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Japan

As part of the reforms of the securities settlement system, a securities clearing institution (Shoken Torihiki Seisan Kikan) has been created under an amendment to the Securities and Exchange Law, which took effect on January 6 2003. A securities clearing institution means a central counterparty with respect to securities transactions, which enables securities transactions between the buyer(s) and seller(s) to be cleared in one block. A primary purpose of the securities clearing institution is to lessen the settlement risk with respect to securities transactions.

Securities clearing institutions are not new to Japan. Before the amendment, each securities exchange operated as a securities clearing institution with respect to the securities transactions conducted on that securities exchange. However, there was no securities clearing institution which acted as a central counter party in securities transactions on all securities exchanges or in securities transactions conducted off the securities exchange. Generally, Japanese securities exchanges can only conduct business related to the securities exchange itself. Therefore, it was difficult for a securities exchange to act as a securities clearing institution for securities transactions that did not occur on that exchange without amending the Securities and Exchange Law.

Since a securities clearing institution is a body established for public purposes in securities transactions, the institution must be regulated appropriately. Therefore, under the amendment, a licence from the prime minister is necessary to conduct the business of a securities clearing institution. To obtain a licence, the applicant must first submit an application to the prime minister, attaching documents explaining how the securities clearing institution business will be conducted. If the licence is granted, the securities clearing business must be conducted according to the documents attached to the application. The prime minister can also supervise the institutions.

All the Japanese securities exchanges and Japan Securities Dealers Association have established Japan Securities Clearing Corporation (JSCC) as the unified securities clearing institution for securities transactions on all the Japanese securities exchanges and over-the-counter market. JSCC has obtained its licence and commenced unified securities clearing business on January 14 2003.

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