Securities Finance
ANNUAL REPORT 2018

PROFILE
Growing in step with the securities industry and supporting
its future development
In June 1951, Japan Securities Finance Co., Ltd. (JSF) launched its loaning operations,dealing with funds and stock certiﬁcates needed by securities companies for delivery andsettlement of margin transactions.
This margin loan business can be transacted solely by securities ﬁnance companies
licensed in accordance with the Financial Instruments and Exchange Law.
As Japan’s largest securities ﬁnance company designated by the Tokyo, Sapporo, andFukuoka Stock Exchanges, JSF is contributing signiﬁcantly to improving the fairness ofstock price formation and liquidity of stocks in the secondary equity markets.

CONTENTS
Financial Highlights ･･･････････････････････････････････････････････････････････････････････････････････････ 2
Message From The President ･ ･･････････････････････････････････････････････････････････････････････････ 4
Business Review ･ ･･･････････････････････････････････････････････････････････････････････････････････････････ 5Management Policy ･･････････････････････････････････････････････････････････････････････････････････････ 10
Our Business Development ････････････････････････････････････････････････････････････････････････････ 14
Our Business Field ････････････････････････････････････････････････････････････････････････････････････ 15
Corporate Governance ･･････････････････････････････････････････････････････････････････････････････････ 22
Risk Management ･ ･･･････････････････････････････････････････････････････････････････････････････････････ 31
Financial Section ･･････････････････････････････････････････････････････････････････････････････････････････ 37
Outline Of JSF Group ････････････････････････････････････････････････････････････････････････････････････ 74
Corporate Data ････････････････････････････････････････････････････････････････････････････････････････････ 75

1

FINANCIAL HIGHLIGHTS

Thousands of
U.S. dollars*Millions of yen*
2014

2015

2016

2017

2018

2018

Operating Results:
Operating revenues￥

19,566￥

20,300￥22,035￥23,066￥26,333＄247,863

Operating income

2,568

3,025

2,558

2,802

3,881

36,530Net income

6,211

3,520

2,646

3,078

4,225

39,768

Total assets￥ 3,914,388￥ 3,482,602￥ 3,249,170￥ 4,645,051￥ 4,960,928＄46,695,482

Net assets

135,227

137,145

142,031

139,712

143,811

1,353,643

3.45

3.94

4.37

3.00

2.90

2.90

Financial Position:

Shareholders' equity ratio (%)
Per Share Data:
Net income￥

Net assets

60.35

￥

33.94

￥

26.90

￥

31.91

￥

44.25

＄

0.42

1,260.43

1,373.94

1,467.01

1,452.64

1,518.78

14.30

14

15

16

18

26

0.24

Cash dividend* except per share amountOperating revenues

Operating income(millions of yen)(millions of yen)

3,881

4,000

30,00026,33325,00020,00019,566

20,30022,03523,066

3,025

3,000
2,568

2,802
2,558

2,000

15,00010,000

1,000
5,000
0

14

15

16

17

0

18

2

14

15

16

17

18

FINANCIAL HIGHLIGHTSNet income

Net income per share(millions of yen)

(yen)

7,000

70
6,211

6,000

60

5,000

50

60.4

44.3

4,225
4,000

40

3,520
3,078

3,000

20

1,000

10

14

15

16

17

31.9

30

2,646

2,000

0

33.9

0

18

Net assets per share

26.9

14

15

16

17

Cash dividend per share

(yen)

(yen)

1,600

30
1,519

1,500

1,467

26
25

1,453

1,374

1,400
1,300

20

1,260

15

1,200

10

1,100

5

1,000

18

14

15

16

17

0

18

18
14

14

15

15

16

16

17

18

Note: 1. Yen amounts have been translated into United States dollars, solely for the convenience of the reader, at the rate of￥106.24=U.S.$1 in effect on March 31, 2018.
2. Net income per share is calculated based on the weighted average number of shares outstanding during each
respective year. Net assets per share is calculated based on the number of shares outstanding at the end of each
respective year.
3. Shareholders’ equity ratio is calculated by using following formula.Total net assets / Total liabilities* and net assets*except for securities accounts such as Collateral securities deposited3

MESSAGE FROM THE PRESIDENT

During the fiscal year ended March 2018, with the equity
market being very active, especially in 2017, our Margin
Loan Business performed strongly, and we also saw arecovery in financing demand from financial instrumentcompanies. Furthermore, as a result of our proactive
efforts to flexibly address the needs of domestic andforei g n f in a n cia l i ns tr um e nts b us i ne s s o pe ra t o rs ,as outlined in our Mid-Term Management Plan, oursecurities lending business also thrived, including generalstock lending transactions and bond lending transactions,
resulting in increase in both revenues and earnings.
The Company is currently striving to successfully
implement the various policies outlined in the 5th MidTerm Management Plan, whose first year was the fiscal
year ended March 2017. The entire Group is continuing
to work together on management efforts aimed at further
strengthening our revenue base and enhancing ourcorporate value.
Eizo Kobayashi
President

Based on our policy that the consolidated payout ratio
shall not fall below the 60-percent level, we increased theyear-end dividend for fiscal 2017 by 7 yen per share to 17 yen per share (annual dividend per share of 26 yen), taking
into account overall earnings conditions. For the fiscal year ending March 2019, assuming that the recent somewhat
unpredictable equity market conditions will continue, we forecast a decrease in earnings due to the impact of special
factors such as an increase in tax expenses based on tax effect accounting, with the dividend per share expected to be 22
yen. With regard to share buybacks, we have set a ceiling of 1 million shares at an acquisition price of up to 800 million
yen.
Going forward, we will continue to implement appropriate shareholder return policies while considering factors such as
our share value conditions.
Thank you to all our shareholders for your continued support and guidance.

Eizo Kobayashi
President

4

BUSINESS REVIEW

BUSINESS REVIEWBusiness Environment

anticipated additional interest rate hikes in the United States

Overall, the global economy continued its gradual recovery

and other factors, soaring to 24,124 yen on January 23—its

trend during fiscal 2017, with the United States maintaining

highest value since November 1991. However, beginning in

its strong economic recovery and the European economy

February, amid concern about the Goldilocks market coming

also remaining stable. The Japanese economy, meanwhile,

to an end due to rising long-term interest rates in the United

continued its modest recovery trend thanks to factors such

States, the Nikkei stock average plummeted as a result ofas the hiring environment improving as corporate revenues

factors such as the continued strong dollar and weak yen

remained healthy.

and caution among investors in light of President Trump’s protectionist trade policies. In late March, the average

As for the equity market, the Nikkei 225 stock average,

temporarily dropped to 20,617 yen, and it stood at 21,454

which started the fiscal year at 18,983 yen, sank to 18,335

yen when business closed on the last day of the fiscal year.

yen—its lowest value for the year—on April 14 due tofactors such as growing geopolitical risks relating to the

During this period, the average daily value traded on the

North Korea situation. However, due to a favorable responseFirst Section of the Tokyo Stock Exchange was 2.957 trillion

to the French presidential election results, the averageyen, a year-on-year increase of 441.6 billion yen.

recovered in early June, when it reached the 20,000yen level for the first time in about a year and a half.

Meanwhile, the outstanding balance of standardized

Subsequently, it hovered around the 20,000-yen level for

margin buying on the Tokyo market trended gradually

the most part until October. After that, it increased further

downward from 2.35 trillion yen at the start of the fiscal

due to the rise of the dollar and fall of the yen caused by

year, decreasing to an annual low of around 1.8 trillion yen

Nikkei Indexyen
24,00022,00020,00018,00016,000
Apr
2017

May

Jun

Jul

Aug

Sep

5

Oct

Nov

Dec

Jan
2018

Feb

Mar

Outstanding balance of Standardized Margin Transactions(billions of yen)

3.000
Margin Buying

Margin Selling

2.500
2.000
1.500
1.000
0.500
0.000
Apr
2017

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
2018

Feb

Mar

in early May. However, the balance then began to increase,

Business Results of the JSF Groupdriven by private investors buying on dips as stock prices

Under these market trends, the total value of outstanding

decreased. Starting in late October, with stock prices

loans for the JSF Group (term average) was 670.2 billion

trending upward, fresh buying was seen, followed by further

yen, a year-on-year increase of 202.9 billion yen.

buying on dips when stock prices decreased again startingin February. As a result, by late March, the balance had risen

Consolidated operating revenues were 26,333 million

to a level of 2.98 trillion yen for the first time in aroundyen (year-on-year increase of 14.2%) due to increased

10 years, and at year-end it was at a level of 2.87 trillion

revenue from securities lending fees in the Margin Loanyen. Meanwhile, the outstanding balance of standardized

Business. On the other hand, consolidated operating

margin selling, which was at a level of 580 billion yen at

expenses increased to 13,330 million yen (year-on-

the start of the fiscal year, had risen to between 600 billion

year increase of 12.1%), due to an increase in securities

and 700 billion yen by mid-October, with new sellingborrowing .fees in the Margin Loan Business. Moreover,seen as stock prices trended upward. In late October, thegeneral and administrative expenses amounted to 9,121

balance increased to an annual peak of 830 billion yen.

million yen (year-on-year increase of 9.0%).

Subsequently, however, it trended downward due to profittaking buybacks as share prices declined in February

As a result, consolidated operating income was 3,881

onward. By year-end, it had reached an annual low of 480

million yen (year-on-year increase of 38.5%). Consolidated

billion yen.

ordinary income was 4,685 million yen (year-on-yearincrease of 29.7%), due to an increase in investment income

6BUSINESS REVIEW

based on the equity method, while net income attributablefinancial instrument companies and loans for private

to the owners of the parent was 4,225 million yen (year-on-

individuals and general companies were sluggish. As ayear increase of 37.3%).

result, the term average for loans in this business was
41.4 billion yen, a year-on-year decrease of 3.4 billion yen.

1) Securities Finance Business
Loans for Margin Transactions (LMT)

However, due to increased use of REPO (cash-collected stock

In the Margin Loan Business, the term average for therecovered, operating revenues for this business were 908

outstanding balance of loan transactions was 350.1 billion

million yen (year-on-year increase of 0.1%).

borrowings and lending transactions) as the equity market

yen, a year-on-year increase of 84.7 billion yen. Income
from interest on loans therefore increased. Furthermore,

Securities lending

the term average for the outstanding balance of stock loans

In the securities lending business, operating revenues forwas 3,661 million yen, representing a year-on-year-increase

the service were 5,035 million yen (year-on-year increaseof 74.7 billion yen, and stock lending fees and premiumof 13.1%), thanks to significantly increased revenue fromcharges on over-lent issues increased, resulting in the

securities lending fees in the general stock lending section

service’s operating revenues to be 13,253 million yen (year-

resulting from a rise in stock borrowing demand primarily

on-year increase of 23.6%).

for the purpose of avoiding fails due to increased market
turnover, as well as increased revenue in the bond services

Bond Financing and General Loanssection due to an increase in outstanding balance of bondAs for bond financing and general loans, both loans forlending and other factors.

Average outstanding balance of Loans for Margin Transactions(billions of yen)

600
500

Margin Loans
490
428

401

400

350

300
227

222
200

Stock Loans

265

366

291

176

100
0

14

15

16

7

17

18

Breakdown of JSF Group operating revenues
2018

2017

( ￥ million)( ￥ million)

22,487

19,407

13,253

10,721

Interest on loans

2,225

1,694

Interest on collateral money for securities borrowed

1,073

887

Fees on lending securities

9,481

7,771

908

907

5,035

4,453

Stocks

1,458

941

Bonds

3,576

3,512

Other business

3,290

3,325

Trust Banking Business

2,971

2,792

Interest on loans

89

147

Trust charges

741

668

Real Estate Leasing Business

873

865

Total Operating Revenues

26,33323,066

Securities Finance Business
Loans for margin transactions

General loans
Securities lending

Other business

Future challenges

Other operating revenues were 3,290 million yen (year-

While there are concerns about the future of the global

on-year decrease of 1.1%), due to a significant decrease ineconomy due to issues such as the rise of protectionist

interest income on government bonds holdings, etc., despite

policies, a gradual recovery is anticipated, led by the U.S.

an increase in dividend income on investment trusts and

It is also expected the Japanese economy will continue its

increased gain on sale of government bond holdings.

gradual recovery due to a pickup in consumer spending andvarious policies being promoted by the government, even

2) Trust Banking Businessthough there are issues that need to be addressed in the

In the trust banking business, revenue from interest on

medium to long term, such as the declining birthrate andloans decreased due to a decrease in lending rates, but

aging of society.

trust fees increased and gain on sale of government bondholdings also increased, resulting in operating revenues ofMeanwhile, with the globalization and development of

2.971 billion yen (year-on-year increase of 6.4%).

finance accelerating in financial and securities markets, theenvironment in which our company operates is undergoing3) Real Estate Leasing Businessmajor changes, such as the ongoing t ightening ofIn the real estate leasing business, operating revenues wereinternational financial regulations and revision of securities

873 million yen (year-on-year increase of 0.9%).

clearing systems.

8

BUSINESS REVIEWIn March 2017, we released our 5th Mid-Termthe margin transaction and loan transaction system, while

Management Plan, which aims to strengthen our existingalso enhancing the information we provide about loanbusiness by leveraging our market neutrality and thetransactions via our website.

expertise we have acquired to date in finance- andsecurities-related services, while also pursuing efforts toenhance the company’s fundamental stability by proactively

Flexibly addressing the needs of domestic andforeign financial instrument companies

addressing new domestic and overseas needs with a highWe have made efforts to strengthen our procurementlevel of creditworthiness, thereby maintaining the trust of

capabilities in anticipation of increased securities

markets and investors.

(government bonds and stocks) borrowing demandfollowing the reduction of the settlement interval, as well as
increasing direct transactions with clients based outside of

The status of key measures being undertaken based onJapan and transactions involving foreign securities.

the strategies outlined in the 5th Mid-Term Management
Plan is summarized below. Everyone at the company isalso working together to develop new business, diversify

Strengthening business management structure

the management of securities as an efficient use of capital,

In addition to enhancing our risk management structure inenhance collaboration with Group companies, develop

response to the diversification of securities operations andan employee-friendly work environment, and make theincreased handling of foreign securities, we have taken steps

company more dynamic.

to strengthen our business continuation system in the eventof an incident such as a natural disaster in the Kanto region

Enhancing the Margin Loan Business as part of
securities market infrastructure

or a cyberattack.

We have encouraged the use of loan transact ionsThrough initiatives like those described above, our Group isthrough measures such as promoting it to overseas

aiming to achieve improved performance in the medium toinvestors. Moreover, in collaboration with the Tokyo

long term and expand our enterprise value while continuing

Stock Exchange, we have engaged in activities aimed at

to ensure a return of profits to our shareholders, for whose

securities company representatives and others to promote

ongoing support and guidance we are extremely grateful.

9

MANAGEMENT POLICYMANAGEMENT POLICY
Corporate Philosophy

activities, organization, and system and to create an efficient,

As an institution specializing in securities finance, JSF has adynamic structure.

mission to contribute to the development of the securities

At the same time, there have been major changes in themarket by proactively meeting the diverse needs of theenvironment in which our company operates. Specifically,

securities and financial sectors and to enhance the long-

along with technological improvements such as theterm interests of users, while always maintaining a keen

application of artificial intelligence (AI) to products andawareness of its public role.

services, the globalization and development of finance haveincreased speed and international financial regulations andManagement Principles

securities clearing systems have undergone further reviews

・ To practice sound business management by thoroughly

aimed at stabilizing financial markets. As a result, newimplementing compliance, corporate governance, andfinancial transaction needs are also emerging.

risk management and thereby establish solid credibility,

While bearing in mind the possibility that the current

while always maintaining a keen awareness of our social

ultra-low interest rates may continue, our Group will work

responsibilities as a securities finance company.

to strengthen our existing business by leveraging themanagement capabilities and creditworthiness that we・ To enhance enterprise value while maintaining solid

have acquired over time in finance and securities business

equity capital in order to ensure the management

management as well as our market neutrality; at the samestability and financial health required of a company

time, we intend to enhance the fundamental stability ofthat is a key player in securities market infrastructure,

our business by proactively addressing new domestic andto give comprehensive consideration to the earnings

overseas transaction needs and thereby maintain the trust

environment, investment plans, etc., and to ensure profits

of markets and investors.

are returned to shareholders.

In line with this approach, we have formulated a new
medium-term management plan that begins in FY2017.

・ To further enhance JSF’s core customer loans businesswhile also striving to expand the finance- and securities-[Strategies]i) Enhancing the Margin Loan Business as part ofrelated services provided by JSF and Group companies,
develop new business, and to further grow and solidify

securities market infrastructure

the entire Group’s base.

We aim to pursue stable management of our marginloan business and improve profitability by appropriately

・ To further improve the efficiency of organizational andresponding to changes in the stock market environment.

business management within the Group in order toMoreover, we aim to carefully monitor trends among market

flexibly address changes in the business environment.

participants, promote the use of margin loans, enhance theprovision of information relating to margin transactions andmargin loans, and expand the range of investors.

Management Plan
Fifth Mid-term Management Planii）Flexibly addressing the needs of domestic and[Concept]

We aim to enhance our profit opportunities by proactively

It has been over three years since JSF merged with theaddressing the diverse transaction needs of domestic andOsaka Securities Finance Company, Ltd. During that time,

foreign financial instrument companies, through increasing

our group has moved forward with efforts to integrate ourdirect transactions with clients based outside of Japan,

foreign financial instrument companies

10

MANAGEMENT POLICY

including foreign companies that are already customers

continue to upgrade our remote backup arrangementsof JSF, accepting collateral for foreign securities, etc.

while closely monitoring trends in the finance and securities

Moreover, we aim to expand our securities lending businesssectors.

by proactively addressing new needs and reducing thevii） Developing an employee-friendly work

settlement interval for securities.

environment and making the company moreiii）Developing new businessdynamic

We will leverage our strengths as a company with a history

We will increase the productivity of individual personnel

in the securities finance field, and develop new businessand make the company more dynamic by developing a

based on a long-term perspective in collaboration withrewarding and employee-friendly workplace.

Group companies and domestic and foreign partners.

Shareholder Return Policyiv）Diversified management of securities as an

To enhance enterprise value while maintaining solid equity

efficient use of capital

capital in order to ensure the management stability andWe will secure stable revenues by responding to changes

financial health required of a company that is a key player

in the external environment and revising our portfolio in a

in securities market infrastructure, to give comprehensive

flexible manner while maintaining appropriate risk controls.

consideration to the earnings environment, investment plans,Moreover, we will move forward with expandingetc., and to ensure profits are returned to shareholders.

management based on foreign currency-denominated

Our dividend policy is to return profits to shareholders

securit ies such as foreign government bonds andbasically in accordance with the “consolidated payout ratio”

establishing foreign currency funding methods, in order to

as a standard that reflect our business performance, but also

support the development of business using foreign currency.

taking account of “dividend on equity ratio”.

v）Enhancing collaboration with Group companies[Basic Policy]

We will proactively address diversifying transaction

To enhance enterprise value while maintaining solid equity

needs by enhancing collaboration with Group companies,

capital in order to ensure the management stability andespecially subsidiaries. Moreover, we will further solidify thefinancial health required of a company that is a key player

revenue base for the Group as a whole through integrated

in securities market infrastructure, to give comprehensive

initiatives involving JSF and its subsidiaries.

consideration to the earnings environment, investment plans,etc., and to ensure profits are returned to shareholders.

vi）Strengthening business management structure
We will proactively address our social obligations and[Basic Dividend Payment Policy]

ensure that compliance is positioned as a prerequisite of

Our policy is that the consolidated payout ratio, as amanagement, in order to achieve our corporate philosophy.

standard that reflects our business performance, shall not

To establish unwavering social trust in our company, we

fall below the 60% level and that we shall return profits to

aim to secure the effectiveness of our internal auditing

shareholders while taking into account the consolidated

and further enhance our risk management in response todividend on equity ratio (DOE = ratio of the dividend amountthe increasingly diverse and complex risks associated withto shareholder equity).

finance business.
In order to maintain the loan business that is our top[Share Buyback Policy]
With a view to offering even more rewarding returns topriority in the event that a major disaster occurs, we will

11

shareholders, we will buy back shares as needed in future
while considering the company’s financial situation, stock
price levels, and so forth.

12

MANAGEMENT POLICY

Feature: The President’s Commentary
Progress of 5th Mid-Term Management Plan
FThe 7 key strategies outlined in the 5th Mid-Term Management Plan are as follows:

Strategies◆ Enhancing the Margin Loan Business as part of securities market infrastructure◆ Flexibly addressing the needs of domestic and foreign financial instrument companies◆ Developing new business◆ Diversified management of securities as an efficient use of capital◆ Enhancing collaboration with group companies◆ Strengthening business management structure◆ Developing an employee-friendly work environment and make the company more dynamic

I will discuss the progress we have made on management-

when delivering securities. In this regard, we aim torelated policies.

leverage the securities financing expertise that we haveFirst, with regard to “enhancing the Margin Loanacquired in the Margin Loan Business.

Business,” we are working to expand our securities

Next, with regard to “flexibly addressing the needs ofprocurement capabilities. Due to changes in the LMT

financial instrument companies,” we have been diligently

environment, including the introduction of the double

addressing the diverse needs of customers, which had led

code (stewardship code and corporate governance code)

an increase in transactions. In particular, since control

and greater emphasis on the exercising of voting rights,

towers for foreign financial institutions in Asia are

the smooth provision of lending stocks is becoming more

relocating from Japan to Singapore and Hong Kong, there

difficult, especially at year-end. Given this environment,

is a growing need for handling foreign securities andwe believe it is essential that we take proactive steps to

conducting direct transactions with overseas offices, andoffer a full range of options by seeking new borrowers

by expanding our involvement in these kinds of activities,

and financing for securities.

we intend to develop other sources of revenue besides

In addition, once the reduction of the securities

LMT.

settlement interval scheduled for 2019 is implemented,

At JSF, we are seeking to further strengthen oursome experts believe there will be an increase in fails

revenue base through various measures such as these.

13

OUR BUSINESS DEVELOPMENT

Services for securities companies and ﬁnancial institutions
Funds loan
Loans for margintransactions

Loan funds needed to settle standardized margintransactions

Stock loan
Loan stock needed to settle standardized
margin transactions

General stock lending

Bond services

Loans for negotiablemargin transactions

Lending stock needed to settle stock trading

Brokerage between borrowers and lenders in bondborrowing and lending market

Loan funds needed to settle negotiable margintransactions

Bond ﬁnancing

Loan funds needed in bond underwriting, trading, etc.

General loans

Loan working funds, etc., to securities companies

Secured loans on securities for individual and corporate investors

COM - STOCK Loan

A loan aimed at individual investors, for which loan
applications are made through the Internet

Business Loan

A large loan aimed at people such as owners of listedcompanies

Peripheral services
Securities custody

Custody services for securities owned byinstitutional investors, etc.

Government bonddebt servicing

Designated by the Bank of Japan, repayment services
for principal and interest on government bonds

14

OUR BUSINESS FIELDLOANS FOR MARGIN TRANSACTIONSWhat is Margin Transactions?
In margin transactions, an investor trades stocks after

Apart from the purpose of obtaining margins as described(1) depositing a certain amount of collateral (margin

above, an investor can use margin transactions as a means

requirements) with a securities company and (2) borrowing

for hedging. In other words, in the event that, although anfunds for purchasing stock or stock for sale. Margin

investor expects that the stock price in hand may decline,transactions help investors to expand their trading volumes

the stock is not to be sold for some reasons, such as thatby enabling them to purchase stock which value is in excess

convertible bond is within its convertible period or that itof their available funds, or to sell stock that they do not own.

is a publicly-offered stock just purchased, the investor canThus, margin transactions broaden and strengthen stock

avoid loss with hedging sale by using margin transactions.

trading and contribute to the smooth circulation of stocks
and the fair stock prices formation.

There are two types of margin transactions, standardized
margin transactions and negotiable margin transactions. In

Margin transactions is used, for example, when an

standardized margin transactions, terms of repayment areinvestor considers that the stock price of a certain issue will

determined by stock exchanges, and a securities company

rise or decline sharply in a short period of time.

can borrow funds for purchasing and stock for sale needed
to settle transactions from a securities finance company

・When it is expected that the stock price will rise, an(loans for margin transactions).

investor borrows funds for purchasing stock from a

In negotiable margin transactions, which is limited to cases

securities company (margin buying), and if the stockin which a securities company can procure funds and stock

price rises as expected within a term of repayment (6to be lent to customers by internal matching (Note) ormonths), the investor sells the stock, repays the funds

external procurement without borrowing from a securities

borrowed (reversing transaction) and receives the margin.

finance company, the condition of margin transactions

The investor may also receive the stock (actual receipt)

may be decided freely in negotiations between a securities

by procuring funds separately and depositing it with acompany and its customer.

securities company.

(Note) This is a system of appropriating purchased stock received from buy
side as collateral to sell side's stock for sale within a company or,conversely, of appropriating sell side's proceeds of sale to buy side's

・Conversely, when it is expected that the stock price willfunds for purchasing stocks.

decline, an investor borrows stock from a securities
company and sells them (margin selling). If the stock
price declines as expected within the term of repayment(6 months), the investor buys back the stock, returns it
to a securities company and receives the margin. The
investor may also receive the equivalent money to stock
sold by procuring stock separately and offering them to asecurities company (actual delivery).

15

JSF receives loan applications for each issue from a

What is Loans for Margin Transactions?
Loans for margin transactions is a system in which asecurities company on the trading date of standardized

securities finance company receives a certain amount ofmargin transactions (5).To execute the loan, JSF, in place ofmargin (margin requirements) from a securities company,

the securities company, delivers funds or stock to clearing

who is a general trading participant of stock exchanges (3)facilities of stock exchanges (6). The stock purchased

and lends funds or stock necessary for margin transactions(collateral stock for loans) or proceeds from sale (collateral(4). This is executed through the clearing facilities of stockmoney for stock loans) are received by JSF (7), and thenexchanges. Loans for margin transactions is authorized only

each collateral is appropriated.

for the securities finance companies with a license given by
the Prime Minister. We, Japan Securities Finance Co., Ltd.
conduct loans for margin transactions through the stock
exchange in Tokyo, Sapporo, and Fukuoka.

Standardized margin transactions and Loans for margin transactions

Loans for margin transactions

Standardized margin transactions

Loan funds for purchasing
stock or stock to sell (2)Deposit collateral for margintransaction (3)JSF

Customer

Deposit brokerage margin (1)Loan funds for purchasing stock
or stock to sell (4)Receive purchased stockor sale proceeds
(6)

(7)

Stock exchange
clearing facilities

16

Japan Securities Finance

Submit application (5)Securities company

Place trade order

OUR BUSINESS FIELD

Handling of over-lent issues

and non-life insurance companies, banks and other sources.

JSF usually appropriates stock received as collateral for

The highest bidding rate becomes the lending rate (Premiumloans to stock loans. However, should the outstanding

Charges) of that issue. This premium charge is applied tostock loans exceed the outstanding loans, it is necessary to

all users of standardized margin transactions, and should

procure the stock needed for settlement by bidding withbe collected by all sell sides and paid to all buy sides or

securities companies or institutional investors such as life

successful bidders.

In case of Premium Charge may apply
Loans for margin transactions

Standardized margin transactions
Issue A
7,000shares

Funds loan application

2,000
shares5,000shares

7,000shares
Amount matchedwithin each ﬁrm

5,000
sharesMargin selling Margin buying
balancebalance2,000shares

Securities company A
Stock loanbalance

Margin loanbalanceJSF

10,000shares
Stock loan application
7,000
sharesStock procurement through bidding

3,000shares
Amount matchedwithin each ﬁrm

Stock loan application for bidding
Margin selling Margin buying
balancebalanceSecurities company B

Securities companies / Institutional investors

17

BOND SERVICES
In bond borrowing and lending transactions, a lender lends

matches the needs of both lender and borrower, maintaining

bonds to a borrower, and after mutually agreed period, thehigh confidentiality of information to ensure the complete

borrower repays the lender with bonds of the same typeprivacy of both parities, and transferring all counterpartyand quantity. JSF serves as a broker between borrowers andcredit risk to JSF. The arrangement also contributes tolenders.

creating fair and stable market by publicly disclosing
indication via QUICK, Bloomberg, and other information

The bond borrowing and lending transactions market

services.

was established in May 1990 for the purpose of covering
bonds sold short, and was followed in April 1996 by theTransaction types

introduction of REPO (cash-collateral bond borrowing and

REPO transactions

lending transactions). JSF was the first company in Japan

JSF borrows bonds after depositing cash collateral with ato be authorized to offer such brokerage services, because

lender and then lends bonds after receiving cash collateral

JSF can link securities industries and financial industries

from a borrower. This transaction can be either a Special

on neutral ground and is well versed in handling of bond

Collateral transaction that specifies an issue or a Generaltransactions.

Collateral transaction that does not specify an issue.

JSF receives applications from both parties and, on

Ordinary bond borrowing and lending transactions

their behalf, lends and borrows bonds on the basis of

JSF, in principle, borrows bonds without collateral from aloan agreement. This type of arrangement has several

lender and then lends bonds after receiving collateral from aadvantages, including helping to form a transaction thatborrower.

Types of bond transactions

LenderLending rate

Cash collateral

Cash collateralInterest

Interest

JSF(Fund raising)

Borrowing rate

Borrower

Bonds

Bonds

(Fund investment)

REPO transactions

Ordinary transaction

Lender

Bonds

Bonds
Securities collateral
Lending rate

Borrowing rate

18

Borrower(securities-collateral transaction)

OUR BUSINESS FIELD

GENERAL STOCK LENDING
This business lends stock needed to settle trades to

In February 2002, we implemented offer-bid borrowing

securities companies. A securities company would use

and lending transactions (e Stock Lending) by expanding theGeneral Stock Lending when it has no stock on hand, foronline network that is linked with securities companies, so

the purpose of hedge sale of convertible bonds or arbitrage

as to include institutional investors, such as life and non-lifetransactions with spots and futures, and so forth. JSF has

insurance companies.

done its utmost to increase the number of eligible issues
and shares for brokerage services since the business waslaunched in 1977.
JSF procures stock for lending from institutional
investors such as life and non-life insurance companies. JSF
also receives stock in advance for quick stock lending.

Mechanism of stock lending business
Stocks (deposit)

Stocklenders
Institutional
investors

Stocks (lend)

JSF
Borrowing fee

Collateral deposit
Lending fee

19

Securities
companies

LOANS FOR NEGOTIABLE MARGIN
TRANSACTIONSWhat is Loans for Negotiable Margin Transactions?

Loan Period

Loans for negotiable margin transactions is a system

In principle, the due date of loan is the day following thewhich lends the necessary funds for securities companies

lending date, but it can be extended to the deferment

to purchase stocks in negotiable margin transactions on

deadline for repayment of negotiable margin transactions

behalf of its customer (3), receiving stock purchased (1) andfor securities companies.

certain margin requirement (2) as collateral for loans

Interest rate
The interest rate on loans is determined individually

Conditions of loans

Loanable stock Issues

between JSF and securities companies.

In principle, loanable stock issues are those listed on stock
exchange. (However, they can be limited to those we admit

Collateralavailable.) Newly listed stocks can be accepted from the 1st

JSF receive sto ck purchased in negot iable marg in

day of its listing.

transactions and certain margin requirement as collateralfor loans. Margin requirement can be substituted by acertain ratio of cash or by securities.

Negotiable margin transactions and Loans for negotiable margin transactions
Loans for negotiable margin transactions

Negotiable margin transactions
Place an order for negotiablemargin buying

JSF

Loan funds forpurchasing stocks

Deposit margin requirement (2)Loan funds (3)Deposit stock as collateral (1)Payment for the purchaseReceive purchased stock

Stock exchange
clearing facilities

20

Japan Securities Finance

Customer

Deposit margin requirement

Securities company

Application

OUR BUSINESS FIELD

BOND FINANCING
The aim of bond financing is to contribute to smoothutilizing investment securities for shares, etc. as collateral.

underwriting, circulation and fair price formation in bond

We are expanding "COM-STOCK Loans" for individuals,

markets. This business offers low-interest loans by using

which do not require applicants to come to a branch,government and other bonds as collateral to provide funds"Business Loans" aimed at owners of listed companies.

required by securities companies in bond operations.

COM-STOCK Loan

GENERAL LOANS

A loan aimed at individual investors, for which loan

This business loans working funds required by securities

applications can be made through the Internet, andcompanies by using stocks, bonds, and other securities as

for which investors do not need to come to a branch.

collateral, and aims to respond quickly and flexibly to theApplications can be made through a special JSF website.

needs of securities companies.

Business loan

SECURED LOANS ON SECURITIES FOR
INDIVIDUAL AND CORPORATE INVESTORS

A large loan aimed at people such as owners of listedcompanies.

We provide loans to individuals and companies for any use,

21

CORPORATE GOVERNANCECORPORATE GOVERNANCE
・ Internal audit by the Audit Department, which isBASIC CONCEPT OF CORPORATE GOVERNANCE
As an institution specializing in the securities financeindependent from other departments

business, Japan Securities Finance has a mission, while
always maintaining a keen awareness of our public role,

Furthermore, from the perspect ive of ensuring

to contribute to the development of the securities industry

management transparency, we are committed to making

by proactively meeting the diverse needs of securities andactive and timely disclosure of management information

financial circles and working to boost the long-term intereststhat goes beyond legal requirements via our website.

of securities markets users and participants. The company
believes gaining the firm trust of society through soundbusiness operations is our most important management

CORPORATE GOVERNANCE STRUCTURE
1. Management Structure

directive.

Below is an outline of JSF's management structure.
・ The Board of Directors is the decision-making body for all

・ Establishment of compliance systemmatters related to management policy and the execution

・ Establishment and implementation of risk managementof operations, and it appoints executive officers who arecharged with the execution of operations in accordance

policieswith its decisions.

・ Active invitation of outside directors (three directors, two

・ Directors are members of the Board of Directors andAudit & Supervisory Board members)
・ Attendance of the Audit & Supervisory Board members at

supervise the company's decision-making and the activities

internal meetings and instigation of necessary checksof representative directors. Executive officers execute the

Corporate Governance System Structure
Decision Making of Management
General Meetingof Shareholders

Inspection System
The Audit & Supervisory
Board members

Board of Directors

Nomination and Remuneration
Advisory Committee

ReportCorporate
Auditors

External
Financial
AuditorBusiness
Operation
Audit

President
Management Committee

Compliance
Committee

Executive Oﬃcers
Meeting
Audit
Department

Audit
Subsidiaries
AﬃliatesManagement
Administration& Report. etc.

Executive Oﬃcers in Charge

Compliance Department
Personnel in chargeof compliance

Mutual CheckBusiness
Departments

Risk Management
Department

JSF Group
Company

22

External Reporting
Contact Desk

Consultation and Report for Compliance

Audit

All Departments

CORPORATE GOVERNANCE

operations of the Company in line with decisions made bydirectors, the Audit & Supervisory Board members andthe Board of Directors.

executive officers as well as their remunerations, in response
to consultations from the Board of Directors, and provides

・ Directors may concurrently serve as executive officers

advices and proposals to the Board. A majority of the members(executive directors).

of the Nomination and Remuneration Advisory Committee are・ Executive officers comprise executive directors andoutside directors and outside auditors.

executive officers.
・ Executive officers are appointed for a term of 1 year.

3) The Audit & Supervisory Board

・ The Company has established a Nominat ion andRemuneration Advisory Committee in order to reinforce

The Audit & Supervisory Board may have up to four

the supervisory functions of the Board of Directors.

members, of which the majority must be outside Audit &Supervisory Board members.
The Audit & Supervisory Board shall make a decision

2. Organization
To strengthen management supervisory functions, theon the execution of the duties of the Audit & Supervisory

Company stipulates that three of the ten directors must be

Board members and shall discuss the exercise of authority

outside directors, and outside directors serve as the center ofby the Audit & Supervisory Board members. Meetings of thethe Board of Directors. In addition, two of the four members

Audit & Supervisory Board are convened from time to timeon the Audit & Supervisory Board must be outside Audit &as necessary. During fiscal 2017, the Audit & Supervisory

Supervisory Board members. The Management Committee

Board met 11(eleven) times.

and Executive Officers Meeting serve as management-level

Two outside members are appointed and are expected

decision-making bodies.

to provide supervision based on a wealth of experience andBelow are outlines of these organizations.

broad knowledge and expertise.

1) Board of Directors

4) Management Committee

The Board of Directors may have up to ten members

The purpose of the Management Committee is to deliberate(including three outside directors).

important matters related to the execution of company

Meetings of the Board of Directors shall in principle

operations.

be convened once per month but may be convened at

Members of the Management Committee are executive

other times as necessary. During fiscal 2017, the Board of

directors. When necessary, directors who are not executive

Directors met 11(eleven) times.

directors and the Audit & Supervisory members may attend

Positions on the Board of Directors shall consist of themeetings of the Management Committee.

chairperson, vice chairperson, president, executive vice

The Management Committee is in principle convened

president, senior managing directors, managing directors

once per week. The Management Committee may also meetand directors. The Board of Directors may appoint directors

other times as necessary.

to execute operations (executive directors).

5) Executive Officers Meeting

Three outside directors appointed are expected to ensure
the appropriateness of company operations and provide

The purpose of the Executive Officers Meeting is to report

objective, neutral, outside supervision of managementon the status of operations.
Members of the Executive Officers Meeting are all

through advice and comments with a wealth of experience

executive officers, including executive directors. Directors who

in management and professional knowledge and expertise.

are not executive directors and the Audit & Supervisory Board

2) Nomination and Remuneration Advisory Committee

members may also attend the Executive Officers Meeting.

The Nomination and Remuneration Advisory Committee

The Executive Officers Meeting is in principle convened

investigates such matters as election of candidates foronce per week. The Executive Officers Meeting may also23meet other times as necessary.

verifies the appropriateness and effectiveness of internalmanagement system in respect of control and management

3. Outside directors and outside Audit &Supervisory Board membersof risk and other factors in individual business units.

The Company has three outside directors and two outside

audits and accounting audits are mutually coordinated. All

Audit & Supervisory Board members.

who are responsible for these audits and internal control

Internal audits, the Audit & Supervisory Board members

The outside directors and outside Audit & Supervisory

may exchange information etc. when necessary for closer

Board members have no interest in the Company othercoordination.

than owning shares in the Company. There are not now nor

One of the Audit & Supervisory Board members Toshio

have there ever been factors requiring a determination of

Kamiyama is a certified public accountant and certified tax

potential conflict of interest with general shareholders byaccountant and provides considerable insight on financial

the Tokyo Stock Exchange.

and accounting matters.

Outside directors are expected to ensure theappropriateness of company operations and provide

5. Status of accounting audits

objective, neutral, outside supervision of management

Accounting audits of the Company are performed by certified

through advice and comments based on their abundantpublic accountants Mitsuhiro Fukuda, Wataru Kobayashi

experience in management and professional knowledge andand Hidehiro Goto of BDO Toyo & Co. Accounting audits areexpertise. They are in an objective position independent ofassisted by 15 certified public accountants and 10 others,

the executive directors and have no potential conflicts ofand care is taken to eliminate bias in years of experience.

interest with general shareholders.
Outside Audit & Supervisory Board members are
expected to provide supervision based on a wealth of

6. Policy regarding the remuneration of
directors and auditors

experience and broad knowledge and expertise. They have

The Company has established its policy on the remunerationa high degree of independence and no conflicts of interestof directors and the Audit & Supervisory Board members aswith general shareholders and are therefore judged tofollows, in accordance with its “Basic Policy on Corporate

contribute to auditing operations and compliance. They

Governance.”

endeavor to mutually coordinate internal audit section etc.
Furthermore, the Company has established the following
criteria for independence in appointing outside directors[Remuneration of directors, the Audit & Supervisory
Board members and executive officers]

and outside auditors.

・ With a view to enhancing the correlation with theCompany’s business performance and share value, the

4. Status of internal audits and the Audit &Supervisory Board members audits

remuneration of executive directors and executive officers

The internal audit structure consists of Audit Department

bonuses linked to business performance and share-that is independent of all other business units (approximately

based remuneration. For the officers’ bonuses, an amount

ten members).

determined in accordance with the business performanceshall comprise a fixed monthly remuneration, officers’

Its duties are not only the internal audits of complianceof each fiscal year shall be paid, with the purpose ofwith all applicable laws, regulations, contracts etc. It

clarifying the management’s responsibility.

also figures out the management of risks and so forth by・ As for the share-based remuneration, the Board Benefit

rigorous internal audits of the effectiveness and efficiency

Trust (BBT) scheme shall be used to provide points, whichof operation, the accuracy and reliability of financial andare determined in correlation with medium-term business

operational information and the assets safeguarding/

performances, to the executive directors and executive

conservation. Through these activities, Audit Department

officers, to whom the Company’s shares will be issued

24

CORPORATE GOVERNANCE

upon their retirement from office in accordance with the

In addition, the company takes the initiative in the

points. Outside directors and the Audit & Supervisory

promotion of the establishment and strengthening of overall

Board members shall receive only the fixed monthly

group compliance system.

remuneration, and the officers’ bonuses or the share-based
remuneration shall not be provided to them.

Consulting and reporting system regarding compliance・ Specific amounts of the remuneration for the directors

In order to strengthen the compliance system, the company

and executive officers shall be determined by the Board ofhas its external consulting and reporting contact desk by

Directors based on the results of investigations made bylawyers, in addition to the Compliance Committee, thethe Nomination and Remuneration Advisory Committee.

Compliance Department and personal in charge of compliance.

Modifications to the remuneration framework and the

The external consulting and reporting contact desk

remuneration system, etc. shall also be investigated by theguarantees the complete anonymity of any person

Nomination and Remuneration Advisory Committee.

consulting or reporting matters regarding the company,
thereby reducing the psychological burden on those persons
and making consulting and reporting easier.

COMPLIANCE SYSTEM
The following details our compliance system and consulting
and reporting system in regard to compliance

BUSINESS CONDUCT GUIDELINES

The company’s compliance system centers on our Board

1) As an institution specializing in securities-relatedof Directors, the Management Committee, the Compliancefinancing, the company recognizes its social

Committee and the Compliance Department. The situation

responsibility and its public mission. It aims to establish

regarding internal compliance is constantly studied by thefirm trust through sound business operation.

Compliance Department and the results are regularly reported

2) The company will comply strictly with relevant rules andto the Board of Directors and the Management Committee.

regulations. It will conduct its business activities in a fair

The Compliance Committee deliberates importantmatters concerning compliance.

and reliable manner, in accordance with social norms.

The Compliance3) In the interests of its shareholders, the company willDepartment makes all possible efforts to promote andmaximize its communications with a broad spectrum of

thoroughly establish compliance through such measures associety and will disclose information on the management

urging managers and employees alike to take faithful andof the organization in a fair and positive manner.

honest actions based on clear ethical standards.

Consulting and Reporting
Board of Directors
Management Committee
Compliance Committee

Deliberation of thecountermeasure(Chairman : Executive oﬃcer in charge ofCompliance Department)

Compliance Department

ReportPersonnel in charge ofcompliance

External reporting contact desk
Consult & report

Consult & report

Consulting & Reporting personnel(Managers and employees)

25Appendix

meeting of shareholders.

Basic Policy on Corporate Governancemeeting of shareholders from such viewpoints as

The Company has established the Basic Policy onof accurate information for that purpose.

Corporate Governance as follows in order to achieve its2) Send and disclose a notice of convocation of thesustained growth and enhancement of its corporate value

general meeting of shareholders as early as possible inover a medium to long term.

order to secure enough time for shareholders to study

1) Appropriately set the schedules related to the generalenhancement of dialogue with shareholders and provision

the content.
1. Fundamental Views on Corporate Governance3) Provide information (such as information on the

As an institution specializing in the securities finance

Company’s operating results) that is necessary forbusiness, the Company is keenly aware of its public roleshareholders to make proper judgments at the general

at all times, and makes it a mission to contribute to themeeting of shareholders on its website and through otherdevelopment of the securities market by proactively

means.

addressing the diverse needs of the securities and4) Establish an environment in which all shareholders

financial circles and working to enhance the long-term

including those who do not attend the general meetinginterests of the securities market participants and users.

of shareholders can exercise their voting rights

Based on this thinking, the Company aims to gain the firm

appropriately, such as utilizing the Electronic Voting

trust of the society through sound business operations.

Platform for Foreign and Institutional Investors.

With this corporate philosophy, the Company has

In addition, when there are a large number of votes

adopted the Audit & Supervisory Board system as anagainst any of the agendas proposed by the Company atinstitution under the Companies Act, and will proactively

the general meeting of shareholders, the Company shallinvite outside directors and outside Audit & Supervisory

analyze the reasons and report the analysis results toBoard members from a wide range of economic circles

the Board of Directors as well as investigate necessary

including the securities and finance industries, in an

responses.

effort to establish a system that enables implementation(3) Protecting the rights of shareholdersof supervision and audits from multi-faceted viewpoints.

When implementing the capital policies that may
2. Securing the Rights, Etc. of Shareholders

cause changes in the controlling interest or cause a(1) Securing the rights and equality of shareholders

significant share dilution, the Company shall investigate

The Company shall take appropriate measures tothe necessity and rationality of implementing them andeffectively secure the rights of its shareholders, andsecure appropriate procedures so that they should cause

endeavor to establish an environment in which the rights

no unjust harm to the interests of existing shareholders,of shareholders are effectively secured.

and shall appropriately disclose the details of the policies
to be implemented.

Moreover, the Company recognizes that every
shareholder is equal in accordance with his/her equity

As for introducing and conducting anti-takeoverinterest, and will secure the substantial equality ofmeasures, the Company shall investigate the necessity

shareholders

and rationality of such measures and secure appropriate
procedures as well as provide sufficient explanations to(2) General meeting of shareholders

the shareholders.

The Company shall endeavor to set schedules related
to the general meeting of shareholders and expand

If the Company’s shares become subject to a takeover

the means for shareholders to execute their voting

bid, the Company shall appropriately disclose the view ofrights, etc., as provided below, so that a larger number

the Board of Directors regarding the takeover bid to theof shareholders can execute their rights at the generalshareholders. Moreover, the Company shall not unduly

26

CORPORATE GOVERNANCE

preclude the shareholders’ rights to sell the Company’s

medium- to long-term economic rationality of strategic

shares they own in response to the takeover bid.

shareholdings and verify them.

(4) Dialogue with shareholders, etc.

With regard to the exercise of voting rights of shares

The Company shall respond to requests for dialogue fromthe Company holds in strategic shareholdings, theits shareholders and investors (hereinafter referred to as

Company shall exercise the rights for all agendas as

the “shareholders, etc.”) to the extent and by the methods

a rule. Judgment of approval or disapproval for eachconsidered to be appropriate by the Company.

agenda shall be made by comprehensively consideringsuch factors as whether the subject will contribute to

Policies on establishing a system and implementing

the medium- to long-term enhancement of the corporate

measures for promoting constructive dialogues with thevalue of the relevant company and common interests ofshareholders, etc. are as follows:

its shareholders, and whether the subject will not lessen

1) Dialogues with the shareholders, etc. shall be managed

the significance of holding the relevant shares by theby the Corporate Planning Department and supervisedCompany.

by the officer in charge of the Corporate Planning
Department.

(6) Transactions among related parties

2) When conducting dialogues with the shareholders,

When the Company conducts transactions with its

etc., the Corporate Planning Department shall be central

officers and principal shareholders, etc., the Company

in making appropriate coordination with internal

shall submit the matter as agenda to the Board ofdepartments, including the Business Development

Directors in advance and have it approved by the Board

Department, and affiliate companies through informationof Directors so that the relevant transaction will not harmexchange and other measures.

the Company’s interests and common interests of the3) The Company shall hold operating results briefing

shareholders, except for cases where it is evident thatsessions on a regular basis, among other measures,the transaction is conducted under the similar terms andin order to enhance the means of dialogues with theconditions as ordinary transactions in general.

shareholders, etc.
4) Opinions, etc. obtained through dialogues with the

3. Relationship with Stakeholders other thanShareholders

shareholders shall be reported to the Board of Directors,
etc. on a regular basis.

In order to achieve sustained growth and enhancement

5) Dialogues with the shareholders, etc. shall beof its corporate value over medium to long term, theconducted in compliance with laws and regulations as

Company shall respect not only the shareholders but also

well as internal rules, and the insider information shall bea variety of its stakeholders including customers, officers

managed appropriately.

and employees and local communities, and endeavors to6) The Company shall endeavor to understand themaintain good and smooth relationships with them.

shareholder structure through shareholder identification
surveys and other means in order to promote constructive

The Company shall establish the “Code of Conduct

dialogues with the shareholders, etc.

for Officers and Employees” and make all of its officers
and employees understand that they are to respect the(5) Strategic shareholdings

stakeholders’ positions.

The Company may hold the shares of the companies
that are considered to be necessary for such purposes

Moreover, in view of the importance of the issues

as strengthening the business relationship with them, in

related to sustainability, the Company shall endeavor toorder to achieve sustained growth and enhancement oftake appropriate measures to address such issues, andits corporate value over the medium to long term.

work to secure diversity, including promotion of women’s
active engagement.

The Company shall make a report to the Board of
Directors regarding the investment efficiency and27Moreover, multiple outside directors independent

4. Information Disclosure

F r o m t h e p e r s p e c t i ve o f e n s u r i n g m a n a g e m e n tfrom the Company shall be appointed to constitute thetransparency, the Company shall endeavor to proactively

Board of Directors where it is expected that, through theirmake fair, t imely and appropriate disclosure ofadvices and comments based on abundant experiences

management information by using its website andand expert knowledge on business management andthrough other means, not limited to information

other issues, appropriateness of the Company’s businessdisclosure based on the Companies Act, the Financial

operations is secured and business management

Instruments Exchange Act and listing rules of the security

supervisory functions from external viewpoints is

exchange, etc.

performed in an objective and neutral manner.
(3) The Audit & Supervisory Board and the Audit &In making information disclosure, the Company shall

Supervisory Board members

work to provide plain and concrete descriptions.

In performing their roles and responsibilities such as

5. Corporate Governance System

auditing the execution of the duties of the directors,(1) Board of Directors and other systems

the Audit & Supervisory Board members and the Audit

The Board of Directors, which is positioned by the& Supervisory Board endeavor to make appropriate

Company as the decision-making inst itut ion on

judgment from their independent and object ive

management policies and other issues, deliberates notstandpoint, with their fiduciary duties to the shareholders

only the matters designated by laws and regulations orin mind.

the Articles of Incorporation but also important matters(4) Nomination and Remuneration Advisory Committee

on business management.

The Company has established the Nomination and
In order to enhance business management efficiency

Remuneration Advisory Committee in order to reinforce

and speed up execution of operations, the Board of

the supervisory functions of the Board of Directors. The

Directors appoints executive officers to entrust themNomination and Remuneration Advisory Committeewith execution of operations other than the matters to beinvestigates such matters as election of candidates fordeliberated by the Board of Directors.

directors, the Audit & Supervisory Board members andexecutive officers as well as their remunerations, in

The executive officers execute operations based

response to consultations from the Board of Directors,

on the decisions made by the Board of Directors.

and provides advices and proposals to the Board.

Furthermore, a Director may concurrently take office as
an executive officer.

A majority of the members of the Nomination andRemuneration Advisory Committee shall be outside

The Company has established the Management

directors and outside auditors (hereinafter referred to as

Committee, which deliberates important matters related

the “outside officers”).

to the execution of company operations, and the(5) Candidates for directors, the Audit & Supervisory

Executive Officers Meeting where the status of execution

Board members and executive officers

of operations is reported, among other purposes.

The Company elects persons who are believed to(2) Board of Directors

contribute to achieving its sustained growth and

The Board of Directors comprises a variety of directors

enhancement of its corporate value over a medium tow ith different expert ise, experiences and otherlong term as candidates for the directors, the Audit &qualifications. The Company secures the appropriate

Supervisory Board members and executive officers,

number of the Board of Directors members at which thetaking into account their personality, knowledge, capacity

functions of the Board of Directors can be exerted mostand experiences, etc. and with their fiduciary duties toeffectively and efficiently, to the extent designated in thethe shareholders in mind.

Articles of Incorporation.

28

CORPORATE GOVERNANCE

For the outside officers, the Company shall electexecution of operations.

persons who, on top of the above, satisfy the criteria for
independence the Company sets forth separately.

As a rule, materials for the Board of Directors meeting

Election of candidates for the directors, the Audit

shall be delivered in advance, taking into account the& Supervisory Board members and executive officers

time required for the attendees of the meeting to makeshall be determined by the Board of Directors based onprior preparations, in order to help deepen deliberations

the results of investigations made by the Nomination

at the meeting. In addition, prior explanations may be

and Remuneration Advisory Committee, pursuant to thegiven to them depending on the content of the agendas.

provisions of laws and regulations.
Schedules of holding the Board of Directors(6) Remuneration of directors, the Audit & Supervisory

meeting and assumed agendas for the meeting shall be

Board members and executive officers

determined and notified in advance.

With a view to enhancing the correlation with theCompany’s business performance and share value,

Aside from the Board of Directors meeting and thethe remuneration of executive directors and executive

Audit & Supervisory Board meeting, a meeting by outside

officers shall comprise a fixed monthly remuneration,

officers shall be held periodically to exchange information

officers’ bonuses linked to the business performanceand share recognitions, so that they can exert functions

and share-based remuneration. For the officers’ bonuses,from their standpoint that is independent from thean amount determined in accordance with the businessCompany.

performance of each fiscal year shall be paid, with the(8) Evaluation and assessment of effectiveness of the

purpose of clarifying the management’s responsibility. As

Board of Directors

for the share-based remuneration, the Board Benefit Trust(BBT) scheme shall be used to provide points, which are

The Company shall make self-assessment as to thedetermined in correlation with medium-term business

effectiveness of the Board of Directors once a year, andperformances, to the executive directors and executive

disclose the outline of the results. Furthermore, theofficers, to whom the Company’s shares will be issued

Company shall make appropriate review of the Board ofupon their retirement from office in accordance with the

Directors based on the assessment.

points.
(9) Support system and training policies for directors
and the Audit & Supervisory Board members

Outside directors and the Audit & Supervisory
Board members shall receive only the fixed monthly

In order for the directors and the Audit & Supervisory

remuneration, and the officers’ bonuses or the share-

Board members to effectively perform their roles andbased remuneration shall not be provided to them.

responsibilities, related departments and sections of theCompany, including the Corporate Planning Division ofSpecific amounts of the remuneration for the directors

the Corporate Planning Department that is in chargeand executive officers shall be determined by the Board ofof the work related to the Board of Directors, shall

Directors based on the results of investigations made bycoordinate with each other to exchange information and

the Nomination and Remuneration Advisory Committee.

conduct other tasks.

Modifications to the remuneration framework and the
remuneration system, etc. shall also be investigated by

When it is necessary to make communications

the Nomination and Remuneration Advisory Committee.

and adjustments between the outside officers and the
management team or coordination with the Audit &(7) Operation of the Board of Directors

Supervisory Board members and the Audit & Supervisory

The agendas and deliberation time of the Board of

Board, the secretariat of the Board of Directors shall be

Directors shall be set in a manner that should allow

central in addressing such matters.

deliberations necessary and sufficient for deciding onimportant execution of operations and supervision of

In order for the directors and the Audit & Supervisory29

Board members to effectively perform their roles andCriteria for Independence of Outside Officers

responsibilities, the Company shall set the opportunity
to provide them, when they take office, with information

The Company shall determine that, on top of the criteria

regarding the Company’s operations, finance, organization

for independence set forth by the Tokyo Stock Exchange,and others as well as knowledge on laws and regulations,a person who falls under any of the following categories

etc., taking into account the careers and experiences,

is not independent of the Company.

etc. of the directors or the Audit & Supervisory Board
members who are taking office. Moreover, the Company

1. A person who currently falls under any of theshall provide opportunities, as needed, to continuously

following (1) through (5)(1) Principal shareholder

update such information or knowledge.

・ A person who is a principal shareholder of the(10) Accounting Auditor

Company (a shareholder holding shares that represent

The Company shall understand the responsibilities

at least 10% of the total voting rights) or, if the person
is a corporation, etc., its conducting representative

the accounting auditor owes to the shareholders andinvestors, and endeavors to secure appropriate audits as(2) Principal business partner

stated below.

・ A person for whom the Company is a principal
customer (a person whose transaction amount with

(1) The Audit & Supervisory Board shall establish criteria

the Company accounts for at least 2% of the person’s

to appropriately assess the accounting auditor. Moreover,consolidated operating revenues in the latest fiscal year)

the Audit & Supervisory Board shall check whether theor, if the person is a corporation, etc., its conducting

accounting auditor has independence and expertise

representativerequired for an accounting auditor.

・ A person who is a principal customer of the Company (a(2) The Company shall endeavor to provide thecustomer with whom the Company conducts businessaccounting auditor with an audit environment thatfor an amount that accounts for at least 2% of theshould allow high-quality audits, including provision

Company’s consolidated operating revenues in theof opportunities to interview senior members of thelatest fiscal year) or, if the person is a corporation, etc.,

management team, auditors and other departments

its conducting representativerequired for auditing and securing sufficient time for(3) Experts, etc.

conducting audits.

・ Consultant, accountant or legal professional who
receives monies or other economic benefits (excluding

When the accounting auditor points out injustice,officers’ remunerations) amounting to 10 million yen or

flaws or problems, etc., the Company shall accept what ismore per fiscal year from the Company or, if the person

pointed out in earnest and take appropriate measures.

is a corporation, etc., its conducting representative(4) Donation
・ A person who has received donation from the Company
for the amount of 10 million or more per fiscal year
or, if the person is a corporation, etc., its conducting
representative(5) Close relatives
・ A close relative (spouse or a relative within the second
degree of kinship) who falls under the categories of (1)through (4) above
2. A person who falls under any of the categories in
1. at any time in the past three years

30

RISK MANAGEMENTRISK MANAGEMENT
Basic policies in risk management

Method of risk management

With environmental changes such as financial deregulation

We classify expected risks broadly into 5 categories andand globalization as well as striking advances in information

then set these categories as management objectives; credit

technologies, risks which financial institutions face haverisks, market risks, liquidity risks, processing risks, andbecome diversified and more complicated. Accordingly,

system risks. Among these categories, for credit risks

risk management has become more important in theand market risks, we are striving to secure profits while

management of financial institutions than ever before.

quantitatively grasping the risks and controlling themwithin proper levels as feasible for our management vitality

In this situation, in order to increase profitability while(integrated risk management).

maintaining sound management, we have positioned risk
management at the highest priority and have establishedOn the other hand, for liquidity risks, processing risks

basic policies in risk management at our Board of Directors.

and system risks, we are taking preventive measures against
occurrences of these risks by executing proper management

More precisely, we have established basic policies

according to risk characteristics.

for risk management; “Keeping all employees informedof company’s emphasis on risk management”, “Proper
management of each category of risk”, “Promotion of
integrated risk management”, “Establishing a system ofmutual checks and balances”, and so forth.

Risk Categories
Risk Category
Credit Risk

Risk Description
Credit risks are risks to suffer losses by decreasing or losing the values of the assets due tocredit events such as deterioration in the financial standing of counterparty.
Market risk refers to the risk that owned assets (bonds, stocks) or derivative values will fluctuateMarket Risk

and losses will be incurred due to fluctuations in various market risk factors such as interest
rates, securities prices, and exchange rates.
Liquidity risks are risks to suffer losses caused by failures of raising necessary funds or by

Liquidity Risk

procurement of funds with unusually high interest rates or risks caused by halt of transactions
due to market disruptions or by forced transactions with unusually unfavorable prices.

Processing Risk

Processing risks are risks to suffer losses from failed processing due to negligence, accidents or
fraud by officers and employees.
System risks are risks to suffer losses due to system defects such as failures or malfunctions,

System Risk

etc., of computer systems or due to unauthorized uses (including cyberattacks) of computer
systems, etc.

31

Integrated risk management

said amounts for transaction limitation. In addition, eachIntegrated risk management is a method to quantify various

department implements rigid self-assessment of those assets

risks with unified methodology and to manage the total

for which they hold jurisdiction.

amount of risks within the realm of management vitality.
For credit risks and market risks, after allocating risk

Additionally, for each loan transaction, as a general

capital to each risk operation department by risk category

rule, we take adequate collateral. By implementing a

within the realm of our own capital, we quantify risks withdaily marking to the market of the relevant collaterals, we

the methodology of Value at Risk (VaR) and manage thesuppress occurrences of impaired loans. In a case where

calculated volume of risks within the range of that allocateda borrower falls into bankruptcy, by selling off collateralrisk capital. With corresponding to Basel II regulation

securities and so forth, we collect receivables in an

enforced in March 2008, operational risks, which consists

expeditious manner.

of processing risks and system risks, is measured by basic
method and we allocate risk capital amounts on it.

Market risk management
In our company, the Risk Management Department

Allocated amounts of risk capital are determined as final

quantifies and manages market risks, and to complement

at the Management Committee, with prior deliberation at

management by quantification, it implements stress tests.

regular “Risk Capital Meeting” in every March.

Furthermore, to validate the reliability of the market
risk quantification model we are adapting, we are also
implementing back testing to compare the calculated VaR

Each risk operation department controls the risks

with the portfolio-fixed virtual profit and loss

within the realm of the allocated risk capital. The Risk
Management Department, which is independent of risk
operation departments, quantifies the risks, monitors risk

Liquidity risk management

operation conditions, and report to board members.

In our company, the Treasury Department has jurisdiction
over the management of liquidity risks and attempts

In case a possible rise for a risk may exceed the allocatedto diversify procurement methods and to secure stableamount of the risk capital, an extraordinary “Risk Capital

supplies. As for cash flow management, while we are

Meeting” will be held to deliberate responses to the case andimplementing development of cash flow projection, graspingthen consult the Management Committee.

the amount which can be procured or liquidity of assets,
and paying attention to concentrated settlement dates for

Credit risk management

large capital, we have a system to report to our management

We try to sustain and improve the soundness of the assets

with daily cash flow status. Furthermore, to be preparedby strictly managing overall credit risks.

for unforeseeable circumstances, we take measures tosupplement liquidity such as possessing a certain amount ofMore precisely, the Risk Management Department

government bonds with high liquidity.

assesses credit risks according to in-house ratings, andquantifies and manages credit risks using a default rate

In addition, at the “ALM Committee” held in every

for each in-house rating. Furthermore, to complement

quarter, we develop cash flow projection based on forecasts

management by quantification, we implement stress tests.

of loans outstanding, deliberate policies for ALM (Asset

On the other hand, for credit control, the Risk Management

Liability Management) such as revenue management for

Department screens client companies and loan transactions

assets and liabilities of the company as a whole and thus

and sets the amounts for transaction limitation for eachreport to the Management Committee.

client, while business operation department manages the32

RISK MANAGEMENT

Processing risk managementmonitoring system is facilitated. Moreover, in preparation

In our company, each department has jurisdiction over theagainst the threat of cyberattacks, countermeasures for

management of processing risks. To lessen processing risks,computer systems and cybersecurity measures have been

through facilitation of regulations and manuals and also

implemented. In addition, concerning the protection ofthrough trainings, all employees are familiarized with proper

our own information assets (information and information

handling of operational work. In addition, by ensuring thatsystems), necessary regulations are consolidated and alleach department implements its own voluntary inspection

officers and employees are familiarized with handlingon a regular basis, we endeavor to prevent occurrence of

information assets. Furthermore, to minimize the effects ofaccidents and improve our business processing system.

system failures, measures are taken such as the facilitationof various handling manuals, implementation of drills, etc.

System risk management
In our company, the Information Systems Planning

Internal auditing system

Department holds jurisdiction over system risks

In our company, the Audit Department, which is independent

management. To ensure stable operations of our computerfrom other departments, implements strict internal auditing

systems, the department takes preventive measures againstof overall business operation on management status of eachsystem failures such as duplicating networks and equipment.

category of risk along with regulatory compliance status and

To develop and operate our computer systems safely andvalidates the appropriateness and efficacy of our internal

effectively, all of our operation procedures are clear and ourcontrol system in each department.

33

Appendix

In-house rating system

We introduced a rating system which segmentalizes credit
ratings of client companies into 6 ranks, based on ratings
by external credit rating agencies, quantitative assessmentof financial standing, obligor classifications used in selfassessment, and so forth. With this system, we assess thelevels of credit risks properly, quantify credit risks, and set
up amount for transaction limitation.

Risk capital

Risk capital is capital necessary to cover losses caused byrisks generated from business operation.

Value at Risk (VaR)

VaR is the maximum expected loss on an asset calculatedwith a certain period (holding period) and a certain
probability (confidence level). This is calculated based ondata in the past with statistical method. In our company,
VaR is calculated based on confidence level of 99% andholding period of one year.

Stress tests

Since VaR is statistical estimated figure, it cannot include
possible losses, which can be caused by extreme market
fluctuation such as Black Monday or economic crisis (stressevent). In this situation, to be prepared for unforeseeable
circumstances, we implement stress tests to calculate amountof losses in a case of occurrence of stress event based ondata in the past or on hypothetical scenarios and assess thesoundness of our financial management.

Risk Capital Meeting

The meeting is organized by the officers in charge of the
Risk Management Department, Business Development
Department, Corporate Planning Department, Treasury
Department, Margin Loan Department, Institutional Sales
Department and Retail Business Department, managers of
the Risk Management Department, Business Development
Department and Corporate Planning Department and, whenconcerned with the deliberation matters of the meeting,the managers of the Treasury Department, Margin Loan
Department, Institutional Sales Department and Retail
Business Department. The meeting is supervised by theofficer in charge of the Risk Management Department.

ALM Committee

This is a committee to deliberate ALM (asset liability
management), such as development of fund procurement
and management plans and revenue management, for assets
and liabilities of the company as a whole. The committee
is organized by the officer in charge of the Treasury
Department (serving as chairperson), officers in charge ofthe concerned departments and managers of respective
departments.

34

RISK MANAGEMENT

Risk Management System

The Audit & Supervisory Board,
The Audit & Supervisory Board members

Board of Directors

Management
Committee
Executive Oﬃcers Meeting

Executive Oﬃcer incharge of Treasury
Department

ALM
Committee

Risk Operation Sector

Executive Oﬃcer in charge of
Risk Management
Department and Information
Systems Planning Department

Executive Oﬃcer incharge of Department

Executive Oﬃcer
in charge of Audit
Department

Risk Capital
Meeting

Liquidity
Risk

MarketRisk

CreditRisk

SystemRisk

Processing
Risk

Treasury
Department

Risk
Management
Department

Risk
Management
Department

Information
Systems
Planning
Department

Each
Department

Treasury
Department

・Treasury
Department
・Margin Loan
Department

Each
Department

Each
Department

・Institutional
Sales
Department
・Retail Business
Department
・Margin Loan
Department
・Tresury
Department
・Branch35

Internal Audit Sector

Risk Management
Department

Audit Department

Risk Management
SectorRisk
Categories

Integrated Risk
Management Sector

Meeting

Management

President

36

FINANCIAL SECTION

Consolidated Financial Statements ･･････････････････････････････････････････････････････････････････ 38
Consolidated Balance Sheet ･ ･･･････････････････････････････････････････････････････････････････････ 38
Consolidated Statement of Income ･･･････････････････････････････････････････････････････････････ 40
Consolidated Statement of Other Comprehensive Income ･････････････････････････････････ 40
Consolidated Statement of Changes in Net Assets ･ ･･････････････････････････････････････････ 41
Consolidated Statement of Cash Flows ･･････････････････････････････････････････････････････････ 42
Notes to Consolidated Financial Statements ･･･････････････････････････････････････････････････ 43
Independent Auditors' Report ･････････････････････････････････････････････････････････････････････････ 73

37

CONSOLIDATED BALANCE SHEETJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2018
Millions of yen
2018
2017

AssetsCurrent assets:
Cash (notes 3 and 15)
Call loans
Short-term investments (notes 4 and 15)
Trade loans receivable (note 15)
Deferred tax assets (note 9)
Collateral money for securities borrowed
Other current assets (note 15)
Allowance for doubtful receivables
Total current assets¥

Property, plant and equipment:
Buildings and structures
Tools, furniture and fixtures
Land (note 6)

7,322,054
894,202572,449
9,440,239
7,229
20,408,226
543,966(10,523)
39,177,842

8,796
1,546
3,265
13,607(6,985)
6,622

82,916
14,90030,732
128,548(69,352)
59,196

3,884

4,347

36,559787,232
1,948(678)
788,502690,208
2,592(1,158)691,642

7,409,940
18,336(6,382)
7,421,894¥ 4,960,929 ¥ 4,645,052$ 46,695,491

Intangible assets, net
Investments and other assets:
Investments in securities (notes 4, 5 and 15)
Other investments and other assets
Allowance for doubtful receivables
Total investments and other assets

See accompanying notes to consolidated financial statements.

38

$

8,809
1,583
3,265
13,657(7,368)6,289

Accumulated depreciation
Net property, plant and equipment

Total assets

777,895 ¥ 1,076,762
95,00033,00060,817
238,498
1,002,931
587,752768
279
2,168,170
1,930,722
57,79175,682(1,118)(254)
4,162,254
3,942,441

Thousands of
U.S. dollars(note 2)
2018

Millions of yen
2018
2017

Liabilities and Net Assets
Current liabilities:
Call money (notes 7 and 15)¥ 771,414 ¥ 626,899
Short-term borrowings and current installments oflong-term borrowings (notes 7 and 15)
15,51013,010Commercial paper (note 7)
459,000
185,000
Accrued income taxes (note 9)621
387
Collateral money received for securities lent
2,505,135
2,492,579
Other current liabilities
1,040,772
1,159,566
Total current liabilities
4,792,452
4,477,441
Non-current liabilities:
Long-term borrowings (note 7)
Deferred tax liabilities (note 9)
Deferred tax liabilities for land revaluation (note 6)
Liability for retirement benefits (note 8)
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock (note 10):
Authorized 200,000,000 shares;
issued 100,000,000 shares in 2018 and 2017
Capital surplus (note 10)
Retained earnings (note 11)
Treasury stock, at cost; 5,311,432 shares in 2018and 3,821,515 shares in 2017
Total stockholders’ equity
Accumulated other comprehensive income (loss):
Net unrealized gain on other securities(note 4)
Deferred loss on hedges (note 17)
Gain on revaluation of land (note 6)
Remeasurements of defined benefit plans (note 8)
Total accumulated other comprehensive
incomeTotal net assets

Thousands of
U.S. dollars(note 2)2018
$ 7,261,050
145,990
4,320,407
5,846
23,579,960
9,796,423
45,109,676

3,000
10,39674
441
10,755
24,666

4,000
9,411
74
3,034
11,38027,89928,23897,854696
4,151
101,233
232,172

4,817,118

4,505,340

45,341,848

10,00010,00094,127

11,326
108,588

11,326106,196

106,608
1,022,101(3,094)
126,820(2,207)125,315(29,123)
1,193,713

24,484

19,737

230,459(7,243)168(418)(5,084)168(424)(68,176)
1,581(3,934)

16,991

14,397

159,930

143,811

139,712

1,353,643¥ 4,960,929 ¥ 4,645,052$ 46,695,491

Commitments and contingencies (note 18)
Total liabilities and net assets

39

CONSOLIDATED STATEMENT OF INCOME

Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2018
Millions of yen

Operating revenues
Operating expenses
Operating profit
General and administrative expenses (note 12)
Operating income¥

201826,334 ¥13,331
13,0039,122
3,881

Other income (deductions):
Interest income
Dividend income
Interest expenses
Equity in earnings of affiliates
Gain on bad debt recovered
Gain on sale or liquidation of investments insecurities
Loss on disposal of property, plant andequipment
Other, net
Income before income taxes andnon-controlling interests
Income taxes (note 9):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent¥

2017
23,066
11,893
11,1738,371
2,802

Thousands of
U.S. dollars(note 2)

2018247,873
125,480
122,393
85,86336,530

$

228
414
(0)
123
22

230
423
(0)
93
5

2,146
3,897
(0)
1,158
207

132

63

1,242

–
17
936

(114)
57
757

–
160
8,810

4,817

3,559

45,340

938
(346)
592
4,225
–
4,225 ¥

578
(97)
481
3,078
–
3,078

8,829
(3,257)
5,572
39,768–39,768$See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2018
Net income
Other comprehensive income (loss) arising during
the year (note 13):
Net unrealized gain (loss) on other securities (note 4)
Deferred gain (loss) on hedges (note 17)
Remeasurements of defined benefit plans (note 8)
Other comprehensive loss of affiliates accounted
for by the equity method
Total other comprehensive income (loss)
arising during the year
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of parent
Non-controlling interests

See accompanying notes to consolidated financial statements.

40

¥

¥
¥

Millions of yen
2018
2017
4,225 ¥
3,078

Thousandsof U.S.
(note 2)2018
$ 39,768

4,837(2,159)(9)(8,097)4,165
413

45,529(20,322)
(84)

(75)

(28)

(706)

2,594
6,819 ¥

(3,547)(469)

6,819 ¥
–

(469)
–

$
$

24,41764,18564,185–CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2018

Millions of yen
Stockholders’ equity

Balance at March 31, 2016

Commonstock

CapitalsurplusRetainedearnings(note 10)

(note 10)

(note 11)

Treasury
stock

Total

Accumulated other comprehensive income (loss)
RemeasurNet-ements
unrealizedofGain onDeferredgain ondefinedrevaluation
loss onother
benefitTotalof landhedgessecurities(note 4)

¥ 10,000 ¥ 11,471 ¥ 104,669 ¥ (2,054) ¥ 124,086 ¥(note 17)

27,877 ¥ (9,248) ¥(note 6)
168 ¥Total net
assets(note 8)(852) ¥ 17,945 ¥ 142,031

Changes arising during year:
Cash dividends(1,551)

Net income attributable to owners of parent

3,078

Purchase of treasury stock
Disposition of treasury stock(145)(1,551)(1,551)

3,078

3,078

(566)

(566)

(566)

413

268

Net changes other than stockholders’ equity
Total changes during the year
Balance at March 31, 2017268
(8,140)

4,164

–

428

(3,548)(3,548)

–

(145)

1,527

(153)

1,229

(8,140)

4,164

–

428

(3,548)(2,319)10,00011,326106,196(2,207)125,315

19,737(5,084)

168

(424)

14,397

139,712

Changes arising during year:
Cash dividends(1,833)(1,833)(1,833)

Net income attributable to owners of parent

4,225

4,225

4,225

Purchase of treasury stock

(892)

(892)

(892)

Disposition of treasury stock

5

5

5

(887)

1,505

Net changes other than stockholders’ equity
Total changes during the year
Balance at March 31, 2018

–

–

2,392

¥ 10,000 ¥ 11,326 ¥ 108,588 ¥ (3,094) ¥ 126,820 ¥

4,747(2,159)

–

6

2,594

2,594

4,747

(2,159)

–

6

2,594

4,099

24,484 ¥ (7,243) ¥168 ¥(418) ¥ 16,991 ¥ 143,811

Thousands of U.S. dollars(note 2)
Stockholders’ equityCommo
n stock
Balance at March 31, 2017

Capitalsurplus$ 94,127 $ 106,608 $Retainedearnings

Treasury
stock

Total

Accumulated other comprehensive income (loss)
RemeasurNet-ements
unrealizedof definedDeferredGain ongain onbenefitloss onrevaluation
other
plans
Total
hedgesof landsecurities

999,586 $ (20,774) $ 1,179,547 $ 185,777 $ (47,854) $1,581 $

Total net
assets(3,990) $ 135,514 $ 1,315,061

Changes arising during year:
Cash dividends(17,253)(17,253)(17,253)

Net income attributable to owners of parent

39,76839,76839,768(8,396)

Purchase of treasury stock(8,396)(8,396)

Disposition of treasury stock

47

47

Net changes other than stockholders’ equity
Total changes during the year
Balance at March 31, 2018––

22,515(8,349)14,16647
44,682(20,322)44,682(20,322)$ 94,127 $ 106,608 $ 1,022,101 $ (29,123) $ 1,193,713 $ 230,459 $ (68,176) $See accompanying notes to consolidated financial statements.

41––
1,581 $

56

24,416

24,41656

24,416

38,582(3,934) $ 159,930 $ 1,353,643

CONSOLIDATED STATEMENT OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2018

Cash flows from operating activities:
Income before income taxes and non-controlling interests¥
Adjustments to reconcile income before income taxes and non-controllinginterests to net cash provided by (used in) operating activities:
Depreciation and amortization
Loss on sale/disposal of property, plant and equipment
Gains relating to short-term investments and investments in securities
Allowance for doubtful receivables
Decrease in liabilities for retirement benefits
Interest and dividend income
Interest expenses
Equity in earnings of affiliates
Increase in trade loans receivable
Increase in call loans
Increase in collateral money for securities borrowed
Increase (decrease) in call money
Increase (decrease) in short-term borrowings
Increase in commercial paper
Increase in collateral money received for securities lent
Increase in collateral money received for loan transactions
Increase in long-term debt
Purchase of short-term investments and investments in securities
Proceeds from sale/redemption of short-term investments andinvestments in securities
Other, net
Sub totalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of investments in securities
Proceeds from sale/redemption of investments in securities
Capital expenditures
Purchase of intangible assets
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid to stockholders
Purchase of treasury stock
Disposition of treasury stock
Other, net
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (note 3)¥

See accompanying notes to consolidated financial statements.

42

Thousands of
U.S. dollars(note 2)
2018

Millions of yen
2018
2017
4,817

¥

3,559

$

45,341

1,364
3
(730)
384
(2,594)(9,034)1,260(123)(415,179)(62,000)(237,448)
144,5151,500
274,000
12,556
12,124–(253,811)

807
115
(88)
(381)
(390)
(8,762)
1,217(93)(20,004)(33,000)(905,105)(94,001)(185,000)
63,000942,926
37,5971,000(66,169)

12,83928(6,871)
3,614(24,416)(85,034)
11,860(1,158)(3,907,935)(583,584)(2,235,015)
1,360,269
14,1192,579,066
118,185
114,119–(2,389,034)

345,217(114,603)(297,782)
9,101(1,128)(706)(290,515)

463,347
610,387
810,962
8,917(1,150)(540)
818,189

3,249,407(1,078,718)(2,802,918)
85,665(10,618)(6,645)(2,734,516)(8,498)
4,520
(60)
(408)
6
(4,440)(11,217)
4,403
(34)
(661)
1
(7,508)(79,989)
42,545(565)(3,840)57(41,792)(1,834)(892)––(2,726)(297,681)
1,069,150
771,469 ¥(1,551)
(566)
268
(53)
(1,902)808,779
260,371
1,069,150(17,263)(8,396)––(25,659)(2,801,967)
10,063,535
7,261,568$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018
(1)(a)

Summary of Significant Accounting Policies
Basis of Presenting Consolidated Financial Statements
Japan Securities Finance Co., Ltd. (the Company) and its consolidated subsidiaries maintain their books ofaccount and prepare their financial statements in conformity with financial accounting standards of Japan.
The accompanying consolidated financial statements have been prepared in accordance with the provisions
set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in
conformity with accounting principles and practices generally accepted in Japan, which may differ in certain
respects from accounting principles and practices generally accepted in countries and jurisdictions other thanJapan.
In preparing the accompanying consolidated financial statements, certain reclassifications have been madein the financial statements issued domestically in Japan in order to present them in a form which is more familiar
to readers outside Japan. In addition, the notes to the consolidated financial statements include information
which is not required under accounting principles generally accepted in Japan but is presented herein as
additional information.
(b)

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its 2

subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Investments in affiliates are accounted for by the equity method.
The Accounting Standards for Consolidation require the control or influence concept for the consolidation
scope of subsidiaries and affiliates.

Under the control or influence concept, a company in which the parent

company or its consolidated subsidiaries, directly or indirectly, are able to exercise control over operations is fully
consolidated, and a company over which the parent company and/or its consolidated subsidiaries have the ability
to exercise significant influence is accounted for by the equity method.
(c)Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all highly liquid investments withinsignificant risk of changes in value which have maturities of generally three months or less when purchased tobe cash equivalents.
(d)

Short-term Investments and Investments in Securities
Under the Accounting Standards for Financial Instruments, securities are classified into four categories –“trading securities,” “held-to-maturity securities,” “investments in affiliates” and “other securities.”

Securities

classified as “trading securities” are stated at fair value and unrealized gains or losses are recorded in the
consolidated statement of income.
cost.

Securities classified as “held-to-maturity securities” are stated at amortized

Securities classified as “other securities” with fair value are stated at fair value and unrealized gains orlosses, net of related taxes, are excluded from earnings and recorded in a separate component of net assets.
Realized gains or losses on the other securities are determined by the moving average method. Securities
classified as “other securities” for which fair value is not available are stated at the moving-average cost.
(e)Property, Plant and Equipment
Property, plant and equipment are carried at cost.

Depreciation is provided principally by the

declining-balance method based on the estimated useful lives, except for the buildings acquired on or after April 1,
1998 and the leasehold improvements and structures acquired on or after April 1, 2016, which are depreciatedbased on the straight-line method.

43

The estimated useful lives are as follows:
Buildings and structures
3–50 years(f)Intangible Assets
Intangible assets are carried at cost less accumulated amortization. Software development expenses aredeferred and amortized by the straight-line method over estimated useful lives (5 years).

Intangible assets otherthan software are deferred and amortized by the straight-line method at rates based on the estimated useful livesof the respective assets.
(g)

Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided at an amount of uncollectible receivables based on

historical loss ratios and an amount that takes into consideration the possibility of specific liabilities.
(h) Retirement and Severance Benefits
The Company and its consolidated subsidiaries have retirement benefit plans covering substantially all
employees.
Liability for retirement benefits have been made in the accompanying consolidated financial statements
based on the present value of the projected future retirement benefits attributable to employee services renderedby the end of the year, less amounts funded under contributory and noncontributory pension plans.
The retirement benefit obligation is attributed to each period by the benefit formula basis.
Actuarial gain or loss is amortized in the subsequent year that it occurs by the declining-balance method
within the average remaining years (15 years) of service of the employees.
Consolidated subsidiaries calculate retirement benefit obligation based on a simplified method, which ispermitted for small size companies in conformity with the Accounting Standard for Retirement Benefits forcalculating retirement benefit liability and retirement benefit expenses.
(i)LeasesAll finance lease transactions are capitalized.

Leased assets related to finance lease transactions without title transfer are depreciated on a straight-line basis,
with the lease periods as their useful lives and no residual value.
(j)

Income Taxes
The Accounting Standards for Deferred Income Taxes require that deferred income taxes should be accounted

for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial statements or tax returns.

Under thismethod, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled, and the effect ondeferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes theenactment date.
(k)

Directors’ Bonus
Directors’ bonuses are accounted for as an expense when such bonuses are accrued.

(l)Provision for Share Remuneration Plan
Provision for share remuneration plan is provided for delivery of the Company’s shares to directors andexecutive officers at an amount of estimated obligation for share remuneration based on the internal rule.

44

(m) Accounting standards issued but not yet applied
1. Accounting Standards for Revenue Recognition etc.
・Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 30, 2018)
・Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30,
March 30, 2018)(1) Overview
The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board(FASB) co-developed a new comprehensive revenue recognition standard and published “Revenue fromContracts with Customers” in May 2014 (IFRS No. 15 in IASB, Topic 606 in FASB). Given that IFRS No. 15
will be applied from the fiscal year starting on or after January 1, 2018 and Topic 606 from the fiscal year
starting after December 15, 2017, the Accounting Standards Board of Japan (ASBJ) has developed
comprehensive accounting standards for revenue recognition and published them together with
implementation guidance
The ASBJ basic policy in developing accounting standards for revenue recognition is thought to be
setting accounting standards, with the incorporation of the basic principles of IFRS No. 15 as a starting point,
from a standpoint of comparability between financial statements, which is one of the benefits of ensuringconsistency with IFRS No. 15, and to be adding alternative accounting treatments without losing thecomparability if there is an item that we should take into account in practices, etc. that have been conductedin Japan.
(2) Planned applicable date
The accounting standards are to be applied from the beginning of the year ending March 31, 2022.
(3) Impact of application on these accounting standards
The Company is currently evaluating the impact of application of these accounting standards to theconsolidated financial statements.
2. Implementation Guidance on Tax Effect Accounting etc.
・Implementation Guidance on Tax Effect Accounting (ASBJ Guidance No. 28 revised by the AccountingStandards Board of Japan on February 16, 2018)
・Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26 finally revised by
the Accounting Standards Board of Japan on February 16, 2018)(1) Overview
ASBJ made the following revisions that were deemed necessary on Implementation Guidance on Tax
Effect Accounting, etc. basically following their relevant contents, when Practical Guidelines on Tax EffectAccounting were transferred to the ASBJ from under the control of the Japanese Institute of Certified Public
Accountants.
(Major revised accounting treatments)
・ Accounting treatment on taxable temporary differences from investments in subsidiaries, etc.in
non-consolidated financial statements
・Accounting treatment on recoverability of deferred tax assets in companies that qualifies as Category 1(2) Planned applicable date
The accounting standards are to be applied from the beginning of the year ending March 31, 2019.
(3) Impact of application of these accounting standards, etc.
The Company is currently evaluating the impact of application of these accounting standards to theconsolidated financial statements.

45

(n)

Reclassifications
Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to

the presentation used as of and for the year ended March 31, 2018.
(2)

Financial Statement Translation
The translations of the yen amounts into U.S. dollars are included solely for the convenience of the reader,using the prevailing exchange rate as of March 31, 2018, which was ¥106.24 to U.S. $1.

This translation should

not be construed as a representation that the amounts shown could be converted into U.S. dollars at such rate.
(3)

Cash and Cash Equivalents
Reconciliation between “Cash” in the accompanying consolidated balance sheet and “Cash and cash

equivalents” in the accompanying consolidated statement of cash flows as of March 31, 2018 and 2017 are as
follows:

Millions of yen
2018
Cash
Time deposits with maturities of overthree months
Certificate of deposits with maturities ofover three months
Cash and cash equivalents
(4)

¥

¥

777,895

2017$

1,076,762(2,424)(3,609)(4,002)¥Thousands of
U.S. dollars
2018(22,816)(4,003)¥

771,469

7,322,054(37,670)$

1,069,150

7,261,568

Short-term Investments and Investments in Securities
No trading securities were held both as of March 31, 2018 and 2017.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity

securities as of March 31, 2018 and 2017 are summarized as follows:

March 31, 2018
Government bond securities

Millions of yen
Gross
Gross
unrealized
unrealized
gain
loss

Balancesheet
amount
¥

1,515

¥

208

¥

¥

1,515

¥

208

¥

¥

1,515

¥

179

¥

¥

1,515

¥

179

¥

March 31, 2017
Government bond securities

March 31, 2018
Government bond securities

– ¥
– ¥

1,723

– ¥
– ¥

1,694

Thousands of U.S. dollars
Gross
Gross
unrealized
unrealized
gain
loss

Balancesheet
amount$14,260

$

1,958

$

$

14,260

$

1,958

$

46

Fair value

– $
– $

1,723

1,694

Fair value
16,218
16,218

Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities
with fair value as of March 31, 2018 and 2017 are summarized as follows:
Millions of yen

March 31, 2018
Equity securities

Gross
unrealized
gain

Acquisition
cost
¥

5,279

¥

Gross
unrealized
loss

¥

8,511

(49)

Balancesheet
amount¥13,741

Bond securities:
Government bond securities

615,056

Corporate bond securities

145,657

Other

20,401
4,926

Other securities

March 31, 2017
Equity securities

25,635¥¥(3)

640,68861(53)

145,665

274

(502)

20,173

1,348

791,319

¥

5,307

¥

(19)

35,829

¥

6,574

¥

6,255

(626)

¥

826,522(57)¥

11,824

Bond securities:
Government bond securities

630,558

24,643(118)

655,083

Corporate bond securities

197,392

175(8)

197,559

Other

44,86523(3,814)

41,074

4,911

919

(39)

5,791

Other securities¥

March 31, 2018
Equity securities

883,033¥

49,689(4,036)¥

Thousands of U.S. dollars
Gross
Gross
unrealized
unrealized
gain
loss

Acquisition
cost
$

¥

32,334$$

80,111(461)

911,331

Balancesheet
amount$129,339

Bond securities:
Government bond securities

5,789,307

Corporate bond securities

1,371,018
192,028
46,367

12,688Other
Other securities$

7,448,409

241,293$(28)

6,030,572

575

(499)

1,371,094

2,579(4,725)

189,882(179)

58,876$337,246(5,892)$

7,779,763

Securities classified as other securities for which fair value is not available are summarized as follows:

2018
Unlisted equity securities¥

Unlisted REITs
Investments in investment limited partnership

47

Thousands of
U.S. dollars
2018

Millions of yen
2017
2,900

¥

2,900

$

27,29713,012

9,232

122,477

521

130

4,904

For the years ended March 31, 2018 and 2017, proceeds from sale of other securities, the gross realized gains
and the gross realized losses are summarized as follows:
Millions of yen
2018
2017
Proceeds from sale of other securities¥¥

106,429

36,066

Thousands of
U.S. dollars
2018$

1,001,779

Gross realized gains

1,524

1,215

14,345Gross realized losses

219

619

2,061

For the year ended March 31, 2017, held-to-maturity securities of ¥40,171 million have been reclassified asother securities because there was no reasonable reason to hold the securities until maturity due to introductionof negative interest rate policy.

As a result of this reclassification, investments in securities increased by ¥222

million, deferred tax liabilities increased by ¥68 million and net unrealized gain on other securities increased by¥154 million.
Financial assets received as collateral on which the Company has a right of disposal as of March 31, 2018 and2017 are as follows:

The fair value of the securities received
as collateral¥Millions of yen
2018
2017

Thousands of
U.S. dollars
2018¥

1,327,416$ 20,089,759

2,134,336

Securities lent

231,482

195,192

2,178,859

Collateral provided

301,250

304,572

2,835,561

1,601,604

827,652

15,075,339

On hand

Balance sheet amount of securities lent under loan for consumption agreement, etc. as of March 31, 2018 and2017 is as follows:

Millions of yen
2018
2017
Short-term investments¥¥

35,699555,606

Investments in securities

64,541Thousands of
U.S. dollars
2018$423,620

336,0225,229,725

The fair value of the securities borrowed under loan for consumption agreement, etc. as of March 31, 2018and 2017 is as follows:

2018
The fair value of the securities borrowed¥

2,098,145
2,071,442

Securities loaned–

Securities pledged as collateral

26,703On hand48

Thousands of
U.S. dollars
2018

Millions of yen
2017¥

2,052,027
2,017,692
2,338
31,997$

19,749,106
19,497,760–

251,346(5)Investments in Affiliates
The aggregate carrying amount of investments in affiliates as of March 31, 2018 and 2017 are ¥3,578 million($33,678 thousand) and ¥3,597 million, respectively.
(6)Land Revaluation
The Company revaluated its land at fair value, pursuant to the Enforcement Ordinance for the Law

Concerning Land Revaluation and its amendments (the “Law”).

According to the Law, net unrealized gain wasreported in a separate component of net assets, net of related taxes, and the related taxes are reported inliabilities as deferred tax liabilities for land revaluation as of March 31, 2002.
The value of the land as of March 31, 2018 decreased by ¥33 million ($311 thousand) in comparison with the bookvalue of the land after revaluation.
(7)

Debt
The composition of debt and the weighted average interest rate on debt as of March 31, 2018 and 2017 are as

follows:

Millionsof yenMarch 31, 2018
Short-term borrowings¥

Long-term borrowings

Thousandsof U.S.
dollars

Weighted
averagerate

14,510 $

136,578

0.037%

4,000

37,651

0.542

Call money

771,414

7,261,050(0.028)Commercial paper

459,000

4,320,407(0.000)¥1,248,924 $

11,755,686¥

13,010March 31, 2017
Short-term borrowings
Long-term borrowings

4,000

0.542

Call money

626,899(0.028)Commercial paper

185,000(0.000)¥(8)

0.031%

828,909

Retirement and Severance Benefits
The Company has defined benefit retirement and pension plans, which consist of a defined benefit corporate

retirement and pension plan and an unfunded retirement and severance plan that provide for lump-sum payment
of benefits, and a defined contribution plan.
Consolidated subsidiaries’ main retirement plans are unfunded retirement and severance plans that provide
for lump-sum payment of benefits as defined benefit retirement and pension plans and the simplified method has
been adopted for the calculation of liability for retirement benefits and retirement benefit expenses for the plans.
The Company has established a retirement benefit trust for further fiscal consolidation to cover defined
benefit corporate retirement payments and lump-sum retirement payments. The Company has contributed¥2,665 million ($25,085 thousand) to the trust and as a result liability for retirement benefits was decreased by
the same amount.
Defined benefit plans
Followings are the information for the Company’s and the consolidated subsidiaries’ defined benefit plans asof March 31, 2018 and 2017 and for the years then ended.

49

(1) Reconciliation of changes in retirement benefit obligation (the following table excludes certain plans
mentioned in (3))
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Retirement benefit obligation at beginning of year

¥

8,544

¥

8,714

$

80,421Service cost

315

348

2,965

Interest cost

34

18

320

Actuarial gains and losses

228

(240)

2,146

Benefits paid

(323)

(296)

(3,040)¥Retirement benefit obligation at end of year

8,798

¥

8,544

$

82,812(2) Reconciliation of changes in plan assets (the following table excludes certain plans mentioned in (3))
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
¥

Plan assets at beginning of year

5,748

¥

5,464

$

54,104

Expected return on plan assets

142

109

1,336

Actuarial gains and losses

252

205

2,372

Employer contributions

100

229

941

Benefits paid

(250)

(259)

Contribution to the retirement benefit trust

2,665
¥

Plan assets at end of year

8,657

(2,353)

–

¥

5,748

25,085$

81,485(3) Reconciliation of changes in liability for retirement benefits whose plans adopted the simplified method
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Liability for retirement benefits at beginning of year ¥146

Retirement benefit expenses

14

13

132

Contributions

(0)

(0)

(0)

¥

Liability for retirement benefits at end of year

50

160

¥

¥

133

146

$

$

1,374

1,506

(4) Reconciliation between retirement benefit obligation and plan assets and liability for retirement benefit andasset for retirement benefit recognized in consolidated balance sheet
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
¥

Funded retirement benefit obligation
Plan assets
Unfunded retirement benefit obligation

8,798

¥

6,767

$

82,812(8,657)(5,748)(81,485)

141

1,019

1,327

160

1,922

1,506

Net liability for retirement benefit recognizedin consolidated balance sheet

¥

301

¥

2,941

$

2,833

Liability for retirement benefit

¥

301

¥

2,941

$

2,833

Net liability for retirement benefit recognizedin consolidated balance sheet

¥

301

¥

2,941

$

2,833

(5) The components of retirement benefit expenses

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
¥

Service cost

315

¥

348

$

2,965

34

18

320

(142)

(109)

(1,337)

Amortization of actuarial gains or losses

66

150

621

Retirement benefit expenses calculated by thesimplified method

14

13

132

Interest cost
Expected return on plan assets¥

Retirement benefit expenses

287

¥

420

$

(6) Remeasurements of retirement benefit plans before related tax effects

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Actuarial gains or losses

¥

Total

¥

90
90

¥
¥

596

$

847

596

$

847

(7) Accumulated remeasurements of retirement benefit plans before related tax effects

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Unamortized actuarial gains or losses

¥

373

Total

¥

373

51

2,701

¥

463

$

3,511

¥

463

$

3,511

(8) Plan assets(a) Percentage by major category of plan assets

Debt securities
Equity securities
General account
Other
Total

2018

2017

44.9%
41.6
11.1
2.4
100.0%

34.8%
45.6
17.2
2.4
100.0%

Plan assets at March 31, 2018 include the retirement benefit trust contributed for the year ended March
31, 2018 which is 10% of total plan assets.
(b) Determination procedure of long-term expected rate of return on plan assets
In determining long-term expected rate of return on plan assets, the Company considers the current andprojected asset allocation, as well as current and future long-term rate of returns for various categories of theplan assets.
(9) Basis for calculation of actuarial assumptions
The assumptions used in accounting for the above plans as of March 31, 2018 and 2017 are as follows:
2018
2017
(a) Discount rate(b) Long-term expected rate of return(c) Expected salary increase rate

0.3%
2.0%
5.2%

0.4%
2.0%
5.2%

Defined contribution plans
For the years ended March 31, 2018 and 2017, the amount to be paid by the Company and its consolidated
subsidiaries to the defined contribution plans was ¥37 million ($348 thousand) and ¥36 million, respectively.
Liability for retirement benefits (directors and corporate auditors)
Directors and corporate auditors are not covered by the plans described above. The Company and all
consolidated subsidiaries had abolished retirement benefit system for directors and corporate auditors.
Directors and corporate auditors were entitled to lump-sum payment up to the date of the abolishment when theyleave the Company or subsidiaries.
As of March 31, 2018 and 2017, the liability for retirement benefits related to the plans were ¥42 million($395 thousand) and ¥42 million which include the lump-sum payments mentioned above, respectively.
(9)

Income Taxes
The Company and its consolidated subsidiaries are subject to Japanese corporate, inhabitant and businesstaxes based on income which, in the aggregate, result in a statutory tax rate of approximately 30.9% both in 2018and 2017.

52

The reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before
income taxes and non-controlling interests for the years ended March 31, 2018 and 2017 is follows:
2018
Statutory tax rate
Equity in gains of affiliates
Expenses not deductible for tax purposes
Valuation allowance
Income not credited for tax purposes
Other
Effective tax rate

2017

30.9%
(0.8)
1.1
(18.2)
(2.0)
1.3
12.3%

30.9%
(0.8)
0.7
(17.4)
(2.0)
2.1
13.5%

The above valuation allowance in 2018 includes expired tax loss carryforward.
Significant components of deferred tax assets and liabilities as of March 31, 2018 and 2017 are as follows:

Deferred tax assets:
Accrued business tax
Accrued bonuses
Liability for retirement benefits (employees)
Liability for retirement benefits (directors andcorporate auditors)
Allowance for doubtful receivables
Tax loss carryforward
Deferred losses on hedges
Net unrealized loss on other securities
Other

Millions of yen
2018
2017
¥

Valuation allowance
Deferred tax liabilities:
Gain on evaluation of subsidiaries’ assets
Net unrealized gain on other securities
Gain on transfer of investment in an affiliate
Gain on evaluation of acquired assets by merger
Deferred losses on hedges
Other
Net deferred tax liabilities

¥

53

75
194
840

¥

64
166
904

Thousands of
U.S. dollars
2018
$

706
1,826
7,907

13
532
488
4,199
175
308
6,824
(2,480)
4,344

13
294
3,626
3,807
1,197
308
10,379(5,955)
4,424

122
5,008
4,593
39,524
1,647
2,899
64,232(23,343)
40,889(155)(10,970)
(359)
(603)
(1,866)(19)(13,972)(9,628)(155)(9,877)(359)(603)(2,541)(21)(13,556)(9,132)(1,459)(103,257)(3,379)(5,676)(17,564)(179)(131,514)(90,625)¥$

Net deferred tax assets and liabilities as of March 31, 2018 and 2017 are reflected in the accompanying
consolidated balance sheet under the following captions:Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Current assets - Deferred tax assets
Non-current liabilities- Deferred tax liabilities

¥

768

¥

(10,396)279(9,411)$

7,229(97,854)(10) Common Stock
Under the Companies Act, the entire amount of the issue price of shares is required to be designated asstated common stock account although a company in Japan may, by resolution of its Board of Directors, accountfor an amount not exceeding 50% of the issue price of new shares as additional paid-in capital, which is included
in capital surplus.
(11) Retained Earnings and Dividends
The Companies Act provides that an amount equal to 10% of distributions from retained earnings paid by
the Company and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are
required when the total amount of the additional paid-in capital and the legal reserve equals 25% of theirrespective stated capital. The Companies Act also provides that capital surplus and legal reserve are available
for appropriations by the resolution of the stockholders. Balances of the legal reserve are included in retained
earnings in the accompanying consolidated balance sheet.
Cash dividends charged to retained earnings for the years ended March 31, 2018 and 2017 represent dividends
paid out during those years. The amount available for dividends is based on the amount recorded in the
Company’s non-consolidated books of account in accordance with the Companies Act.
(a)

Dividends paid during the year ended March 31, 2017
The following was approved by the general meeting of stockholders held on June 24, 2016.
(a)Total dividends¥775 million(b)Cash dividends per common share

¥8

(c)

Record date

March 31, 2016(d)

Effective dateJune 27, 2016

The following was approved by the Board of Directors held on November 7, 2016.

(b)

(a)

Total dividends¥775 million(b)Cash dividends per common share

¥8

(c)

Record date

September 30, 2016(d)

Effective date

December 5, 2016

Dividends paid during the year ended March 31, 2018
The following was approved by the general meeting of stockholders held on June 23, 2017.
(a)Total dividends¥968million($9,111 thousand)(b)

Cash dividends per common share¥10 ($0.09)(c)

Record date

March 31, 2017(d)

Effective dateJune 26, 2017

54

The following was approved by the Board of Directors held on November 6, 2017.
(a)Total dividends¥865 million ($8,142 thousand)(b)

Cash dividends per common share¥9 ($0.08)(c)

Record date

September 30, 2017(d)

Effective date

December 4, 2017(c)Dividends to be paid after the balance sheet date but the record date for the payment belongs to the year
ended March 31, 2018
The following was approved by the general meeting of stockholders held on June 22, 2018.
(a)Total dividends¥1,621 million ($15,258 thousand)(b)

Dividend source

Retained earnings(c)Cash dividends per common share¥17 ($0.16)(d)Record date

March 31, 2018(e)Effective dateJune 25, 2018(12) General and Administrative Expenses
Significant components of general and administrative expenses are as follows:

Millions of yen
2018
2017
Salaries
Retirement benefit expenses
Depreciation

¥

55

3,073
324
1,364

¥

3,113
456
807

Thousands of
U.S. dollars
2018$28,925
3,050
12,839(13) Other Comprehensive Income (Loss)
The reclassification adjustment and the related income tax effects allocated to each component of othercomprehensive income (loss) for the years ended March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Net unrealized gain (loss) on other securities:
Arising during the year¥

8,209 ¥

(10,996)$

77,268

Reclassification adjustment(1,304)(596)(12,274)

Before tax amount

6,905(11,592)

64,994

Tax benefit (expense)(2,068)3,495(19,465)

Net-of-tax amount

4,837(8,097)45,529(3,483)

5,320(32,784)

Deferred gain (loss) on hedges:
Arising during the year
Reclassification adjustment

–

–

–

(3,483)

5,320(32,784)

Tax benefit (expense)

1,324(1,155)

12,462Net-of-tax amount(2,159)4,165(20,322)

Before tax amountRemeasurements of defined benefit plans:Arising during the year

24

445

226

Reclassification adjustment

66

150

621

Before tax amount

90

595

847

Tax benefit (expense)

(99)

(182)

(931)

Net-of-tax amount

(9)

413

(84)

Share of other comprehensive income (loss) of affiliates accounted for by equity method:
Arising during the year

128

53

1,205

Reclassification adjustment

(203)

(81)

(1,911)

(75)

(28)

(706)

Total other comprehensive income (loss)

¥

56

2,594

¥

(3,547)$

24,417

(14) Per Share Information(a) Net Income per Share
Basic net income per share, and reconciliation of the numbers and the amounts used in the basic net
income per share computations for the years ended March 31, 2018 and 2017 are as follows:
Yen

2018
Basic net income per share

¥

44.24

U.S. dollars
2018

2017

¥

31.91

$

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Net income attributable to owners of the parent
Net income not applicable to common
stockholders
Net income attributable to owners of the parent
applicable to common stockholders

¥

4,225

¥

3,078

－
¥

4,225

0.42

$

39,768

－
¥

3,078

－
$

39,768

Number of shares (Thousands)
2017

2018
Weighted average number of shares outstandingon which basic net income per share is calculated

95,49496,481The Company’s own stocks which are held by the trust are included in the treasury stocks which are
excluded from the calculation of weighted average number of shares outstanding on which basic net income pershare is calculated.
(b)

Net Assets per Share
Net assets per share, and reconciliation of the numbers and the amounts used in the net assets per sharecomputations as of March 31, 2018 and 2017 are as follows:

2018
Net assets per share¥

1,518.77

Yen

¥

2017

U.S. dollars
2018

1,452.64$

Millions of yen
2018
2017
Total net assets
Amount deducted from total net assets
Net assets applicable to common stockholders

¥
¥

57

143,811－
143,811¥¥

139,712－
139,712

14.30

Thousands of
U.S. dollars
2018
$
$

1,353,643－
1,353,643

Number of shares (Thousands)
2017

2018
Number of shares outstanding at end of year
on which net assets per share is calculated

94,68896,178The Company’s own stocks which are held by the trust (BBT) are included in the treasury stocks which are
excluded from the calculation of number of shares outstanding at end of year on which net assets per share is
calculated.
(15) Pledged Assets
The carrying value and classification of assets owned by the Company that have been pledged tocounterparties as of March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Short-term investments¥

Trade loans receivable
Investments in securities

23,817¥

171,757$

224,181415,678

160,329

3,912,632

167,968

129,231

1,581,024

Assets in the above table were pledged for the followings:

2018
Call money¥

Short-term borrowings

Thousands of
U.S. dollars
2018

Millions of yen
2017

205,000¥

5,000

232,300$

5,000

1,929,593
47,063

In addition to the above, followings are deposited for the Clearing Fund of Japan Securities Clearing
Corporation and Japan Government Bond Clearing Corporation, etc.
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Cash

¥

25

¥

25

$

235

Other current assets

46,50561,801

437,735

Investments in securities

1,785

1,668

16,80258

(16) Financial Instruments
Conditions of Financial instruments(1) Management policy
The Company and a consolidated subsidiary, JSF Trust and Banking Co., Ltd. (“JSFTB”) mainly deal infinancial instruments. The Company is engaged in providing loan services, mainly loans for margintransactions. The loans for margin transaction are loan services which are money lending or stock loan forsettlement of standardized margin transactions. The transaction is strongly effected by security market
condition, therefore, the Company raises money flexibly from short-term finance market, primarily from callmarket. The Company owns securities such as Japanese Government Bonds to maintain daytime liquidity.
A consolidated subsidiary, JSFTB is engaged in providing credit services such as loans as banking businessand finance and securities activities. JSFTB invests in highly liquid and safe-and-secure securities such as
government bonds, local government bonds, public corporation bonds and government-backed bonds as securities
investment activities and usually raises money through a trust account.
(2) Financial instruments and risks
Main financial instrument that the Company holds are trade loans receivable, collateral money for securities
borrowed, short-term investments and investments in securities such as government bonds and equity securities.
Collateral money for securities borrowed is the collateral for cash-secured bond lending transaction, cash-secured
stock lending transaction and securities borrowed of loan on margin transactions. Main financial instrumentthat JSFTB holds are loans to government and business corporations and securities such as government bonds,
local government bonds, public corporation bonds and government-backed bonds. Trade loans receivable held by
the Company and JSFTB are exposed to credit risks that caused from counterparties’ default of contract.
Securities are exposed to market risks. Regarding raising money such as call money and short-term borrowingsof the Company and JSFTB, the liabilities are exposed to liquidity risks that caused from turmoil in the financial
markets or a credit rating down.
The Company has entered into forward exchange contract for hedging currency exchange risk of bonds
denominated in foreign currency and interest rate swaps for hedging interest rate risk of fixed-rate bonds.
Hedge accounting is applied to the derivatives and the Company regularly monitors the hedge effectiveness
whether the relationship between hedging derivatives and hedged assets are appropriate and the currency
exchange risk and the interest rate risk of hedged items are offset by hedging derivatives.
JSFTB has entered into interest rate swaps for hedging fixed-rate loans, bonds and borrowings as a part ofinterest risk control (ALM). Hedge accounting is applied to the derivatives held for ALM purpose, and theCompany regularly monitors the hedge effectiveness whether the relationship between hedging derivatives andhedged assets or liabilities are appropriate and the interest rate risk of hedged items are offset by hedging
derivatives.
(3) Financial instruments risk management
The Company places risk management as top priority of management. Basic policy of risk management isapproved at the Board of Directors, and various rules for risk management according to the basic policy are
established for concrete risk management method or system. The Company regularly receives a report fromJSFTB concerning its risk management.
1) Integrated risk management
The Company quantizes the risk by Value at Risk (VaR) approach after allocating risk capital within equity
capital, and controls the quantized risk amount within the allocated risk capital. Each business operation
department controls a risk within the allocated risk capital, risk management department that is independent
from each operational section quantizes the risk, monitors the risk management and reports to the management.
2) Credit risk
The Company manages all of the credit risk strictly to maintain and improve assets quality. The Risk
Management Department evaluates credit risks according to the in-house rating and quantizes and controls thecredit risk using the default rate by each in-house rating category. Stress tests are also performed forcompensating the quantization control. The Risk Management Department evaluates customers or loans, andsets up the credit limits, while business operation department monitors the credit limit. Assets owned by59

business operation departments are assessed by themselves strictly. The Company receives collateral securities
for each loan and revaluates the securities daily to mitigate the collectability issues, and the Company collects theclaims quickly through sale of the collaterals when the customer bankrupts.
3) Market risk
The Risk Management Department quantizes and controls market risks, and performs stress tests tocompensate the quantization control. Back-testing which is the test compared calculated VaR and estimatedprofit or loss by using the fixed portfolio is performed to test the reliability of the Company’s market risk
quantization model.
4) Quantitative information of market risk
The Company calculates VaR of short-term investments and investments in securities by using Delta method(holding period: 10-120 days (depending on purposes in holding), confidence interval: 99%, observation period:
mainly 1 year). Market risk amount (possible losses) of the Company is ¥9,084 million ($85,505thousand) as ofMarch 31, 2018.
Because VaR is a statistical estimate of market risk amount at a particular probability using past market
movement data, VaR may not capture the risk during radical market movements that are extreme in nature.
5) Liquidity risk
The Treasury Department of the Company seeks to diversify financing channels and to secure stable financing
sources. For sound cash flow management, the Company develops cash flow forecast, understands the amount
can be raised or future liquidity and also understands dates of a large payment concentration, the Company has asystem to report to the management with daily cash flow status. The Company tries to hold enough liquidity, forexample, to possess a certain amount of government bonds, makes a contingency plan and builds a company-wide
emergency response system against contingencies. Liquidity stress tests are performed monthly for ascertaining
whether consolidated liquidity held by the Company and JSFTB is adequate. At the “ALM Committee” held in
every quarter, the Company develops cash flow forecast based on estimates of loans outstanding, studies policies
for ALM (Asset Liability Management) such as revenue management for assets and liabilities of the Company
and the Company has a system to report to the management.
6) Subsidiary’s risk control system
JSFTB basic policy of risk management is approved at the Board of Directors, and various rules for risk
management according to the basic policy are established for concrete risk management method or system, andthe Risk Management Department controls the risks totally. The Risk Management Department measures andmonitors the risk quantity, collects and analyzes information and reports the risk condition to the management
for maintaining the proper risk management.
JSFTB calculates market risk amount for all market transactions. Interest rate risk amount which is a majorrisk variable is calculated by VaR (Delta method; holding period: 1 year, confidence interval: 99%, observation
period: 5 years). JSFTB market risk amount is ¥4,209 million ($39,618 thousand) as of March 31, 2018.
(4) Supplemental explanation regarding fair value of financial instruments
Fair value of financial instruments are measured based on the quoted market price, if available, or reasonably
assessed value if a quoted market price is not available. Fair value of financial instruments which quoted
market price is not available is calculated based on certain assumptions, and the fair value might differ if
different assumptions are used.
Fair value of financial instruments
The carrying value on the consolidated balance sheet, fair value, and differences as of March 31, 2018 and2017 are as follows.
Financial instruments, of which it is extremely difficult to measure the fair value, are not included. (Please see“<2> Financial instruments of which the fair value is extremely difficult to measure”)

60Millions of yen

2018
Carrying
value
Assets:(1) Cash(2) Call loan *1(3) Trade loans receivable
Allowance for doubtfulreceivables *1¥

777,895
94,893
1,002,931

Fair value¥

777,895
94,893(256)
1,002,675

1,002,675

Differences¥－ ¥ 1,076,762－
32,963587,752¥ 1,076,762
32,963Differences
¥

－
－

－

587,633－－

1,930,624

1,930,624－

1,694
911,331¥ 4,541,007

¥

179
－
179

¥

¥

－

2,167,416

2,167,416

1,515
826,522¥ 4,870,916

1,723
826,522¥ 4,871,124

¥

208
1,515
－
911,331208 ¥ 4,540,828(1) Call money

¥

¥

¥

－ ¥

771,414

Fair value(119)
587,633(4) Collateral money for securities
borrowed *1(5) Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities
Total

771,4142017

Carrying
value

626,899

626,899(2) Short-term borrowings

14,51014,510－13,01013,010－(3) Commercial paper

459,000

459,000－

185,000

185,000－

2,505,135

2,505,135

2,492,579

2,492,579

－

4,000

4,000

4,000

4,000

－

Total

¥ 3,754,059¥ 3,754,059¥－ ¥ 3,321,488¥ 3,321,488

Derivative transactions *2

¥

¥

(－) ¥

¥

(4) Collateral money received for
securities lent－

(5) Long-term borrowings(8,905) ¥(8,905)－

Thousands of U.S. dollars
2018
Carrying
value
Assets:(1) Cash(2) Call loan *1(3) Trade loans receivable
Allowance for doubtfulreceivables *1$

7,322,054
893,195
9,440,239$

7,322,054
893,195

Differences$－－(2,410)9,437,829

9,437,829－

20,401,129

20,401,129－$

16,218
7,779,763
45,850,188

$

1,958
－
1,958

$

7,261,050$－(4)Collateral money for securities
borrowed *1(5)Short-term investments andinvestments in securities
Held-to-maturity securities
Other securities
Total

$

14,2607,779,763
45,848,230(1)Call money$

7,261,050(2)Short-term borrowings

Fair value

136,578

136,578－(3)Commercial paper

4,320,407

4,320,407－(4)Collateral money received for
securities lent

23,579,960

23,579,960－

61(9,380)¥－(9,380) ¥(－)

(5) Long-term borrowings

37,651

37,651

－

Total

$

35,335,646$

35,335,646$－

Derivative transactions *2$(83,820)$(83,820)$(－)*1 Allowance for doubtful accounts associated with trade loans receivable is deducted. Carrying value of callloan and collateral money for securities borrowed is net amount of related allowance for doubtful accounts,
because the allowance for doubtful accounts for these accounts is not material.
*2 Long-term borrowings include current installment of long-term borrowings.
*3 Derivative receivables and payables are on net basis. Items that are net payables are shown in parenthesis.
<1> Fair value measurement of financial instruments
Assets:(1) Cash and (2) Call loan
The fair value approximates carrying amount because of the short maturity of these instruments.
(3) Trade loans receivable
The fair value of trade loans receivable with variable interest rate approximates carrying amount because thefair value is reflected a fluctuation of interest market in a short period and unless credit status of the borrower
does not change so much from when the Company lent. Allowance for doubtful receivables are estimated basedon collectable amounts by collaterals and guarantee and thus the fair value approximates the carrying amountminus allowance for doubtful receivables amounts.
(4) Collateral money for securities borrowed
The fair value approximates carrying amount because of the short maturity of these instruments.
(5) Short-term investments and investments in securities
The fair value of equity securities are calculated by quoted market price and bond securities are calculated byquoted market price or quotes from information venders. The fair value of government bonds with variableinterest rate held by the Company is estimated based on quotes from information venders in accordance with the“Practical Solution on Measurement of Fair Value of Financial Assets” (ASBJ Practical Issue Task Force (PITF)
No. 25, October 28, 2008), because based on our determination that their market prices cannot be deemed fairvalue due to the market situation where the number of transactions is extremely small. The pricing model usedby the information vendors is forward pricing model, and the price determinant variables are the spot rate forJapanese government bonds and the swaption volatility.
The fair value of investment trust is calculated by quoted market price.
Please see note “(4) Short-term Investments and Investments in Securities” for information by category.
Liabilities:(1) Call money, (2) Short-term borrowings, (3) Commercial paper and (4) Collateral money received for
securities lent
The fair value approximates carrying amount because of the short maturity of these instruments.
(5) Long-term borrowings
The fair value of long-term borrowings with variable interest rate approximates carrying amount because thefair value is reflected a fluctuation of interest market in a short period and credit status of the Company does notchange very much from when the Company borrowed.
Derivatives:
Please see note “(17) Derivative Financial Instruments.”62

<2> Financial instruments of which the fair value is extremely difficult to measure

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017

Unlisted equity securities
Other securities
Investments in affiliates
Unlisted REITs
Investments in investment limited partnership

¥

2,900
3,578
13,012521¥

2,900 $
3,597
9,232
130

27,29733,678122,477
4,904

Above securities have no market value and the fair value is extremely difficult to measure, therefore are notincluded in “Assets: (5) Short-term investments and investments in securities.”<3> Projected future redemption of monetary claim and securities with maturities as of March 31, 2018
Millions of yen
Due after
one yearthrough fiveyears

Due within
one year(1) Cash(2) Call loan
(3) Trade loans receivable(4) Collateral money for securities
borrowed(5) Short-term investments andinvestments in securities
Held-to-maturity securities(Government bonds)
Other securities with maturities
Bond securities
Government bonds
Corporate bonds
Other
Total

¥

¥

777,895
95,000959,869¥－－
43,062

Due after
five years
through ten
years

¥

－
－
－

Due after
ten years¥－－－

2,148,171

20,000

－

－

－

－

－

1,500

39,69820,944－
4,041,577

288,999
124,424－
476,485

17,000－18,54835,548265,000－－
266,500

63

¥

¥

¥

Thousands of U.S. dollars

Due after
one yearthrough fiveyears

Due within
one year(1) Cash(2) Call loan
(3) Trade loans receivable(4) Collateral money forsecurities borrowed(5) Short-term investments
and investments in securities
Held-to-maturity securities(Government bonds)
Other securities with maturities
Bond securities
Government bonds
Corporate bonds
Other
Total

$

$

7,322,054
894,202
9,034,911$－－
405,327

Due after
five years
through ten
years

$

－
－
－

Due after
ten years$－－－

20,219,983

188,253

－

－

－

－

－

14,119373,663
197,139－
38,041,952

2,720,247
1,171,160－
4,484,987

160,015－
174,586
334,601

2,494,352－－
2,508,471$$$<4> The annual maturities of the long-term borrowings, lease liabilities and other interest bearing liabilities as ofMarch 31, 2018
Millions of yen

Duewithinone yearCall money
Short-termborrowings
Commercial paper
Collateral money
received for
securities lentLong-term
borrowings
Total

¥

771,414

Due after
two years
through
three
years

Due after
one yearthrough
two years
¥

－

¥

－

Due after
three
years
throughfour years¥－

Due after
four years
throughfive years¥－

Due after
five years¥－

14,510459,000

－
－

－
－

－
－

－
－

－
－

2,505,135

－

－

－

－

－

1,000
¥ 3,751,059

¥

－
－

¥

64

－
－

¥

－
－

¥

－
－

¥

3,000
3,000

Thousands of U.S. dollars

Duewithin one
year
Call money
Short-termborrowings
Commercial paper
Collateral money
received for
securities lentLong-term
borrowings
Total

$

$

7,261,050
136,578

Due after
two years
through
three
years

Due after
one yearthrough
two years
$

－
－

$

－
－

Due after
three
years
throughfour years$－－

Due after
four years
throughfive years$－－

Due after
five years$－－

4,320,407

－

－

－

－

－

23,579,960

－

－

－

－

－

9,413
35,307,408

$

－
－

$

－
－

$

－
－

－
－

$

$

28,23828,238(17) Derivative Financial Instruments
Derivative transactions to which hedge accounting are applied as of March 31, 2018 and 2017 aresummarized as follows:(a) Exchange rate derivatives

Hedge
accounting
method*1

Nature of transaction
Forward exchange contract:
Sell:
Euro

Millions of yen

Hedged items

2018
Contract ornotional
amounts
Fair value

2017
Contract ornotional
amounts Fair value

Investments insecurities¥¥

18,548 ¥231

Thousands of U.S. dollars
2018

Hedge
accounting
methodNature of transaction*1

Forward exchange contract:
Sell:
Euro

Hedged items

Contract ornotional
amounts
Fair value

Investments insecurities$ 174,586 $*1 Deferred hedge accounting is applied.
The fair value is estimated based on quotes from counterparties.

65

2,174

38,744 ¥(446)

(b) Interest rate derivatives

Hedge
accounting
method Nature of transaction*1

Interest rate swaps:
Variable rate received
for fixed rate
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate paidfor variable rate

*2

Hedge
accounting
method*1

Nature of transaction
Interest rate swaps:
Variable rate received
for fixed rate
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate paidfor variable rate

*2

2018

Millions of yen

2017

Hedged items

Contract ornotional
amounts
Fair value

Contract ornotional
amounts Fair value

Investments
in securities¥ 285,291 ¥¥ 312,150 ¥Trade loans
Long-term
borrowings(9,136)54,226*3

74,711

*3

3,000

*3

3,000

*3

Hedged items

Thousands of U.S. dollars
2018
Contract ornotional
amounts
Fair value

Investments
in securities$

Trade loans
Long-term
borrowings(8,934)2,685,345 $ (85,994)

510,410*3

28,238*3*1 Deferred hedge accounting is applied.
*2
The difference in amounts to be paid or received on interest rate swaps is recognized over the life of theagreements as an adjustment to interest expense.
*3
For the assets and liabilities for which interest rate swap contracts are used to hedge the interest rate
fluctuations, fair value of derivative financial instrument is included in fair value of the respective assets andliabilities as hedged items.
The fair value is estimated based on quotes from counterparties.
(c) Bond derivatives

Hedge
accounting
method*1

Nature of transaction
Bond futures:
Sell

Hedged items

Millions of yen
2018
Contract ornotional
amounts
Fair value

Investments
in securities

¥

66

1,357

¥

(0)

Hedgeaccounting
method Nature of transaction*1

Bond futures:
Sell

Thousands of U.S. dollars
2018

Hedged items

Contract ornotional
amounts
Fair value

Investments
in securities$

12,773$(0)*1 Deferred hedge accounting is applied.
The fair value is calculated by quoted market price.
(18) Commitments and Contingencies
As of March 31, 2018 and 2017, undrawn amount of general loan for securities companies and customers,
overdraft loan and loan commitment line are as follows:

Millions of yen
2018
2017
Total credit line
Drawn amount
Undrawn amount¥¥

789,958
32,000757,958¥¥744,768
15,730729,038

Thousands of
U.S. dollars
2018
$
$

7,435,599
301,205
7,134,394

Since some of these contracts expire without the rights exercised, the undrawn amount itself does not necessarily
affect future cash flows.
(19) Segment Information
The reported segments of the Company are the business units for which the Company is able to obtainrespective financial information separately in order for the Board of Directors to conduct periodic investigation todetermine distribution of management resources and evaluate their business results.
“Securities finance business” conducted by the Company, “Trust banking business” conducted by JSF Trust andBanking Co., Ltd. and “Real estate leasing business” conducted by Nihon Building Co., Ltd. are the Company’s
reported segments. JSF Trust and Banking Co., Ltd. and Nihon Building Co., Ltd. are consolidated subsidiariesof the Company.
“Securities finance business” is engaged in providing loan services, which are loans for margin transaction,bond financing and general loans, bond lending and stock lending. “Trust banking business” is engaged inproviding trust services such as securities trust and banking services such as deposit or loan. “Real estateleasing business” is mainly engaged in providing services for leasing and managing real estate owned by JSF
Group.
Segment revenues, income, assets, liabilities and others are calculated by accounting methods similar to
those employed to prepare the accompanying consolidated financial statements. Segment income is calculated
based on “Keijo-soneki.” Under accounting principles generally accepted in Japan, an ordinary income or loss,“Keijo-soneki” should be disclosed in the income statement. The ordinary income or loss is an income or loss
figure with certain adjustments, which are categorized as extraordinary items in accordance with accounting
principles generally accepted in Japan, made to income or loss before income taxes and non-controlling interests.
Therefore, ordinary income or loss is operating income or loss plus non-operating income from interest anddividend income and other items less non-operating expenses, such as interest expenses. Intersegment revenue
and transfer are based on arms-length transactions.

67

The reported segment information for the Company and its consolidated subsidiaries for the years ended
March 31, 2018 and 2017 was summarized as follows:
Millions of yen
2018
Securities
Real estate
finance
Trust banking
leasing
Total
Revenues:
Revenues to third parties¥
22,488 ¥2,972 ¥
874 ¥
26,334
Intersegment revenues andtransfers
2
8
394
404
¥
22,490 ¥2,980 ¥
1,268 ¥
26,738
Total
Segment income

¥

3,626

¥

421

¥

648

¥

4,695

Segment assets¥

3,854,296¥

1,122,363

¥

9,829

¥

4,986,488

Others:Depreciation andamortization
Interest income
Income taxes

¥

1,153
228
317

¥

85
－
55

¥

126
11
221

¥

1,364
239
593

Revenues:
Revenues to third parties
Intersegment revenues andtransfers
Total

Thousands of U.S. dollars
2018Real estate
Trust banking
leasing

Securities
finance

Total$

211,672$

27,974

$

8,227

$

247,873$19
211,691$75
28,049$3,709
11,936$

3,803
251,676

Segment income$

34,130

$

3,963

$

6,099

$

44,192

Segment assets$

36,279,141$

10,564,411$

92,517$46,936,069

Others:Depreciation andamortization
Interest income
Income taxes$

10,853
2,146
2,984

$

800
－
518

$

1,186
104
2,080

$

12,839
2,250
5,582

68

Revenues:
Revenues to third parties
Intersegment revenues andtransfers
Total

Millions of yen
2017Real estate
Trust banking
leasing

Securities
finance

Total¥

19,407

¥

2,793

¥

866

¥

23,066¥

11
19,418

¥

7
2,800

¥

392
1,258

¥

410
23,476

Segment income

¥

2,636

¥

426

¥

590

¥

3,652

Segment assets¥

3,417,970¥

1,259,394

¥

9,509

¥

4,686,873

Others:Depreciation andamortization
Interest income
Income taxes

¥

544
229
184

¥

114
－
75

¥

140
10
222

¥

798
239
481

Reconciliation between total segment revenues in the table above and revenues in the accompanying
consolidated statement of income for the years ended March 31, 2018 and 2017 are as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Total segment revenues¥

Intersegment revenues

26,738¥(404)

Revenues in the accompanying consolidated
statement of income¥

26,334

23,476$

251,676(410)¥

23,066(3,803)$247,873

Reconciliation between total segment income in the table above and ordinary income for the years ended
March 31, 2018 and 2017 are as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Total segment income

¥

4,695

¥

3,652

$

44,192

Intersegment income

(132)

(133)

(1,242)Equity in earnings of affiliates

123

93

1,158

Ordinary income

¥

4,686

69

¥

3,612

$

44,108

Reconciliation between total segment assets in the table above and assets in the consolidated
accompanying balance sheet as of March 31, 2018 and 2017 are as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Total segment assets¥

4,986,488¥

4,686,873$

46,936,069

Intersegment accounts(2,357)(18,765)(22,186)

Intersegment investments(26,269)(26,269)(247,261)

3,067

3,213

28,869Other

Assets in the accompanying consolidatedbalance sheet¥

4,960,929¥

4,645,052$

46,695,491

Reconciliation between others in the table above and amounts in the consolidated financial statements asof and for the years ended March 31, 2018 and 2017 are as follows:
Millions of yen

Segment total

Amounts intheconsolidated
financialstatements

Adjustments

March 31, 2018

Depreciation and amortization
Interest income¥

Income taxes

1,364

¥

0

¥

1,364

239

(11)

228

593

(1)

592

March 31, 2017

Depreciation and amortization¥

Interest income

798

¥

239

Income taxes

9

¥

(9)

481

230

(0)

481

Thousands of U.S. dollars

Depreciation and amortization
Interest income
Income taxes

Adjustments

Segment total

March 31, 2018$12,839
2,250
5,582

70

$

0
(104)
(10)

807

$

Amounts intheconsolidated
financialstatements
12,8392,146
5,572

Related Information(a)
Information by services
Sales by services for the years ended March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Loans for margin transaction
Bond lending

¥

Other
¥

13,254¥

10,721$

124,756

3,577

3,512

33,669

9,503

8,833

89,44826,334¥23,066$

247,873(b)

Geographic information
Because revenues from customers inside Japan are over 90% of revenues in the consolidated statement ofincome and no property, plant and equipment located outside Japan, the geographic information is not disclosed
for the years ended March 31, 2018 and 2017.
(c)

Information by major customers
Because no particular third party whose revenues are over 10% of revenues in the consolidated statement ofincome exists, the information by major customers is not disclosed for the years ended March 31, 2018 and 2017.
Information of impairment loss on fixed assets by reported segments
The information is not applicable for the years ended March 31, 2018 and 2017.
Goodwill by reported segments
The information is not applicable for the years ended March 31, 2018 and 2017.
Negative goodwill incurred by reported segments
The information is not applicable for the years ended March 31, 2018 and 2017.
(20)

Transactions of Delivering the Company’s Own Stock to Directors through Trust
The Company has introduced a performance-based share remuneration plan called “Board Benefit Trust(BBT)” in order to further clarify the linkage between remuneration for directors (other than outside directors)
and executive officers (collectively “directors”) and the performance and share value of the Company, thereby
enhancing their awareness of the need to contribute to the efforts to archive improved business performance andgreater enterprise value in the medium to long term.

1. Outline of the plan
The Plan is a performance-based share remuneration plan under which the Company’s shares will beacquired through a trust using money contributed by the Company and the Company’s shares and the money
equivalent to the market value of the shares will be delivered by the Trust to directors pursuant to the “Rules for
Delivery of Shares to Directors” to be established by the board of directors.
In principle, the Shares, etc. will be delivered when he/she resigns as director.
2. Stock remaining in the trust
In accordance with the “Practical Solution on Transactions of delivering the Company’s Own Stock to
Employees etc. through Trust (ASBJ Practical Issue Task Force (PITF) No. 30, March 26, 2015)”, the Company
recorded assets and liabilities of the trust on the Company’s balance sheet as assets and liabilities of the Company.
The Company recorded own stocks in the trust as treasury stocks under net assets at book value in the trust
excluding associated costs. The book value of the own stocks was ¥262 million ($2,466 thousand) and thenumber of the stocks was 627 thousand shares at March 31, 2018, and ¥268 million and the number of the stocks
was 640 thousand shares at March 31, 2017.

71

(21) Subsequent Event
Acquisition of treasury stocks
The Board of Directors of the Company approved at May 14, 2018 to acquire treasury stocks pursuant to theprovisions of Article 165 Paragraph 3 of the Companies Act by replacing the provisions stipulated in Article 156 of
the same Act.
1. Reasons for the acquisition of treasury stocks
The acquisition of treasury stocks is to be conducted in an aim to prepare for flexible capital policies.
2. Details of the acquisition of treasury stocks(1) Type of shares to be acquired: Common stocks(2) Number of shares to be acquired: 1,000,000 shares (upper limit)(3) Total acquisition costs: ¥800 million ($7,530 thousand) (upper limit)(4) Acquisition schedule: From June 6, 2018 to March 22, 2019
Additional contribution to the “Board Benefit Trust (BBT)”The Board of Directors of the Company approved at May 14, 2018 to contribute additional money to the“Board Benefit Trust (BBT)” and the Company contributed ¥45 million ($424 thousand) to BBT at May 29, 2018.
Because the remuneration for executive officers has been increased, additional money is required for BBT toensure the availability of funds to acquire the Company’s common stock.
BBT acquired 56,000 shares of the Company’s common stock by ¥36 million ($339 thousand) during the specified
period for acquisition of the Company’s common stock from May 29, 2018 to June 5, 2018.

72

INDEPENDENT AUDITORS' REPORT73

OUTLINE OF JSF GROUP

Japan Securities Finance Co., Ltd.

Subsidiaries

Aﬃliates

JSF Trust and Banking Co., Ltd.

Japan Information Processing
Service Co., Ltd.

Nihon Building Co., Ltd.

JSF Information Technology Co., Ltd.

Name

(millions of yen)

Ratio ofshareholding

14,000100

Trust service, Banking services

100

100

Real estate ownership and leasing
Real estate trading and brokerage

2,460

20.00

Information processing services
Software development and sales

100

20.75

Information processing services
Software development and sales

CapitalBusiness overview

Subsidiaries
JSF Trust and Banking Co., Ltd.
Nihon Building Co., Ltd.
Affiliates
Japan Information Processing Service Co., Ltd.
JSF Information Technology Co., Ltd.

74

CORPORATE DATA

(as of March 31, 2018)

Establishment

President

July 1927

Eizo Kobayashi

Head office

Capital1-2-10 Nihonbashi-Kayabacho, Chuo-ku, Tokyo￥10 billion

103-0025
Tel: +81-3-3666-3184

Number of employees

Fax: +81-3-3666-1403

252

Share Information
Shares outstanding

Stock exchange listing

100,000,000 shares（as of March 31, 2018）

Tokyo Stock Exchange, 1st section (Code:8511)

Number of shareholders

Transfer agent

13,006（as of March 31, 2018）

Japan Securities Agents, Ltd.
1-2-4 Nihonbashi-Kayabacho, Chuo-ku, Tokyo
103-8202
Tel: +81-3-3668-9211

Major shareholders

Number ofshares held(Thousands)

Ratio ofshareholding

Japan Trustee Services Bank, Ltd.
(Trust account)

6,009

6.30

Japan Trustee Services Bank, Ltd.
(Trust account 9)

5,129

5.38

Shihon-Shijo Shinko Foundation

4,810

5.04

The Master Trust Bank of Japan, Ltd.
(Trust account)

3,632

3.81

Mizuho Bank, Ltd.

3,536

3.70

Japan Trustee Services Bank, Ltd.
(Trust account 4)

3,038

3.18

State Street Bank And Trust Company
505001

2,563

2.68

Northern Trust Co.(AVFC) RE IEDU UCITS
Clients Non Lending 15 PCT Treaty Account

2,119

2.22

State Street Bank West Client-Treaty
505234

1,778

1.86

Government of Norway

1,763

1.85

75

Composition of shareholders(by number of shares)Securities
Companies
7.2%

Other JapaneseCompanies
7.9%

Individuals
26.7%

Financial
Institutions
32.6%
ForeignInvestors
25.6%

Executives(As of June 22, 2018)

Directors

Executive Officers

Chairperson

Minoru Masubuchi *Chairperson

Minoru Masubuchi

President

Eizo Kobayashi *President

Eizo Kobayashi

Vice President

Shunichiro Higuchi *Vice President

Shunichiro Higuchi

Senior Managing Director

Kenji Fukushima

Senior Managing Director

Kenji Fukushima

Kazuhiro Maeda

Kazuhiro Maeda

Managing Director

Yutaka Okada

Managing Director

Yutaka Okada

Director

Takashi Imai **Executive Officer

Tetsuya Tawara

Tetsuo Mae **Morikuni Shimoyamada

Eiko Shinotsuka **Osamu Nishida(* Representative Directors)

Masaru Fukui(** Outside Directors)

Audit & Supervisory Board Member
Shuuya Iimura *Yasuhiro Hirama
Toshio Kamiyama *(* Outside Audit & Supervisory Board Member)

Rating Information
Long-term rating

Short-term ratingStandard and Poor’s (S&P)

A

A-1

Rating and Investment Information, Inc. (R&I)

AA －

a-1+

Japan Credit Rating Agency (JCR)

AA －

J-1+

76

CORPORATE DATAORGANIZATION

General Meetingof Shareholders

Audit & Supervisory Board
Board of Directors(Chairperson, Vice Chairperson)

Nomination and Remuneration
Advisory Committee

President
Management committee

Compliance Committee
Executive Oﬃcers Meeting

Executive Oﬃcers in Charge

Audit Department
Compliance Department
Risk Management Department

ALM Committee

Human Resources Department

Risk Capital Meeting

Corporate Planning Department

System Committee

Business Development Department
Treasury Department
Margin Loan Department
Institutional Sales Department
Retail Business Department
Settlement & Custody Department
Information Systems Planning Department
Osaka Branch77