Impact of Lehman Brothers bankruptcy on post-trade systemin Japan4 July, 2009Dhaka, BangladeshJapan Securities Depository Center, Inc.

IMPACTof Subprime Crisisand Lehman Brothers Bankruptcyon Asian Economiesand Japan

Impact of Subprime Crisis on Asian Economies - Real GDP Growth Rate -(Source) International Monetary Fund, World Economic Outlook Database, April 2009

Before & after Lehman Brothers bankruptcy - Asian Stock Performance -

Impact of Subprime Crisis on Japan (1)= Sharp decline of export & overseas productionManufacturing SectorSudden higher value of the yen Falling-off of consumer demand +Financial SectorSharp decline in stock prices + Bad loans =Negative effect on financial institutions balance sheetsFirst, financial sectors involvement in subprime products was limited.But after Lehman Brothers bankruptcy+Low liquidity

Impact of Subprime Crisis on Japan (2)(Source) Financial Service Agency, Exposures of Japanese deposit-taking institutions to subprime-related products, 2008-2009(Billion Yen)

IMPACTof Lehman Brothers Bankruptcy on the Post-trade system in Japan

Trade, Clearing and Settlement flowin securities transactionStock ExchangeJSCC(DVP Clearing)Net-NetMarketClearingParticipantSettlementBank of JapanMatchingTradeDataTradeDataNon-Exchange TradeSecurities SettlementCash SettlementJDCC(DVP Clearing)Gross-NetJASDEC(PSMS)JASDECBrokerParticipant

Action taken after Lehman Brothers Bankruptcy* Lehman Brothers Holdings, Inc. (Source) Bank of Japan Reports and Research Papers March 2009

DaySeptember 2008LBHI *(US)15filed for Chapter 11 bankruptcyLehman Brothers Japan, Inc16apply to the court for bankruptcy rehabilitation FSA15issued the order of retention of assets within Japan and the business improvement order toward Lehman Brothers Japan, IncStock Exchanges16imposed trading suspension toward Lehman Brothers Japan, IncJSCC16suspended new obligation assumption for Lehman Brothers Japan Inc.stopped payment of cash and delivery of securities to Lehman Brothers Japan Inc.17started buying and selling securities to close out unsettled clearing positions of Lehman Brothers Japan Inc.25announced the completion of close-out transactions related to Lehman Brothers Japan Inc.JDCC16stopped payment of cash and delivery of securities to Lehman Brothers Japan Inc.fulfilled obligations of payment with Participant Fund17sold securities intended for delivery to Lehman Brothers Japan Inc.22appropriated proceeds of a sale of securities intended for delivery to Lehman Brothers Japan Inc. for Participant Fund

Action taken by JSCC right after Lehman Brothers DefaultJSCCLehman BrothersJapan, IncSecuritiesCompanySecuritiesCompanySecuritiesCompanyShortage of CashShortage of SecuritiesObligation Assumption GuaranteedObligation Assumption SuspendedCovered by over-draft agreementswith fund-settling banks (16~18 September)Purchased from the market(17 September ~)Failure ofSecuritiesDeliveryCleared awayCashDeliveryCompletedXX

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 onnetting for JASDEC eligible domestic stocks.(thousand Shares)

Action taken by JDCC right after Lehman Brothers DefaultJDCCSecuritiesCompanySecuritiesCompanyCustodian BankShortage of CashCovered by Participant Fund(16 September)Securities DeliveryCompleted(16 September)XXLehman BrothersJapan, IncSold to restoreParticipant FundObligation Assumption SuspendedObligation Assumption Guaranteed

Default Protection by JSCC & JDCCin Lehman Brothers bankruptcyJSCCFor the shortage of securities, JSCC> was financed by over-draft agreements with fund-settling banks, and> purchased securities from the marketFor 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

JDCCFor 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

For inquiriesPlease contact:Naoko WatanabeInternational DepartmentJapan Securities Depository Center, Inc.(n-watanabe@jasdec.com)

GDP

GDP

GDP

Now, I would like to explain the position and role of JASDEC in Japanese securities market.As you can see in the green part of the page, in Japan, securities are traded both on exchange and non-exchange.After stocks are executed on exchange, the traded data is transmitted to Japan Securities Clearing Corporation (JSCC), a clearing house. JSCC assumes the debts of the clearing participants, and then nets the number of shares to be delivered and the amounts of funds to be paid per participant.JSCC issues an instruction for share transfer to JASDEC and an instruction for funds to the Bank of Japan (BOJ). Based on these instructions, JASDEC and BOJ debit and credit participants accounts. As for non-exchange trades, data on executed trades is transmitted to Pre-Settlement Matching System (PSMS), which is provided by JASDEC. PSMS carries out trade confirmation and settlement matching.After the matching at PSMS, the data is transmitted to JASDEC DVP Clearing Corporation (JDCC) which is a clearing house and subsidiary of JASDEC. After JDCC processes securities on a gross basis and net funds, it sends book-entry transfer instructions to JASDEC and BOJ. As the JASDECs book-entry transfer system becomes common, not only on-exchange transactions but also non-exchange transactions are processed on a book-entry transfer basis through JASDECs system. It promotes the streamlining of back-office operations of banks and securities firms. JASDEC also offers a book-entry transfer system on a DVP basis for corporate bonds, commercial papers, investment trusts and so on.