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Presentation by Japan Securities Clearing Corporation

Presentation by Japan Securities Clearing Corporation. June 27 th -28 th , 2006. The 8 th ACG Cross Training Seminar. TOPICS. Introduction of JSCC Operations of JSCC Direct and Indirect Structure. 1 ． Introduction of JSCC. 1 ． (1) Establishment of JSCC.

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Presentation by Japan Securities Clearing Corporation

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  1. Presentation by Japan Securities Clearing Corporation June 27th-28th, 2006 The 8th ACG Cross Training Seminar Japan Securities Clearing Corporation June 27th-28th, 2006

  2. TOPICS • Introduction of JSCC • Operations of JSCC • Direct and Indirect Structure Japan Securities Clearing Corporation June 27th-28th, 2006

  3. 1．Introduction of JSCC 1．(1) Establishment of JSCC • Stock exchanges in Japan had their own clearing functions before commencement of operations of JSCC. • This situation led to numerous inefficiencies, therefore it was essential to create a clearing organization and a CCP function that covered all of the nation’s markets and integrated all the clearing operations. • As a result, JSCC was established in July 2002 and has provided cross-market clearing operations for equity and fixed income products since January 2003. • The clearing operations for Tokyo Stock Exchange Derivatives has also been conducted by JSCC since February 2004. ◆About JSCC *1Shareholders of the JSCC are only market providers based on the idea that clearing functions are transferred from each market. *2Shareholding ratio was determined on the basis of trading value of domestic stocks in each market. Japan Securities Clearing Corporation June 27th-28th, 2006

  4. 1．(2) Structure of Trading, Clearing, Settlement Market Trading 6 Stock Exchanges Clearing Organization JSCC Clearing DVP settlement Securities Settlement Funds Settlement Transfer instructions Settlement Organization Settlement Tokyo Stock Exchange, Inc Central Securities Depository(JASDEC) Bank of Japan /Fund Settlement Bank Japan Securities Clearing Corporation June 27th-28th, 2006

  5. 1．(3) Relationship among Infrastructures for Securities Markets in Japan －Share Ownership Clearing Organization JSCC 13.7% Other Stock Exchanges 86.3% Stock Exchange TSE*1 100% Settlement Organization 22.0% Settlement Organization JASDEC*2 JSSC*3 ①Operations for physical deliveries and safe keeping (entrusted by JASDEC) ②Other settlement and custody services *1TSE: Tokyo Stock Exchange *2JASDEC: Japan Securities Depository Center *3JSSC: Japan Securities Settlement & Custody Japan Securities Clearing Corporation June 27th-28th, 2006

  6. 1.（4）Scope of JSCC’s Operation Trading Clearing Settlement Stock Exchange Domestic Stock 6 Stock Exchanges JSCC JASDEC TSE/OSE Foreign Stock TSE / OSE JSSC/JASDEC TSE Derivatives TSE The unified cross-market clearing organization OSE Derivatives OSE JGBOTC JGBCC*1 Bank of Japan Non-Exchange Transaction Transfer JDCC*2 JASDEC *1JGBCC: Japan Government Bond Clearing Corporation *2JDCC: JASDEC DVP Clearing Corporation Japan Securities Clearing Corporation June 27th-28th, 2006

  7. 1.(5) Outline of JSCC’s core business Japan Securities Clearing Corporation June 27th-28th, 2006

  8. 1.（6）Outline of JSCC’s complementary business TSE JASDAQ Stock Exchange Management services concerning surety bond JSCC Monitoring of the financial status of participants JGBCC JDCC Japan Securities Clearing Corporation June 27th-28th, 2006

  9. Clearing Participant A/C Clearing Participant A/C Clearing Participant A/C Clearing Participant A/C Clearing Participant A/C Clearing Participant A/C • 2.Operations of JSCC • 2.(1) Cross-market Clearing Organization TSE Transactions ↓ Matching OSE Transactions ↓ Matching Nagoya SE Transactions ↓ Matching Fukuoka SE Transactions ↓ Matching Sapporo SE Transactions ↓ Matching JASDAQ SE Transactions ↓ Matching JSCC Non-clearing participants (Market participants other than clearing participants) Assumption of the obligation Agency Clearing Participants ■ CCP Function ■ Settlement Guarantee Scheme Netting Principal Clearing Participants Account Transfer Instructions DVP Settlement (Link between settlement of securities and funds) Bank of Japan/ Fund Settlement Banks Central Securities Depository (JASDEC) Clearing Participant A/C Clearing Participant A/C JSCC’s A/C JSCC’s A/C Clearing Participant A/C Clearing Participant A/C Clearing Participant A/C Clearing Participant A/C Japan Securities Clearing Corporation June 27th-28th, 2006

  10. 2. （2） Core Processing of Clearing • Assumption of the obligation • Assuming the obligation simultaneously when transaction are executed on stock exchanges • Receipt of transaction data from stock exchanges • Notice of assumption of the obligation data to each participant • Netting • Calculation of net position of securities and funds • Netting with respect to each participant, and each security • Without distinction between house and client • Account Transfer Instruction • DVP Settlement (Settlement link between securities and funds) • Instruction of transfer to JASDEC and Bank of Japan or Fund Settlement Banks • Notice of settlement data to each participant Japan Securities Clearing Corporation June 27th-28th, 2006

  11. 2. （3） Data processing (Trading-Clearing-Settlement) Stock Exchange Receipt of transaction data Assumption of the obligation data Assumption of the obligation Participant’s transaction data Notification Participant Correction Notification Netting Notification Settlement data Settlement Instruction Settlement Instruction Notification <Funds Settlement> <Securities Settlement> Account transfer at BOJ or Fund Settlement banks Book-entry transfer at the JASDEC Participant Japan Securities Clearing Corporation June 27th-28th, 2006

  12. 3. Direct and Indirect Structure • 3.（1） Securities Accounts Central Securities Depository (JASDEC) JSCC Securities Co. A (JSCC participant) Securities Co. B (JSCC participant) client house house client Account transfer Instruction Securities Co. A Securities Co. B JSCC client house Toyota:3,000 house client Customer A-1 Sony -2,000 Customer A-2 Toyota -3,000 SONY +3,000 Toyota +3,000 Customer B-1 Sony -4,000 Customer B-2 Sony+3,000 Sony: 1,000 Japan Securities Clearing Corporation June 27th-28th, 2006

  13. 3.（2）Agency Clearing Participant • Participant category • Principal Clearing Participants/ Agency Clearing Participants • Participant requirement • Sound internal system for management • Appropriate internal system for business operation • Stable financial criteria for participation (Please refer to the below table.) ・Securities company Principal Agency Paid-in Capital \ 300 million \ 300 million Net Assets \ 2 billion \ 20 billion Net Capital Requirement Ratio 200 % 200 % ・Registered financial institution Principal Agency Paid-in Capital \ 300 million \ 300 million Shareholders’ Equity \ 2 billion \ 20 billion Capital Adequacy Ratio* 8% 8% Solvency Margin Ratio 400 % 400 % * In case of a participant without overseas branches, 4% is applied. Japan Securities Clearing Corporation June 27th-28th, 2006

  14. Image of Principal and Agency Clearing Participants JSCC • Clearing Process by Agency Clearing • Participants • Transactions conducted by Non-Clearing Participants on stock exchanges shall be cleared through Agency Clearing Participants. • Agency Clearing Participants have to make a contract with Non-Clearing Participants, and submit a copy of the contract to JSCC. • Agency Clearing Participants receive a notification for assumption of the obligation with each Non-Clearing Participant. • The position of Non-Clearing Participants are netted together with that of Agency Clearing Participants, and settled at JASDEC in accordance with the transfer instruction by JSCC. Clearing and Settlement Principal Clearing Participants Agency Clearing Participants client house house client Client Client Client Non-Clearing participants Securities Co. A Securities Co. B client house house client Client Client Client Client Japan Securities Clearing Corporation June 27th-28th, 2006

  15. 3.（3）Account for Margin of Derivatives Trading JSCC Account for Margin Principal Clearing Participant Agency Clearing Participant house client house client • Deposit of Margin for derivatives • Participants have to deposit margin for derivative trading to JSCC Account for Margin. • Participants have to deposit margin for their own position and margin for their customer’s position separately. • Margin of Non-Clearing Participants is deposited through their Agency Clearing Participants. Agency Clearing Participant Principal Clearing Participant house house client Non-Clearing participants house client Japan Securities Clearing Corporation June 27th-28th, 2006

  16. Thank you Japan Securities Clearing Corporation 2-1,Nihombashi-Kabuto-cho,Chuo-ku, Tokyo 103-0026 Japan Phone: +81-3-3665-1234 Fax : +81-3-3665-1235 URL :http://www.jscc.co.jp/english/index.html E-mail: t-oomori@jscc.co.jp y-sakamaki@jscc.co.jp Japan Securities Clearing Corporation June 27th-28th, 2006

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