Overview of JASDEC. November 30, 2016 Japan Securities Depository Center, Inc.

Transcription

1 Overview of JASDEC November 30, 2016 Japan Securities Depository Center, Inc.

2 AGENDA 1. About JASDEC 2. Market Infrastructures 3. Account Structure 4. Corporate Governance 5. JASDEC DVP Clearing Corporation: JDCC

3 AGENDA 1. About JASDEC 2. Market Infrastructures 3. Account Structure 4. Corporate Governance 5. JASDEC DVP Clearing Corporation: JDCC

4 Profile of JASDEC (as of February 29, 2016) Company Name: Japan Securities Depository Center, Inc. Date of Incorporation: January 4, 2002 *Incorporated as a non-profit foundation in Capital: (1USD = 105JPY) Common stock: 4.25 billion JPY (40.5million USD) Capital surplus: 4.25 billion JPY (40.5million USD) Number of Shareholders: 126 [Major Shareholders] Japan Exchange Group, Inc. (24.3%) Japan Securities Dealers Association (12.5%) Nomura Holdings, Inc. ( 5.7%) The Bank of Tokyo-Mitsubishi UFJ, Ltd. ( 5.0%) Mizuho Bank, Ltd. ( 5.0%) Number of Employees: 223 User owned type Securities company Stock exchange CSD Bank Japan, US, Euroclear, India, Bangladesh Copyright(C) Japan Securities Depository Center, Inc. All rights reserved. 3

5 cf. General structure of governance for CCP and CSD Initial stage (at a time the stock exchange established) Stock Exchange Clearing department Settlement department Cambodia Laos Typical governance structure of CSD (1) User owned Securities company Stock exchange Bank (2) 100% subsidiary of stock exchange group Stock exchange group 100% Initially, clearing and settlement operations are generally provided by the departments in the stock exchange. Such departments are separated from the exchange or become the subsidiaries of the exchange, with the market development and diversification of the business. CSD Japan, US, Euroclear, India, Bangladesh (3) Jointly owned by multiple exchanges Stock exchange Stock exchange CSD + CCP Clearstream, HK, Thailand, Sri Lanka (4) Government owned Government institution 100% 100% Stock exchange CCP: become a subsidiary of the exchange in most cases (exception: US) CSD: various structure of governance CSD China, Pakistan CSD Vietnam, Mongolia 4

6 Eligible securities and services Eligible Securities Equities (Stocks, CBs, ETF, JDR, etc.) Fixed Income (Commercial Papers, Corporate Bonds, Municipal Bonds, Agency Bonds, Samurai Bonds, etc.) NOT eligible for Government Bonds, Off-shore bonds (e.g. Euro bonds) Investment Trusts (ETF, J-REIT, etc.) Services Trade and Settlement Matching (PSMS: Pre-Settlement Matching System) Settlement Registration of Securities Custody Services for Foreign Stocks, etc. Other Services General Shareholders Notification Shareholders Information Management for dividend and interest payments cash payment such as dividend payments for shares and interest payments for bonds are executed at out side of our systems. 5

7 History of dematerialized JASDEC launched book-entry transfer system for Corporate Bonds, Municipal bonds, Agency bonds etc Foundation of JASDEC JASDEC launched book-entry transfer system for Commercial Paper JASDEC launched bookentry transfer system for Investment Trusts JASDEC launched book-entry transfer system for Convertible Bonds JASDEC launched book-entry transfer system for Dematerialized Stocks 6

8 Business Statistics (July. 2016) Copyright(C) Japan Securities Depository Center, Inc. All rights reserved. 7

9 Regulatory framework Legal Basis Established based on the Companies Act of Japan Governed by the Act on Transfer of Bonds, Shares, etc. Competent Authorities Prime Minister (Financial Services Agency) Minister of Justice Regulatory control by the authorities Report of financial results, etc. Approval of amendment of the Articles of Incorporation and Business Regulations Report of accidents On-site inspections Business improvement order Revocation of designation 8

10 Keyword for securities clearing and settlement Importance of CSD To complete the securities settlement promptly and safely is absolutely necessary to obtain (1)reduction of the risk for investors, (2)increase of the market reliability, (3)market development. Therefore, CSD is an important FMI (Financial Market Infrastructure) to trade the securities smoothly and actively. Keyword for providing efficient and safe settlement service STP Straight-Through Processing Reduction of Manual work DVP Delivery versus Payment Reduction of principal risk Paperless Immobilization / Dematerialization Elimination of paper certificates 9

11 Keyword for securities clearing and settlement STP (Straight Through Processing) A system for securities trading in which all steps, from order to settlement, are conducted seamlessly and without manual intervention. In particular, STP becomes more and more important with the expansion of institutional trade including foreign institutional investors. DVP (Delivery versus Payment) A DVP settlement links the delivery of securities and the payment of funds, that is, securities can be delivered on the condition that the corresponding payment is completed, while payment can be received on the condition that the corresponding securities are delivered. * FOP (Free of Payment): The delivery of securities and the payment of funds are separately conducted. Paperless share system (Immobilization / Dematerialization) (1) Immobilization: Physical share certificates still exist but are deposited with the CSD, and transfers of the rights attached to the shares are managed through book-entries to the electronic accounts without involving the delivery of share certificates. (2) Dematerialization: physical share certificates are not issued at the time of original issue of shares and subsequent conversion of title to shares, and transfers of the rights attached to the shares are managed only through an electronic accounting record. 10

12 AGENDA 1. About JASDEC 2. Market Infrastructures 3. Account Structure 4. Corporate Governance 5. JASDEC DVP Clearing Corporation: JDCC

13 Clearing and settlement Clearing The quantity of the securities to be delivered and the amount of funds to be paid on the settlement date are fixed before the final settlement of funds and securities. Clearing house / CCP (Central Counterparty) Clearing house is an organization in charge of the role of Clearing noted above. The clearing house may become the CCP, counterparty of the transaction (a seller to every buyer and a buyer to every seller) and guarantee the settlement in order to maintain the stable and credible market. Settlement Delivery of securities and payment/receipt of funds are made for such securities and funds for which quantities and amounts are finalized through the clearing process. CSD (Central Securities Depository) CSD is an organization which concentrates the storage/record of the securities at one place (by providing the depository function) and conducts the securities settlement by book-entry transfer system (not delivering paper certificates of securities). CSD may diversify the business related to the depository of the securities, such as collateral management, dividend payment and tax service, etc. 12

14 Market infrastructures Order, Execution, Trade Matching Stocks/Convertible Bonds Street-side Exchange Customer-side Corporate Bonds Commercial Paper OTC Investment Funds JASDEC (Pre-Settlement Matching Services : PSMS) JGB (Government Bonds) Clearing JSCC JDCC JSCC Clearing & Settlement Book-entry Transfer (securities) DVP Model Fund Settle ment Net-Net DVP JASDEC (Book Entry Transfer System : BETS) Gross-Net DVP Gross-Gross DVP Gross-Gross DVP Bank of Japan / Settlement Bank (New BOJ-NET) Gross-Gross DVP Bank of Japan (New BOJ-NET) Gross- Gross DVP Net- Net DVP JSCC : Japan Securities Clearing Corporation (Subsidiary of Japan Exchange Group) JDCC : JASDEC DVP Clearing Corporation (Subsidiary of JASDEC) 13

15 Three common models for achieving DVP by BIS Classification of DVP DVP is classified as the following three types, according to the definition by BIS. All three types have merit and demerit. They are chosen based on the features of the market, trade and investors, etc. Model 1 Gross-Gross Model 2 Gross-Net Model 3 Net-Net systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment). systems that settle securities transfer instructions on a gross basis with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer instructions on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle. systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle. (Source) Bank for International Settlements (BIS) DELIVERY VERSUS PAYMENT IN SECURITIES SETTLEMENT SYSTEMS 14

16 AGENDA 1. About JASDEC 2. Market Infrastructures 3. Account Structure 4. Corporate Governance 5. JASDEC DVP Clearing Corporation: JDCC

17 Classification of CSD s account structure CSD does not manage the individual investors account CSD Account Broker Broker Broker Broker Account e.g. Japan, US, Germany Merit: Number of accounts and settlement in CSD is less. Clerical burden, risk, and IT investment is relatively small. Suitable for cross border transaction. Demerit: Burden and responsibility of brokers is relatively high. Regulators may require CSD to submit some reports to monitor the situation of final investors. Individual Investor Individual Investor CSD manages both brokers and individual investors account CSD Account Individual Investor Broker Individual Investor e.g. China, Taiwan, India, Malaysia Merit:Ownership rights are guaranteed by the highly reliable public institution. Easier to monitor the balance and transaction at the level of final investors Demerit: Clerical burden, risk, and IT investment of CSD is relatively high. Not suitable for foreign institutional investors trade. 16

18 Players involved Institutional investor Banks, Insurance companies, Pension Fund, Investment trust, etc. Institutional investors accumulate funds from the customers and provide them with asset management service through securities investment, etc. Institutional investors concentrate on asset management business. They outsource auxiliary operations to custodians, etc. Account Management Institution (Custodian) Provide institutional investors with the services of safekeeping and management of their securities. Other services are also offered such as securities settlement, various reporting, notification of corporate actions (dividend, capital increase, stock split, etc.) and proxy vote. Securities companies (Broker-dealer) Securities companies execute the securities trade in the stock exchange, etc. CSD Custodians, etc. join as the CSD s participants, in addition to the securities companies. The settlement of non-exchange (OTC) transaction deliveries (NETD) increase, in addition to the exchange trade. Accordingly, the CSD s business and operations are diversified. 17

19 Multi-layered holding structure Book-entry transfer institution (JASDEC) Participants are limited to financial institutions such as brokers and banks. Account Management Institution (AMI) AMI is the financial institution which opens and manages the account for others (individual / institutional investors, other financial institutions). There are two types of AMI. One is the direct AMI, which opens the account in JASDEC. The other is indirect AMI, which opens the account in the other AMI. Transfer Account Book Book-entry transfer institution (JASDEC) and AMI open the accounts for book-entry transfer, and prepare for transfer account book. cf. number of AMIs (as of March 2016) <Direct AMIs> <Indirect AMIs> BETS for Stocks (FIAMI : 63) BETS for Bonds (FIAMI : 69) (some AMIs may overlapping for both BETS) 3 1 Individual Investor (D) Book-entry transfer Issuer companies Administrator of Shareholder Registry Broker (A) (Direct AMI) 2 Book-entry transfer Institution Broker (Indirect AMI) 4 Broker (B) (Direct AMI) 5 Individual Investor (E) Institutional Investor Custodian (C) (Direct AMI) Foreign Institution (Indirect AMI) Foreign Investor 18

20 Multi-layered holding structure JASDEC Proprietary Account Broker A Customer Account Transfer Account Book Bank X (sub-custodian) Proprietary Account 40 Customer Account 100 ( ) Bank X (sub-custodian) ( 40 ) Customer B Proprietary Account 25 Transfer Account Book Global custodian Y Proprietary Account 40 Customer Account 35 Asset Segregation Customer B Proprietary Account vs Customer Account Foreign Institution Y (Global custodian) ( 40 ) Transfer Account Book Customer C Proprietary Account 35 Customer C 19

21 Multi-layered holding structure JASDEC Proprietary Account 40 Transfer Account Book Bank X (sub-custodian) Customer Account 100 (1) 100= Reconciliation at the end of every business day Bank X (sub-custodian) ( 40 ) Customer B Proprietary Account 25 Transfer Account Book Global custodian Y Proprietary Account 40 Customer Account 35 (2) FSA inspection Customer B (3) Due diligence (1) 35=35 Foreign Institution Y (Global custodian) ( 40 ) Transfer Account Book Customer C Proprietary Account 35 Customer C 20

22 AGENDA 1. About JASDEC 2. Market Infrastructures 3. Account Structure 4. Corporate Governance 5. JASDEC DVP Clearing Corporation: JDCC

23 Governance Strengthen corporate governance JASDEC adopted the organizational structure of the Company with Nominating Committee, etc., providing a clear separation of functions between business supervision and execution of operations in accordance with the Companies Act. 22

24 Functional framework of risk management 7 Give direction Board of Directors 6 Give advice 5 Report the status of risk management Risk Committee 8 Give and pass on direction < Chairman : CRO > Integrated Risk Management Council 3 Report the status of risk management 4 Report the status of risk management < Executive officer in charge : CRO > Risk Management Department 9 Give and pass on direction 2 Submit risk report by risk category Departments in charge of specific risk management Executive Officer in charge of Information system risk Department in charge of Information system risk Executive Officer in charge of Business processing risk Department in charge of Business processing risk Executive Officer in charge of Financial risk Department in charge of Financial risk 10Discuss countermeasures 1 Submit risk report Departments exposed to certain risks 23

25 Backup office and Backup system center Kanto area Backup system center Approx. 30km Tokyo metropolitan area Osaka area Approx. 500km Main system center Head office Walking distance Backup office (until Feb 2016) Backup office (From Feb 2016) JASDEC Group has established an Osaka office to continue operations, provide information on the status of its operations, and respond to inquiries from outside even in the event that the Group main office becomes inoperable or inaccessible due to the disruption of social infrastructure such as electric power supply, communications, and transportation. Copyright(C) Japan Securities Depository Center, Inc. All rights reserved. 24

26 AGENDA 1. About JASDEC 2. Market Infrastructures 3. Account Structure 4. Corporate Governance 5. JASDEC DVP Clearing Corporation: JDCC

27 Profile of JDCC Copyright(C) Japan Securities Depository Center, Inc. All rights reserved. JDCC (JASDEC DVP Clearing Corporation), a wholly-owned subsidiary of JASDEC, was established to offer DVP settlement services to non-exchange transactions. From 2014, JDCC started to offer DVP settlement services of securities & collaterals on SLB transactions. Company name Eligible transactions Eligible securities Securities settlement Fund settlement DVP Model Timing of novation Participants JASDEC DVP Clearing Corporation DVP settlement on non exchange transaction deliveries, - sales & purchases between institutional investors and brokers - securities lending and borrowing Stocks, Stock acquisition rights, Convertible bonds, ETFs, Investment Units, Foreign stocks, etc. JASDEC s Book-entry Transfer System BOJ-Net (by Central Bank money) DVP Model 2 (Gross = Net) - Securities Settlement: Gross - Funds settlement: Net Settlement day (when conditions for execution are met.) 52 (Securities company 39, Securities finance company 1, Bank 12) (As of April, 2016) 26

28 Copyright(C) Japan Securities Depository Center, Inc. All rights reserved. Typical equity trade and settlement (Trading) (Matching) (Clearing) Customer (e.g. Institutional Investors) Trade Data JDCC* (DVP Clearing : Gross-Net) Non Exchange Trade (Customer-side) Pre-settlement matching system (PSMS) Trade Data Broker A Novation by JDCC Exchange Trade (Street -side) Stock Exchange Exchange Trade Settlement Cycle T T+1 T+2 T+3 Trade Date Settlement Date Broker B Novation by JSCC JSCC** (DVP Clearing : Net-Net) (Settlement) JASDEC [Securities account] Bank of Japan [Cash account] account Investor account JDCC account account account Broker A JSCC Broker B account account account investor JDCC Broker A account JSCC account Broker B Non-Exchange Trade Exchange Trade No-Exchange Trade Exchange Trade * JDCC: JASDEC DVP Clearing Corporation ** JSCC: Japan Securities Clearing Corporation 27

29 Time frame for exposure to CCP (sell & purchase of cash equities) T T+1 T+2 T+3 = S Exchange trade (JSCC) Condition for novation =Trade executed on the exchange Exposure for 3 days Settlement between JSCC and members Nonexchange trade (JDCC) four conditions for novation On S (=T+3) day Settlement between JDCC and members Exposure for a few hours; Zero at end of day Copyright(C) Japan Securities Depository Center, Inc. All rights reserved. 28

30 Thank you! Moeko Takahashi Manager Office of International Research and Relations, Corporate Strategy Department Japan Securities Depository Center, Inc. Please note that this presentation is for informational purposes only. Japan Securities Depository Center, Inc. is not responsible for any damage caused by using the information contained. Please also note that the information is not guaranteed to be complete, correct or up-to-date, and may be changed without notice. Unauthorized copying, reproduction, republishing, uploading, posting, transmitting or duplicating any of the material is prohibited by Japanese law and international treaty.