Securities
Finance
ANNUAL REPORT 2012

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 Top Management ･ ･････････････････････････････････････････････････････････････････････ 4
Business Review ･ ･･･････････････････････････････････････････････････････････････････････････････････････････ 5Management Policy ･･････････････････････････････････････････････････････････････････････････････････････ 10
Our Business Development ････････････････････････････････････････････････････････････････････････････ 13
Our Business Field ････････････････････････････････････････････････････････････････････････････････････ 14
Corporate Governance ･･････････････････････････････････････････････････････････････････････････････････ 21
Risk Management ･ ･･･････････････････････････････････････････････････････････････････････････････････････ 25
Financial Section ･･････････････････････････････････････････････････････････････････････････････････････････ 29
Outline Of JSF Group ････････････････････････････････････････････････････････････････････････････････････ 60
Corporate Data ････････････････････････････････････････････････････････････････････････････････････････････ 61

1

FINANCIAL HIGHLIGHTS

Thousands of
U.S. dollars*Millions of yen*
2008

2009

2010

2011

2012

2012

Operating Results:
Operating revenues￥

50,582￥

44,299￥27,868￥22,849￥20,229＄246,125

Operating income

2,345(4,797)

5,898

3,656

3,039

36,975

Net income(1,300)(7,503)

3,572

3,492

779

9,478

Total assets￥ 5,093,837￥ 5,293,277￥ 5,479,610￥ 7,078,138￥ 4,931,286＄59,998,613

Net assets

111,303107,232

112,656

114,927

115,547

1,405,852

2.53

2.27

2.28

1.73

2.56

2.56

(13.15) ￥(80.33) ￥38.59

Financial Position:

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

Net assets

￥

37.73

￥

8.42

＄

0.10

1,125.72

1,158.32

1,217.12

1,241.67

1,245.83

15.16

26

20

14

14

14

0.18

Cash dividend* except per share amount												Operating revenues

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

60,00050,0008,000
50,582
44,2992,000
30,000

3,656

4,000

40,000

2,345

3,039

27,86822,84920,000020,229-2,00010,000
0

5,898

6,000

-4,000

08

09

10

11

-6,00012

2-4,797
08

09

10

11

12

FINANCIAL HIGHLIGHTSNet income

Net income per share(millions of yen)

(yen)

6,000

60

4,000

3,572

779

0

0

8.4
-13.2

-20

-1,300-40-4,000-60-6,000-8,000

37.7

20

2,000

-2,000

38.6

40

3,492

-80

08

-7,503
09

10

11

-100

12

Net assets per share

-80.3
08

09

10

11

12

Cash dividend per share

(yen)

(yen)

1,400

30

1,300

25

26
1,217

1,242

1,246

1,200
1,126
1,100

1,158

15

1,000

10

900

5

800

20

20

08

09

10

11

0

12

08

09

14

14

14

10

11

12

Note: 1. Yen amounts have been translated into United States dollars, solely for the convenience of the reader, at the rate of￥82.19=U.S.$1 in effect on March 30, 2012.
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 TOP MANAGEMENT

Minoru Masubuchi
Chairperson

Eizo Kobayashi
President

This is to report on results and final settlement figures for fiscal 2011. During the year, JSF Group experienced a significant
decline in net income as a result of the posting of large losses in conjunction with the business reorganization of affiliate JBIS
Holding Inc. Consolidated net income was 779 million yen (down 77.7% year-on-year).
In a meeting of the Board of Directors held after the 102nd Ordinary General Meeting of Shareholders, Mr. Minoru Masubuchi
was appointed Chairperson and Mr. Eizo Kobayashi President. Our management policy states, "As an institution specializing inthe securities finance business, JSF has a mission, while always maintaining a keen awareness of our public role, to contribute to
the development of the securities industry," and all executives and employees are committed to the further development of theCompany in line with this mission.
We ask for the continued support and guidance of our shareholders, customers and so forth.

Minoru Masubuchi
Chairperson

Eizo Kobayashi
President

4

BUSINESS REVIEW

BUSINESS REVIEWBusiness Environment

at 10,083 yen. During this period, the average daily trading

The outlook for the Japanese economy continued tovolume on the First Section of the Tokyo Stock Exchange

be uncertain during the year with the Great East Japanwas 1,865 million shares, representing a decline of 177

Earthquake that occurred on March 11, 2011 and themillion shares from the previous fiscal year. Average daily

increasingly serious financial problem in Europe among

trading value likewise fell 242.8 billion yen to 1,160.7

the chief factors for concern. Nonetheless, it also rallied atbillion yen.

points along the way, buoyed by global monetary easing andother factors.

Outstanding balance of standardized margin buying on
the Tokyo market peaked in mid-June in the 1.26 trillion yen

Turning to equity markets, the Nikkei Index began therange, but began to decline in August as a result of fallingyear at 9,708 yen and at one point crossed over the 10,000

stock prices that reduced the available capacity of individual

yen line thanks to improvements of US economic indicators

investors, together with sell-backs to lock in profit as stockand other favorable developments, but in August stock

prices recovered at the beginning of the year. By the end

prices experienced a sharp decline on renewed concernsof the fiscal year, outstanding balance of standardized

about financial problems in Europe and the downgrading of

margin buying on the Tokyo market had contracted to the

US federal government credit rating. The Nikkei Index’s low

990 billion yen range. Meanwhile, outstanding balance offor the year of 8,160 yen was set on November 25. However,standardized margin selling began to decline in August as

equity markets again turned upwards in January in responseshares were bought back in reaction to falling prices. They

to global monetary easing; the year's high of 10,255 yen

bottomed out in the 260 billion yen range in late November,

was set on March 27, and the Nikkei Index closed the year

but turned upwards in January as stock prices began to

Nikkei Indexyen
11,00010,000

9,000

8,000

7,000
Apr
2011

May

Jun

Jul

Aug

Sep

5

Oct

Nov

Dec

Jan
2012

Feb

Mar

Outstanding balance of Standardized Margin Transactions(billions of yen)

1.400
1.200

Margin Buying

Margin Selling

Nov

Feb

1.000
0.800
0.600
0.400
0.200
0.000
Apr
2011

May

Jun

Jul

Aug

Sep

Oct

recover and at the end of the fiscal year were in the 390

Dec

Jan
2012

Mar

year.

billion yen range.

Consolidated operating revenues were 20,229 million
yen (11.5% year-on-year decline) as a result of declines

On bond markets, yields on newly issued 10-year

in interest on loans and fees on lending securities forJapanese government bonds rose to 1.328% mid-April inmargin transactions. Consolidated operating expenses

anticipation of fiscal spending for reconstruction after thewere 9,634 million yen (14.9% year-on-year decline) as aGreat East Japan Earthquake, but later turned downwards

result of declines in interest expense and fees on borrowing

due to uncertainty over the outlook for the global economy,

securities for margin transactions.), while general andand by August were below 1%. There were points at whichadministrative expenses were 7,554 million yen (4.0% year-

bond yields temporarily rose in reaction to rebound inon-year decline). As a result, consolidated operating profits

equity market and concerns that Japanese government

were 3,039 million yen (16.9% year-on-year decline).

bonds had peaked, but they were generally below 1% from
December onwards, and at the end of the fiscal year stood at

Consolidated recurring profits were 2,387 million yen

0.984%.

(28.7% year-on-year decline) as a result all large losses
posted by equity method affiliate JBIS Holdings Inc. in

Business Results of the JSF Groupthe process of reorganizing its operations mainly with a

Under these circumstances, the total value of outstanding

takeover bid by NTT DATA CORPORATION, which causedloans extended by JSF Group during fiscal 2011 averaged

JSF to post the equity in losses of affiliates (non-operating

422.7 billion yen, down 234.6 billion yen from the previous

expense) of 868 million yen . Responding to the takeover

6

BUSINESS REVIEW

bid resulted in the posting of a 360 million yen loss on

Bond Financing and General Loansthe sale of shares in affiliate (extraordinary loss), which

In the bond financing and general loans business, thecombined with increases in corporate income tax and otheroutstanding balance of general loans to financial instrument

tax liabilities to produce net income of 779 million yen

brokers and loans for negotiable margin transactions to an(77.7% year-on-year decline).

average of 50.8 billion yen (of which, 20.3 billion yen inloans for negotiable margin transactions) during the year, up

1) Securities Finance Business
Loans for Margin Transaction

5 billion yen year-on-year, but lower lending rates resulted

In the margin loans business, muted trading on the markets

million yen (21.0% year-on-year decline).

in a decline in operating revenues from this business to 827

resulted in a year-on-year decline of 75.3 billion yen forloans on margin transactions, which averaged 218 billion

Securities Lending

yen during the year. Interest on loans also declined as a

In the securities lending business, an increase in the number

result of reduction in lending rates in late November 2010.

of contracts by bond lending section resulted in increases in

Securities lent for margin transactions averaged 184.6

lending fees and interest on collateral money for securities

billion yen during the year, a decline of 43.3 billion yen

borrowed, but the general stock lending section experienced

that also resulted in a decline in securities lending fees. As

declines in lending fees due to lower demand for borroweda result, this business produced operating revenue of 6,756

stock to avoid delivery delays. As a result, operating

million yen (24.3% year-on-year decline) for the fiscal year.

revenues from this business declined to 1,701 million yen(3.0% year-on-year decline).

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

1,000
900

917
Margin Loans800

Stock Loans

700
600

591

500
400

336

396

300

324

361
293
228

200

218

184

100
0

08

09

10

7

11

12

Breakdown of JSF Group operating revenues
2012

2011

( ￥ million)( ￥ million)

15,186

17,558

6,756

8,922

1,783

2,809

639

826

Fees on lending securities

3,957

4,807

Bond financing and general loans

827

1,047

1,701

1,754

Stocks

219

331

Bonds

1,482

1,422

Other business

5,901

5,834

Trust Banking Business

4,224

4,360

Interest on loans

741

1,079

Trust charges

300

308

Real Estate Leasing Business

818

930

Total Operating Revenues

20,22922,848

Securities Finance Business
Loans for margin transactions
Interest on loans
Interest on collateral money for securities borrowed

Securities lending

occupancy ratios and lower rent levels that reduced

Other Businessrevenues from rent, etc. and produced operating revenues

Other revenues, primarily interest income from Japaneseof 818 million yen (12.0% year-on-year decline).

government bonds held, were 5,901 million yen (1.2% yearon-year increase).

Future Challenges
Circumstances continue to be challenging. Concerns

2) Trust Banking Business

about the seriousness of the European financial crisis are

The trust banking business posted a profit on the sale ofrecognized as a factor for instability in the global economy,

collateralized debt obligations (CDOs) for which impairment

and the Japanese economy, having been dealt a severe blow

treatment had been performed in previous years, butby the Great East Japan Earthquake, continues to face aaverage outstanding balance of lending during the fiscal

number of problems, including issues with electric power

year declined by 162.4 billion yen to 141.3 billion yen,supplies. We do not therefore anticipate any reduction inprimarily due to decreased loans to the government.

the severity of the environment in which JSF Group finds

Operating revenues in the trust banking business were 4,224

itself.

million yen (3.1% year-on-year decline).
In light of JSF's close association with securities markets

3) Real Estate Leasing Businessin its business, it will also potentially be impacted by the

The real estate leasing business experienced declining

merger of Tokyo Stock Exchange Group, Inc. and Osaka

8

BUSINESS REVIEW

Securities Exchange Co., Ltd., and will need to monitor

margin transactions and the efficiency of organizations

developments closely.

and operations in the Group, we have established a new"Business Promotion Meeting" that will be tasked with

The Company has formulated a Third Mid-term

identifying customer needs across the organization andManagement Plan that will commence in fiscal 2012 andusing these insights to strengthen our revenue base.

extend for a period of 3 years. We will continue to build on
the results of the Second Mid-term Management Plan that

Among our affiliated companies, subsidiary JSF Trust

extended until last fiscal year, following our company policy,

and Banking Co., Ltd. serves as a trust bank supportingwhich says, "As an institution specializing in the securities

the operational infrastructure of securities companies andfinance business, JSF has a mission, while maintaining aother institutions. Through its securities-oriented trust

keen awareness of our role, to contribute to the development

and loan services it endeavors to provide appropriateof the securities industry." The new business plan articulatesbanking functions commensurate with its strength anda number of core management policies and objectives,

capacity while also addressing the needs of a wide range ofincluding establishment of a position of trust and credibility

customers. Equity-method affiliate JBIS Holdings Inc. became

within society, maintenance of the robust capital required

a subsidiary of NTT DATA CORPORATION as a result ofof a company that provides key infrastructure to securities

a takeover bid in March of this year. We will continue tomarkets, and provision of long-term stable returns of profits

collaborate with it to make use of its advanced technology

to shareholders. To improve the convenience of loans forand wide customer base to improve our corporate value.

9

MANAGEMENT POLICYMANAGEMENT POLICY
Basic Management Policy
business, JSF has a mission, while always keen awarenessManagement Strategy
1. Second Mid-Term Management Plan (FY2009FY2011)of our public role, to contribute to the development of

We strived based on the Second Mid-Term Management

the securities industry by proactively meeting the diverse

Plan formulated in May 2009. Achievements of this threeneeds of securities and financial circles and working toyear plan from fiscal 2009 till 2011 are as follows:

As an institution specializing in the securities financeboost the long-term interests of securities market users andparticipants. Based on this corporate philosophy, our basic
management policy is as follows.

[Business Strategies]i) Increase the Number of Loanable Issues(1) While maintaining a keen awareness of our influence

Efforts were made to expand the number of loanable issues

on securities markets and investors and other social

by establishing the dedicated margin loan support section in

responsibilities, implement exhaustive compliance,

June 2009 to encourage approaches to issuing companies

corporate governance and risk management, andand major stockholders in collaboration with the Tokyo

establish solid credibility through sound business

Stock Exchange, as well as including the ETN (Exchange

operations.

Traded Note) as loanable issues. It has resulted in steady
growth in the number of both loanable issues and customers(2) Retain solid equity capital to secure the financial healthhaving a stock borrowing contract , as evidenced by the fact

and management stability that society demands ofthat the number of loanable issues totaled 1,683, with 394

the company as a firm engaged in the margin loan

more of these customers than that at the start of this Mid-business, which constitutes part of securities market

term Management Plan.

infrastructure, and provide stable and long-termii) Increase the Use of Loans for Negotiable Margin

return of profits to shareholders by comprehensively

Transactions

considering revenues environment or investment plan,

Efforts were made to develop new customers and expandetc.

the use of this loan by existing customers, by striving to(3) Improve the convenience in the margin loan business,

identify needs of securities companies, etc. with visiting

strive to expand finance and securities-related services

them proactively. As a result, the average outstanding

to be offered by Japan Securities Finance and its Groupbalance of this loan rose from 14.2 billion yen in fiscal 2008

companies, and further solidify the profit base of JSF

to 20.3 billion yen in fiscal 2011

Group.

iii) Respond to Diverse Funding Needs of Securities
Companies, etc.

(4) Strive to further improve the efficiency of organizationaland business management in the Group so that we

JSF strived to increase the use of other loans by responding

can cope with changes in the business environment

flexibly to the needs of customers as well as develop new

expeditiously.

customers.

iv) Increase Securities Lending Business Revenues
In the general stock lending business, JSF strived to improvethe convenience by introducing more flexible transaction
formats, while identifying customers’ demands and market

10

MANAGEMENT POLICY

trends. In the bond lending business, the outstanding

margin trusts in FX margin trading, etc., by using JSF’s

balance of lending could be increased by developing

independent and public brand image. In order to strengthen

new clients, encouraging the use by existing clients andthe technology platform and sales force of JBIS Holdings

expanding transaction methods.

Inc., JSF sold a part of shares of JBIS Holdings, Inc. at thetender offer implemented by a major system company.

[Reinforcing Management Foundations]i) Improve Business Management System

JSF strived to boost and ensure the awareness of compliance2. Third Mid-Term Management Plan (FY2012FY2014)

by officers and employees and maintain and improve theMoving forward from the results of the Second Mid-Termquality of internal audit functions. Also, JSF strengthened

Management Plan, JSF devised the following strategies forrisk management by enhancing the corporate governancethe Third Mid-Term Management Plan, in accordance withfor subsidiaries, improving the effectiveness of market risk

the basic management policy above.

management system and establishing security measures for
system risk management.

[Concept]ii) Upgrade Business Continuity Plan

The initiatives to strengthen the functions of financial and

The business continuity system was improved and upgradedcapital markets in order to aid the Rebirth of Japan, suchby opening a system back-up center in January 2010as business combination of Tokyo Stock Exchange Groupand a back-up office in September of the same year andand Osaka Securities Exchange and the development of

formulating and announcing “Basic Principles on Businessinstitutional framework pertaining to the establishment ofContinuity”.

Comprehensive Exchange, are now under way. In thesecircumstances, in order to contribute to the revitalization ofiii) Build Up Effective Organization and Advancesecurities markets, we will strive to improve the convenience

Human Resources Development Strategy

of finance and securities-related services provided by JSF

Efforts were made to promote the building of a leaner andGroup, including the margin loan business, which constitutes

more effective organization by closing the Sapporo andpart of securities market infrastructure, and thereby enlarge

Fukuoka branch offices with effect from March 31, 2010,

these business. During a period when financial businesses

and transferring their business to Head Office. To advanceare becoming increasingly globalized and sophisticated, we

human resources development strategy, we developed thewill also respond proactively to diverse needs, irrespective

training of personnel with a wide range of expertise byof the frameworks of existing business.

means of temporary transfers to external organizations andMoreover, we will strive to strengthen our businessby upgrading our training systems.

management systems still further in order to improve oursocial trust, a prerequisite to the promotion of the above-iv) Reinforce Funds Procurement Foundation

mentioned activities.

The funds procurement cost was reduced with upgradingof the liquidity risk management and improvement of its
effectiveness.

[Business Strategies]i) Improve the Convenience of Loans for Marginv) Strengthen Group Company Ties

Transactions

JSF Trust and Banking Co., Ltd. promoted the business of

Improve the convenience of Loans for Margin Transactions

11

by increasing the number of loanable issues and further

institution specializing in the securities finance business,promoting systematic and operational improvements.

improve the effectiveness of compliance and internal audit
in order to establish a well-founded social trust throughii) Further Expand Loans for Negotiable Margin

sound business management. In addition, in view of theTransactions

increasingly diverse and complicated risks associated with

Aim to expand loans for negotiable margin transactions byfinancial business, implement further improvement to theaccurately identifying customers’ needs for, and flexibly

risk management system so as to secure stable business

respond to, loans needed to settle negotiable margin

management and financial strength.

transactions.

ii) Strengthen Business Structureiii) Respond to Diverse Funding Needs of Financial

Establish “Business Promotion Meeting” designated for

Instruments Companies, etc.

identifying customers’ needs cross-organizationally andRespond proactively to diverse funding needs in order toimproving financial and securities-related services.

increase loans to financial instruments companies, etc.

iii) Improve the Efficiency of Organizational andiv) Expand Securities Lending and Borrowing

Business Management

Business

Strive to improve the management mobility and cost control

Strive to expand the securities lending and borrowing

by improving the efficiency of organizational and businessbusiness by addressing new needs and responding

management.

appropriately to changes in the environment, such as theiv) Support Financial and Securities Education andreform of Japan’s securities settlement systems.

Enhance Communication of Informationv) Enhance Securities-Related Services

Support financial and securities education and aggressively

Strive to enhance securities-related services bycommunicate information about the systems of Standardized

strengthening our relationship with Group companies andMargin Transactions and Loans for Margin Transactions.

examine the collaboration with Group companies’ affiliates
in order to proactively respond to diverse customers’ needs.

Basic Policy on Profit Sharing
The JSF Group’s basic dividend payment policy is to return
profits to shareholders, with a consolidated dividend[Reinforcing Management Foundations]i) I m p r o v e t h e E f f e c t i v e n e s s o f B u s i n e s spayout ratio of around 40% as a standard, and by reflecting

Management Structurebusiness performance as well as taking account of dividend

While fully accepting our social responsibility as aon equity (DOE) on a consolidated basis.

12

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

Safekeeping
deposited loans

Loans on securities in safekeeping account, withincredit line set before

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

13

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).

14

OUR BUSINESS FIELD

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

15

Japan Securities Finance

Submit application (5)Securities company

Place trade order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

16

OUR BUSINESS FIELD

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

17

Borrower(securities-collateral transaction)

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

18

Securities
companies

OUR BUSINESS FIELDLOANS 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

19

Japan Securities Finance

Customer

Deposit margin requirement

Securities company

Application

BOND FINANCING
The aim of bond financing is to contribute to smooth

SECURED LOANS ON SECURITIES FOR
INDIVIDUAL AND CORPORATE INVESTORS

underwriting, circulation and fair price formation in bond

JSF provides individual investors with direct loans keeping

markets. This business offers low-interest loans by using

securities as collateral, mediated loans and safe keeping

government and other bonds as collateral to provide funds

deposit loans. JSF provides corporate investors, separately,

required by securities companies in bond operations.

with loans secured by securities.

GENERAL LOANS
This business loans working funds required by securities
companies by using stocks, bonds, and other securities as
collateral, and aims to respond quickly and flexibly to theneeds of securities companies.

Secured loans on securities for individual

Customers

Securities
companies
Deposited securities

20

Safe keeping deposit loans

JSF

CORPORATE GOVERNANCECORPORATE GOVERNANCE
auditors)

BASIC CONCEPT OF CORPORATE GOVERNANCE
As a institution specializing in the securities finance・ Attendance of corporate auditors at internal meetings andbusiness, Japan Securities Finance has a mission, while

instigation of necessary checks

always maintaining a keen awareness of our public role,・ Internal audit by the Audit Department, which is

to contribute to the development of the securities industry

independent from other departments

by proactively meeting the diverse needs of securities andfinancial circles and working to boost the long-term interests

Furthermore, from the perspect ive of ensuringof securities markets users and participants. The company

management transparency, we are committed to making

believes gaining the firm trust of society through soundactive and timely disclosure of management information

business operations is our most important managementthat goes beyond legal requirements via our website.

directive.
・ Establishment of compliance system

CORPORATE GOVERNANCE STRUCTURE
1. Management Structure

・ Establishment and implementation of risk management

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

policies

matters related to management policy and the execution

・ Active invitation of outside directors (three directors, two

Corporate Governance System Structure
Decision Making ofManagement
General Meetingof Shareholders

Inspection System

Audit

Board of Directors

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

21

External Reporting
Contact Desk

Consultation and Report for Compliance

Board ofAuditors

All Departments

of operations, and it appoints executive officers who are2) Board of Auditors

charged with the execution of operations in accordance

The Board of Auditors may have up to four members, ofwith its decisions.

which the majority must be outside auditors.

・ Directors are members of the Board of Directors and

The Board of Auditors shall make a decision on the

supervise the company's decision-making and the activities

execution of the duties of auditors and shall discuss theof representative directors. Executive officers execute theexercise of authority by auditors. Meetings of the Board

operations of the Company in line with decisions made byof Auditors are convened from time to time as necessary.

the Board of Directors.

During fiscal 2011, the Board of Auditors met ten times.
Two outside auditors are appointed and are expected to・ Directors may concurrently serve as executive officers

provide supervision based on a wealth of experience and(executive directors).

broad knowledge and expertise.

・ Executive officers comprise executive directors andexecutive officers.

3) Management Committee

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

The purpose of the Management Committee is to deliberate

2. Organization

important matters related to the execution of company

To strengthen management supervisory functions, theoperations.

Company stipulates that three of the nine directors must be

Members of the Management Committee are executive

outside directors, and outside directors serve as the center

directors. When necessary, directors who are not executiveof the Board of Directors. In addition, two of the three

directors and auditors may attend meetings of theauditors on the Board of Auditors must be outside auditors.

Management Committee.

The Management Committee and Executive Officers Meeting

The Management Committee is in principle convened

serve as management-level decision-making bodies.

once per week. The Management Committee may also meet

Below are outlines of these organizations.

other times as necessary.

1) Board of Directors

4) Executive Officers Meeting

The Board of Directors may have up to nine members

The purpose of the Executive Officers Meeting is to report(including three outside directors).

on the status of operations.

Meetings of the Board of Directors shall in principle

Members of the Executive Officers Meeting are all

be convened once per month but may be convened at

executive officers, including executive directors. Directors

other times as necessary. During fiscal 2011, the Board of

who are not executive directors and auditors may also

Directors met eleven times.

attend the Executive Officers Meeting.

Positions on the Board of Directors shall consist of the

The Executive Officers Meeting is in principle convened

chairperson, president, executive vice president, senioronce per week. The Executive Officers Meeting may also

managing directors, managing directors and directors.

meet other times as necessary.

The Board of Directors may appoint directors to execute
operations (executive directors).

3. Outside directors and outside auditors
The Company has three outside directors and two outside

Three outside directors appointed are expected to ensure

auditors.

the appropriateness of company operations and provide
objective, neutral, outside supervision of management

The outside directors and outside auditors have nothrough advice and comments with a wealth of experienceinterest in the Company other than owning shares in thein management and professional knowledge and expertise.

Company. There are not now nor have there ever beenfactors requiring a determination of potential conflict of22

CORPORATE GOVERNANCE

interest with general shareholders by the Tokyo Stockaudits and internal control may exchange information etc.

Exchange.

when necessary for closer coordination.

Outside directors are expected to ensure the

Auditor Toshio Kamiyama is a certified public accountant

appropriateness of company operations and provide

and certified tax accountant and provides considerable

objective, neutral, outside supervision of management

insight on financial and accounting matters.

through advice and comments based on their abundant
experience in management and professional knowledge and5. Status of accounting audits

expertise. They are in an objective position independent of

Accounting audits of the Company are performed by

the executive directors and have no potential conflicts ofcertified public accountants Shigeki Katsuno, Nobuyuki

interest with general shareholders.

Kobayashi and Hironobu Sakai of BDO Toyo & Co.

Outside auditors are expected to provide supervision

Accounting audits are assisted by 12 certified public

based on a wealth of experience and broad knowledge andaccountants, 5 junior certified public accountants, andexpertise. They have a high degree of independence and2 others, and care is taken to eliminate bias in years of

no conflicts of interest with general shareholders and areexperience.

therefore judged to contribute to auditing operations andcompliance. They endeavor to mutually coordinate internal

6. Policy regarding the remuneration of
directors and auditors

audit section etc.

1) Executive Directors

There are no explicit standards or guidelines related
to independence in the appointment of outside directors

・ With a view to enhancing the correlation between ourand outside auditors, but appointments are made withcompany’s business performance and remuneration, areference to the standards of judgment for independence

fixed percentage of monthly remuneration will be devoted

formulated by the Tokyo Stock Exchange in the Securities

to the acquisition of JFS stocks and will contribute each

Listing Rules and other documents, and every effort is mademonth to the Executive Stock Ownership Program. JSF

to ensure that there are no conflicts of interest with generalstocks obtained under this remuneration program will, in

shareholders.

principle, be held until retirement.
・ Directors’ bonuses will be paid only to executive directors

4. Status of internal audits and auditor audits

as a performance-linked remuneration, in order to

The internal audit structure consists of Audit Departmentemphasize the management’s responsibility for each year’sthat is independent of all other business units (approximately

business performance.

ten members).

2) Non- executive directors (including outsideIts duties are not only the internal audits of compliancedirectors) and auditorswith all applicable laws, regulations, contracts etc. It

・ They will receive solely their fixed amounts of monthly

also figures out the management of risks and so forth byremuneration, and no director’s bonus.

rigorous internal audits of the effectiveness and efficiency
of operation, the accuracy and reliability of financial andoperational information and the assets safeguarding/

COMPLIANCE SYSTEM

conservation. Through these activities, Audit Department

The following details our compliance system and consulting

verifies the appropriateness and effectiveness of internal

and reporting system in regard to compliance
The company’s compliance system centers on our Board

management system in respect of control and managementof Directors, the Management Committee, the Complianceof risk and other factors in individual business units.
Internal audits, auditor audits and accounting audits

Committee and the Compliance Department. The situation

are mutually coordinated. All who are responsible for theseregarding internal compliance is constantly studied by23

the Compliance Department and the results are regularly

The external consulting and reporting contact desk

reported to the Board of Directors and the Management

guarantees the complete anonymity of any person

Committee.

consulting or reporting matters regarding the company,

The Compliance Committee deliberates importantmatters concerning compliance.

thereby reducing the psychological burden on those persons

The Complianceand making consulting and reporting easier.

Department makes all possible efforts to promote andthoroughly establish compliance through such measures as

BUSINESS CONDUCT GUIDELINES

urging managers and employees alike to take faithful and1) As an institution specializing in securities-related
financing, the company recognizes its social

honest actions based on clear ethical standards.

responsibility and its public mission. It aims to establish

In addition, the company takes the initiative in thefirm trust through sound business operation.

promotion of the establishment and strengthening of overall

2) The company will comply strictly with relevant rules

group compliance system.

and regulations. It will conduct its business activities
Consulting and reporting system regarding compliancein a fair and reliable manner, in accordance with social

In order to strengthen the compliance system, the company

norms.

has its external consulting and reporting contact desk

3) In the interests of its shareholders, the company willby lawyers, in addition to the Compliance Committee,

maximize its communications with a broad spectrum of

the Compliance Department and personal in charge ofsociety and will disclose information on the management

compliance.

of the organization in a fair and positive manner.

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)

24

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 risks are risks to suffer losses caused by fluctuations of values of possessed assets (bonds,

Market Risk

stocks) due to fluctuations of various market risk factors such as interest rates and prices of
securities.
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
System 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 malfunction ofcomputer systems or due to unauthorized use of computer systems.

25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 the26

RISK MANAGEMENT

Processing risk management

systems safely and effectively, all operation procedures

In our company, each department has jurisdiction over theare clarified and our monitoring system is facilitated. In

management of processing risks. To lessen processing risks,

addition, concerning protection of our own information

through facilitation of regulations and manuals and also

assets (information and information systems), necessary

through trainings, all employees are familiarized with proper

regulations are consolidated and all officers and employees

handling of operational work. In addition, by ensuring thatare familiarized with handling of the information assets.

each department implements its own voluntary inspection

Furthermore, to minimize the effects of system failures,on a regular basis, we endeavor to prevent occurrence ofmeasures are taken such as facilitation of various handling

accidents and improve our business processing system.

manuals, implementation of drills, and so on.

System risk management

Internal auditing system

In our company, the Information Systems PlanningIn our company, the Audit Department, which is independent

Department holds jurisdiction over management of systemfrom other departments, implements strict internal auditing

risks. To ensure stable operation of our computer systems,of overall business operation on management status of eachthe department takes preventive measures for occurrence of

category of risk along with regulatory compliance status andsystem failures such as duplicating networks and equipment

validates the appropriateness and efficacy of our internaland so forth. To develop and operate our computer

control system in each department.

Appendix
Risk capitalof financial standing, obligor classifications used in self-

Risk capital is capital necessary to cover losses caused byassessment, and so forth. With this system, we assess therisks generated from business operation.

levels of credit risks properly, quantify credit risks, and set
up amount for transaction limitation.

Value at Risk (VaR)
VaR is the maximum expected loss on an asset calculated

Stress tests

with a certain period (holding period) and a certain

Since VaR is statistical estimated figure, it cannot include

probability (confidence level). This is calculated based on

possible losses, which can be caused by extreme market

data in the past with statistical method. In our company,

fluctuation such as Black Monday or economic crisis (stress

VaR is calculated based on confidence level of 99% andevent). In this situation, to be prepared for unforeseeable

holding period of one year.

circumstances, we implement stress tests to calculate amountof losses in a case of occurrence of stress event based on

Risk Capital Meeting

data in the past or on hypothetical scenarios and assess theThis is a meeting to deliberate issues such as allocatedsoundness of our financial management.

amount of risk capital and so forth. The meeting isorganized by the managers of the Risk Management

ALM Committee

Department (chairperson), the Planning Department, theThis is a committee to deliberate ALM such as development

Treasury Department, and all the other business departmentsof fund management plans and revenue management

concerned.

for assets and liabilities of the company as a whole. The
committee is organized by the executive officer in charge

In-house rating systemof the Treasury Department, and managers of the Treasury

We introduced a rating system which segmentalizes credit

Department (chairperson) and all the other department

ratings of client companies into 6 ranks, based on ratings

concerned.

by external credit rating agencies, quantitative assessment

27

Risk Management System

Board of Auditors,
Corporate Auditors

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

・ LoanDepartment
・ Margin Loan
Department
・Treasury
Department

Each
Department

Each
Department

28

Internal Audit Sector

Risk Management
Department

Audit Department

Risk Management
SectorRisk
Categories

Integrated Risk
Management Sector

Meeting

Management

President

FINANCIAL SECTION

Consolidated Financial Statements ･･････････････････････････････････････････････････････････････････ 30
Consolidated Balance Sheet ･ ･･･････････････････････････････････････････････････････････････････････ 30
Consolidated Statement of Income ･･･････････････････････････････････････････････････････････････ 32
Consolidated Statement of Other Comprehensive Income ･････････････････････････････････ 32
Consolidated Statement of Changes in Net Assets ･ ･･････････････････････････････････････････ 33
Consolidated Statement of Cash Flows ･･････････････････････････････････････････････････････････ 34
Notes to Consolidated Financial Statements ･･･････････････････････････････････････････････････ 35
Independent Auditors' Report ･････････････････････････････････････････････････････････････････････････ 59

29

CONSOLIDATED BALANCE SHEETJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2012
Millions of yen
Assets2012

Current assets:
Cash (note 3)
Short-term investments (notes 4 and 16)
Short-term loans receivable (note 16)
Securities lent
Securities in custody (note 16)
Securities in deposit (note 16)
Deferred tax assets (note 9)
Collateral money for securities borrowed (note 16)
Other current assets (note 16)
Allowance for doubtful receivables
Total current assets¥

Property, plant and equipment:
Buildings and structures
Tools, furniture and fixtures
Land
Leased assets
Construction in progress
Accumulated depreciation
Net property, plant and equipment
Intangible assets, net
Investments and other assets:
Investments in securities (notes 4, 5 and 16)
Other investments and other assets
Allowance for doubtful receivables
Total investments and other assets
Total assets¥

See accompanying notes to consolidated financial statements.

30

2011

Thousands of
U.S. dollars(note 2)
2012

20,108 ¥1,934,130453,784
260,080
31,380134,969402
1,127,047
4,191
(802)
3,965,289

44,4003,126,871
568,893
197,942
37,191
190,417681
1,516,586
4,153(1,393)
5,685,741

8,083
1,288
3,305
42
102
12,820(6,430)
6,390

8,045
1,256
3,305
42
–
12,648(6,120)6,528

98,345
15,671
40,212511
1,241
155,980(78,233)
77,747

1,033

1,118

12,568

957,911
1,684(1,021)
958,574

1,383,842
1,725
(816)
1,384,751

11,654,836
20,489(12,422)
11,662,903

4,931,286¥

7,078,138$$

244,653
23,532,425
5,521,158
3,164,375
381,798
1,642,159
4,891
13,712,702
50,992(9,758)48,245,395

59,998,613

Millions of yen
Liabilities and Net Assets

2012

Current liabilities:
Call money (notes 7 and 16)
Short-term borrowings and current installments oflong-term borrowings (notes 7 and 16)
Commercial paper (note 7)
Accrued income taxes (note 9)
Collateral money received for securities lentCollateral securities deposited
Securities borrowed (note 16)
Securities lent opposite account
Other current liabilities (note 7)
Total current liabilities¥

Non-current liabilities:
Long-term borrowings (notes 7 and 16)
Deferred tax liabilities (note 9)
Deferred tax liabilities for land revaluation (note 6)
Liabilities for retirement and severance benefits(note 8)Other non-current liabilities (note 7)
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock (note 10):
Authorized 200,000,000 shares;
issued 93,700,000 shares in 2012 and 2011
Additional paid-in capital (note 10)
Retained earnings (note 11)
Treasury stock, at cost; 651,000 shares in 2012
and 649,190 shares in 2011
Total stockholders’ equity
Accumulated other comprehensive income:Net unrealized holding gain on other securities(note 4)Gain on revaluation of land (note 6)
Total accumulated other comprehensive
incomeTotal net assets

1,388,600
1,833,210

2011¥

1,264,300
4,049,010

Thousands of
U.S. dollars(note 2)
2012$

16,894,999
22,304,538

33,500399
1,100,016
241,035
184,390
1,004
20,7074,802,861

7,500
130
1,165,937
305,084
119,020
1,445
23,385
6,935,811

407,592
4,855
13,383,818
2,932,656
2,243,460
12,216
251,941
58,436,075

7,500
2,241
86
2,391

21,500
2,701
99
2,414

91,252
27,266
1,047
29,091660
12,878686
27,4008,030
156,686

4,815,739

6,963,211

58,592,761

10,00010,000121,670

5,182
96,312

5,182
96,836

63,0491,171,821(604)
110,890(664)
111,354(7,349)1,349,191

4,501
156

3,430
143

54,763
1,898

4,657

3,573

56,661

115,547

114,927

1,405,852

Commitments and contingencies (note 19)
Total liabilities and net assets¥

31

4,931,286¥

7,078,138$

59,998,613

CONSOLIDATED STATEMENT OF INCOME

Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2012
Millions of yen
Operating revenues
Operating expenses
Operating profit
General and administrative expenses (note 12)
Operating income¥

Other income (deductions):
Interest income
Dividend income
Interest expenses
Equity in losses of affiliates
Reversal of allowance for doubtful receivables
Loss on disposal of property, plant and equipment
Loss on sale of investments in securities
Loss on devaluation of investments in securities
Other, net
Income before income taxes
Income taxes (note 9):
Current
DeferredIncome before minority interests / Net income

¥

2012

20,229
9,635
10,594
7,555
3,039

¥

2011

22,84911,328
11,521
7,865
3,656

Thousands of
U.S. dollars(note 2)
2012$

246,125
117,229
128,896
91,921
36,975

6
121
(1)
(869)
–
(2)
(409)
(41)
90
(1,105)
1,934

9
109
(1)
(484)
1,292
(19)
–
(34)
34
940
4,596

73
1,472
(12)
(10,573)–(24)(4,976)(499)
1,095(13,444)
23,531

816
339
1,155
779

885
219
1,104
3,492

9,928
4,125
14,053
9,478¥$

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, 2012

Income before minority interests
Other comprehensive income (loss) arising during
the year:Net unrealized holding gain on other securities
Gain on revaluation of land
Other comprehensive gain (loss) of affiliates
accounted for by the equity method
Total other comprehensive income arisingduring the year
Comprehensive income¥¥

Comprehensive income attributable to:
Owners of the parent
Minority interests
See accompanying notes to consolidated financial statements.

32

Millions of yen
2012
2011

Thousands of
U.S. dollars(note 2)
2012

779

3,492

$

843
12

176
–

10,257
146

229

(94)

2,786

1,084
1,863

82
3,574

1,863
–

3,574
–

$

9,478

13,18922,667
22,667–

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2012

Millions of Yen

Stockholders’ equity
Commonstock

Additional
paid-in
capitalRetainedearnings(note 10)

(note 10)

(note 11)

10,0005,182

94,646

Balance at March 31, 2010

Treasury
stock

(663)

Total

Accumulated other comprehensive
incomeNet
Gain onunrealized
Total
revaluation
gain on otherof landsecurities

109,165(note 4)(note 7)

3,349

143

3,492

Total net
assets

112,657

Changes arising during year:
Cash dividends
Net income(1,302)(1,302)(1,302)

3,492

3,492

3,492

(1)

(1)

(1)

Purchase of treasury stock
Net changes other thanstockholders’ equity

81

Total changes during the year
Balance at March 31, 2011

81

81

－

－

2,190

(1)

2,189

81

－

81

2,270

10,0005,182

96,836(664)

111,354

3,430

143

3,573

114,927

Changes arising during year:
Cash dividends
Net income(1,303)(1,303)(1,303)

779

779

779

(0)

(0)

(0)

60

60

60

60

(464)

Purchase of treasury stock
Decrease of treasury stock resulting
from change in equity of affiliates

Net changes other thanstockholders’ equity

Total changes during the year
Balance at March 31, 2012

－
¥

(524)

－

10,000 ¥5,182¥

96,312¥(604) ¥ 110,890

¥

1,071

13

1,084

1,084

1,071

13

1,084

620

156 ¥

4,657 ¥ 115,547

4,501

¥

Thousands of U.S. dollars(note 2)
Accumulated other comprehensive

Stockholders’ equity

Balance at March 31, 2011

Commonstock

Additional
paid-in
capital$ 121,670 $

63,049Retainedearnings

Treasurystock

incomeNetunrealized Gain on
gain on revaluation
otherof landsecurities

Total$ 1,178,197 $ (8,079) $ 1,354,837$

41,732 $Total

Total net
assets1,740 $ 43,472 $ 1,398,309

Changes arising during year:
Cash dividends
Net income(15,854)(15,854)(15,854)

9,478

9,478

9,478

(0)

(0)

(0)

730

730

730

730

(5,646)

Purchase of treasury stock
Decrease of treasury stock resulting
from change in equity of affiliates

Net changes other thanstockholders’ equity

Total changes during the year
Balance at March 31, 2012－
$ 121,670 $－
63,049(6,376)$ 1,171,821 $ (7,349) $ 1,349,191

See accompanying notes to consolidated financial statements.

33$

13,031

158

13,18913,18913,031

158

13,1897,543

54,763 $1,898 $ 56,661 $ 1,405,852

CONSOLIDATED STATEMENT OF CASH FLOWSJapan Securities Finance Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2012

Cash flows from operating activities:
Income before income taxes¥
Adjustments to reconcile income before income
taxes to net cash provided by operating
activities:
Depreciation and amortization
Loss on disposal of property, plant andequipment
Losses relating to short-term investments andinvestments in securities
Allowance for doubtful receivables
Decrease in liabilities for retirement andseverance benefits
Interest and dividend income
Interest expenses
Equity in losses of affiliates
Decrease in short-term loans receivable(Increase) decrease in collateral money forsecurities borrowed
Increase (decrease) in call money
Increase (decrease) in short-term borrowings
Decrease in payables under repurchaseagreements
Increase (decrease) in commercial paper
Increase (decrease) in collateral money
received for securities lent
Decrease in collateral money received for loantransactions
Decrease in long-term debt
Purchase of short-term investments andinvestments in securities
Proceeds from sale/redemption of short-term
investments and investments in securities
Other, net
Sub totalInterest and dividend received
Interest paid
Income taxes paid
Income taxes refunded
Net cash provided by (used in) operating
activities
Cash flows from investing activities:
Proceeds from sale/redemption of investments insecurities
Capital expenditures
Purchase of intangible assets
Other, net
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
Dividends paid to stockholders
Purchase 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)

Millions of yen
2012
2011
1,934

¥

4,596

$

23,531

722

867

8,785

2

46

24

(1,445)(386)(1,257)(1,897)(17,581)(4,696)(23)(11,900)
5,089
869
115,109(1)(13,872)
5,769
484
86,674(280)(144,786)
61,918
10,5731,400,523

389,540
124,300(2,202,800)(701,213)(80,000)
1,588,200

4,739,506
1,512,349(26,801,314)–
26,000(86,193)(20,000)–
316,340(65,920)

341,778(802,044)(2,094)(27,000)(2,087)(10,000)(25,478)(328,507)(2,763,253)(8,127,408)(33,620,307)

4,371,766(823)(40,313)
12,038(5,472)(554)
48

7,028,420
9,580
22,486
13,013(5,578)(1,862)–53,190,972(10,013)(490,485)
146,466(66,578)(6,741)
584(34,253)

28,059(416,754)

1,668
(203)
(269)
78

15
(260)
(109)
1

20,295(2,470)(3,273)
949

1,274

(353)

15,501(1,303)(0)(7)(1,310)(34,289)
44,400(1,303)(1)(8)(1,312)
26,39418,006(15,854)(0)(85)(15,939)(417,192)
540,212¥

See accompanying notes to consolidated financial statements.

34

Thousands of U.S.
dollars(note 2)
2012

10,111¥44,400$123,020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Securities Finance Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2012(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.
The difference between the cost and the underlying net assets at the date of investments in subsidiaries oraffiliates is allocated to identifiable assets and liabilities based on fair market value at the date of investments.
The unallocated portion of the difference, which is recognized as goodwill, is amortized over 5 years.

(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. Securities classified as “held-to-maturity securities” are stated at amortizedcost. 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. Bond securities
classified as “other securities” for which fair value is not available are stated at the amortized cost. Equity
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.

35

Depreciation is provided principally by thedeclining-balance method based on the estimated useful lives.
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.
Under the Accounting Standards for Retirement and Severance Benefits, provisions have been made in theaccompanying consolidated financial statements based on the present value of the projected future retirement
and severance benefits attributable to employee services rendered by the end of the year, less amounts funded
under contributory and noncontributory pension plans.
(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.
Finance leases transactions without title transfer for which the starting date for the lease transactions is onor before March 31, 2008 the Company and its domestic consolidated subsidiaries have continued recognize lease
payments as expenses with disclosure of certain “as if capitalized” information.

(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)Accounting Changes and Error Corrections
From the year ended March 31, 2012, the Company applied “the Accounting Standard for Accounting
Changes and Error Corrections” (ASBJ Statement No.24, December 4, 2009) and “the Guidance on AccountingStandard for Accounting Changes and Error Corrections” (ASBJ Guidance No.24, December 4, 2009).
The Standard and the Guidance prescribe 1) treatment in principle for changes in accounting policies, 2)
treatment for changes in presentations, 3) treatment for changes in accounting estimates, and 4) treatment forcorrections of prior period errors.

36

(m)

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, 2012.
(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 at March 30, 2012, which was ¥82.19 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, 2012 and 2011 are as
follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Cash
¥
20,108¥44,400$244,653
Certificate of deposits with maturities of－(121,633)
over three months(9,997)
Cash and cash equivalents¥
10,111¥44,400$123,020(4)

Short-term Investments and Investments in Securities
No trading securities were held both at March 31, 2012 and 2011.
Balance sheet amount, gross unrealized gain or gross unrealized loss and fair value of held-to-maturity
securities as of March 31, 2012 and 2011 are summarized as follows:
Millions of yen
Balance
Gross
Gross
sheet
unrealized
unrealized
amountgain
loss
Fair value
March 31, 2012
Government bond securities ¥39,893
¥
1,094
¥
－
¥
40,987
Corporate bond securities
4,332
110
－
4,442
Other securities
－
－
－
－
¥
44,225
¥
1,204
¥
－
¥
45,429March 31, 2011
Government bond securities
Corporate bond securities
Other securities

March 31, 2012
Government bond securities
Corporate bond securities
Other securities¥¥

39,881
7,022
19,307
66,210¥¥$485,375
52,707－538,082

¥

¥

－
－
－
－

¥

¥

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

Balancesheet
amount
$

1,378
158
115
1,651

$

13,311
1,338－
14,649

$

37

$

$

－
－
－
－

41,2597,180
19,422
67,861

Fair value$$

498,686
54,045－552,731

Acquisition cost, gross unrealized gain or gross unrealized loss and balance sheet amount of other securities
with fair value as of March 31, 2012 and 2011 are summarized as follows:
Millions of yen
Gross
Gross
Balanceunrealized
unrealized
sheet
Acquisition
cost
gain
loss
amountMarch 31, 2012
Equity securities¥
1,247 ¥
502
¥
103
¥
1,646
Bond securities:
Government bond securities
2,613,296
7,510
49
2,620,757
Corporate bond securities
220,15845
77
220,126
Other securities
106
7
12
101
¥
2,834,807 ¥
8,064
¥
241
¥
2,842,630
March 31, 2011
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

March 31, 2012
Equity securities
Bond securities:
Government bond securities
Corporate bond securities
Other securities

¥

¥

1,556
4,066,957
360,089511

4,429,113¥

15,172$

31,795,790
2,678,647
1,290
34,490,899

8,411
4
11

¥

8,935

¥

¥

108
818
222
8

1,156

¥

¥

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

Acquisition
cost
$

509

$

6,108

$

91,374547
85
98,114

$

1,253

$

596
937
146
2,932

1,957
4,074,550
359,871514

4,436,892

Balancesheet
amount$20,027$31,886,568
2,678,257
1,229
34,586,081

Securities classified as other securities for which fair value is not available are unlisted equity securities
amounting to ¥2,314 million ($28,154 thousand) and ¥2,314 million as of March 31, 2012 and 2011, respectively.
For the years ended March 31, 2012 and 2011, proceeds from sale of other securities, the gross realized gains
and the gross realized losses are summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Proceeds from sale of other securities¥ 2,188,192¥
3,627,721$ 26,623,580
Gross realized gains
2,228
1,695
27,108Gross realized losses
381
233
4,636
The Company recognized impairment losses on securities of ¥42 million ($511 thousand) for the year ended
March 31, 2012. The Company recognizes impairment losses on securities with market value when the market
value declines by more than 50 percent, or when the market value declines by more than 30 percent but less than
50 percent, the Company recognizes necessary impairment losses as a result of considering the possibility ofrecovery.

38

Balance sheet amount of securities lent under loan for consumption agreement, etc. as of March 31, 2012 and2011 are as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Short-term investments¥
107,090¥
39,825$
1,302,957
Investments in securities
59,748219,519
726,950
The fair value of the securities borrowed under loan for consumption agreement, etc. as of March 31, 2012
and 2011 was as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Securities loaned¥

820,534

Securities pledged as collateral
Securities on hand¥779,460$

9,983,380

273,652

716,879

3,329,505

72,876

63,376886,677(5)

Investments in Affiliates
The aggregate carrying amount of investments in affiliates as of March 31, 2012 and 2011 are ¥2,872 million($34,943 thousand) and ¥5,297 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 isreported 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 at March 31, 2002.
The value of the land at March 31, 2012 decreased by ¥114 million ($1,387 thousand) in comparison with thebook value of the land after revaluation.
(7)

Debt
The composition of debt and the weighted average interest rate on debt as of March 31, 2012 and 2011 are as
follows:
Thousands
Weightedof U.S.
average
Millionsof yendollars
rate
March 31, 2012
Short-term borrowings¥ 1,829,210 $ 22,255,871
0.113%
Current portion of long-term borrowings
4,000
48,6680.703
Current portion of lease liabilities
897－Long-term borrowings
7,500
91,2520.663
Lease liabilities
12
146－
Call money
1,388,600
16,894,999
0.077
Commercial paper
33,500407,592
0.113¥ 3,262,830 $ 39,698,625
March 31, 2011
Short-term borrowings
Current portion of long-term borrowings
Current portion of lease liabilities
Long-term borrowings
Lease liabilities
Call money
Commercial paper¥¥

4,032,010
17,000821,50019
1,264,300
7,500
5,342,337

39

0.105%
0.574
－
0.643
－
0.080
0.124

(8)

Retirement and Severance Benefits
The Company has defined benefit retirement and pension plans, which consist of contract-type defined
benefit corporate retirement and pension plan and unfunded retirement and severance plan that provide forlump-sum payment of benefits, and a defined contribution plan, which is a noncontributory funded contract-type
corporate pension plan. Consolidated subsidiaries have a defined benefit retirement and pension plans, which isan unfunded retirement and severance plan that provide for lump-sum payment of benefits, and a defined
contribution plan, which is a noncontributory funded contract-type corporate pension plan. One subsidiary has
joined Zenkoku Jutakuchi Kaihatsu Kosei Nenkin Kikin which was established as a multi-employer
noncontributory fund. The welfare pension plan consisted of two tiers, the substitution portion of Japanese
Welfare Pension Insurance and the corporate portion, and the plan assets of such welfare pension funds cannot be
specifically allocated to the individual participants nor to the substitution and corporate portions.
The most recent funded status of the whole welfare pension plan under multi-employer pension plan for theyears ended March 31, 2012 and 2011 were outlined as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Plan assets at fair value (1)Benefit obligation underprograms (2)(1) - (2)pensionfunding¥

26,610¥27,349$323,762¥

35,176(8,566)¥33,748(6,399)$427,984(104,222)

The subsidiary’s proportion of the contribution to the aggregate pension contributions in March 2011 and2010 are 0.32% and 0.4%, respectively.
The funded status of the pension plans as of March 31, 2012 and 2011 is outlined as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Projected benefit obligation¥(6,539)¥(6,537)$(79,559)
Plan assets at fair value
3,218
3,039
39,153Funded status(3,321)(3,498)(40,406)
Unrecognized actuarial loss
1,020
1,173
12,410Net amount recognized in the consolidated balance sheet(2,301)(2,325)(27,996)
Prepaid retirement and severance benefits－－
Accrued retirement and severance benefits¥(2,301)¥(2,325)$(27,996)
Net periodic pension cost for the years ended March 31, 2012 and 2011 consists of the following components:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost
Net periodic pension cost

¥

¥

187
129
(61)
167
14
436

¥

¥

193
128
(59)
175
－
437

$

$

2,275
1,570
(742)
2,032
170
5,305

For the years ended March 31, 2012 and 2011, the amount in the table above excludes contributions to thewelfare pension fund.
Significant assumptions of pension plans used to determine these amounts in fiscal 2012 and 2011 are as
follows:
2012
2011
Periodic allocation method for projected benefit
Straight-line
Straight-line
Discount rate
2.0%
2.0%
Expected rate of return on plan assets
2.0%
2.0%
Period for amortization of unrecognized actuarial loss
15 years
15 years
Prior service cost is recognized in the year incurred.

40

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, 2012 and 2011, the liabilities for retirement and severance benefits related to the plans were
¥89 million ($1,083 thousand) and ¥89 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 40.7% in 2012 and2011.
The ”Act for Partial Revision of the Income Tax Act, etc. for the Purpose of Creating Taxation System
Responding to Changes in Economic and Social Structures” (Act No.114 of 2011) and the “Act on Special Measuresfor Securing Financial Resources Necessary to Implement Measures for Reconstruction Following the Great East
Japan Earthquake” (Act No.117 of 2011) were issued on December 2, 2011 and the statutory tax rate is to bechanged accordingly with effect from fiscal years beginning on April 1, 2012 and onward.
Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets
and liabilities expected to be settled or realized from April 1, 2012 to March 31, 2015 and on or after April 1, 2015
are 38.01% and 35.64%, respectively, as of March 31, 2012. Due to these changes in statutory income tax rates,
net deferred tax liabilities decreased by ¥301 million ($3,662 thousand), net unrealized gain (loss) on othersecurities increased by ¥377 million ($4,587 thousand) and income taxes-deferred reported in the consolidated
statement of income increased by ¥76 million ($925 thousand). The deferred tax liabilities related to surplus onland revaluation decreased by ¥12 million ($146 thousand) and the surplus on land revaluation increased by thesame amount.
From fiscal years beginning on April 1, 2012, the use of loss carryforward is limited to 80% of the current
year’s taxable income. As a result of this change, there is no material effect on deferred tax assets or income
taxes-deferred reported in the consolidated statement of income.
The reconciliation of the statutory tax rate and the effective tax rate as a percentage of income before income
taxes for the years ended March 31, 2012 and 2011 is follows:
2012
2011
Statutory tax rate
40.7%
40.7%
Equity in losses of affiliates
18.3
4.3
Loss on sales of associated companies stocks
27.0－
Expenses not deductible for tax purposes
1.1
0.5
Valuation allowance(28.5)(21.2)
Income not credited for tax purposes
(3.4)
(2.7)
Adjustments of deferred tax assets due to change in statutory tax rate
4.0
－
Other
0.5
2.4
Effective tax rate
59.7%
24.0%

41

Significant components of deferred tax assets and liabilities at March 31, 2012 and 2011 are as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012

Deferred tax assets:
Accrued business tax
Accrued bonuses
Liabilities for retirement and severance
benefits (employees)
Liabilities for retirement and severance
benefits (directors and corporate auditors)
Allowance for doubtful receivables
Tax loss carryforward
Net unrealized loss on other securities
Other

¥

41
156

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
Other
Net deferred tax liabilities

¥

¥

36
169

$

499
1,898

850

945

10,342

32
512
2,980
249
218
5,038
(3,459)
1,579

37
651
4,233
793
225
7,089
(4,770)
2,319

389
6,229
36,2583,030
2,652
61,297(42,085)
19,212(166)(2,853)(385)(14)(3,418)(1,839)(182)(3,613)(437)(107)(4,339)(2,020)(2,020)(34,712)(4,684)(171)(41,587)(22,375)¥$

Net deferred tax assets and liabilities as of March 31, 2012 and 2011 are reflected in the accompanying
consolidated balance sheet under the following captions:Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Current assets－Deferred tax assets
¥
402
¥
681
$
4,891
Non-current liabilities－Deferred tax liabilities(2,241)(2,701)(27,266)(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.
(11) Retained Earnings and Dividends
The Companies Act provides that an amount equal to 10% of distributions from retained earnings paid by theCompany 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 additional paid-in capital and legal reserve areavailable for appropriations by the resolution of the stockholders. Balances of the legal reserve are included inretained earnings in the accompanying consolidated balance sheet.
Cash dividends charged to retained earnings for the years ended March 31, 2012 and 2011 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.

42

(a)

Dividends paid during the year ended March 31, 2011
The following was approved by the general meeting of stockholders held on June 25, 2010.

(a) Total dividends(b) Cash dividends per common share(c) Record date¥651 million¥7
March 31, 2010(d) Effective dateJune 28, 2010
The following was approved by the Board of Directors held on November 8, 2010.
(a) Total dividends(b) Cash dividends per common share¥651 million¥7(c) Record date

September 30, 2010(d) Effective date

December 10, 2010(b)

Dividends paid during the year ended March 31, 2012
The following was approved by the general meeting of stockholders held on June 24, 2011.

(a) Total dividends(b) Cash dividends per common share(c) Record date¥651 million ($7,921 thousand)¥7 ($0.09)
March 31, 2011(d) Effective dateJune 27, 2011
The following was approved by the Board of Directors held on November 7, 2011.
(a) Total dividends(b) Cash dividends per common share¥651 million ($7,921 thousand)¥7 ($0.09)(c) Record date

September 30, 2011(d) Effective date

December 9, 2011(c)

Dividends to be paid after the balance sheet date but the record date for the payment belongs to the year
ended March 31, 2012
The following was approved by the general meeting of stockholders held on June 27, 2012.

(a) Total dividends¥651 million ($7,921 thousand)(b) Dividend source

Retained earnings(c) Cash dividends per common share¥7 ($0.09)(d) Record date

March 31, 2012(e) Effective dateJune 28, 2012(12) General and Administrative Expenses
Significant components of general and administrative expenses are as follows:

Salaries
Pension cost
Administrative and computer expenses
Depreciation

Millions of yen
2012
2011
2,837
¥
2,903
439
441
1,335
1,356
722
867

¥

43

Thousands of
U.S. dollars
2012$ 34,518
5,341
16,243
8,785

(13) Other Comprehensive Income
The reclassification adjustment and the related income tax effects allocated to each component of othercomprehensive loss for the year ended March 31, 2012 are as follows:
Thousands of
U.S. dollars
Millions of yen
Net unrealized gain on other securities:
Arising during the year
¥
443
$
5,390
Reclassification adjustment(120)(1,460)
Before tax amount
323
3,930
Tax benefit
520
6,327
Net-of-tax amount843
10,257
Surplus on land revaluation:
Tax benefit
12146
Share of other comprehensive loss of affiliates accounted for by equity method:

Arising during the year
Reclassification adjustment

224
5
229
1,084

Total other comprehensive income

2,725
61
2,786
13,189(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, 2012 and 2011 are as follows:
Yen
U.S. dollars
2012
2011
2012
Basic net income per share¥
8.42 ¥
37.73
$
0.10

Net income
Net income not applicable to common stockholders
Net income applicable to common stockholders

Millions of yen
2012
2011

¥

779
－
779

¥

¥

¥

3,492
－
3,492

Thousands of
U.S. dollars
2012

$
$

9,478
－
9,478

Number of shares (Thousands)
2012
2011

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

92,55892,558(b) Net Assets per Share
Net assets per share and reconciliation of the numbers and the amounts used in the net assets per sharecomputations at March 31, 2012 and 2011 are as follows:
Yen
U.S. dollars
2012
2011
2012
Net assets per share¥
1,245.83 ¥
1,241.67$
15.16

Total net assets
Amount deducted from total net assets
Net assets applicable to common stockholders¥¥

Millions of yen
2012
2011
115,547¥
114,927－－
115,547¥
114,927

44

Thousands of
U.S. dollars
2012$ 1,405,852－$ 1,405,852

Number of shares (Thousands)
2012
2011

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

92,74692,557(15) Leases
Certain key information about finance lease contracts of the Company and its consolidated subsidiaries forthe years ended March 31, 2012 and 2011 are as follows, which would have been reflected in the consolidatedbalance sheet if finance lease accounting had been applied to the finance leases currently accounted for as
operating leases:(i) Acquisition cost, accumulated depreciation and net book value of leased assets, if they had been capitalized:
Thousands of
U.S. dollars
Millions of yen
2012
2011
2012
Furniture and fixtures:
Acquisition cost
¥
7
¥
26
$
85
Accumulated depreciation
(7)
(21)
(85)
Net book value
¥
0
¥
5
$
0
(ii) Lease expense and future minimum lease payments including interest expense:
Thousands of
U.S. dollars
Millions of yen
2012
2011
2012
Lease expense
¥
3
¥
5
$
37
Future minimum lease payments:
Within one year¥

0Over one year

¥

4

¥

0

$

1

－
¥

0
－

5

$

0

(16) Pledged Assets
The carrying value and classification of assets owned by the Company that have been pledged tocounterparties as of March 31, 2012 and 2011 are as follows:
Thousands of
U.S. dollars
Millions of yen
2012
2011
2012
Short-term investments¥

1,855,313¥

3,060,390$ 22,573,464

123,115

157,160

Short-term loans receivable

12,917

Securities in custody

31,00031,000377,175

Securities in deposit

96,018145,441

1,168,244

Collateral money for securities borrowed

152,816

81,1391,859,302

Investments in securities

850,592

1,137,226

10,349,094

224,238

282,8462,728,288

Securities received as collateral for securities
loans for margin transactions, etc.

Assets in the above table were pledged for the followings:
Millions of yen
2012
2011
Call money¥

1,108,100¥

Thousands of
U.S. dollars
2012

1,138,100$ 13,482,175

Short-term borrowings

1,545,500

3,348,500

18,803,991

Securities borrowed

152,816

81,1391,859,302

45

In addition to the above, other current assets of ¥500 million ($6,083 thousand) and investments in securitiesof ¥5,463 million ($66,468 thousand) are deposited for the Clearing Fund of Japan Securities Clearing
Corporation and Japan Government Bond Clearing Corporation, etc. at March 31, 2011.
In addition to the above, other current assets of ¥500 million and investments in securities of ¥8,725 million
are deposited for the Clearing Fund of Japan Securities Clearing Corporation and Japan Government Bond
Clearing Corporation, etc. at March 31, 2011.
(17) 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, government-backed bonds, local government bonds and public corporation bonds as securities
investment activities and usually raises money from call market.
(2) Financial instruments and risks
Main financial instrument that the Company holds are short-term loans, collateral money for securities
borrowed, short-term investments and investments in securities such as government bonds and equity securities.
Main financial instrument that JSFTB holds are loans to government and business corporations and securities
such as short-term and medium-term government bonds, government-backed bonds, local government bonds andpublic corporation bonds. Loans held by the Company and JSFTB are exposed to credit risks that caused fromcounterparties’ default of contract. Securities are exposed to market risks. Collateral money for securities
borrowed is collateral money mainly for repurchase transaction and securities borrowed of loans for margintransactions. Regarding raising money such as call money and short-term borrowings of the Company and
JSFTB, the liabilities are exposed to liquidity risks that caused from turmoil in the financial markets or a credit
rating down.
JSFTB has entered into interest rate swaps for hedging purposes and the difference in amounts to be paid or
received on interest rate swaps is recognized over the life of the agreements as an adjustment to interest expense
when certain criteria are met.
(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 withinequity 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 tothe 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
the credit 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,46

and sets up the credit limits, while business operation department monitors the credit limit. Assets owned bybusiness 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 theCompany collects the claims 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 Deltamethod (holding period: 10-240 days (depending on purposes in holding), confidence interval: 99%, observation
period: mainly 1 year). Market risk amount (possible losses) of the Company is ¥6,935 million ($84,378
thousand) at March 31, 2012.
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 stablefinancing 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, theCompany has a system to report to the management with daily cash flow status. The Company tries to holdenough liquidity, for example, to possess a certain amount of government bonds, makes a contingency plan andbuilds 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 measuresand monitors 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 amajor risk variable is calculated by VaR (Delta method; holding period: 1 year, confidence interval: 99%,
observation period: 5 years). JSFTB market risk amount is ¥2,964 million ($36,063 thousand) at March 31,
2012.
(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 whichquoted market price is not available is calculated based on certain assumptions, and the fair value might differ if
different assumptions are used. In addition, the contract amount of the derivative transactions described below
in note “(18) Derivative financial instruments” does not represent the market risk of the derivative transactions.
Fair value of financial instruments
The carrying value on the consolidated balance sheet, fair value, and differences as of March 31, 2012 and2011 are as follows.

47

Financial instruments, of which it is extremely difficult to measure the fair value, are not included. (Pleasesee “<2> Financial instruments of which the fair value is extremely difficult to measure”)
Millions of yen
March 31, 2012
March 31, 2011
Carrying
Carrying
value
value
Fair value Differences
Fair value
Differences
Assets:(1) Cash¥
20,108 ¥20,108 ¥－¥44,400¥44,400¥－(2) Short-term loans receivable
453,784
568,893
Allowancefordoubtfulreceivables *1(634)(1,096)453,150
453,135(15)
567,797567,797－(3) Collateral money for securities
borrowed
1,127,047
1,127,047－
1,516,586
1,516,586－(4) Short-term investments andinvestments in securities
Held-to-maturity securities
44,22545,4291,204
66,21067,861
1,651
Other securities
2,842,630
2,842,630－
4,436,892
4,436,892－
Investments in affiliates
2,423
2,001
(422)
4,893
3,053
(1,840)¥ 4,489,583 ¥ 4,490,350 ¥767¥ 6,636,778¥ 6,636,589
¥
(189)
Total
Liabilities:(1) Call money(2) Short-term borrowings(3) Commercial paper(4) Collateral money received for
securities lent

(5) Long-term borrowings *2
Total¥ 1,388,600¥ 1,388,600 ¥－¥ 1,264,300¥ 1,264,300

1,829,210

1,829,210－

4,032,010

4,032,010－

33,50033,500

－

7,500

7,500

－

1,100,016

1,100,016－

1,165,937

1,165,937－

11,50011,512

12

38,50038,52323¥ 4,362,838 ¥12¥ 6,508,247¥ 6,508,270¥ 4,362,826

48

¥

¥

－

23

Thousands of U.S. dollars
March 31, 2012

Carrying value

Assets:(1) Cash(2) Short-term loans receivable
Allowance for doubtful receivables *1$(3) Collateral money for securities borrowed(4) Short-term investments and investments in securities
Held-to-maturity securities
Other securities
Investments in affiliates
Total

$

(1) Call money(2) Short-term borrowings(3) Commercial paper(4) Collateral money received for securities lent
(5) Long-term borrowings *2
Total

$

$

Fair value

244,653

Differences

244,653
5,521,158(7,714)
5,513,444
13,712,702$$

5,513,262
13,712,702

(182)
－

538,083
34,586,081
29,48054,624,443

552,732
34,586,081
24,346$ 54,633,776

14,649－(5,134)
9,333

16,894,999
22,255,871
407,592
13,383,818
139,92053,082,200$ 16,894,999
22,255,871
407,592
13,383,818
140,066$ 53,082,346

$
$

$

－

－
－
－
－
146
146

*1 Allowance for doubtful accounts associated with short-term loans receivable-trade is deducted.
*2 Current portion of long-term borrowings are included in long-term borrowings.
<1> Fair value measurement of financial instruments
Assets:(1) Cash
The fair value approximates carrying amount because of the short maturity of these instruments.
(2) Short-term loans receivable
The fair value of short-term loans receivable with variable interest rate approximates carrying amountbecause the fair value is reflected a fluctuation of interest market in a short period and unless credit status of theborrower does not change so much from when the Company lent. Allowance for doubtful receivables are
estimated based on collectable amounts by collaterals and guarantee and thus the fair value approximates the
carrying amount minus allowance for doubtful receivables amounts.
(3) Collateral money for securities borrowed
The fair value approximates carrying amount because of the short maturity of these instruments.
(4) Short-term investments and investments in securities
The fair value of equity securities and bond securities is calculated by quoted market price. The fair value ofgovernment bonds with variable interest rate held by the Company and JSFTB is estimated based on quotes frominformation 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 determinationthat their market prices cannot be deemed fair value due to the market situation where the number oftransactions is extremely small. The pricing model used by the information vendors is forward pricing model,
and the price determinant variables are the spot rate for Japanese 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.

49

(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.
The fair value of long-term borrowings with fixedinterest rate is based on the present value of future cash flows of interest and principal payments discounted
using the current borrowing rate for similar borrowings of a comparable maturity.
<2> Financial instruments of which the fair value is extremely difficult to measure
Millions of yen
2012

2011

Thousands of
U.S. dollars
2012

Unlisted equity securities
2,314
Other securities
¥
2,314
¥
$
28,154
Investments in affiliates
448
404
5,451
Above securities have no market value and the fair value is extremely difficult to measure, therefore are notincluded in “Assets: (4) Short-term investments and investments in securities.”<3> Projected future redemption of monetary claim and securities with maturities at March 31, 2012
Millions of yen
Due after
Due after
five years
one yearthrough fivethrough ten
Due after
Due within
years
ten years
one year
years(1) Cash
20,108
¥
¥
－
¥
－
¥
－
(2) Short-term loans receivable
389,491
56,1677,437
689(3) Collateral money for securities borrowed
1,127,047－－－(4) Short-term investments andinvestments in securities
Held-to-maturity securities
Bond securities
Government bonds－－
40,000－
Corporate bonds
2,400
－
2,000
－
Other
－
－
－
－
Other securities with maturities
Bond securities
Government bonds
1,770,768
620,424
209,000
7,000
Corporate bonds
158,708
60,259
－
－
Other
－
－
－
－
Other
－
－
－
－
Total
¥ 3,468,522¥
736,850¥
258,437
¥
7,689

50

(1) Cash(2) Short-term loans receivable(3) Collateral money for securities borrowed(4) Short-term investments andinvestments in securities
Held-to-maturity securities
Bond securities
Government bonds
Corporate bonds
Other
Other securities with maturities
Bond securities
Government bonds
Corporate bonds
Other
Other
Total

Due within
one year244,653$
4,738,910
13,712,702$

Thousands of U.S. dollars
Due after
Due after
one yearfive years
through fivethrough ten
years
years
$
－ $
－
683,380
90,486－－$

Due after
ten years
－
8,383
－

－
29,200－－－－486,677
24,334－－－－

21,544,811
1,930,989－－
42,201,265

7,548,656
733,167－－
8,965,203

2,542,888－－－
3,144,385

85,169－－－93,552$$$<4> The annual maturities of the long-term borrowings, lease liabilities and other interest bearing liabilities
Millions of yen
Due after
Due afterthree
Due after
two years
Due after
years
four years
through
one yearthroughthree
throughDue after
Due within
throughfive years
four years
five years
years
one year
two years
Call money¥ 1,388,600 ¥
－
¥
－
¥
－
¥
－
¥
－
Short-termborrowings
1,829,210－－－－－
Commercial paper
33,500－－－－－Collateralmoney
receivedforsecurities lent
1,100,016－－－－－
Lease liabilities
8
8
4
－
－
－
Long-term
borrowings
4,000
7,500
－
－
－
－
Total
¥ 4,355,334 ¥
7,508
¥
4
¥
－
¥
－
¥
－

51

Call money
Short-termborrowings
Commercial paper
Collateralmoney
receivedforsecurities lent
Lease liabilities
Long-term
borrowings
Total

Due after
one year
Due within
through
one year
two years$ 16,894,999 $－Thousands of U.S. dollars
Due after
Due after
three
two years
years
throughthroughthreefour years
years
$
－
$
－

Due after
four years
throughfive years$－

Due after
five years$－

22,255,871
407,592

－
－

－
－

－
－

－
－

－
－

13,383,818
97

－
97

－
49

－
－

－
－

－
－

48,668$ 52,991,045$

91,252
91,349

－
49

$

－
－

$

$

－
－

$

－
－

(18) Derivative Financial Instruments
Derivative transactions to which hedge accounting are applied at March 31, 2012 and 2011 are summarized
as follows:
Millions of yen
2012
2011
Contract orContract or
Hedge
notional
notional
accounting
amounts Fair value
Fair value
amounts
Hedged items
Nature of transaction
method*1
Interest rate swaps:
Variable rate received Short-term－
for fixed rate
investments ¥
2,400
*2
2,700
Variable rate received Short-term
for fixed rateloans
15,735*2¥ 12,729*2
Variable rate received Investments
－
*2
2,400
*2
for fixed rate
in securities
Fixed rate paid for Call money
variable rate
100,000*2
249,600*2
Variable rate paid for Long-term
variable rateborrowings
6,500*2
11,500*2
Total¥ 124,635¥ 278,929

Hedge
accounting
methodNature of transaction*1
Interest rate swaps:
Variable rate received
for fixed rate
Variable rate received
for fixed rate
Fixed rate paid forvariable rate
Variable rate paid forvariable rate
Total

Thousands of U.S.
dollars
2012
Contract ornotional
amounts
Fair value

Hedged items
Short-term
investments
Short-term
loans
Call money$

Long-term
borrowings

29,200*2

191,447*2

1,216,693*2

79,085$ 1,516,425*2*1 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.

52

*2 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.
(19) Commitments and Contingencies
As of March 31, 2012 and 2011, undrawn amount of general loan for securities companies and customers andoverdraft loan are as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Total credit line
¥ 592,785¥ 534,240$
7,212,374
Drawn amount(81,377)(25,945)(990,108)
Undrawn amount¥
511,408¥ 508,295$
6,222,266
Since some of these contracts expire without the rights exercised, the undrawn amount itself does notnecessarily affect future cash flows.
(20) Balances and Transactions with Related Party
The condensed financial information of all affiliates accounted for by equity method, including the significant
affiliate, JBIS Holdings, Inc. are as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Total current assets
Total non-current assets¥

15,942
18,406¥

15,59918,764$

193,965
223,945

Total current liabilities
Total non-current liabilities

13,211
6,437

9,133
7,913

160,737
78,319Total net assets

14,701

17,318178,866

Sales
Income (loss) before income taxes
Net loss

35,195(1,812)(2,599)37,708263(619)

428,215(22,046)(31,622)(21) 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 Trustand Banking Co., Ltd. and “Real estate leasing business” conducted by Nihon Building Co., Ltd. are theCompany’s reported segments. JSF Trust and Banking Co., Ltd. and Nihon Building Co., Ltd. are consolidated
subsidiaries of 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 minority interests.

53

Intersegment revenue and transfer are based on arms-length transactions.
The reported segment information for the Company and its consolidated subsidiaries for the year ended
March 31, 2012 and 2011 was summarized as follows:
Millions of yen
2012
Securities
Real estate
finance
Trust banking
leasing
Total
Revenues:
Revenues to third parties ¥15,186 ¥
4,225
¥
819
¥
20,230Intersegment revenues andtransfers
90
3
340
433
Total
¥
15,276 ¥
4,228
¥
1,159
¥
20,663
Segment income

¥

1,391

¥

1,635

¥

338

¥

3,364

Segment assets¥

4,090,811¥

909,432

¥

7,852

¥

5,008,095

¥

476
925

¥

90
－

¥

155
2

¥

721
927

Others:Depreciation andamortization
Extraordinary income:Gain from sale of associatedcompanies stocks

Extraordinary loss:
Loss
from
sale
of
investments securities

925
44

－

－
55

925
99

－

－

50

50

－

－

5

5

42
1,044

－
95

－
76

42
1,215

624

－

－

624

Loss from sale of associatedcompanies stock

Devaluationloss
oninvestments securities
Income taxes
Investments on affiliates
accounted for by the equity
method54

Revenues:
Revenues to third parties $Intersegment revenues andtransfers
Total$

Thousands of U.S. dollars
2012Real estate
Trust banking
leasing

Securities
finance

Total

184,767$

51,405

$

9,965

$

246,137

1,095
185,862$37
51,442$

4,136
14,101$

5,268
251,405

Segment income$

16,924$

19,893

$

4,113

$

40,930

Segment assets$

49,772,612$

11,064,996$

95,535$60,933,143

$

5,791
11,254

$

1,095
－

$

1,886
24

$

8,772
11,278Others:Depreciation andamortization
Extraordinary income:Gain from sale of associatedcompanies stocks

Extraordinary loss:
Loss
from
sale
of
investments securities

11,254
536

－
－

－
669

11,254
1,205

－

－

608

608

－

－

61

61

511
12,702

－
1,156

－
925

511
14,783

7,592

－

－

7,592

Loss from sale of associatedcompanies stock

Devaluationloss
oninvestments securities
Income taxes
Investments on affiliates
accounted for by the equity
methodRevenues:
Revenues to third parties ¥Intersegment revenues andtransfers
Total¥

Millions of yen
2011
Real estate
Trust banking
leasing

Securities
finance
17,558

¥

4,360

81
17,639

¥

930

Total
¥

22,848

¥

54
4,414

¥

341
1,271

¥

476
23,324

Segment income

¥

2,553

¥

1,117

¥

414

¥

4,084

Segment assets¥

5,229,779¥

2,041,916

¥

7,737

¥

7,279,432

600
33

¥

94
1,261

¥

172
7

¥

866
1,301

Others:Depreciation andamortization¥
Extraordinary income
Reversal of allowance for
doubtful receivables
included in the above
extraordinary income
Income taxes

1,257
(14)

32
940

55

7
167

1,296
1,093

Reconciliation between total segment revenues in the table above and revenues in the accompanying
consolidated statement of income for the years ended March 31, 2012 and 2011 are as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Total segment revenues¥
20,663¥23,324$
251,405
Intersegment revenues
(433)
(476)
(5,268)
Revenues in the accompanying consolidated
statement of income¥
20,230¥22,848$
246,137
Reconciliation between total segment income in the table above and ordinary income in the consolidated
income statement for the years ended March 31, 2012 and 2011 are as follows:
Thousands ofMillions of yen
U.S. dollars
2012
2011
2012
Total segment income
¥
3,364
¥
4,084
$
40,930Intersegment income
(108)
(254)
(1,314)Equity in losses of affiliates
(869)
(484)
(10,574)
Revenues in the consolidated income
statement
¥
2,387
¥
3,346
$
29,042
Reconciliation between total segment assets in the table above and assets in the consolidated accompanying
balance sheet at March 31, 2012 and 2011 are as follows:

Total segment assets
Intersegment accounts
Intersegment investments
Other
Assets in the accompanying consolidatedbalance sheet¥¥

Millions of yen
2012
2011
5,008,095¥ 7,279,432(53,130)(179,483)(26,269)(26,269)
2,590
4,458

Thousands of
U.S. dollars
2012$
60,933,143(646,429)(319,613)
31,512

4,931,286

$

56

¥

7,078,138

59,998,613

Reconciliation between others in the table above and amounts in the consolidated financial statements as ofand for the years ended March 31, 2012 and 2011 are as follows:
Millions of yen
Amounts in the
consolidated
financial
Segment total
Adjustments
statements
March 31, 2012
Depreciation and amortization
¥
721
¥
1
¥
722
Extraordinary income:
927
(925)
2
Gain from sale of associated companies
925
(925)
－
stocksExtraordinary loss:
99
355
454
Loss from sale of investments securities
50－
50
Loss from sale of associated companies
stocks5355360Devaluation loss on investments－
42
securities
42
Income taxes
1,215
(60)
1,155
Investments on affiliates accounted for
624
2,248
2,872
by the equity method
March 31, 2011
Depreciation and amortization¥
Extraordinary income:Reversal of allowance for doubtfulreceivables included in the above
extraordinary income
Extraordinary loss
Income taxes
Investments on affiliates accounted for by
the equity method

866
1,301

¥

1
(4)

¥

1,296
47
1,093

(4)
(0)
11

1,292
47
1,104

1,153

4,144

5,297

Thousands of U.S. dollars

Segment total

March 31, 2012
Depreciation and amortization
Extraordinary income:Gain from sale of associated companies
stocksExtraordinary loss:
Loss from sale of investments securities
Loss from sale of associated companies
stocksDevaluation loss on investments
securities
Income taxes
Investments on affiliates accounted forby the equity method

$

867
1,297

8,772

Adjustments
$

12

$

Amounts in the
consolidated
financialstatements
8,784

11,278(11,254)

24

11,254(11,254)

－

1,205

4,319

5,524

608

－

608

61

4,319

4,380

511

－

511

14,783(730)

14,053

7,592

27,351

34,94357

by the equity method
Related Information(a) Information by services
Sales by services for the years ended March 31, 2012 and 2011 are as follows:

Loans for margin transaction¥

Millions of yen
2012
2011
8,923
6,756
¥

¥

20,229Other

13,926

13,473¥

22,849Thousands of U.S.
dollars
2012$

82,200163,925$

246,125(b)Geographic information
Because there are no revenues from customers outside Japan and no property, plant and equipment locatedoutside Japan, the geographic information is not disclosed for the years ended March 31, 2012 and 2011.
(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, 2012 and 2011.
Information of impairment loss on fixed assets by reported segments
The information is not applicable for the years ended March 31, 2012 and 2011.
Goodwill by reported segments
The information is not applicable for the years ended March 31, 2012 and 2011.
Negative goodwill incurred by reported segments
The information is not applicable for the years ended March 31, 2012 and 2011.

58

INDEPENDNET AUDITORS' REPORT59

OUTLINE OF JSF GROUP

Japan Securities Finance Co., Ltd.

Subsidiaries

AﬃliatesJBIS Holding, Inc.

JSF Trust and Banking Co., Ltd.

Japan Information Processing
Service Co., Ltd.

Nihon Building Co., Ltd.

JSF Information Technology Co., Ltd.

(millions of yen)

Ratio ofshareholding

14,000100

Trust service, Banking services

100

100

Real estate ownership and leasing
Real estate trading and brokerage

JBIS Holdings Inc.

3,000

19.88

Japan Information Processing Service Co., Ltd.

2,450

－

Information processing services
Software development and sales

100

20.75

Information processing services
Software development and sales

Name

CapitalBusiness overview

Subsidiaries
JSF Trust and Banking Co., Ltd.
Nihon Building Co., Ltd.
Affiliates

JSF Information Technology Co., Ltd.

60

Management of subsidiaries

CORPORATE DATA

(as of March 31, 2012)

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

222

Share Information
Shares outstanding

Transfer agent

93,700,000 shares (as of March 31, 2012)

Japan Securities Agents, Ltd.
1-2-4 Nihonbashi-Kayabacho, Chuo-ku, Tokyo

Number of shareholders

103-8202

9,127 (as of March, 2012)

Tel: +81-3-3668-9211

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

Major shareholders

Number ofshares held(Thousands)

Ratio ofshareholding

Japan Trustee Services Bank, Ltd.
(Trust account)

7,024

7.50

Northern Trust Global Services Ltd. Re
Norwegian Clients Account

5,455

5,82

Mizuho Corporate Bank, Ltd.

4,374

4.67

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

3,557

3.80

Shihon-Shijo Shinko Foundation

3,531

3.76

Mizuho Bank, Ltd.

3,093

3.30

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

2,879

3.07

BBH For SEI Inst Investments Trust World
Equity Ex-US Fund / JO Hambro

2,467

2.63

Japan Securities Agents, Ltd.

1,460

1.56

State Street Bank and Trust Company
505103

1,448

1.55

61

Composition of shareholders(by number of shares)Securities
Companies
6.9%

Other JapaneseCompanies
7.5%

Individuals
23.3%

Financial
Institutions
33.5%

ForeignInvestors
28.8%

Board of Directors, Corporate Auditors and Executive Officers (As of June 27, 2012)
Directors

Executive Officers

Chairperson

Minoru Masubuchi *Chairperson

Minoru Masubuchi

President

Eizo Kobayshi *President

Eizo Kobayashi

Executive Vice President

Hiromitsu Matsuda *Executive Vice President

Hiromitsu Matsuda

Senior Managing Director

Hiroshi Nasuno

Senior Managing Director

Hiroshi Nasuno

Managing Director

Hiroshi Asakura

Managing Director

Hiroshi Asakura

Toshihiro Oritate
Director

Toshihiro Oritate

Takashi Imai **Executive Officer

Tomoyoshi Sugaya

Akira Kanno **Toshio Ishide

Hiroshi Koshida **Ichiro Kasahara(* Representative Directors)

Kenji Fukushima(** Outside Directors)

Kazuhiro Maeda

Corporate Auditors
Ushio Mizuno *Masao Iguchi
Toshio Kamiyama *(* Outside Corporate Auditors)

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+

62

CORPORATE DATAORGANIZATION

General Meetingof Shareholders

Board of Auditors
Board of Directors(Chairman)
President
Management committee

Executive Oﬃcers Meeting
Compliance
Committee

Executive Oﬃcers in Charge

Audit Department
Compliance Department
Risk Management Department

ALM Committee

General Aﬀaires Department

Risk Capital Meeting

Accounting Department

System Committee

Planning Department
Treasury Department
Margin Loan Department
Loan Department
Settlement & Custody Department
Information Systems Planning Department

63