Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	Under the JGB Book-entry System run by BOJ, BIS model 1 DVP settlement has been introduced from January 2001. Tokyo Stock Exchange implemented DVP for settlement of equity trades at the exchange in May 2001. Under the TSE DVP, final transfer of securities on a net basis from the seller to the buyer via TSE occurs throughout the processing cycle and final transfer of funds on a net basis occurs at the end of processing cycle. DVP settlement has not been implemented at JASDEC. JASDEC plans to introduce DVP procedures based on BIS model 2 with fully collateralized netting system supported by liquidity resources to ensure timely completion of daily settlement. Implementation of JASDEC DVP for off-market ("General Purpose Transfers") is scheduled for after April 2003.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	Yes, cash market transactions at stock exchanges are currently settled on T+3.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	In Japan, it has been actively discussed how the entire market could move on to the more efficient settlement environment including the amendments of laws and regulations for shorter settlement cycle.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	As far as the users of the PSMS are concerned, they will become able to match the trade details on trade date when the system is implemented. Note that the PSMS system has been live for domestic settlement from September, and expected for non-resident settlement in February 2002.
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	JASDEC is allowed by the law to request an issuer or its registrar to void and dematerialise certificates of JASDEC deposited stocks, which have been registered in JASDEC’s name as a nominal shareholder. Currently, about 47% of all deposited stocks are dematerialised as of the end of March 2001.
6.	Does the market allow partial settlements?	No. There is no partial settlement allowed in JASDEC system. A delivery instruction will not be exercised when there is no sufficient balance of stocks deposited in an deliverer’s account and until the amount of stocks in the account fill the amount instructed to be delivered.
7.	Can the depository accommodate same day turnarounds?	In JASDEC book-entry system that is operated in real time, a participant can deposit stocks and deliver them simultaneously. A receiving participant can receive stocks and redeliver them instantaneously any time during the business hour in a day.

Bank of International Settlements (BIS) Settlement Models

Model 1:	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).
Model 2:	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 on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	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.