Center, in accordance with
the CSD Law.

October 9, 1991

June 6, 2003

Commenced business asJapan’s only central
securities depository forstock certificates.

Established JASDEC DVP
Clearing Corporation(JDCC) to undertake
clearing services related tothe delivery-versuspayment (DVP) settlement
system for non-exchangetransaction deliveries(NETDs).

E-mail:international@jasdec.com

Website:http://www.jasdec.com

OPERATIONS OFFICESTokyo Office:Corporate
Structure+81-3-3661-0139

1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Osaka Office:6-10, Kitahama 1-chome, Chuo-ku, Osaka 541-0041

Nagoya Office:3-17, Sakae 3-chome, Naka-ku, Nagoya 460-0008

Fukuoka Office:14-2, Tenjin 2-chome, Chuo-ku, Fukuoka 810-0001

Sapporo Office:14-1, Minamiichijo-Nishi 5-chome, Chuo-ku, Sapporo 060-0061

SUBSIDIARY COMPANY
Company Name:JASDEC DVP Clearing Corporation

Date of Incorporation:

June 6, 2003

Commenced Operations: May 17, 2004
Capital:¥310 million

Registered Head Office:1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Organization Structure(As of June 30, 2006)● M EETING OF S HAREHOLDERS● B OARD OF A UDITORS● B OARD OF D IRECTORS● P RESIDENT & CEO● General Administration Department● Corporate Planning Department● Business Administration Department● Bond and Commercial Paper Department● Investment Trust Department● Global Business Development● Business Planning Department● First System Department● Second System Department* “Corporate Bonds” in this report refers to bonds covered by the book-entry transfer system for Corporate Bonds, i.e., corporate bonds, municipal bonds,
investment company bonds, specified corporate bonds prescribed in the Law Concerning Liquidization of Assets, rights that should be represented bybond certificates issued by corporations under a special law and rights that should be represented on bond certificates issued by any governments or bycompanies in foreign countries (excluding those with the characteristics of bonds with subscription rights), such as Samurai bonds and Shogun bonds,
while “corporate bonds” is used to denote corporate bonds only.

bb● Tokyo Operations Office● Osaka Operations Office● Nagoya Operations Office● Fukuoka Operations Office● Sapporo Operations Office33

Financial Highlights
CONSOLIDATED

Thousands of
US dollars

Thousands of yen

For the years ended March 31, 2006 and 2005
2005

2006

2006

¥19,003,966¥21,745,176$184,813

Income from operations

1,912,128

4,855,929

41,270Net income

1,050,244

3,121,382

26,528

Total assets¥73,585,824¥68,517,382$582,333

Shareholders’ equity

11,460,609

14,352,092

121,979

Net cash provided by operating activities

4,792,564

8,467,571

71,966

Common stock

4,250,000

4,250,000

36,121¥121,511.06¥365,197.98$3,103.84

For the year:
Operating income

At year end:

Per share (yen and US dollars):
Net income—primary

Note: The amounts stated in US dollars in this report are translated, solely for convenience, at ¥117.66=US$1, the exchange rate prevailing on March
31, 2006.

AT A GLANCE
As of March 31, 2006

SHARES IN CUSTODY

281

billion shares

1,053

billion shares

The number of shares in custody reached 281.9 billion.

SHARES TRANSFERRED BY BOOK ENTRY

Of the 1,053.5 billion shares transferred by book entry, non-exchange trade transfers accounted
for 632.4 billion shares, or 60.0% of the total.

NUMBER OF ELIGIBLE ISSUING COMPANIES

3,837

companies

We handle the share certificates of all listed companies in Japan.

CUSTODY RATIO

77.4 %The percentage of shares in custody represents 77.4% of the entire domestic stock market. Our
custody ratio for convertible bonds—that is, corporate bonds with subscription rights to newshares—reached 97.9%.

AGGREGATE MARKET VALUE OF SHARES IN CUSTODY¥450

trillion

The aggregate market value of shares in custody stood at ¥450,994 billion, up 60.2%, from a year
earlier.

TOTAL VALUE OF DVP SETTLEMENT SERVICES FOR NETDS¥42

trillion

DVP settlement services for NETDs represented a value of ¥42,041 billion.

1

President’s Message

We are aggressively working tocreate the book-entry transfer
systems of an enhanced
securities clearing and settlement
infrastructure in Japan.
“We are fully aware of our social
responsibilities and will strive toreinforce our business foundation.”

added a pre-settlement matching function for domestic

T o date, the JASDEC Group has approached system

Bond Clearing Corporation, and in January 2006, wereform with three key developments in mind. The firstbegan providing a pre-settlement matching function foris to reinforce corporate governance. The second is to

Corporate Bonds and CP.

promote wider use of DVP as a means of minimizing
principal risk in clearing and settlement operations andour matching system as the cornerstone of STP. And thethird is to expand the range of eligible securities accepted
and to promote dematerialization thereof.
Four years ago, in a bid to achieve a level of corporate governance more appropriate to a central securities
depository, JASDEC shed its status as a not-for-profit
foundation and became a stock company with participating companies as shareholders. We continue to pursue business activities that put users before all else.

assumption of obligations by the Japan Government“Dematerialization of stock
certificates will mark the final
stage of reform.”

We seek to widen the scope of our business activities
and better meet the expectations of users. Toward thisend, we have endeavored to broaden the range of eligible securities we accept and, through advertisements innewspapers, television and other media, have worked toboost our custody ratio.
We have witnessed a dramatic rise in the volumeof transactions handled by the book-entry transfer sys-

“The pursuit of safety, efficiency andconvenience in securities clearing andsettlement is an enduring theme.”tem for CP, which became operational in March 2003.

To reduce principal risk, we introduced a DVP settle-

book-entry transfer system for Corporate Bonds.

To enhance convenience to users still further, we upgraded this system in conjunction with the start of thement system for NETDs in May 2004 and simultane-

The book-entry transfer system for Corporate

ously linked it with PSMS. Currently, clearing and

Bonds was a noteworthy development in fiscal 2005,

settlement through this system accounts for nearly 60%

ended March 31, 2006. The system’s application to newlyof all book-entry transfers for NETDs, and participantsissued bonds has steadily increased since it debuted inregard the system as an important clearing and settle-

January 2006, and we expect a considerable amount ofment tool.

outstanding physical bonds and recorded bonds to

We launched PSMS five years ago, and since thenwe have gradually expanded the range of products towhich this function is applied. In February 2005, we
2

government bond repos and gensaki on the premise ofundergo transition in fiscal 2006. In April, we launcheda book-entry transfer system for foreign stocks.

of Domestic Securities‘Toward the FinalandStageSettlement
System Reform’
The book-entry transfer system for investment

9th General Meeting of the Asia-Pacific CSD Grouptrusts will be launched in January 2007. As we pursue(ACG) in Tokyo in November 2005. Looking ahead, wedevelopment of this system, we are promoting measures

will join Korea Securities Depository and Taiwanthat will ensure the smooth conversion of existing phys-

Securities Central Depository Co., Ltd., in hosting theical certificates to dematerialized form.

9th Conference of Central Securities Depositories in

For stocks—the last certificates to be dematerial-

Seoul, South Korea, in April 2007. In addition to theseized—we expect to have a book-entry transfer system in

events, we sign memorandums of understanding withplace by January 2009. We have already determined anoverseas central securities depositories, and will con-outline and are now working to achieve system develop-

tinue to promote greater harmonization with our coun-ment within the desired timeframe.

terparts abroad.

The custody ratio under the prevailing system is

The JASDEC Group upholds management poli-

well into the 80-percentile range, but it should be higher

cies designed to ensure highly transparent businessto facilitate conversion of paper stocks into dematerial-

activities that place system users before all else and toized form. To achieve this task, we must promote

provide services that are secure and exceedingly cost-greater awareness of book-entry services among issuers,

efficient. These efforts will lead to higher custody ratios

brokers and investors.

within the Group and accelerate securities clearing and

At the same time, to ensure system security in line

settlement reform in Japan.

with the concentration of marketable securities and their

On behalf of the Board of Directors and employees

conversion to dematerialized form is an issue of increas-of JASDEC, I ask for the continued support of our users,

ing priority. With the Bank for International Settlements’participants and investors as we work toward our goals.

Lamfalussy Standards in mind, we established a backup
center already back in September 2000 to secure our systems. To reinforce information system management still

June 2006

further, we formulated our own security policy, based onsuch international standards as BS ISO/IEC17799 for
information security management. In addition, we maintain a personal information protection policy to ensurethat private data is handled appropriately.
In recent years, we have emphasized international activities, substantiated by our role in hosting the

Yoshinobu Takeuchi
President and Chief Executive Officer3Rapid Progress4

in Dematerialization
Domestic securities clearing and settlement reform has made progress
toward the final goal: dematerialization of stock certificates. As the organization responsible for the infrastructure of securities clearing and settlement in Japan, the JASDEC Group is tackling several issues that will leadto the improved safety, efficiency and convenience of inherent systems.
TARGETS FOR 2009

Promoting STPMEDIUM-TERM THEMES

W e will boost the capacity of PSMS to include amatching function for stock lending and a new issuing
record matching function, paralleling the move toward

T he JASDEC Group will concentrate on five themes

dematerialization of stock certificates.

over the next three fiscal years, but the No. 1 priority
will be dematerialization of securities.

Progress in Dematerialization

Raising Number of Stock Certificatesin Custody

By encouraging more investors and issuers to grant us
custody of stock certificates, we will achieve smooth

B OOK -E NTRY T RANSFER S YSTEM FOR I NVESTMENT

conversion of paper certificates into dematerialized form

T RUSTS We are working to implement a book-entry

and expand use of the book-entry system.

transfer system for investment trusts and to ensure stable operation thereof. We are currently implementing

Reinforcing Custody Function

processes that will achieve the smooth conversion of

STRONGER SYSTEM INFRASTRUCTURE Based on the for-outstanding physical certificates into a dematerialized

mation of a medium- to long-term plan for systems—

form.

including the system for dematerialization of stock

DEMATERIALIZATION OF STOCK CERTIFICATES Based on

certificates, as well as system replacement, transfer of

the System Outline for dematerialization of stock certifi-

information to our data center and other aspects relatedcates, we are pursuing discussions to fine-tune adminis-

to systems—we will strive to build an infrastructure

trative processes and practical conversion techniques

featuring higher levels of safety, efficiency and conve-

and to address necessary system development in our

nience. This will ensure stable clearing and settlement

quest to build a new book-entry transfer system for

operations.

stock certificates.

ENHANCED RISK MANAGEMENT STRUCTURE We will

PROMOTING USE OF BOOK-ENTRY TRANSFER SYSTEMS

continue to improve information security and work

FOR CP AND CORPORATE BONDS

To elicit greater inter-toward the establishment of a structure that supports

est in dematerialization of CP and to firmly establish thebusiness continuity in the event of an emergency. We

book-entry transfer system for Corporate Bonds, wewill also introduce system audits and other actions tomaintain a steady stream of activities to raise awarenessenhance our risk management structure.

in the market and address concerns to support smooth

STRONGER TIES WITH OVERSEAS COUNTERPARTS We

transition of outstanding physical bonds and recorded

will forge stronger ties with counterpart organizations

bonds to dematerialized form. We undertake necessary

abroad and create networking opportunities with other

responses, such as function upgrades to relevant sys-

central securities depositories, primarily through thetems, to enhance convenience for users, and strive toactivities of hosting overseas seminars and the 9th

expand use of our systems.

Conference of CSDs in the Asian region.
Activities to date are described as follows.
5

Rapid Progress in Dematerialization

2006

Implemented

JanuaryBook-Entry Transfer System for

Corporate Bonds

BOOK-ENTRY TRANSFER SYSTEM FOR

paperwork. Under our system, we revised custody pro-CORPORATE BONDS

cedures—from issuance to redemption, including trans-

Main Features of the System
T he prevailing registration system requires certain

fers—into a management structure, based on thebalance recorded in the transfer account book, and realized DVP (gross–gross formation known as BIS model 1)
and STP by linking to PSMS.

responses to the physical issue of bonds because beneficiaries have the right to request the issue of such certifi-

Book-Entry Transfer Based on BalanceManagementcates. The book-entry system, however, is completely
electronic, and thereby eliminates costs associated with

Under the prevailing registration system, registration

issuing denominations and reduces the burden of officeinstitutions enter the denomination type and serial

Trade
1

JASDEC
Trade
Party

Trade
Party

Pre-Settlement
Matching System
2

Affirmation of Trade

Affirmation/
Disaffirmation

Trade
Matching
2

Affirmation of Trade

SSI

3

Notice ofSettlement Matching
StatusSettlement
Matching

Settlement
Matching

3

Notice ofSettlement Matching
StatusSettlement
Party

Settlement
Party
Transfer System
for Corporate bonds
4

Notice of Recording
9

Securities Transfer
NoticeRecord inTransfer Ledger
Security
Transfer

4

Securities
Settlement

Notice of Recording
9

Securities Transfer
NoticeLinked8

5Settlement
Completion

Fund
Settlement Data

Fund
Settlement
Company

6

6

8

Fund
Transfer

Payment Request

Notice of Receipt
Completion

Bank of Japan

Payment Instruction

7

Fund
Settlement
Company

Fund
Settlement

Rapid Progress in Dematerialization

Implemented

2006

April

Depository and Book-Entry Transfer System for

Foreign Stocks

number as well as ownership in their register book.

with subscription rights, such as Samurai Bonds andUnder the new book-entry system, transfer of owner-

Shogun Bonds.

ship is executed by entering the net increase or decreasein the transfer account book, thereby expediting transition in secondary markets.

Multilayer Holding Structure ofParticipation

Account management institutions are positioned in theNotes:
1. Corporate bonds with subscription rights will become dematerialized
when stocks are dematerialized.
2. Corporate bonds issued in overseas markets, such as euro-yen bonds,
are excluded from eligibility.

Smooth Transition of
Outstanding Bonds

multilayer holding structure in order to facilitate flexi-

F rom January 6, 2008, preferential tax treatment onbility of business development and to promote affilia-

interest income for such entities as tax-free corporations

tion among international institutions. In addition, under

will apply only to book-entry bonds; recorded bonds

the book-entry transfer system, payment of principal isand physical bonds will no longer be eligible for prefer-executed by the issuer’s agent paralleling the layered

ential tax treatment. In response, JASDEC will maintainstructure.

efforts to promote the transition of outstanding bonds to

Eligible Securities

book-entry bond status.

A variety of bonds is eligible, excluding Japanese
Government Bonds, regardless of whether the securities
are public or private offerings. In addition, the system is
flexibly designed and will accommodate floating-rate
notes and foreign-currency-denominated bonds.
●

Corporate bonds●

Municipal bonds●

Investment company bonds●

Corporate bonds issued by mutual companies prescribed in
the Insurance Business Act●

Specified corporate bonds prescribed in the “Law Concerning Liquidation of Assets”●

Rights that should be represented by bond certificates issuedby companies under a special law●

Rights that should be represented by bond certificatesissued by any government or by companies in foreigncountries, excluding those with the characteristics of bonds

DEPOSITORY AND BOOK-ENTRY
TRANSFER SYSTEM FOR

FOREIGN STOCKS
Details on System Start

In response to requests from participants in the foreign
securities market in Japan regarding promotion of thereliability and safety of depository and book-entry transfer services for listed foreign stocks etc., JASDEC
applied to the Financial Services Agency and theMinistry of Justice for approval to handle the depository
and book-entry transfer services for listed foreign stocks
and the like offered by Japan Securities Settlement &Custody, Inc. (JSSC). In March 2006 the above-mentioned authorities confirmed that JASDEC could undertake such operations in line with the CSD Law, enabling
JASDEC to add these services for JASDEC participants.
7

Rapid Progress in Dematerialization

For Implementation

2007

JanuaryBook-Entry Transfer System for

Investment Trusts

With the enforcement of Business Regulations

BOOK-ENTRY TRANSFER SYSTEM FOR

Relating to Depository and Book-Entry Transfer of Foreign

INVESTMENT TRUSTS

Stock Certificates, etc., on April 1, 2006, JASDEC begantransferring balances from JSSC at the end of April. The
transfer of foreign stocks listed in Japan is expected tobe complete by summer 2006.

System Summary

By opening a deposit account for foreign stock certifi-

Investment Trust Market in Japan

In recent years, the investment trust market in Japan
has undergone a huge transformation, highlighted by
the start of sales through Japan Post in October 2005.
Interest in investment trusts is growing stronger, sup-cates, JASDEC’s participants can execute either book-ported by greater investment activity by individual

entry transfer for exchange transactions settled byinvestors. According to the Investment Trusts

instruction of Japan Securities Clearing Corporation or

Association of Japan, net investment trust assets

non-exchange trade transfers, in line with Businessreached ¥85.79 trillion, as of March 31, 2006. Of thisRegulations and Rules Relating to Depository and Book-

amount, investment trusts offered to the general public

Entry Transfer of Foreign Stock Certificates, etc.

represented ¥58.47 trillion while investment trusts for

When a participant deposits listed foreign stock

private placement represented ¥27.32 trillion.

certificates to undergo book-entry transfer by JASDEC,
the stock certificates must be deposited with JASDEC’s

System Summary

relevant foreign depository. If the foreign stock certifi-

JASDEC aims to implement a book-entry transfer sys-cates are already entrusted to a JASDEC account andtem for investment trusts, like those for CP andsold in the home market by participants, JASDEC trans-

Corporate Bonds, in January 2007. With this system,

fers or delivers to the account designated by the partici-

subscription, transfer and redemption of beneficiary

pant. These deposits and transfers are made via message

rights following the establishment, transfer and cancella-creation and automated dispatch between JASDEC’stion of investment trusts will be recorded in the transfer

book-entry transfer system for foreign stocks andaccount book.

SWIFT (the Society for Worldwide Interbank Financial
Telecommunication).

Book entry will ensure safety and efficiency inthe settlement of investment trusts and support further

In regard to the treatment of rights held by bene-

growth of the investment trust market in Japan. In addi-

ficial shareholders, Share-Handling Services Agents,tion, dematerialization will eliminate paper-based bene-

such as trust banks, which execute share-handlingficiary certificates, which are required under the current

processes, must create a list of beneficial shareholders,system, and thereby streamline administrative processes.

based on JASDEC participants’ data on the record date.
Rights will be granted only to shareholders on this list.

Eligible Certificates

This book-entry transfer system for investment trusts
will extend to beneficiary rights recognized under theInvestment Trust and Investment Corporation Act but
8Rapid Progress in Dematerialization2009

For Implementation No Later than

June

Dematerialization forwill not initially cover those on foreign investment trusts

Stock Certificates● Twice a year, in principle, the central securities depos-

established overseas or on mother funds.*

itory—namely, JASDEC—will give to issuers of shares*Exchange-Traded Funds (ETFs) are different from other investment trusts. JASDEC’s basic stance on ETFs, as settlement iscarried out by the same procedures applied to stocks, is to use
the same system platform used for stocks, and to pursue further
improvements consistent with those applied to the book-entry
transfer system for stocks.

in custody information regarding shareholders (general shareholders’ notification), based on entries in thetransfer account book. This service is similar to theone for beneficial shareholder notification, under thecurrent depository and book-entry transfer system. It

Toward Implementationdiffers, however, in that issuers may request the cen-

L eading up to the implementation of the book-entry

tral securities depository to extend a general share-transfer system for investment trusts, we will run a series

holders’ notification at any time, provided that theof system-related tests from August to December 2006.

reason for such a request is justified.
● Issuers will update their respective lists of sharehold-

DEMATERIALIZATION FOR

ers, based on the aforementioned general sharehold-

STOCK CERTIFICATES

ers’ notification. Under the prevailing securities
custody and book-entry transfer system, two lists ofshareholders’ ownership interests are maintained for

Dematerialization of
Stock Certificates in Japan

stock certificates in the custody of the central securities depository: the shareholders’ registry with the

In 2004, the Stock Settlement Rationalization Law (thename of the central securities depository, and the ben-Law for partial amendments to the Law concerning

eficial shareholders’ registry with the names of actualBook-entry Transfer of Corporate Bonds and Other

shareholders. The new system, however, will consoli-

Securities) was introduced in Japan to streamline

date management of shareholders’ ownership interests

settlement procedures for trades of stocks and otherinto the shareholders’ registry alone, and only the

securities. This legislation allows the stock of non-stock-names of actual shareholders will be recorded therein.

issuing companies to be handled by the book-entry● When issuers undertake corporate actions, such astransfer system. All listed companies will be required tostock splits, bonus issues and mergers, the central

make their stock paperless as of a date, determined by

securities depository and the account management

government ordinance, within five years of the day theinstitution, following notification from the issuer, will

aforementioned legislation was announced (June 9,

undertake procedures that automatically revise the2004).

record of shareholders’ accounts.
● When shareholders wish to exercise minority share-

Basic Structure of the New Systemholder and single-unit shareholder rights on shares in● Under the new book-entry transfer system, the owner-

custody, they need to instruct their respective accountship of stocks shall be determined by the record in the

management institution to notify the issuer of the data

ledger of book-entry transfer accounts, and shall bein the ledger of book-entry transfer accounts. The cen-transferred by account transfer.

tral securities depository will then notify the issuer
9Rapid Progress in Dematerialization

Structural Differences between the Current And Dematerialized Systems

Current System

Dematerialized Book-Entry Transfer System

Issuing Company
Book of Shareholders

Issuing Company
Book of Shareholders

Book of Beneficial Shareholders
Re-registration
Request

Notice of Beneficial
Shareholders

Notice of Shareholders

Depository

Book-Entry Transfer Institution

Account Management Institution (AMI)

Participant (P)

P

AMI

AMI

AMI

AMI

Certificate holder

Customer (C)CC

Participant (P)Book-Entry Delivery

P

P

P

P

Book-Entry Delivery

Note 1. Account management institutions in the dematerialized system and participants in the current system are essentially thesame. Securities firms, banks, transfer agents (trust banks, etc.) are able to have such status.
2. Participants in the dematerialized system and customers in the current system are essentially the same. Investors are able toobtain such status by opening accounts with AMIs.

(specific shareholder notification) and within a speci-

shareholder notifications and responses to requests forfied period thereafter, shareholders may exercise

data on the ledger of book-entry transfer accounts.
● We will introduce DVP to eliminate settlement risk

rights.
● When the reason is justifiable, an issuer can request

occurring when shares and corporate bonds with sub-the central securities depository or an account man-scription rights to new shares are newly issued foragement institution to provide information on record

public offerings.

in the ledger of book-entry transfer accounts.

● We will disclose on a daily basis foreign shareholder

ratios on stock in companies in such industries as

Concrete System Outline
broadcasting and aerospace, where shareholdings by

JASDEC has explored various aspects of the new bookentry transfer system, including practical procedures● We will establish a registered account method for tak-and techniques, to facilitate implementation and use.

ing in shareholders’ dividends. We will also consider a● The new system will handle listed stocks, subscription

pro-rata allocation method based on the number ofrights to new shares, corporate bonds with subscrip-

10

foreigners is limited to a certain percentage.

shares.

tion rights to new shares, beneficiary ownership and

To ensure a smooth start to the new book-entry transfer

preferred capital contribution, as well as subscription

system, which will be no later than June 2009, we haverights for new shares of unlisted stock and corpo-

been collaborating closely with representatives from rel-rate bonds with subscription rights to new shares ofevant industries and authorities, and have been indepen-

unlisted stock, as long as specific criteria are satisfied.

dently pursuing various systems development activities.

● We will apply shareholders names, addresses and num-

All interested parties have agreed to set January 2009 as

ber of shares received from account management insti-

the target for the commencement of dematerialization oftutions for general shareholders’ notifications, specificstock certificates.

International Activities

To promote greater harmonization between our operations and those of counterpart
organizations abroad, we take an enthusiastic approach to international activities, including
efforts to standardize clearing and settlement systems and structures.
Cohosting International Conferences

C SD C ONFERENCES Rotating regionally every two

NOVEMBER 2005—9TH GENERAL MEETING OF ASIA-

years, each conference is hosted by local CSDs in the

PACIFIC CSD GROUP In November 2005, JASDEC andchosen geographical area. Representatives from major

Japan Securities Settlement & Custody, Inc. (JSSC), co-

CSDs around the world gather to hear reports on issues

hosted the 9th General Meeting of the Asia-Pacific CSD

common to every market and pertinent developments

Group, an association of central securities depositories

that characterize the business. The conferences include

in the Asia-Pacific region, in Tokyo. The meeting, which

various components, including a general panel discus-drew representatives from 26 organizations in 15 coun-sion, and provide opportunities for participants totries, provided participants with the chance to offer sta-exchange information and ideas. The 8th Conference intus reports on the implementation of respective clearing

New York in April 2005 drew more than 160 represen-and settlement systems and highlight tasks still to betatives from 64 countries.

addressed. The venue was an ideal place for information

Signing Memorandums ofUnderstanding

exchange and prompted lively discussions among participants on several topics, including approaches to new
business, technical responses to practical application ofsystems, and measures to deal with settlement risk.

April 2007—9 T H C O N F E R E N C E O F
Central Securities Depositories In

Through memorandums of understanding with CSDs
abroad, JASDEC is able to undertake information and personnel exchanges with counterpart organizations and offer
training sessions of mutual benefit to all participants.
August 2003:

April 2007, JASDEC, Korea Securities Depository andU.S. Depository Trust and Clearing Corporation(DTCC)

host the 9th Conference of Central Securities

November 2004: Taiwan Securities Central Depository Co., Ltd.
(currently Taiwan Depository & Clearing
Corporation (TDCC))

Depositories, or CSD9, in Seoul, South Korea. The event,February 2005: Korea Securities Depository (KSD)

Taiwan Depository & Clearing Corporation, will jointly

which runs for three days, from April 11 to 13, will

June 2005:

China Securities Depository and Clearing
Corporation Limited (CSD&C)

bring representatives from central securities depositories
around the world together and focus attention on joint

Tackling Standardization

tasks hinging on harmonization and globalization trends

Standardization of securities clearing and settlement isin the world’s financial and capital markets.

an important topic in every country, paralleling global-

PLANNED DISCUSSION TOPICS AT CSD9*

ization of financial and capital markets. JASDEC always● General panel discussion: “Harmonization and Globalization”

addresses system reform with changing standardization

Focus on interoperability vs. consolidation, CSD governance and the Hague Securities Convention.

in other countries in mind.
Specifically, we identify developments, such as● Independent sessions:recommendations issued by the Group of Thirty (G30),

1. Financing Cross-Border Trading:Current Issues and Future Assignments for DVP
2. Tax Harmonization:
Future Opportunities for International Tax Treaties
3. Corporate Action Processing:
Current Issues and Sources of New Business for CSDs
4. Business Continuity Plans in Risk Management:
Current Issues and Future Challenges—with Case Studies
5. Challenging New Business Opportunities for CSDs

the International Securities Services Association (ISSA)
and a joint report by the Committee on Payment andSettlement Systems (CPSS) and the International
Organization of Securities Commissions (IOSCO). We
constantly monitor our own systems and form decisions
on the direction of new services and improvements toexisting services, based on prevailing trends abroad.

*Please note that these topics are only some of the subjects that are being considered for discussion and that the actual agenda may
be significantly different.

11Corporate Governance

PRINCIPAL POLICY ON CORPORATE
GOVERNANCE
As Japan’s only central securities depository, JASDEC has
a social obligation to adhere to a basic management
responsibility that hinges on the creation of a highly
secure, efficient and convenient securities clearing and settlement infrastructure.
Consequently, our principal policy on corporate
governance requires us to undertake business activities
that satisfy the wide-ranging needs of clients who utilize
the Group’s systems, from participants—securities companies, financial institutions and other users of our bookentry transfer services—to investors, and to ensure thatthese activities are highly transparent and characterized byfairness and integrity. Moreover, as the organization
responsible for the infrastructure of securities clearing andsettlement in Japan, we must earn and uphold a solid reputation for reliability.

In principle, the Board meets once a month todecide basic management policies.

BOARD OF AUDITORS JASDEC maintains a corporate
auditor system. As of publication of the annual report,
the Board of Auditors comprises three members, two ofwhom are selected from eligible participants—one eachfrom a securities firm and a financial institution—and
all three auditors, including the standing auditor, areexternal auditors, in accordance with prevailing legislation.
The Board of Auditors meets once a month.
However, in line with auditing plans and the direction
established by the Board of Auditors, auditors will also
attend important meetings, including those of the Boardof Directors, and will execute audits of directors byassessing the status of services and assets to ascertain theeffectiveness of directors in executing respective duties.

A DDITIONAL COMMITTEES To accurately reflect theneeds of system users in our operations, we established

STATUS OF POLICY IMPLEMENTATIONMANAGEMENT STRUCTURE AND OTHER CORPORATE
GOVERNANCE SYSTEMS TO FACILITATE EXECUTIVEDECISION-MAKING, THE EXECUTION OF OPERATIONS AND
THE IMPLEMENTATION OF AUDITS

the Committee for Business Operations as a unit independent from other corporate structures, such as theBoard of Directors. This committee addresses pertinentissues related to the business of the Company, based on
queries from the Board of Directors, and assigns topics
to the eight subcommittees under its control.

Corporate Structures

These subcommittees are responsible for a spe-

BOARD OF DIRECTORS The Board of Directors com-cific segment of operations and each comprises mem-prises 18 members. A key requirement of the Board ofbers who are actually involved in these operations.

Directors is to demonstrate a suitably balanced

JASDEC applies results raised by each subcommittee toapproach to business, guided by wide-ranging perspec-

various operational issues that will facilitate early real-

tives, including user-oriented views as well as business-

ization of securities clearing and settlement systemoriented ideas on preserving operational neutrality andreform in Japan.

impartiality. To fully reflect the opinions of users in our

To foster greater operational transparency, JAS-business activities and to ensure discussions based on

DEC, when appropriate, posts summaries of these dis-fairness and integrity, 10 of the 13 external directors are

cussions and other information on its web site and on

selected from eligible participants in the Company, andthe book-entry portal for participants.

the remaining three external directors belong to a stock-

As a key instrument in the infrastructural devel-issuing company, academia and the legal profession.

opment of the securities market, we strive for an

Through such a functional system, all directors can be

extremely high level of fairness and integrity in our activ-

evaluated against their effectiveness in executing theirities. To this end, we established the Advisory

respective duties.

Committee, which enables the president to see the bigger
picture regarding the administration of a securities clear-

12Corporate Governanceing and settlement system by accessing the extensive

In regard to audits by corporate auditors, theknowledge of experts in financial and securities systems.

standing auditor routinely attends important meetings,

JASDEC DVP Clearing Corporation (JDCC), asuch as those of the Board of Directors and thewholly owned subsidiary, maintains a business philoso-

Executive Committee, comprising managing directors,

phy similar to that of JASDEC. JDCC set up the Com-and examines internal documents requiring executive

mittee for DVP Operations to study pertinent issues

approval. The standing auditor will also perform audits,regarding operations and works to reflect the needs ofin accordance with auditing plans and policies estab-users of the DVP settlement system for NETDs in its ser-lished by the Board of Auditors, and provide the othervices. In addition, the company provides JASDEC’s

corporate auditors with updates on the progress of such

Board of Directors with updates on issues deemed perti-

activities at the meeting of corporate auditors, which isnent by its own Board of Directors to ensure consistency

scheduled to take place monthly.

in the activities of the two companies.

Non-standing auditors attend Board of Directors’

A summary of other corporate governance sys-

meetings and check on the status of duties executed bytems and the business structure at JASDEC is presented

directors. They also assess the level of duties executed

below.

by directors, based on several sources, including updates
from the standing auditor on auditing activities.

Risk Management System
JASDEC assigns staff specifically to assist corpo-

The business activities of JASDEC will be further con-rate auditors in their audits.

centrated in accordance with the expansion of the scope

Corporate auditors also investigate accountingof certain operations, and, in order to mitigate the influ-

audits in close cooperation with the Company’s ac-

ence of further manifestation of business-related risk incounting firm. This effort includes hearing reports from

specific areas, we must make our risk management sys-

accounting auditors on auditing plans and the results oftem more efficient and well structured.

audits.

As the pillar of Japan’s securities clearing and set-

The certified public accountants who execute ourtlement infrastructure, we are pushing ahead with theaccounting audits are Hiroyuki Yamasaki and Tsutomu

implementation of a companywide risk management

Nobuta (designated partners under Article 34-10-4 ofsystem that includes the establishment of a risk manage-

the Certified Public Accountant Law). They are employedment committee, chaired by the president, as well as theby ChuoAoyama PricewaterhouseCoopers and execute

execution of system audits and the development of aaccounting audits, including checks of financial docu-

business continuity plan (BCP) for use in times of emer-ments, based on Article 2-1 of the old Law of Excep-

gency.

tional Provisions to the Commercial Code Concerning
the Audit, etc., of Stock Companies. Mr. Yamasaki andInternal Controls and Audits
by Corporate Auditors andthe Accounting Firm

Mr. Nobuta have audited JASDEC’s accounts for fiveconsecutive years and one year, respectively.
Five certified public accountants and five junior

JASDEC’s internal controls include reports to the Board

accountants help with accounting audit procedures.

of Directors, as necessary, that describe the activities of

No items of particular regard, such as serious

the Risk Management Committee, which regularly mon-irregularities or instances of illegal behavior, have beenitors the status of all types of risk. Reports are also pre-found.

pared on the status of improvements and progress
related to risk management and other aspects of risk
management within the Company.

13

Business Overview
For the the year ended March 31, 2006

BASIC DATA FOR STOCK CERTIFICATES
BOOK-ENTRY TRANSFER
Participants and Accounts
Participant firms open accounts at JASDEC and deposit the certificates they wish to consign. Such firms include securities companies, banks, trust banks, insurance companies, securities finance companies and stock exchanges.
As of the end of March 2006, the number of participants stood at 277, and the number of accounts stood at 471.
Stock exchanges
and others 16

PARTICIPANTS BY
CATEGORY(As of March 31, 2006)

NUMBER OF ACCOUNTS BY
CATEGORY

Securities financecompanies 3Life and non-life
insurance companies 7

Securities financecompanies 4(As of March 31, 2006)

Banks
38

Stock exchanges
and others 34

Life and non-life
insurance companies 9

Securities
companies 213

Securities
Banks 178 companies
246

Total 471

Total 277

Note: Clients of participant firms do not deposit certificates directly with JASDEC. Rather, they utilize JASDEC’s services through the accounts they establish atparticipant firms.

Issuing Companies
As of March 31, 2006, all listed companies in Japan, a total of 3,837 companies, have consented to JASDEC handlingtheir stocks.

Eligible Securities
ELIGIBLE SECURITIES (As of March 31, 2006)
Stocks281,914 million shares

Preferred investment securities

269,255 units

3,838 issues
1 issue

Beneficiary certificates of ETFs

1,627,248 thousand units

14 issues

Certificates of REITs

5,177,216 units

34 issuesCBs

1,689,287 million yen

146 issues

Note: JASDEC accepts securities described in the CSD Law. Consent of the issuing company is also a prerequisite. Currently, eligible securities are domestic
securities, including stocks, convertible bonds (corporate bonds with subscription warrants to new shares), convertible bond beneficiary certificates of
exchange-traded funds (ETFs), certificates of real estate investment trusts (REITs), and preferred investment bonds of financial institutions established bycooperative associations, which are listed on stock exchanges.

14

Business Overview

REVENUES BY OPERATION
Fiscal 2005 Review
Fiscal 2005, ended March 31, 2006, was characterized by brisk stock trading backed by economic recovery. In fiscal
2005 average daily stock trading volume at the Tokyo Stock Exchange exceeded 2 billion shares from September 2005
to February 2006. The JASDEC Group benefited from this environment as heightened stock-trading activity triggered
more account transfers through the Group’s securities depository and book-entry transfer systems. As a result, operating
income increased 14.4%, to ¥21,745.1 million, operating expenses decreased 1.2%, to ¥16,889.2 million, income fromoperations increased 154.0%, to ¥4,855.9 million, and net income increased 197.2%, to ¥3,121.3 million.

Book-Entry Transfer Services for Stock Certificates
Account Transfer Operations

The number of shares in the transfer account—that is, combined exchange trade and non-exchange trade deliveries(NETDs)—averaged 87.7 billion a month, primarily a reflection of stock trading levels that maintained their momentum
from the previous year. Consequently, income related to account transfer services, particularly services for stock certificates, corporate bonds with subscription warrants to new shares and ETF beneficiary certificates, increased 33.6%, to¥16,594.0 million

Custody Operations

The number of shares in custody as of March 31, 2006, were as follows: stock certificates at 281.9 billion shares, corporate bonds with subscription warrants to new shares at ¥1,689.2 billion, and ETF beneficiary certificates at 1,627
million units. From April 1, 2005, we reduced the basic premiums of custody fees related to stocks. As a result, income
related to custody operations, particularly services related to stock certificates, corporate bonds with subscription warrants to new shares and ETF beneficiary certificates, increased 5.5%, to ¥5.1 billion.

Handling of Shares(a) Deposits and Withdrawals
The withdrawals to deposits ratio settled at 16.7%,
as of March 31, 2006.

(Years ended March 31)

Number of Shares Deposited
Number of Shares Withdrawn
Withdrawals to Deposit Ratio

Billion shares

%

60

40

45

30

30

20

15

10

0

FY2001

FY2002

FY2003

FY2004

FY2005

53.2

33.7

34.9

45.8

30.7

10.5

9.6

7.4

6.9

5.1

19.8%

28.5%

21.4%

15.1%

16.7%

0

Note: The above ratios are calculated based on the number of shares deposited, excluding shares deposited by stock splits, and shares withdrawn, excluding shares by stock transfer and merger.

15

Business Overview(b) Custody
As of March 31, 2006, the number of shares in
JASDEC’s custody stood at 281,914 million shares

Billion shares
300

%
80

225

60

150

40

75

20

and represented 77.4% of all outstanding sharesissued by companies listed on stock exchanges inJapan.

0

FY2001

Custody Balance
Ratio of Custody Balance to Shares Issued in Japan
Ratio of Immobilized Shares in Custody

FY2002

FY2003

FY2004

FY2005

191.5

203.1

228.2

262.1

281.9

53.5%

58.1%

64.1%

71.7%

77.4%

49.9%

51.9%

56.3%

60.2%

61.5%

0

Note: Immobilized shares are shares in custody that have been replaced by jumbo certificates, based on set criteria, to reduce administrative costs associated with custody and minimize risks, such as the physical loss of stock certificates.

(c) Book-Entry Transfer
Of the number of shares transferred between
accounts by book-entry transfer in fiscal 2005, theBillion shares

%

800

80

600

60

400

40

200

20

number of shares pertaining to exchange tradetransfers represented 421,149 million and the number of shares pertaining to NETDs accounted for
632,401 million.
0

FY2001

FY2002

FY2003

FY2004

FY2005

308.9

355.0

442.7

514.0

632.4

219.1

225.7

311.9

338.6

421.1

58.5%

61.1%

58.7%

60.3%

60.0%

NETD Transfers
Exchanges Trade Transfers
Ratio of NETD Transfers to Total Transfers(d) Beneficial Shareholder Notification
In fiscal 2005, beneficial shareholder notification
services covered 571,785 million shares and 89,174

Million cases

0Billion shares

100

600

75

450

50

300

25

150

thousand cases.

0

Number of Cases
Number of Shares

16

FY2001

FY2002

FY2003

FY2004

FY2005

47.8

54.7

61.2

73.9

89.1

367.1

430.2

448.1

532.6

571.7

0

Business Overview

Other Securities Operations

An overview of other securities operations conducted during fiscal 2005 is presented below.
(a) Convertible Bonds (CBs) / Corporate Bonds
with Subscription Warrants to New Shares
Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues(Millions of yen)604,750
1,519,696
1,689,287
776,663
7,125,831
146(c) Preferred Investment Securities of Financial
Institutions
Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues(Number of units)
18,102
607
269,255
66,58866,3441(b) ETFs

Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues(Thousands of units)
958,135
1,038,982
1,627,248
2,286,079
9,237,727
14(d) REITs

Deposits
Withdrawals
CustodyBook-entry transfer
Exchange trade transfer
NETDs
Number of issues(Number of units)
1,805,869
78,247
5,177,216
4,394,310
7,745,723
34

Book-Entry Transfer Services for Other Certificates
Book-Entry Transfer Services for Corporate Bonds

A s of March 31, 2006, book-entry transfers for Corporate Bonds (which commenced on January 10, 2006) had
reached 7,055 issues, the account balance stood at ¥6,406.6 billion, and the number of transfers was 23,851. As aresult, income related to book-entry transfer services for Corporate Bonds reached ¥269.1 million.

Book-Entry Transfer Services for Commercial Paper

On March 31, 2003, JASDEC launched a book-entry transfer system for commercial paper (CP), in accordance with
the Law Concerning Book-Entry Transfer of Corporate Bonds, etc. Instead of CP in the conventional paper form—thepaper-based certificates that prevailed from issuance to redemption, including transfers—JASDEC’s system totally
dematerializes the certificates and records CP issuance, transfer and redemption electronically in JASDEC’s computerbased transfer account book, by adding issuance, transfer and redemption, respectively.
Since March 2003, the account balance has steadily expanded—a trend given further momentum when preferential tax treatment was terminated at the end of March 2005—and stood at ¥21,766.5 billion as of December 29,
2005. The switch from paper-based CP to dematerialized form is more or less complete.

17

Business Overview

As of March 31, 2006, book-entry transfer for commercial paper (CP) had been extended to 399 issuers, anincrease of 161 companies from a year earlier, and the number of issues reached 5,848, an increase of 4,534. The
account balance stood at ¥18,624.0 billion, up ¥13,760.7 billion, and the number of transfers reached 190,996, up
179,224. As a result, income related to book-entry transfer services for CP reached ¥281.7 million, up 406.2%.

CP Account Balance (Month-end)
Trillions of yen

8,000

18

6,000

12

4,000

6

2,000

0

Outstanding amount
Number of Issues

Number of Issues

24

FY
2002
0.01
3

FY
FY
Apr.
May
Feb.
Jun. Jul. Aug. Sept. Oct. Nov. Dec. Jan.
2003 2004 2005
2006
1.4
4.8
9.8 13.7 18.2 19.2 20.1 20.2 20.0 21.1 22.4 21.9
21.5
257 1,314 2,754 3,880 5,121 5,533 5,562 6,024 5,991 5,859 6,157 5,745 5,748

Mar.

0

18.6
5,848

DVP Settlement Services for NETDs

The number of transfers for DVP for NETDs reached an average of about 80,000 a day during fiscal 2005, which far
surpassed the approximately 60,000 of the previous fiscal year. As a result, income related to DVP settlement services
for NETDs amounted to ¥1,513.2 million, a 45.6% increase from a year earlier.

Pre-Settlement Matching Services

In fiscal 2005, as in fiscal 2004, stock trading was brisk, spurring use of JASDEC’s PSMS. Consequently, income related
to pre-settlement matching services amounted to ¥2,007.1 million, a 42.9% increase from a year earlier.

Other Services

Of other services, we made deposit fees related to stocks charge-free from October 2005. Mainly due to this, income
related to other services decreased 20.3%, to ¥2,702.5 million, in fiscal 2005

Pre-Settlement Matching System (PSMS) This central matching system automatically confirms the contents of trade and settlement, such as trade names/amounts, counterparties and account numbers.

Delivery versus Payment (DVP) This system simultaneously attaches specific conditions to the delivery of and payment for securities. International standards, recommended by the Group of 30 and other organizations, require the application of a DVP settlement system to all securities settlements to eliminate settlement risk

18Consolidated Balance Sheets
Japan Securities Depository Center, Inc.
As of March 31, 2005 and 2006

2005

2006

$ (thousands)(Note 4)2006

¥ 1,203,318
4,056,477
50,47054,570,594
266,278
60,147,137¥ 1,839,815
3,625,987
202,807
49,970,274
183,106
55,821,992$ 15,636
30,817
1,723
424,700
1,556
474,434

756,824
4,190,155
4,946,979(2,830,335)
2,116,644

776,667
4,138,412
4,915,079(3,163,263)
1,751,816

6,600
35,172
41,773(26,884)
14,8889,694,192
920,785
10,462
10,625,439

9,679,743
611,745
10,766
10,302,254

82,2685,199
91
87,559509,657
31,999154,948
696,604¥73,585,824

464,904
35,456140,958
641,320¥68,517,382

3,951
301
1,198
5,450
$582,333¥ 2,281,906
4,500,000
26,223
115,199
160,541
54,570,594
363,243
62,017,706¥ 1,826,047—
1,555,985
129,554240,382
49,970,274
302,698
54,024,942$ 15,519—
13,224
1,101
2,043
424,700
2,572
459,161

52,24955,260107,509
62,125,215—

79,50860,840140,348
54,165,290
—

675
517
1,192
460,354—

4,250,000
4,250,000
2,960,609
11,460,609¥73,585,824

4,250,000
4,250,000
5,852,092
14,352,092¥68,517,382

36,121
36,12149,737
121,979$582,333¥ (thousands)

AssetsCurrent Assets:
Cash and cash equivalents
Accounts receivable—trade
Deferred income taxes (Note 8)
Designated assets for clearing funds (Note 3)
Other current assets
Total Current Assets
Property and Equipment:
Buildings
Tools and furniture
Less: Accumulated depreciation
Total Property and Equipment
Intangible Assets, Net:
SoftwareConstruction in progress (software)
Other intangible assets
Total Intangible Assets
Investment and Other Assets:Long-term refundable lease deposits
Long-term prepaid expenses
Deferred income taxes (Note 8)
Total Investment and Other Assets
Total Assets

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable—trade
Short-term debt (Note 6)
Income taxes payable
Accrued employees’ bonuses
Consumption tax payable
Deposits received for clearing funds (Note 3)
Other current liabilities
Total Current Liabilities
Long-term Liabilities:
Accrued employees’ retirement benefits (Note 7)
Accrued executives’ retirement benefits
Total Long-term Liabilities
Total Liabilities
Minority Interest in Subsidiaries
Shareholders’ Equity:
Common stock
Authorized: 10,000 shares
Issued: 8,500 shares
Capital surplus
Retained earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
The accompanying notes are an integral part of these statements.

19

Consolidated Statements of Income
Japan Securities Depository Center, Inc.
For the years ended March 31, 2005 and 2006

2005

2006

$ (thousands)(Note 4)
2006

Operating Income¥19,003,966¥21,745,176$184,813

Operating Expenses:
Executives’ compensation
Salaries and bonuses
Severance costs for employees
Executives’ retirement benefits
Maintenance for systems
Outside services
Registration fees
Depreciation and amortization
Rent
Advertisement
OthersTotal Operating Expenses
Income from Operations

135,545
1,240,492
26,643
21,4104,871,921
2,688,531
2,302,067
3,923,948
290,398
463,429
1,127,454
17,091,838
1,912,128

142,293
1,433,418
39,86020,3704,734,433
2,539,628
2,202,171
3,732,944
416,600
420,613
1,206,912
16,889,247
4,855,929

1,209
12,182338
173
40,23821,584
18,716
31,726
3,540
3,574
10,257
143,542
41,270

34

0

0

478
77,617(65,616)(33,294)508—(31,457)(38,095)

4
—
(267)
(323)

(8,984)(55,038)(192,285)(27,923)588(304,423)
1,607,705(9,609)(35,548)(6,445)—226(120,420)
4,735,509

(81)
(302)
(54)
—
1
(1,023)40,247

602,519(45,058)¥ 1,050,244

1,752,475(138,348)¥ 3,121,382

14,894(1,175)$ 26,528¥ (thousands)

Other Income (Expenses):
Interest income
Operational revenue on the designated assets
for clearing funds
Adjustments for prior year consumption taxes
Interest expenses
Commitment fees
Fees for fund operation of designated assets
for clearing funds
Loss on disposal of property and equipment
Loss on disposal of intangible assets
Cancellation fee for system operations
Others, net
Total
Income before Income Taxes
Income Taxes (Note 8)
Current
Deferred
Net Income

U.S. dollars(Note 4)Yen

Per Share (Note 11):Net income—primary
Dividends
Weighted-average number of common stock shares
outstanding (in shares)
The accompanying notes are an integral part of these statements.

20¥121,511.06
25,000¥365,197.98
35,000$3,103.84
297.46

8,500

8,500

—

Consolidated Statements of Shareholders’ Equity
Japan Securities Depository Center, Inc.
For the years ended March 31, 2005 and 2006
¥ (thousands)

Balance as of March 31, 2004
Net income for the year
Cash dividends
Bonuses to executives
Balance as of March 31, 2005
Net income for the year
Cash dividends
Bonuses to executives
Balance as of March 31, 2006

Number ofcommon stock
sharesCommonstock

CapitalsurplusRetainedearnings

Total
shareholders’equity

8,500
—
—
—
8,500
—
—
—
8,500

¥4,250,000———
4,250,000———¥4,250,000¥4,250,000———
4,250,000———¥4,250,000¥2,136,565
1,050,244(212,500)(13,700)
2,960,609
3,121,382(212,500)(17,400)¥5,852,092¥10,636,565
1,050,244(212,500)(13,700)
11,460,609
3,121,382(212,500)(17,400)¥14,352,092$ (thousands) (Note 4)

Balance as of March 31, 2005
Net income for the year
Cash dividends
Bonuses to executives
Balance as of March 31, 2006

Number ofcommon stock
sharesCommonstock

CapitalsurplusRetainedearnings

Total
shareholders’equity

8,500
—
—
—
8,500

$36,121———$36,121$36,121———$36,121$25,162
26,528(1,806)(147)$49,737$ 97,404
26,528(1,806)(147)$121,979

The accompanying notes are an integral part of these statements.

21

Consolidated Statements of Cash Flows
Japan Securities Depository Center, Inc.
For the years ended March 31, 2005 and 2006
¥ (thousands)
2005

2006

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Increase in accrued employees’ bonuses
Increase in accrued employees’ retirement benefits
Increase in accrued executives’ retirement benefits
Interest income
Interest expense
Loss on disposal of property and equipment
Loss on disposal of intangible assets(Increase) decrease in accounts receivable—trade
Increase (decrease) in accounts payable—trade
Decrease (increase) in other assets
Increase in other liabilities
Others, net
Sub-totalInterest and dividends received
Interest paid
Income taxes paid
Income taxes refund
Net Cash Provided by Operating Activities¥ 1,607,705
3,923,948
14,524
19,386
12,090(34)
65,61655,038
192,285(253,428)
435,044
3,308
122,028(13,697)
6,183,813
34(64,009)(1,327,274)—
4,792,564¥ 4,735,509
3,732,944
14,35527,2595,580(0)31,45735,5486,445
430,490(455,858)(15,916)
136,111(17,400)
8,666,527
0(18,151)(257,216)
76,412
8,467,571$ 40,247
31,726
122
231
47
(0)
267
302
54
3,658
(3,874)
(135)
1,156
(147)
73,6570(154)(2,186)649
71,966

Cash Flows from Investing Activities:
Payments for purchases of property and equipment
Payments for purchases of intangible assets
Payment of guarantee money deposits received
Proceeds from refund of guarantee money deposits
Net Cash Flows Used in Investing Activities(1,130,647)(3,394,399)(85,037)—(4,610,083)(255,017)(2,908,309)(19,399)
64,151(3,118,574)(2,167)(24,717)(164)
545(26,504)

Cash Flows from Financing Activities:
Proceeds from short-term debt
Repayment of short-term debt
Cash dividends paid
Net Cash Flows Used in Financing Activities

1,000,000(1,500,000)(212,500)(712,500)—(4,500,000)(212,500)(4,712,500)—(38,245)(1,806)(40,051)

Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year

(530,019)
1,733,337¥ 1,203,318

636,497
1,203,318¥ 1,839,815

5,409
10,227$ 15,636

The accompanying notes are an integral part of these statements.

22$ (thousands)(Note 4)2006

Notes to the Consolidated Financial Statements
Japan Securities Depository Center, Inc.

1.
Basis of Presenting the Consolidated Financial Statements

The accompanying consolidated financial statements have been prepared from the accounts maintained by Japan
Securities Depository Center, Inc (“the Company”) and its subsidiary in accordance with the provisions set forth in the
Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International Finance ReportingStandards. Certain items presented in the consolidated financial statements filed with the Director of the Kanto Local
Finance Bureau in Japan have been reclassified for the convenience of readers outside Japan.

2.
Summary of Significant Accounting Principles(1) Consolidation
The consolidated financial statements include the accounts of Japan Securities Depository Center, Inc. and its
wholly-owned subsidiary, JASDEC DVP Clearing Corporation (hereafter, “JDCC”) which is the only subsidiary of
the Company. JDCC uses a fiscal year ended on March 31, which is the same as that of the Company.
(2) Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments, with original maturities of three months or less,which are readily convertible to known amounts of cash and are so near maturity that they present only an
insignificant risk of changes in value because of changes in interest rates. Cash and cash equivalents in consolidated balance sheets and consolidated statement of cash flows are identical in the financial statements.
(3) Property and equipment
Depreciation for buildings, excluding improvements, is computed on the straight-line method using the estimateduseful lives prescribed by Japanese Corporate Tax Laws. Depreciation for other capital assets is computed on the
declining-balance method at the rates based on the estimated useful lives prescribed by such laws.
(4) Software cost
Costs of software for internal use are capitalized and amortized on the straight-line method over the estimated useful life of five years.
(5) Accrued bonuses
Accrued employees’ bonuses represent liabilities estimated as of the balance sheet date. Bonuses to directors,
which are subject to approval at the shareholders’ meeting, are accounted for as an appropriation of retained
earnings.
(6) Severance indemnity benefits
The Company has a severance indemnity plan covering all employees who meet the eligibility requirements of theCompany’s retirement regulations. The Company records accrued employees’ retirement benefit costs based on theamount that would be payable if all eligible employees voluntarily terminated their employment with the Company
at the balance sheet date.
Retirement benefits payable to directors and statutory auditors are accrued as accrued executives’ retirement
benefits at the amount computed based on the Company’s internal rules and regulations on these benefits.
(7) Finance leases
In the normal course of business, the Company enters into lease agreements. Finance lease agreements, except for
those agreements where the ownership of the leased assets is transferred to the Company, are accounted for as
operating leases.
(8) Accounting standard for impairment of non-current assets
On August 9, 2002, the Business Accounting Council in Japan issued “Accounting Standard for Impairment of
Non-current Assets”. The standard requires that non-current assets be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of assets may not be recoverable. An impairment loss isrecognized in the income statement by reducing the carrying amount of impaired assets or a group of assets to the23Notes to the Consolidated Financial Statements

recoverable amount to be measured as the higher of net selling price and value in use. However, earlier adoption
was permitted for fiscal years beginning April 1, 2004 and for fiscal years ending between March 31, 2004 andMarch 30, 2005. The Company has applied this new standard as well as “Guidance for Accounting Standards for
Impairment of Non-current Assets” (the Accounting Standards Board of Japan issued Financial AccountingStandards Implementation Guidance No. 6, October 31, 2003) for the fiscal year ended March 31, 2006. The
Company’s profit and loss are not influenced by this standard.
(9) Consumption taxes
The consumption taxes withheld by the Company and its subsidiary on sales and the consumption taxes paid by
the Company and its subsidiary on its purchases of goods and services are not included in the amounts of the relevant accounts in the accompanying statements of income. The consumption taxes withheld and paid are recorded
as an asset or a liability, as the case may be, and the net balance is shown in the balance sheets.
(10) Appropriation of retained earnings
Under the Japanese Commercial Code and the Articles of Incorporation of the Company, the appropriation ofretained earnings (including year-end cash dividend payments proposed by the Board of Directors) must be
approved at the shareholders’ meeting, which must be held within three months of the end of each financial year.
The appropriation of retained earnings reflected in the accompanying consolidated financial statements represents
the results of appropriations which were applicable to the immediately preceding financial year, approved at theshareholders’ meeting and disposed of during that year. Year-end cash dividends are paid to shareholders on theshareholders’ register at the end of each financial year.
The payment of bonuses to directors and statutory auditors is made out of retained earnings instead of being
charged to income for the year, and constitutes a part of the appropriations cited above.

3.
Assets and Liabilities Held for Sound Settlement System Operation and Management

In order to secure the Delivery Versus Payment (“DVP”) for Non-Exchange Transaction Deliveries (“NETDs”) settlement
system, JDCC, a consolidated subsidiary of the Company, receives cash or securities as collateral from the DVP participants whom JDCC officially acknowledge as a party who undertakes securities obligations in accordance with the provisions set in JDCC’s general provisions in accordance with Article 156, Paragraph 7-1, of the Securities Exchange Law(Law No. 25, 1948).
JDCC manages cash and securities entrusted by the DVP participants as clearing funds defined in Article 156-11 of
the Securities Exchange Law separately from other assets in accordance with Article 7 of the cabinet ordinance related tosecurities clearing agencies (Cabinet Ordinance No. 76, 2002).
(1) Participant fund specified assets and participant funds under management
Under the DVP for the NETDs settlement system, when JDCC accepts obligations from DVP participants, the DVP
participants involved in the transactions make JDCC responsible for payment obligations and the content thereof.
JDCC requires each DVP participant to establish a participant fund in excess of the necessary amount set forth
in JDCC’s general provisions to ensure that the respective obligations of DVP participants are covered. The aggregate amount of participant funds entrusted to JDCC as of March 31, 2005 and 2006 was ¥15,000 million ($127
million). In the event a DVP participant defaults on the required payment obligations of the DVP for the NETDs
settlement system, JDCC shall take deposits from the participant fund of this DVP participant to fulfill its obligations to other DVP participants.
The participant funds entrusted to JDCC will be managed as money trusts, in line with the stated general provisions of JDCC.
The evaluation technique applied to money trusts will be the cost basis for investments with no market value, a
process corresponding to that used for other marketable securities.
Assets and liabilities pertaining to participant funds are expressed as line items for this purpose, with assets
indicated as designated assets for clearing assets, and liabilities indicated as deposits received for clearing funds.

24Notes to the Consolidated Financial Statements(2) Collateral securities
Under the DVP for the NETDs settlement system, DVP participants are able to entrust marketable securities listed
in JDCC’s general provisions (hereafter, “collateral securities”) to ensure that obligations to JDCC are met.
When a DVP participant fails to meet its obligations to JDCC, JDCC is authorized to dispose of the entrusted
collateral securities by selling them in securities markets or through other methods deemed appropriate by JDCC.
As of March 31, 2005 and 2006, the market value of collateral securities entrusted to JDCC was ¥128,125,806
thousand and ¥140,341,857 thousand ($1,192,774 thousand), respectively.

4.
US Dollar Amounts

Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥117.66=U.S.$1,
the rate of exchange as of March 31, 2006, has been used in translation. The inclusion of such amounts is not intended
to imply that Japanese yen have been or could be readily converted, realized or settled in U.S. dollars at this or any
other rate.

5.
Lease Transactions

Finance lease transactions, other than those in which the ownership of the leased asset is transferred to the lessee, areaccounted for as operating leases. Certain key information (in equivalent data) on such lease contracts of the Company
for the periods ended March 31, 2005 and 2006 is as follows:¥ (thousands)

Tools and furniture:
Acquisition cost
Accumulated depreciation
Net book value$ (thousands)

2005

2006

¥265,068(97,836)¥167,232¥ 267,272(148,786)¥ 118,486

2006$ 2,271(1,264)$ 1,007

The scheduled maturities of future lease payments, including the portion of interest thereon, on such lease contracts as of March 31, 2005 and 2006 are as follows:¥ (thousands)

Due within one year
Due over one year
Total

$ (thousands)

2005

2006

¥ 52,469
117,128¥169,597¥ 54,803
66,247¥121,050

2006

$ 465
563
$1,028Finance lease charges as well as depreciation and interest amounts (in equivalent data) for the years ended March
31, 2005 and 2006 are as follows:¥ (thousands)

Finance lease charges
Depreciation (in equivalent data)
Interest (in equivalent data)$ (thousands)

2005

2006

¥55,80153,5933,140¥56,132
53,909
2,421

2006

$477
458
20

(Note) Methods applied in computation of the equivalent data are as follows:
Depreciation: Straight-line method with zero residual value over the lease contract period.
Interest: Computed as the difference between the lease obligations and the acquisition cost, allocated for the lease contract period based on theinterest rate method.

25

Notes to the Consolidated Financial Statements

6.
Debts and Other Borrowings

Short-term debts at March 31, 2005 comprised loans from banks with a weighted-average interest rate of 1.675% perannum. The Company does not have any debts or borrowings for the year ended March 31, 2006.

7.
Accrued Severance Indemnities for Employees

Accrued employees’ retirement benefits at March 31, 2005 and 2006 represented the amount that would be payable for
the Company if all eligible employees voluntarily terminated their employment at the balance sheet date. Severance
costs for employees charged to income for the year ended March 31, 2006 amounted to 39,860 thousand yen (338thousand U.S. dollars). Severance costs for employees charged to income for the year ended March 31, 2005 amounted
to 26,643 thousand yen. In addition to the existing lump-sum retirement allowance plan, the Company has adopted adefined contribution pension plan for the year ended March 31, 2006.

8.
Income Taxes

The Company and its subsidiary are subject to a number of different income taxes which, in the aggregate, indicate anominal statutory tax rate in Japan of approximately 40.6% for the period ended March 31, 2005 and 2006.
Reconciliation between the nominal statutory income tax rate and the effective income tax rate in the consolidated statements of income for the years ended March 31, 2005 and 2006 is as follows:
Nominal statutory income tax rate
Adjustments:
Permanent non-deductible difference
Equal proportion of inhabitant taxes
Income tax credit on investment in IT
Other, net
Effective income tax rate

2005

2006

40.6%

40.6%

0.3
0.3
(6.9)
0.4
34.7%

0.2
0.1
(7.0)
0.1
34.1%

¥ (thousands)

Deferred tax assets:
Accrued bonuses
Enterprise tax payable
Unpaid social insurance premiums
Business facility tax
Accrued retirement benefits to employees
Accrued retirement benefits to executives
Excess depreciation of fixed assets
Excess deferred asset depreciation for tax purposes
Other
Deferred tax assets$ (thousands)

2005

2006

¥ 46,936(5,421)
6,275
2,681
21,21322,43588,624
22,572103¥205,418¥ 52,599
140,503
6,569
3,135
32,28024,701
66,195
17,781—¥343,765

2006

$ 447
1,194
55
26
274
209
562
151
—
$2,921

9.
Segment Information(1) Business segment
The Company operates a single business unit, the central securities custody and book-entry transfer system.
(2) Geographic information
The Company has no overseas consolidated subsidiaries and no overseas branches for the years ended March 31,
2005 and 2006.
(3) Overseas sales
The Company does not have any overseas sales for the years ended March 31, 2005 and 2006.
26

Notes to the Consolidated Financial Statements

10.
Related Party Transactions

The material transactions of the Company with related companies or individuals, excluding transactions with the consolidated subsidiary that are excluded from the consolidated financial statements, and other than those disclosed elsewhere in these financial statements, for the years ended March 31, 2005 and 2006 are as follows:(1) Directors
As of March 31, 2005
TitlesName

Director

Director

Toshitsugu Shimizu(Note 1)

Fumiyuki Akikusa

Transactions

AmountDirector of the Company,
President and CEO of Japan
Securities Settlement &Custody, Inc.

Outsourcing(Note 1)

¥2,499,104

Use ofequipment(Note 1)
Director of the Company,
Repayment ofManaging Director of The
borrowings
Bank of Tokyo–Mitsubishi, Ltd. Interest on
borrowings(Note 2)
Short-termborrowing
Interest(Note 2)

¥71

—

—

¥645,000——¥2,693——¥430,000

Short-term
debt
Prepaidinterest¥1,925,000¥315

Account¥ (thousands)Ending balance

Business

Account
payable—trade¥337,704¥5,918Notes: 1. The transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. Terms and conditions(1) These amounts include transactions with Japan Securities Settlement & Custody, Inc. (JSSC) for the period from April 1, 2004 to
March 31, 2005.
(2) The terms and conditions of the above transactions are on an arm’s-length basis.
(3) Interest on borrowing is determined based on the market interest rate from banks.
As of March 31, 2006
TitlesName

Director

Director

Toshitsugu Shimizu(Note 1)

Fumiyuki Akikusa

Business

Transactions

AmountDirector of the Company,
President and CEO of Japan
Securities Settlement &Custody, Inc.

Outsourcing(Note 1)¥2,357,861($20,039
thousand)¥63($0.5
thousand)¥7,243($61
thousand)¥3,744($31
thousand)

Use ofequipment(Note 1)
Director of the Company,
Interest on
Managing Director of The
borrowings
Bank of Tokyo–Mitsubishi, Ltd. (Note 2)
Interest(Note 2)

Account¥ (thousands)Ending balance

Account
payable—trade—

Short-term
debt—¥88,369($751
thousand)—¥1,925,000($16,360
thousand)—

Notes: 1. The transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. Terms and conditions(1) These amounts include transactions with Japan Securities Settlement & Custody, Inc. (JSSC) for the period from April 1, 2005 to
March 31, 2006.
(2) These amounts include transactions for the period from April 1, 2005 to June 21, 2005 because Fumiyuki Akikusa resigned from theBoard of Directors of the Company, and ending balance is the amount as of June 21, 2005.
(3) The terms and conditions of the above transactions are on an arm’s-length basis.
(4) Interest on borrowing is determined based on the market interest rate from banks.

27

Notes to the Consolidated Financial Statements(2) Principal shareholder and its subsidiaries
As of March 31, 2005

¥ (thousands)

Principal
business

Relationship
Percentage
Directors Businessof ownership holding
relationshipwith voting
concurrent
right
positions

Name of company

Address

Capital

Tosho System
Service Co.
(Subsidiary ofother affiliates)

Koto-ku,Tokyo

100,000 Design &development ofsoftware——Japan Securities
Clearing Corporation(Subsidiary ofother affiliates)
Japan Securities
Settlement &Custody, Inc.
(Subsidiary ofother affiliates)

Chuo-ku, 1,700,000 ClearingTokyo
securities

—

Three

Chuo-ku,
Tokyo

—

One

300,000 Custody &settlementof securities

Amount oftransactions(Note 1)

Transactions

Descriptions(Note 2)Endingbalance

Purchase of Outsourcing ¥1,325,628 Trade account ¥123,467
softwarepayablePurchase of¥942,028 Other account ¥151,438
softwarepayableCommission Commission ¥3,536,034 Trade account ¥647,525
incomeincomereceivable

Outsourcing Outsourcing ¥2,499,104

Trade account ¥337,704
payable¥71 ——Use ofequipment

Notes: 1. These transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. The terms and conditions of the above transactions are on an arm’s-length basis.
As of March 31, 2006

¥ (thousands)

CapitalPrincipal
business

Relationship
Percentage
Directors Businessof ownership holding
relationshipwith voting
concurrent
right
positions

Amount oftransactions(Note 1)Endingbalance

Address

Japan Securities
Clearing Corporation(Subsidiary ofother affiliates)
Japan Securities
Settlement &Custody, Inc.
(Subsidiary ofother affiliates)

Chuo-ku, 1,700,000 ClearingTokyo
securities

—

Three

Commission Commission ¥4,656,889 Trade account ¥564,292
incomeincome($39,579 receivable($4,795
thousand)thousand)

Chuo-ku,
Tokyo

—

One

Outsourcing Outsourcing ¥2,357,861 Trade account ¥88,369($20,039 payable($751
thousand)thousand)
Use of¥63 ——equipment($0.5
thousand)

300,000 Custody &settlementof securities

Descriptions

Descriptions(Note 2)Name of company

Notes: 1. These transaction amounts above exclude consumption tax. However, ending balance includes consumption tax.
2. The terms and conditions of the above transactions are on an arm’s-length basis.

11.
Net Income per Share

The basis for calculating earnings per share for the years ended March 31, 2005 and 2006 is as follows:¥ (thousands)

Net income as reported in the consolidated statements of income
Directors’ bonuses through the appropriation of retained earnings
Net income pertaining to common stock shareholders
Weighted-average number of common stock shares
outstanding (in shares)$ (thousands)

2005

2006

¥1,050,244
17,400¥1,032,844¥3,121,382
17,200¥3,104,182$26,528146$26,382

2006

8,500

8,500

—

12.
Subsequent Events

Appropriations of retained earnings:
Appropriations of retained earnings are recorded in the accounts only after shareholders’ approval has been obtained.
The following appropriation of retained earnings of the Company for the year ended March 31, 2006 was approved at
the Ordinary General Shareholders Meeting held on June 20, 2006:
Cash dividends
Bonuses to executives(Including bonuses to statutory auditors amounting to 2,900 thousand yen (24 thousand U.S. dollars))28¥ (thousands)$ (thousands)¥297,500
17,200$2,528146

Report of Independent Auditors

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
JAPAN SECURITIES DEPOSITORY CENTER, INC.

We have audited the accompanying consolidated balance sheets of Japan Securities Depository Center, Inc. and its subsidiary as of March 31, 2005 and 2006, and the related consolidated statements of income, shareholders’ equity, andcash flows for the years then ended, all expressed in Japanese Yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Japan Securities Depository Center, Inc. and its subsidiary as of March 31, 2005 and2006, and the consolidated results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth in Note 4 to the accompanying consolidated financial statements.

ChuoAoyama PricewaterhouseCoopers
Tokyo, Japan
June 20, 200629

Board Members and Auditors
As of June 30, 2006

BOARD OF DIRECTORSPRESIDENT & CEO

MANAGING DIRECTOR

Yoshinobu Takeuchi

Shoji Murata

President, JASDEC DVP
Clearing Corporation

MANAGING DIRECTORMANAGING DIRECTOR

Shigeru Omae

Seikichi Ihara

Yoshinori Seyama

Managing Director,
JASDEC DVP Clearing
Corporation

Managing Director,
JASDEC DVP Clearing
Corporation

Managing Director,
JASDEC DVP Clearing
Corporation

DIRECTORDIRECTORDIRECTOR

Kunihisa Hama

Takaaki Hatabe

Junichi Kitamura

LawyerDirector, Deputy President
Executive Officer, The Sumitomo
Trust & Banking, Co., Ltd.

Managing Director,
Head of Operations,
Nikko Citigroup Limited

DIRECTORDIRECTOR

Shigeyuki Maeda

Eisuke Marumori

Kiichiro Masui

Professor of Law, Professional School of
Law (Law School), Professional Course
in Law, Gakushuin University

Managing Executive Officer,
Mizuho Trust & Banking,Co., Ltd.

Vice-Chairman,
Japan Securities Dealers
Association

DIRECTOR

30

MANAGING DIRECTORBoard Members and Auditors

DIRECTORDIRECTORDIRECTORDIRECTOR

Kenichi Miki

Koichiro Miyahara

Miyuki Nagahara

Akira Naito

Executive Officer,
Daiwa Securities SMBC
Co., Ltd.

Executive Officer,
Tokyo Stock Exchange, Inc.

Executive Director,
Head of Operations,UBS Securities Japan Ltd

Managing Executive Officer,
The Bank of Tokyo-Mitsubishi
UFJ Ltd.

DIRECTORDIRECTORDIRECTOR

Masaru Takei

Shinichiro Tanaka

Yusuke Yamada

Executive Officer, Tokyo
Electric Power Company

Managing Executive Officer,
Mizuho Corporate Bank, Ltd.

Executive Managing Director,
Nomura Securities Co.,Ltd.

AUDITORSSTANDING AUDITOR

AUDITOR

AUDITOR

Michio Sakai

Takeshi Kusakabe

Koichi Miyata

Auditor,JASDEC DVP Clearing
Corporation

Advisor,
Shinko Securities Co., Ltd.

Director and Deputy Head ofTreasury Unit, Sumitomo
Mitsui Banking Corporation

31

History

May 1984

The Law Concerning Central Securities Depository and Book-Entry Transfer of Stock Certificates and Other
Securities (CSD Law) was passed, and enforced in November 1984.

Dec. 1984

Japan Securities Depository Center (JASDEC) was founded as a not-for-profit foundation under a permit grantedby the Minister of Finance and the Minister of Justice (competent ministers).

May 1985

JASDEC was designated as a depository under the CSD Law by the competent ministers.

Oct. 1991

JASDEC began offering its depository services for stocks listed on the Tokyo Stock Exchange.

Jun. 1993

The U.K. Securities and Futures Authority approved JASDEC as an eligible foreign custodian.

Aug. 1993

The U.S. Securities and Exchange Commission issued a no-action letter to exempt JASDEC from Section 17(f) of
the Investment Company Act of 1940 and Rule 17f-5(c)(2)(iii).

Jun. 1997

The Association of German Banks approved JASDEC as an eligible foreign custodian.

Sep. 2000

JASDEC constructed a back-up center in Osaka.

May 2001

JASDEC launched its system for delivery versus payment (DVP) settlement of exchange trades in Tokyo andOsaka.

Sep. 2001

JASDEC implemented the Pre-Settlement Matching System (PSMS) for domestic trades by domestic institutional
investors.

Jan. 2002

Japan Securities Depository Center, Inc., was established.

Jun. 2002

All central custody and book-entry transfer business was transferred to the new, incorporated entity and theformer entity was dissolved.
The Association of German Banks approved the new incorporated entity as an eligible foreign custodian.

Jan. 2003

The Law Concerning Book-Entry Transfer of Corporate Bonds, etc. became effective and JASDEC was designatedas a transfer institution under the law.

Mar. 2003

JASDEC launched the Securities Information Tracing System (SITRAS) for lost stocks.
JASDEC inaugurated its Commercial Paper book-entry system.

32

Jun. 2003

JASDEC established JASDEC DVP Clearing Corporation (JDCC) to undertake clearing services related to DVP settlement services for non-exchange transaction deliveries (NETDs).

Aug. 2003

JASDEC signed a memorandum of understanding with The Depository Trust & Clearing Corporation of theUnited States.

Apr. 2004

JDCC acquired a licence for a securities clearing agency, enabling it to undertake securities obligations.

May 2004

JASDEC commenced DVP settlement services for NETDs.

June 2004

The Law for partial amendments to the Law concerning Book-entry Transfer of Corporate Bonds and other
Securities for the purpose of streamlining the settlement for trades of stocks and other securities waspromulgated.

Nov. 2004

JASDEC signed a memorandum of understanding with Taiwan Securities Central Depository Co., Ltd. (currently
Taiwan Depository & Clearing Corporation (TDCC)).

Feb. 2005

JASDEC signed a memorandum of understanding with Korea Securities Depository (KSD).

Jun. 2005

JASDEC signed a memorandum of understanding with China Securities Depository and Clearing Corporation
Limited (CSD&C).

Nov. 2005

JASDEC and Japan Securities Settlement & Custody, Inc. (JSSC) jointly hosted the 9th General Meeting of the
Asia-Pacific CSD Group in Tokyo.

Jan. 2006

JASDEC inaugurated its book-entry transfer system for Corporate Bonds.

Apr. 2006

JASDEC inaugurated its depository and book-entry transfer system for foreign stocks.

Corporate Information
As of June 30, 2006

Contents
1 Financial Highlights
2 President’s Message

Revenues by Operations
Year ended March 31, 2006

4 Rapid Progress in Dematerialization

Other services¥2,702 million

11 International Activities
Pre-settlement matching services¥2,007 million

12 Corporate Governance
14 Business Overview
19 Financial Statements

DVP settlement services for NETDs¥1,513 million

29 Report of Independent Auditors

Bonds

30 Board Members and Auditors

Book-entry transfer for CP¥281 million
Book-entry transfer for
Corporate Bonds¥269 million

32 History
33 Corporate Information
33 Organization Structure

Custody¥5,167 million

COMPANY NAME:

Japan Securities Depository Center, Inc.

DATE OF INCORPORATION:

January 4, 2002

DATE OPERATIONS BEGAN:

June 17, 2002

CAPITAL:¥4.25 billion (shareholders’ equity ¥11.4 billion)

COMMON STOCK ISSUED:

8,500 shares

NUMBER OF SHAREHOLDERS:

189

NUMBER OF EMPLOYEES:

140 (As of March 31, 2006)REGISTERED HEAD OFFICE

1-1, Nihombashi-Kayaba-cho 2-chome
Chuo-ku, Tokyo 103-0025, Japan

Book-entry transfer¥16,594 million

Phone:

Facsimile: +81-3-3661-2810

EquityEstablished
December 6, 1984

January 4, 2002

The Japan Securities
Depository Center(JASDEC) established as a
not-for-profit foundationin line with the November
1984 enforcement of the
Law Concerning Central
Securities Depository andBook-Entry Transfer ofStock Certificates andOther Securities (the“CSD Law”).

The Japan Securities
Depository Center, Inc.,
incorporated as a stockcompany.

Our Mission
In view of our duty to serve the public, our mission asa group is to provide a highly secure, efficient andeasy-to-use infrastructure for securities clearing andsettlement, which in turn contributes to functional
improvement of the securities market.
Toward this end, we seek to establish a bookentry transfer system for investment trusts, and torespond more extensively to the dematerialization ofstock certificates as this process continues to unfold inJapan. We will also complement efforts to encourage
greater use of the book-entry transfer systems for commercial paper (CP) as well as Corporate Bonds* withefforts to promote straight-through processing (STP),
the enhancement of the pre-settlement matching system (PSMS) for wider use of depository services forstock certificates, and more extensive application of
the DVP settlement system for NETDs.
To achieve these goals, we will build andreplace systems, in line with our medium-term management plan, and strive to cement a stronger foundation for improved stability and reliability in ourbusiness activities. We will also endeavor to make ourservices more convenient for overseas investors using
our clearing and settlement systems, and we will reinforce ties with international counterparts to foster
cooperation mutually beneficial to both sides.

June 17, 2002
Assumed all thebusinesses of the Japan
Securities Depository
Center, in accordance with
the CSD Law.

October 9, 1991

June 6, 2003

Commenced business asJapan’s only central
securities depository forstock certificates.

Established JASDEC DVP
Clearing Corporation(JDCC) to undertake
clearing services related tothe delivery-versuspayment (DVP) settlement
system for non-exchangetransaction deliveries(NETDs).

E-mail:international@jasdec.com

Website:http://www.jasdec.com

OPERATIONS OFFICESTokyo Office:Corporate
Structure+81-3-3661-0139

1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Osaka Office:6-10, Kitahama 1-chome, Chuo-ku, Osaka 541-0041

Nagoya Office:3-17, Sakae 3-chome, Naka-ku, Nagoya 460-0008

Fukuoka Office:14-2, Tenjin 2-chome, Chuo-ku, Fukuoka 810-0001

Sapporo Office:14-1, Minamiichijo-Nishi 5-chome, Chuo-ku, Sapporo 060-0061

SUBSIDIARY COMPANY
Company Name:JASDEC DVP Clearing Corporation

Date of Incorporation:

June 6, 2003

Commenced Operations: May 17, 2004
Capital:¥310 million

Registered Head Office:1-1, Nihombashi-Kayaba-cho 2-chome, Chuo-ku, Tokyo 103-0025

Organization Structure(As of June 30, 2006)● M EETING OF S HAREHOLDERS● B OARD OF A UDITORS● B OARD OF D IRECTORS● P RESIDENT & CEO● General Administration Department● Corporate Planning Department● Business Administration Department● Bond and Commercial Paper Department● Investment Trust Department● Global Business Development● Business Planning Department● First System Department● Second System Department* “Corporate Bonds” in this report refers to bonds covered by the book-entry transfer system for Corporate Bonds, i.e., corporate bonds, municipal bonds,
investment company bonds, specified corporate bonds prescribed in the Law Concerning Liquidization of Assets, rights that should be represented bybond certificates issued by corporations under a special law and rights that should be represented on bond certificates issued by any governments or bycompanies in foreign countries (excluding those with the characteristics of bonds with subscription rights), such as Samurai bonds and Shogun bonds,
while “corporate bonds” is used to denote corporate bonds only.

bb● Tokyo Operations Office● Osaka Operations Office● Nagoya Operations Office● Fukuoka Operations Office● Sapporo Operations Office

33

Japan Securities Depository Center, Inc.

Annual Report
2006
For the year ended March 31, 2006
Printed in Japan on recycled paper
Uses soybean ink inconsideration of the environment