1 STP Initiative in Securities Market - Improving Efficiency and Reducing Risk and Cost - June 2, Jimbaran Bay, Bali, Indonesia Japan Securities Depository Center, Inc. ACG Cross-Training Seminar Organized by Exchange of Information Task Force

2 Why STP ? Increase Efficiency Reduce Risk and Cost How STP ? We developed PSMS ( P re- S ettlement M atching S ystem) Trade Post-Trade Pre-Settlement Clearing Settlement What STP ? All Processes, from order to settlement, should be handled Automatically (Electronically, without human intervention) and Seamlessly (Connecting each process, data standardization)

3 Two-way approach to realize STP by PSMS. Trade Post-Trade Pre- Settlement Clearing & Settlement Trade processes were relatively automated by several provided solutions (e.g. FIX). But post-trade processes were not so. PSMS added Settlement Matching function to enable settlement to be more efficient and exact. Settlement matching was also a major premise of DVP for customer-side transactions. 2. From Settlement Side 1. From Trade Side PSMS covers both Settlement Matching Trade Matching

4 Investor Broker /Dealer Exchange Broker /Dealer Investor JASDEC JSCC (Japan Securities Clearing Corporation) Relationship Diagram of Equity Trading Bank of Japan Pre-Settlement Matching System Pre-Settlement Matching System JDCC (JASDEC DVP Clearing Corporation) JDCC (JASDEC DVP Clearing Corporation) : Customer-side’s flow : Street-side’s flow

5 Basic policies for the system-1 Realization of STP in compliance with settlement practices specific to Japanese Market Setting up of Japanese Standard based upon Global Standard Adoption of ISO syntax, ISIN code, BIC code Standardization and co-utilization of fund identification code

6 Adopting central matching for both Post-Trade and Pre-Settlement arenas Providing variety of connectivity to users Basic policies for the system-2 Realization of Single Access Point by supporting various asset classes and trade types Stocks, CB, JGB, Corporate Bonds, CP, Futures/Options, etc. Trade, Repurchase, Lending & Borrowing, New Issuing Record Realization of matching on T+0 Unification of related rules such as Market Rules, Market Practices, etc. Flexibility of connecting ETC vendors with PSMS Various type of connectivity : CPU Direct Connection (Online real-time Processing, File Transmission Processing) and Web Terminal Connection (using web form and transferring CSV file)

7 Investment Manager Trust Bank PSMS Broker / Dealer Trade Matching 2. Trade Report 1. Investment Instruction 4. Trade Report ／ Investment Instruction Order NOE 3. Notice of Matching Status Allocation SSI Settlement Matching Approval 5. Notice of TR Affirming Status 6. Notice of Matching Status 7. DVP Order 5. Notice of TR Affirming Status Book-Entry Transfer System (Stocks, CB, Corporate Bonds, CP) (Except Stock (Lending & Borrowing ) and JGB) "Tripartite Center Matching" Type ( without using investment instruction distribution service )

8 Broker / Dealer Settlement Matching for Non-Resident Trade Sub Custodian Exchange Overseas Japan 3. Order 4. NOE Investment Manager Broker / Dealer Global Custodian Customer (Pension Fund etc.) 1. Order 6. NOE 7. Trade Matching 9. Settlement Instruction 8. Settlement Instruction 2. Order 10. Settlement Instruction 11. Notice of Matching Status 5. NOE 8. Settlement Instruction PSMS Book-Entry Transfer System (Stocks, CB, Corporate Bonds, CP) (Except JGB) 12. DVP Order 11. Notice of Matching Status

9  Introducing ISO20022 standard to PSMS  Introducing the SWIFT (*) Network Connectivity to PSMS Future Plan * S.W.I.F.T （ Society for Worldwide Interbank Financial Telecommunication ）

10 Standardization Globalization Harmonization THANK YOU