Impact of Lehman Brothers bankruptcy on post-trade system in Japan

1. Impact of Lehman Brothers bankruptcy on post-trade systemin Japan 4 July, 2009 Dhaka, Bangladesh Japan Securities Depository Center, Inc.

2. IMPACTof Subprime Crisisand Lehman Brothers Bankruptcyon Asian Economiesand Japan

3. Impact of Subprime Crisis on Asian Economies - Real GDP Growth Rate - (Source) International Monetary Fund, World Economic Outlook Database, April 2009

4. Before & after Lehman Brothers bankruptcy - Asian Stock Performance -

5. Impact of Subprime Crisis on Japan (1) Financial Sector First, financial sector’s involvement in subprime products was limited. But after Lehman Brothers’ bankruptcy… Sharp decline in stock prices + Bad loans + Low liquidity =Negative effect on financial institutions’ balance sheets Manufacturing Sector Sudden higher value of the yen + Falling-off of consumer demand = Sharp decline of export & overseas production

6. Impact of Subprime Crisis on Japan (2) (Billion Yen) (Source) Financial Service Agency, Exposures of Japanese deposit-taking institutions to subprime-related products, 2008-2009

7. IMPACTof Lehman Brothers Bankruptcy on the Post-trade system in Japan

8. Exchange Trade Customer Trade, Clearing and Settlement flowin securities transaction Non-Exchange Trade 【Market】 Broker Participant Participant Trade Data Trade Data JASDEC (PSMS) Stock Exchange 【Matching】 JDCC (DVP Clearing) Gross-Net JSCC (DVP Clearing) Net-Net 【Clearing】 Securities Settlement Cash Settlement 【Settlement】 JASDEC Bank of Japan

9. Action taken after Lehman Brothers Bankruptcy * Lehman Brothers Holdings, Inc. (Source) Bank of Japan “Reports and Research Papers” March 2009

10. Action taken by JSCC right after Lehman Brothers’ Default Obligation Assumption Suspended Obligation Assumption Guaranteed Failure of Securities Delivery Cleared away Purchased from the market (17 September ~) Securities Company Shortage of Securities X X Securities Company Lehman Brothers Japan, Inc Shortage of Cash JSCC Covered by over-draft agreements with fund-settling banks (16~18 September) Cash Delivery Completed Securities Company

11. Average Daily Volume of Failed-Delivery in JSCC - 2008 - (thousand Shares) Note1: Figures are average daily failed-delivery shares against expected number of shares to be settled based on netting for JASDEC eligible domestic stocks.

12. Action taken by JDCC right after Lehman Brothers’ Default Securities Delivery Completed (16 September) Securities Company X Securities Company X JDCC Lehman Brothers Japan, Inc Shortage of Cash Covered by Participant Fund (16 September) Sold to restore Participant Fund Custodian Bank Obligation Assumption Guaranteed Obligation Assumption Suspended

13. Default Protection by JSCC & JDCCin Lehman Brothers bankruptcy • JSCC • For the shortage of securities, JSCC > was financed by over-draft agreements with fund-settling banks, and > purchased securities from the market • For the shortage of cash, JSCC > was financed by over-draft agreements with fund-settling banks >>> Amount financed was covered by selling securities intended for delivery to Lehman Brothers Japan, Inc. and its Clearing Fund later • JDCC • For the shortage of cash, JDCC > used its Participant Fund >>> Participant Fund was covered by selling securities intended for delivery to Lehman Brothers Japan, Inc. later - CCPs’ Loss Compensation Scheme functioned properly - DVP limited losses of counterparties within price volatility

14. For inquiries… Please contact: Naoko Watanabe International Department Japan Securities Depository Center, Inc. (n-watanabe@jasdec.com)