Rapid Progress4

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

Promoting STPMEDIUM-TERM THEMES

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

T he JASDEC Group will concentrate on five themes

dematerialization of stock certificates.

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

Progress in Dematerialization

Raising Number of Stock Certificatesin Custody

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

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

conversion of paper certificates into dematerialized form

T RUSTS We are working to implement a book-entry

and expand use of the book-entry system.

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

Reinforcing Custody Function

processes that will achieve the smooth conversion ofSTRONGER SYSTEM INFRASTRUCTURE Based on the for-outstanding physical certificates into a dematerialized

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

form.

including the system for dematerialization of stock

DEMATERIALIZATION OF STOCK CERTIFICATES Based oncertificates, as well as system replacement, transfer of

the System Outline for dematerialization of stock certifi-

information to our data center and other aspects relatedcates, we are pursuing discussions to fine-tune adminis-to systems—we will strive to build an infrastructure

trative processes and practical conversion techniques

featuring higher levels of safety, efficiency and conve-

and to address necessary system development in ournience. This will ensure stable clearing and settlement

quest to build a new book-entry transfer system foroperations.

stock certificates.

ENHANCED RISK MANAGEMENT STRUCTURE We will

PROMOTING USE OF BOOK-ENTRY TRANSFER SYSTEMS

continue to improve information security and work

FOR CP AND CORPORATE BONDS

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

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

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

in the market and address concerns to support smooth

STRONGER TIES WITH OVERSEAS COUNTERPARTS We

transition of outstanding physical bonds and recorded

will forge stronger ties with counterpart organizations

bonds to dematerialized form. We undertake necessary

abroad and create networking opportunities with otherresponses, such as function upgrades to relevant sys-

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

expand use of our systems.

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

Rapid Progress in Dematerialization

2006

Implemented

JanuaryBook-Entry Transfer System for

Corporate Bonds

BOOK-ENTRY TRANSFER SYSTEM FORpaperwork. Under our system, we revised custody pro-CORPORATE BONDS

cedures—from issuance to redemption, including trans-Main Features of the System
T he prevailing registration system requires certainfers—into a management structure, based on thebalance recorded in the transfer account book, and realized DVP (gross–gross formation known as BIS model 1)
and STP by linking to PSMS.

responses to the physical issue of bonds because beneficiaries have the right to request the issue of such certifi-Book-Entry Transfer Based on BalanceManagementcates. The book-entry system, however, is completelyelectronic, and thereby eliminates costs associated withUnder the prevailing registration system, registration

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

Trade
1

JASDEC
TradeParty

Trade
Party

Pre-Settlement
Matching System
2

Affirmation of Trade

Affirmation/
Disaffirmation

Trade
Matching
2

Affirmation of Trade

SSI

3

Notice ofSettlement Matching
StatusSettlement
Matching

Settlement
Matching

3

Notice ofSettlement Matching
StatusSettlement
Party

Settlement
Party
Transfer System
for Corporate bonds
4

Notice of Recording
9Securities Transfer
NoticeRecord inTransfer Ledger
Security
Transfer

4

SecuritiesSettlement

Notice of Recording
9Securities Transfer
NoticeLinked
85Settlement
Completion

FundSettlement Data

FundSettlement
Company668FundTransfer

Payment Request

Notice of Receipt
Completion

Bank of Japan

Payment Instruction

7FundSettlement
Company

FundSettlement

Rapid Progress in Dematerialization

Implemented

2006

April

Depository and Book-Entry Transfer System for

Foreign Stocks

number as well as ownership in their register book.

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

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

Multilayer Holding Structure ofParticipation

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

Smooth Transition ofOutstanding Bonds

multilayer holding structure in order to facilitate flexi-

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

interest income for such entities as tax-free corporations

tion among international institutions. In addition, under

will apply only to book-entry bonds; recorded bonds

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

ential tax treatment. In response, JASDEC will maintainstructure.

efforts to promote the transition of outstanding bonds toEligible Securities

book-entry bond status.

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

Municipal bonds●

Investment company bonds●

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

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

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

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

DEPOSITORY AND BOOK-ENTRY
TRANSFER SYSTEM FOR

FOREIGN STOCKS
Details on System Start

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

For Implementation

2007

JanuaryBook-Entry Transfer System for

Investment Trusts

With the enforcement of Business Regulations

BOOK-ENTRY TRANSFER SYSTEM FOR

Relating to Depository and Book-Entry Transfer of Foreign

INVESTMENT TRUSTS

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

System Summary

By opening a deposit account for foreign stock certifi-Investment Trust Market in Japan

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

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

instruction of Japan Securities Clearing Corporation or

Association of Japan, net investment trust assets

non-exchange trade transfers, in line with Businessreached ¥85.79 trillion, as of March 31, 2006. Of thisRegulations and Rules Relating to Depository and Book-amount, investment trusts offered to the general public

Entry Transfer of Foreign Stock Certificates, etc.

represented ¥58.47 trillion while investment trusts for

When a participant deposits listed foreign stock

private placement represented ¥27.32 trillion.

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

relevant foreign depository. If the foreign stock certifi-

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

Corporate Bonds, in January 2007. With this system,

fers or delivers to the account designated by the partici-

subscription, transfer and redemption of beneficiary

pant. These deposits and transfers are made via message

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

book-entry transfer system for foreign stocks andaccount book.

SWIFT (the Society for Worldwide Interbank Financial
Telecommunication).

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

In regard to the treatment of rights held by bene-

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

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

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

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

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

Eligible Certificates

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

For Implementation No Later thanJuneDematerialization forwill not initially cover those on foreign investment trusts

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

established overseas or on mother funds.*

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

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

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

L eading up to the implementation of the book-entry

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

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

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

DEMATERIALIZATION FORers, based on the aforementioned general sharehold-

STOCK CERTIFICATES

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

Dematerialization of
Stock Certificates in Japan

stock certificates in the custody of the central securities depository: the shareholders’ registry with theIn 2004, the Stock Settlement Rationalization Law (thename of the central securities depository, and the ben-Law for partial amendments to the Law concerning

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

shareholders. The new system, however, will consoli-Securities) was introduced in Japan to streamline

date management of shareholders’ ownership interests

settlement procedures for trades of stocks and otherinto the shareholders’ registry alone, and only thesecurities. This legislation allows the stock of non-stock-names of actual shareholders will be recorded therein.

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

make their stock paperless as of a date, determined bysecurities depository and the account management

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

aforementioned legislation was announced (June 9,

undertake procedures that automatically revise the2004).

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

Basic Structure of the New Systemholder and single-unit shareholder rights on shares in● Under the new book-entry transfer system, the owner-custody, they need to instruct their respective accountship of stocks shall be determined by the record in themanagement institution to notify the issuer of the data

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

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

Structural Differences between the Current And Dematerialized Systems

Current System

Dematerialized Book-Entry Transfer System

Issuing Company
Book of Shareholders

Issuing Company
Book of Shareholders

Book of Beneficial Shareholders
Re-registration
Request

Notice of Beneficial
Shareholders

Notice of Shareholders

Depository

Book-Entry Transfer Institution

Account Management Institution (AMI)

Participant (P)

P

AMI

AMI

AMI

AMI

Certificate holder

Customer (C)CC

Participant (P)Book-Entry Delivery

PPP

P

Book-Entry Delivery

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

(specific shareholder notification) and within a speci-

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

data on the ledger of book-entry transfer accounts.
● We will introduce DVP to eliminate settlement riskrights.
● When the reason is justifiable, an issuer can request

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

public offerings.

in the ledger of book-entry transfer accounts.

● We will disclose on a daily basis foreign shareholder

ratios on stock in companies in such industries as

Concrete System Outline
broadcasting and aerospace, where shareholdings by

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

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

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

10foreigners is limited to a certain percentage.

shares.

tion rights to new shares, beneficiary ownership andTo ensure a smooth start to the new book-entry transfer

preferred capital contribution, as well as subscription

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

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

unlisted stock, as long as specific criteria are satisfied.

dently pursuing various systems development activities.

● We will apply shareholders names, addresses and num-

All interested parties have agreed to set January 2009 as

ber of shares received from account management insti-

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