Japan
Settlements Cycle
Equities: T+3
Debt: T+3 (generally booked on OTC)
OTC: T+3 (generally booked on OTC)
Money Market: Not applicable
Over-the-Counter (OTC)
OTC trading takes place through the Japan Securities Dealers Association Quotations (JASDAQ). Japanese Financial Services Agency issued Jasdaq Market Inc. a license on December 3, 2004 to operate a full fledged stock exchange under the Securities and Exchange Law effective December 13, 2004.
OTC Trading hours:
Monday to Friday: 09:00 – 11:00
12:30 – 15:00
Book-Entry: Japan Securities Depository Center, Inc. (JASDEC) clears domestic shares and certain types of bonds listed on the TSE and other exchanges, as well as JASDAQ transactions. Exchange transactions are settled delivery-versus-payment (DVP). Non-exchange transactions are now settled in DVP mode following the implementation of the JASDEC DVP system in May 2004.
Currently most JGBs are cleared through the BOJ’s book entry system. As of November 2004, the majority of JGBs in the market have been dematerialized. Book entry JGBs are cleared via the Real Time Gross Settlement (RTGS) system.
Physical: Foreign investors are required to withdraw their Foreign Ownership Limit (FOL) shares from JASDEC in physical form in order to be eligible for corporate entitlements.
Occasionally, the broker may deliver "Letters of Guarantee" (LGs) in lieu of certificates provided the counter-party also accepts it. This is generally considered good delivery for settlement under an Initial Public Offering (IPO) situation. However, there is no legal precedent establishing entitlement to the underlying certificates in the event of loss, theft or broker liquidation/default. To safeguard investor interests, RBC Global Dexia Investor Services and its sub-custodian do not accept LGs, except in the case of newly-issued stock and bonds, or where specifically advised otherwise.
Life of a Trade Diagram:
Book-Entry: Book-entry settlements are registered in JASDEC’s name on settlement date until book closing date. At this time, participants advise JASDEC of the beneficial ownership name which is forwarded to the issuing company via the Registrar. Book-entry JGB’s are dematerialized and registration is not required.
Physical: The Registrar is responsible for physical share registration. To legally affirm ownership of stocks and to protect entitlements, stocks must be registered before book closing date. A company may close its book the day after this date for up to three months during which time registrations are not processed.
By law foreign investors may not hold Foreign Ownership Limit (FOL) shares at JASDEC on book close date. FOL shares are withdrawn from JASDEC and sent for registration and held physically to secure foreign shareholder rights. Registration takes two to three weeks to complete. If registration is rejected due to the foreign ownership limit being full, registrars will return the shares within approximately one week. Unregistered shares should not be sold while undergoing the registration process.
For registered JGBs and other types of bonds, registration ownership is required. When the seller delivers the Letter of Transfer they will endorse the JGB with their company seal and submit to the buyer before SD-1. The buyer is then required to add their seal on the Letter of Transfer and submit same to the Registrar on settlement date. The Registrar will then transfer the ownership on their books.
Bank for International Settlements Model (BIS):
BIS model two applies - gross simultaneous settlement of securities followed by net settlement of funds, with finality at 11.00, 15.45 and 17.45.
Japan’s banking industry has three same day value electronic payment systems for Japanese Yen clearing:
* Bank of Japan System (BoJ Net)
* Foreign Exchange Yen Clearing System (also called FXYCS and Gaitame Yen Kessai).
* Zengin System (purely servicing domestic retail payments)
BoJ net and FXYCS, as described in detail below, are the principal clearing systems for all inter-bank, third-party and treasury settlements.
Bank of Japan (BOJ) - Real Time Gross Settlement (RTGS), is the inter-bank JPY Clearing System managed by Japan’s Central Bank, the BOJ.
Foreign Exchange Yen Clearing System - Foreign Exchange Yen Clearing System is the most important same-day settlement service for Yen transactions relating to foreign exchange and other cross-border financial transactions. It is a same-day value electronic JPY clearing system used whenever one or more parties to the transaction are non-resident. As a point of comparison, FXYCS is like CHIPS.
In November 2005, BoJ released a consultation document on the proposal for the next generation of the BOJ-NET Funds Transfer System. BoJ’s proposals are to implement two measures with a view to further enhancing the safety and efficiency of large-value payment systems in Japan. First, BoJ will introduce liquidity-saving features into the real-time gross settlement (RTGS) mode of the BOJ-NET Funds Transfer System. Second, BoJ will modify the BOJ-NET Funds Transfer System in order to incorporate large-value payments that are currently handled by two private-sector deferred net settlement systems into the new RTGS system with liquidity-saving features. The two measures proposed by BoJ are collectively referred to as the next-generation RTGS (RTGS-XG) project.
There are two main pillar to BoJ’s project:
1. Introduction of liquidity-saving features (LSF) into BoJ Net funds transfer system (target implementation mid 2008).
2. Make change to BoJ-Net system to incorporate Zengin (YCS) and FXYCS system (target implementation 2011)
Overdraft Permitted
There is no restriction on the cash account overdrawn in Japan market. An Investor’s cash account can go overdrawn.
