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Impact of Lehman Brothers bankruptcy on post-trade system in Japan 4 July, 2009 Dhaka, Bangladesh Japan Securities Depository Center, Inc.

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Presentation on theme: "Impact of Lehman Brothers bankruptcy on post-trade system in Japan 4 July, 2009 Dhaka, Bangladesh Japan Securities Depository Center, Inc."— Presentation transcript:

1 Impact of Lehman Brothers bankruptcy on post-trade system in Japan 4 July, 2009 Dhaka, Bangladesh Japan Securities Depository Center, Inc.

2 2 IMPACT of Subprime Crisis and Lehman Brothers Bankruptcy on Asian Economies and Japan

3 3 Impact of Subprime Crisis on Asian Economies - Real GDP Growth Rate - Country, Region200720082009e2010e2005-0708-10 China13.09.06.57.511.77.7 India9.37.34.55.69.45.8 Bangladesh6.3e5.65.05.46.45.3 Mongolia10.2e8.92.74.38.75.2 Vietnam8.56.23.34.08.44.5 Indonesia6.36.12.53.55.84.0 Pakistan6.0 2.53.56.64.0 Malaysia6.34.6-3.51.35.80.8 Thailand4.92.6-3.01.04.90.2 Korea5.12.2-4.01.54.7-0.1 Hong Kong6.42.5-4.50.56.8-0.5 Japan2.4-0.6-6.20.52.1-2.2 Taiwan5.70.1-7.50.04.9-2.5 Singapore7.8e1.1-10.0-0.17.8-3.1 (Source) International Monetary Fund, World Economic Outlook Database, April 2009

4 4 Before & after Lehman Brothers bankruptcy - Asian Stock Performance - MarketIndex (a)(b)(c)%change 12-Sep-08Lowest after 12-Sep-0825-Jun-09(b)/(a)(c)/(a) ChinaSSE Composite2,079.671,706.70(04-Nov-08)2,925.05-17.940.6 IndonesiaJakarta Composite1,804.061,111.39(28-Oct-08)2,044.17-38.413.3 MalaysiaKLSE Composite1,044.03829.41(29-Oct-08)1,074.11-20.62.9 IndiaSENSEX14,000.818,160.40(09-Mar-09)14,345.62-41.72.5 TaiwanTSEC weighted6,310.684,089.93(20-Nov-08)6,457.61-35.22.3 BangladeshGeneral2,850.172,408.67(09-Apr-09)2,891.05-15.51.4 VietnamVN476.00235.50(24-Feb-09)453.76-50.5-4.7 Hong KongHang Seng19,352.9011,015.84(27-Oct-08)18,275.03-43.1-5.6 KoreaKOSPI Composite1,477.92938.75(24-Oct-08)1,392.73-36.5-5.8 ThailandSET654.34384.15(29-Oct-08)590.60-41.3-9.7 SingaporeStraits Times2,570.671,456.95(09-Mar-09)2,302.46-43.3-10.4 Japan Nikkei22512,214.767,054.98(10-Mar-09)9,796.08-42.2-19.8 TOPIX1,177.20700.93(12-Mar-09)919.77-40.5-21.9 PakistanKSE1009,253.924,815.34(26-Jan-09)7,128.83-48.0-23.0 MongoliaTOP208,505.144,583.69(19-Feb-09)4,853.71-46.1-42.9

5 5 Impact of Subprime Crisis on Japan (1) = Sharp decline of export & overseas production Manufacturing Sector Sudden higher value of the yen Falling-off of consumer demand + Financial Sector Sharp decline in stock prices + Bad loans =Negative effect on financial institutions’ balance sheets First, financial sector’s involvement in subprime products was limited. But after Lehman Brothers’ bankruptcy… + Low liquidity

6 6 Impact of Subprime Crisis on Japan (2) Valuation profits/losses for equity holdings Exposures to subprime-related products Book valueRealized profits/losses Major Banks, etc. Sep 082,201719-727 Dec 08111496-842 Mar 09-597397-916 Regional Banks Sep 081,62046-47 Dec 0866639-48 Mar 0947431-52 Cooperative Financial Institutions Sep 08-13231-29 Dec 08-32730-29 Mar 09-26822-34 Total Sep 083,690797-803 Dec 08450565-919 Mar 09-390449-1,001 (Source) Financial Service Agency, Exposures of Japanese deposit-taking institutions to subprime-related products, 2008-2009 (Billion Yen)

7 7 IMPACT of Lehman Brothers Bankruptcy on the Post-trade system in Japan

8 8 Stock Exchange JSCC (DVP Clearing) Net-Net 【 Market 】 【 Clearing 】 Participant Customer 【 Settlement 】 Bank of Japan 【 Matching 】 Trade Data Trade Data Non-Exchange Trade Securities SettlementCash Settlement JDCC (DVP Clearing) Gross-Net JASDEC (PSMS) JASDEC Exchange Trade Trade, Clearing and Settlement flow in securities transaction Broker Participant

9 9 Action taken after Lehman Brothers Bankruptcy * Lehman Brothers Holdings, Inc. Day September 2008 LBHI *(US) 15 filed for Chapter 11 bankruptcy Lehman Brothers Japan, Inc 16 apply to the court for bankruptcy rehabilitation FSA 15 issued the order of retention of assets within Japan and the business improvement order toward Lehman Brothers Japan, Inc Stock Exchanges16 imposed trading suspension toward Lehman Brothers Japan, Inc JSCC 16 suspended new obligation assumption for Lehman Brothers Japan Inc. stopped payment of cash and delivery of securities to Lehman Brothers Japan Inc. 17 started buying and selling securities to close out unsettled clearing positions of Lehman Brothers Japan Inc. 25 announced the completion of close-out transactions related to Lehman Brothers Japan Inc. JDCC 16 stopped payment of cash and delivery of securities to Lehman Brothers Japan Inc. fulfilled obligations of payment with Participant Fund 17 sold securities intended for delivery to Lehman Brothers Japan Inc. 22 appropriated proceeds of a sale of securities intended for delivery to Lehman Brothers Japan Inc. for Participant Fund (Source) Bank of Japan “Reports and Research Papers” March 2009

10 10 Action taken by JSCC right after Lehman Brothers’ Default JSCC Lehman Brothers Japan, Inc Securities Company Securities Company Securities Company Shortage of Cash Shortage of Securities Obligation Assumption Guaranteed Obligation Assumption Suspended Covered by over-draft agreements with fund-settling banks (16~18 September) Purchased from the market (17 September ~) Failure of Securities Delivery Cleared away Cash Delivery Completed X X

11 11 Average Daily Volume of Failed-Delivery in JSCC - 2008 - Note1: Figures are average daily failed-delivery shares against expected number of shares to be settled based on netting for JASDEC eligible domestic stocks. (thousand Shares)

12 12 Action taken by JDCC right after Lehman Brothers’ Default JDCC Securities Company Securities Company Custodian Bank Shortage of Cash Covered by Participant Fund (16 September) Securities Delivery Completed (16 September) X X Lehman Brothers Japan, Inc Sold to restore Participant Fund Obligation Assumption SuspendedObligation Assumption Guaranteed

13 13 Default Protection by JSCC & JDCC in Lehman Brothers bankruptcy JSCC – For the shortage of securities, JSCC > was financed by over-draft agreements with fund-settling banks, and > purchased securities from the market – For the shortage of cash, JSCC > was financed by over-draft agreements with fund-settling banks >>> Amount financed was covered by selling securities intended for delivery to Lehman Brothers Japan, Inc. and its Clearing Fund later JDCC – For the shortage of cash, JDCC > used its Participant Fund >>> Participant Fund was covered by selling securities intended for delivery to Lehman Brothers Japan, Inc. later - CCPs’ Loss Compensation Scheme functioned properly - DVP limited losses of counterparties within price volatility

14 14 For inquiries… Please contact: Naoko Watanabe International Department Japan Securities Depository Center, Inc. (n-watanabe@jasdec.com)

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