BCP of Japanese Securities Industry

July 5, 2007

Japan Securities Clearing Corporation

Topics

Background

Efforts for Contingency Planning by Japanese Government and Securities Industry

BCP Forum in Japan

Summary of Interim Report of BCP Forum

JSCC’s BCP

Recent Developments & Challenges

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Background

• Natural Disaster in Japan Japan is located in the circum-Pacific mobile zone where seismic and

volcanic activities occur constantly. The number of earthquakes is quite high.

• Handling the Threat of Earthquake

The Central Disaster Management Council was established for the purpose of promoting comprehensive countermeasures.

The Prime Minister takes its chair and other Ministers of State are its member.

76+6-5+5-4Below 3

Seismic intensity

Expected damage of earthquake occurred directly below Tokyo with M6.9

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Efforts for Contingency Planning byJapanese Government and Securities Industry

• Japanese Government: Several government offices take actions from different viewpoint.

The Central Disaster Management Council Plan of an earthquake whose hypocenter is directly below a populated area in

Sept 2005

In the plan, it is stated that main financial settlement organizations should recover their business within the day.

Therefore, business firms, especially financial institutions are requested to ensure to build and implement the BCP planning.

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Efforts for Contingency Planning byJapanese Government and Securities

Industry (cont’d) Cabinet Secretariat Action plan on Information Security Measures for critical infrastructure,

which draws up coordination and cooperation between critical infrastructures in Dec 2005

Designing critical infrastructures to re-examine their measures to secure business continuity

Achieving coordination and cooperation between critical infrastructures

Financial Service Agency

Clarification of administrative procedures for BCP system in financial institutions in August 2006

Request to financial institutions for enhancing their BCP plan concretely

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Efforts for Contingency Planning byJapanese Government and Securities

Industry (cont’d)

• Securities industry: As a first step in June 2005, Japanese Securities Dealers Associations i.e.

JSDA issued Guidelines for Regular Members on Establishing Business Continuity System in cases of Contingencies as a Resolution of Board of Governors (Self-regulation Board).

In this context, The BCP forum, which reviews BCP covering the whole of

the Japanese securities industry, was established in April 2006.

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BCP Forum in Japan

• The BCP forum consists of related organizations of the Japanese securities industry. (Stock exchanges, CCP, CSD, Securities companies, JSDA, FSA, Central Bank)

• The BCP forum has several subordinate bodies and there are 4 special committees as follows. Committee on BCP management Committee on stock exchange transaction

– Subcommittee meeting on clearing and settlement Committee on corporate and government bonds transaction Committee on OTC transaction

• The BCP forum published an interim report October 2006.

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Summary of Interim Report of BCP Forum

• Review of current BCP

In the event of a long time system failure or a wide-scale operational disruption, it’s inevitable to extend the scheduled settlement date because JSCC doesn’t have a backup site.

As reviewing the scenarios of a short term (about 3 hours) interruption of business, all transactions are able to be settled on the scheduled settlement date by utilizing an alternate means and/or extending the time period of business.

• Resumption and recovery goal The goal is to achieve resumption and recovery within two hours after the

occurrence of a long time system failure or a wide-scale operational disruption in order to settle all transactions on the scheduled settlement date.

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Summary of Interim Report of BCP Forum (cont’d)

• Improvement plan on current BCP Ensuring communication between infrastructure Revising BCP manual Implementing industry-wide BCP test Introducing an alternate system Establishing backup site to achieve resumption and recovery goal

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JSCC’s BCP

• Development of BCPFeb. 2004 “The basic policy regarding our response to system failure”Mar. 2005 “The basic policy for a business continuity plan (BCP) “

• Outline of JSCC’s BCP Assumed risk

CausesNatural disaster (earthquakes, strong winds and flooding , etc.) – System failure– The interruption of social infrastructure such as electricity and communication– Acts of terrorism (either warnings or actual destruction) , cyber-terrorismEffects– Buildings and systems will be unavailable– Personnel shortage– The operation of other organizations suspended

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JSCC’s BCP (cont’d)

• Basic Principle JSCC must continue the operation as much as possible

• Substitute Office Location : Near the main office No permanent staff

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Recent Developments & Challenges

• BCP Drill At least twice a year Cooperation with TSE

• Establishment of alternate system To settle all transactions on the scheduled settlement date in case of the

main system failure Implementing tests using this system with JSCC participants

• Main system relocation Relocate the main system to a robust data center (in autumn this year)

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Recent Developments & Challenges

• Establishment of Backup Site We’ve been aware of its importance and have been considering it for

some time. This is the main objective of our mid-term Business Plan.

points of consideration– Location

– Recovery Time Objective

– Operation framework (ordinary/contingency)

– Cost

• Industry-wide BCP test

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Thank You!