Japan Securities Clearing Corporation June 27th-28th, 20061

Presentation by Presentation by Japan Securities Clearing CorporationJapan Securities Clearing Corporation

The 8th ACG Cross Training Seminar

June 27June 27thth-28-28thth, 2006, 2006

Japan Securities Clearing Corporation June 27th-28th, 20062

TOPICSTOPICS

1. Introduction of JSCC

2. Operations of JSCC

3. Direct and Indirect Structure

Japan Securities Clearing Corporation June 27th-28th, 20063

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.

11 ．． (1) Establishment of JSCC(1) Establishment of JSCC

Date of Incorporation July 1st, 2002

Commencement of Operations January 14th, 2003

Shareholders*1

(Shareholding ratio) *2Tokyo Stock Exchange, Inc. (86.3%)

Osaka Securities Exchange Co., Ltd. (9.5%)

JASDAQ Securities Exchange,Inc. (3.4%)

Nagoya Stock Exchange, Inc (0.7%)

Fukuoka Stock Exchange (0.05%)

Sapporo Securities Exchange (0.05%)

*1 　 Shareholders of the JSCC are only market providers based on the idea that clearing functions are transferred from each market.*2 　 Shareholding ratio was determined on the basis of trading value of domestic stocks in each market.

◆About JSCC

11．． Introduction of JSCCIntroduction of JSCC

Japan Securities Clearing Corporation June 27th-28th, 20064

11 ．． (2) Structure of Trading, Clearing, Settlement(2) Structure of Trading, Clearing, Settlement

Tokyo Stock Exchange, Inc

Settlement Organization

6 Stock Exchanges6 Stock Exchanges

Market

Clearing

Settlement

Clearing Organization

Bank of Japan /Fund Settlement Bank

Central Securities Depository(JASDEC)

JSCCJSCCJSCCJSCC

Securities Settlement

Funds Settlement

Transfer instructions

Trading

DVP settlement

Japan Securities Clearing Corporation June 27th-28th, 20065

JSCCJSCC

JASDEC*2JASDEC*2JSSC*3JSSC*3

TSE*1TSE*1

Other Stock Exchanges

Other Stock Exchanges

100%

86.3%

22.0%

11 ．． (3) Relation(3) Relationshipship among Infrastructures among Infrastructures for for Securities Securities MarketsMarkets in Japanin Japan － Share Ownership

*1 　 TSE: Tokyo Stock Exchange

*2 　 JASDEC: Japan Securities Depository Center

*3 　 JSSC: Japan Securities Settlement & Custody

Settlement Organization

Clearing Organization

①Operations for physical deliveries and safe keeping (entrusted by JASDEC)②Other settlement and custody services

13.7%

Settlement Organization

Stock Exchange

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1.1. （（ 44 ）） Scope of JSCC’s OperationScope of JSCC’s Operation

JSCC

The unified cross-market

clearing organization

Trading Clearing Settlement

JGB 　 OTC

TSE/OSEForeign Stock

Stock ExchangeDomestic Stock

JSSC/JASDEC

OSE Derivatives

OSE

TSE Derivatives

TSE

6 Stock Exchanges JASDEC

Bank of Japan

Non-Exchange Transaction

TransferJDCC*2

JGBCC*1

TSE / OSE

JASDEC

*1 　 JGBCC: Japan Government Bond Clearing Corporation*2 　 JDCC: JASDEC DVP Clearing Corporation

Japan Securities Clearing Corporation June 27th-28th, 20067

Eligible transactions ・ All exchange-traded cash products

・ TSE traded derivative transactions (JSCC has commenced TSE derivatives clearing since Feb.2004)

Core services ・ Assumption of the obligation

・ Netting

・ Account Transfer Instruction

・ Settlement guarantee

1.(5) Outline of JSCC’s core business1.(5) Outline of JSCC’s core business

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1.1. （（ 66 ）） Outline of JSCC’s complementary businessOutline of JSCC’s complementary business

TSETSE JASDAQ Stock Exchange JASDAQ Stock Exchange

JSCCJSCC

JGBCCJGBCC JDCCJDCC

Monitoring of the financial status of participants

Management services concerning surety bond

Japan Securities Clearing Corporation June 27th-28th, 20069

2.(1) Cross-market Clearing Organization2.(1) Cross-market Clearing Organization

Central Securities Depository (JASDEC)

Clearing Participant A/C

Agency Clearing Participants

Account Transfer Instructions

DVP Settlement (Link between settlement of securities and funds)

Assumption of the obligation

Sapporo SE Transactions

↓Matching

Nagoya SE Transactions

↓Matching

OSE Transactions

↓Matching

TSE Transactions

↓Matching

Fukuoka SE Transactions

↓Matching

JASDAQ SETransactions

↓Matching

■ CCP Function ■ Settlement Guarantee Scheme

JSCC

NettingPrincipal Clearing

Participants

Non-clearing participants(Market participants other than clearing participants)

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

JSCC’s A/C

Bank of Japan/ Fund Settlement Banks

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

Clearing Participant A/C

JSCC’s A/C

2.2. 　　 Operations of JSCCOperations of JSCC

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2. 2. （（ 22 ） ） Core Processing of ClearingCore Processing of Clearing

　　 Assumption of the obligationAssumption 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

　 NettingNetting　 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 InstructionAccount 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, 200611

2. （ 3 ） Data processing (Trading-Clearing-Settlement)

Date Settlement Procedures

T

T+1

T+2

T+3

Receipt of transaction data

Settlement Instruction

Book-entry transfer at the JASDEC

Account transfer at BOJ or Fund Settlement banks

Settlement Instruction

<Securities Settlement> <Funds Settlement>

Participant’s transaction data

Participant

Correction

Netting

Notification

Participant

Stock Exchange

Notification

Assumption of the obligation data

Settlement data

Notification

Assumption of the obligation

Notification

Japan Securities Clearing Corporation June 27th-28th, 200612

Account transfer Instruction

3. （ 1 ） Securities Accounts

Central Securities Depository (JASDEC)

Securities Co. B(JSCC participant)

Securities Co. A(JSCC participant)

client

JSCC

houseclient house client

house

Securities Co. A

house client

Securities Co. B

SONY +3,000

Customer A-1

　 Sony 　 -2,000

Customer A-2

　 Toyota -3,000

Toyota +3,000

Customer B-1

　 Sony -4,000

Customer B-2

　 Sony 　 +3,000

JSCC

Toyota:3,000

Sony: 1,000

3. Direct and Indirect Structure

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3. （ 2 ） Agency Clearing Participant

Participant categoryParticipant category Principal Clearing Participants/ Agency Clearing Participants

Participant requirementParticipant requirement Sound internal system for management Appropriate internal system for business operation Stable financial criteria for participation (Please refer to the below table.)

8%8%Capital Adequacy Ratio*

\ 20 billion\ 2 billionShareholders’ Equity

・ Registered financial institution

200 %200 %Net Capital Requirement Ratio

\ 20 billion\ 2 billionNet Assets

AgencyPrincipal

\ 300 million\ 300 millionPaid-in Capital

・ Securities company

\ 300 million

Agency

\ 300 million

Principal

Paid-in Capital

400 %400 %Solvency Margin Ratio

* In case of a participant without overseas branches, 4% is applied.

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JSCC

Agency Clearing Participants

Principal Clearing Participants

houseclient house client

Clearing and Settlement

Client Client Client

Securities Co.A

Securities Co.B

Client Client

houseclient house client

Client Client

Non-Clearing participants

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.

Image of Principal and Agency Clearing Participants

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JSCC Account for Margin

　 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.

3. （ 3 ） Account for Margin of Derivatives Trading

house client house client

Agency Clearing Participant

client

house

Principal Clearing Participant

client

house

house

Agency Clearing Participant

Non-Clearing participants

Principal Clearing Participant

Japan Securities Clearing Corporation June 27th-28th, 200616

Thank you

Japan Securities Clearing Corporation2-1,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