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Requirements for Establishing Direct Participants' Accounts and Customers' Accounts and Requirements for Admission as Indirect Participants and Foreign Indirect Participants in the JGB Book-entry System*

  • This is an English translation of the Japanese original released on January 20, 2003.

February 17, 2003
Bank of Japan

The Bank of Japan (hereafter "the Bank") has decided the attached requirements for establishing Direct Participants' Accounts and Customers' Accounts and for admission as Indirect Participants and Foreign Indirect Participants in the JGB Book-entry System, which the Bank operates as the Book-entry Transfer Institution under the Law Concerning Book-Entry Transfer of Corporate and Other Debt Securities (Law No. 75 of 2001, hereafter "the Transfer of Corporate Debt Securities Law"), and has decided to put them into effect on January 27, 2003.Given the establishment of these requirements, the Bank has also decided to abolish on January 27, 2003 the requirements for admission as a participant in the JGB Book-entry System decided by the Bank on March 30, 2001.

The participation status on and after January 27, 2003 of entities which are Direct Participants, Indirect Participants, Foreign Indirect Participants, or Customers of the Bank in the current JGB Book-entry System as of January 27, 2003 and wish to continue their participation in the new system shall be determined as follows.

  1. (a) If an entity is a Direct Participant or an Indirect Participant and is an entity described in items 1 through 14 of Paragraph 1, Article 44 of the Transfer of Corporate Debt Securities Law, the entity shall become either a Direct Participant that can establish a Customer's Account or an Indirect Participant;
  2. (b) If an entity is a Direct Participant other than as described in (a) above, the entity shall become a Direct Participant that cannot establish a Customer's Account;
  3. (c) If an entity is a Foreign Indirect Participant and is an entity described in Item 15 of Paragraph 1, Article 44 of the Transfer of Corporate Debt Securities Law, the entity shall become a Foreign Indirect Participant.
  4. (d) If an entity is a Customer of the Bank and a counterparty of the Bank in its business under Article 41 of the Bank of Japan Law (Law No. 89, 1997), the entity shall become a Customer of the Bank.

Attachment

Requirements for Establishing Direct Participants' Accounts and Customers'
Accounts and Requirements for Admission as Indirect Participants and Foreign
Indirect Participants in the JGB Book-entry System

1. An entity applying to the Bank of Japan (hereafter "the Bank") to become a Direct Participant that can establish a Customer's Account or an Indirect Participant1 shall satisfy the following two requirements to be approved as a Direct Participant that can establish a Customer's Account or an Indirect Participant.

  1. An Indirect Participant is an entity which maintains a Customer's Account with a Direct Participant that can establish a Customer's Account and which can itself establish a Customer's Account in Japan.
  1. (a) That the applicant is either an entity described in items 1 through 14 of Paragraph 1, Article 44 of the Law Concerning Book-Entry Transfer of Corporate and Other Debt Securities (Law No. 75 of 2001, hereafter "the Transfer of Corporate Debt Securities Law") or a Book-entry Transfer Institution (furikae kikan; other than the Bank) as defined in Paragraph 2, Article 2 of the Transfer of Corporate Debt Securities Law.
  2. (b) That participation of the applicant in the JGB Book-entry System does not threaten the credibility of the system or hinder its smooth operation and orderly administration.

2. An entity applying to the Bank to become a Direct Participant that cannot establish a Customer's Account shall satisfy the following two requirements to be approved as a Direct Participant that cannot establish a Customer's Account.

  1. (a) That establishment of a Direct Participant's Account for the applicant by the Bank contributes to the achievement of the objective stipulated in Article 1 of the Transfer of Corporate Debt Securities Law and the Bank's objectives stipulated in Article 1 of the Bank of Japan Law.
  2. (b) That participation of the applicant in the JGB Book-entry System does not threaten the credibility of the system or hinder its smooth operation and orderly administration.
    Specifically, based on (a) above, Direct Participants that cannot establish a Customer's Account shall be selected from securities clearing and settlement systems as defined in Section 7 and bankers' associations (operators of payments clearing systems2 that have legal person status).
  1. 2A payments clearing system is an arrangement that calculates and settles each participant's net settlement position on a multilateral basis.

3. An entity applying to the Bank to become a Foreign Indirect Participant3 shall satisfy the following two requirements to be approved as a Foreign Indirect Participant.

  1. 3A Foreign Indirect Participant is an entity which maintains a Customer's Account with a Direct Participant that can establish a Customer's Account, with an Indirect Participant, or with a Foreign Indirect Participant, and which can itself establish a Customer's Account outside Japan.
  1. (a) That the applicant is an entity described in Item 15 of Paragraph 1, Article 44 of the Transfer of Corporate Debt Securities Law.
  2. (b) That participation of the applicant in the JGB Book-entry System does not threaten the credibility of the system or hinder its smooth operation and orderly administration.

4. An entity applying to the Bank to become a Customer4 of the Bank that falls into either of the following two categories shall be approved as a Customer of the Bank.

  1. 4A Customer of the Bank is an entity which maintains an account with the Bank for the transfer of book-entry Japanese government securities but which is not a Direct Participant.
  1. (a) An entity that needs to maintain a Customer's Account with the Bank under the laws and regulations of Japan.
  2. (b) An entity that satisfies both of the following requirements.
    1. (i) That establishment of a Customer's Account for the applicant by the Bank contributes to the achievement of the objective stipulated in Article 1 of the Transfer of Corporate Debt Securities Law and the Bank's objectives stipulated in Article 1 of the Bank of Japan Law.
    2. (ii) That participation of the applicant in the JGB Book-entry System does not threaten the credibility of the system or hinder its smooth operation and orderly administration.
      Specifically, based on (i) above, Customers of the Bank shall be selected from entities which are counterparties of the Bank in its business under Article 41 of the Bank of Japan Law.

5. Regarding the requirements in sections 1.(b) and 3.(b), the following two different criteria apply depending on whether the applicant is a securities clearing and settlement system as defined in Section 7.Even if the applicant meets the following criteria, participation in the JGB Book-entry System may not be approved in cases where the Bank considers that the applicant cannot comply with the Transfer of Corporate Debt Securities Law and the rules and procedures of the system.

  1. (a) An applicant that is a securities clearing and settlement system shall be deemed to satisfy the requirements in sections 1.(b) and 3.(b) if (i) its clearing and/or settlement business is considered safe in view of its risk management procedures, the arrangements regarding allocation of losses arising from the clearing and/or settlement process, the operational reliability of computer systems provided for its users, and other relevant matters, and (ii) its financial condition is considered sound and its operational capability is adequate.
  2. (b) An applicant that is not a securities clearing and settlement system shall be deemed to satisfy the requirements in sections 1.(b) and 3.(b) if its financial condition is considered sound and its operational capability is considered adequate.

6. Regarding the requirements in Section 2.(b), where an applicant is a securities clearing and settlement system as defined in Section 7, the criteria in Section 5.(a) shall apply mutatis mutandis.Even if the applicant meets the criteria in Section 5.(a), participation in the JGB Book-entry System may not be approved in cases where the Bank considers that the applicant cannot comply with the Transfer of Corporate Debt Securities Law and the rules and procedures of the system.

7. A "securities clearing and settlement system" is defined as follows:

  1. (a) An entity that engages in clearing of securities transactions for parties including three or more financial institutions based on common rules and procedures, for example, a central counterparty which interposes itself between the members in a system and acts as the exclusive counterparty to these members with regard to their securities transactions; or
  2. (b) an entity that executes securities transfer instructions for its members including three or more financial institutions by means of book entries based on common rules and procedures.
    In addition to the above, the Bank takes the following into account in deciding whether an entity is a securities clearing and settlement system:
    1. (i) the procedures for clearing and/or settlement of securities transactions and corresponding funds transfers; and
    2. (ii) the existence and nature of arrangements regarding allocation of losses arising from the clearing and/or settlement process.

8. Detailed criteria with regard to requirements concerning an applicant's financial condition in sections 5.(a) and 5.(b) are set out in the appendix.


Appendix to Attachment

Detailed Criteria with Regard to the Financial Condition of an Applicant

1. The financial condition of an applicant shall be deemed sound if it satisfies the requirements in the table.Even in cases where an applicant satisfies these requirements, the applicant's financial condition shall not be deemed sound if the Bank considers that, based on the applicant's situation at the time of application,5 the applicant would not be capable of fulfilling the requirements after joining the system.

  1. 5Including changes in the applicant's situation after the end of the most recent accounting period.

2. In the case of an applicant described below, if the Bank considers that the admission of the applicant as a Direct Participant that can establish a Customer's Account, an Indirect Participant, or a Foreign Indirect Participant is equivalent to succession to the position of the current Direct Participant, Indirect Participant, or Foreign Indirect Participant, the financial condition of the applicant shall be deemed sound and the requirements in the table shall not apply.

  1. a. Where an applicant undergoes a merger with an entity which is currently a Direct Participant, an Indirect Participant, or a Foreign Indirect Participant;
  2. b. Where an applicant is an entity created by a corporate separation of an entity which is currently a Direct Participant, an Indirect Participant, or a Foreign Indirect Participant;
  3. c. Where an applicant acquires the whole business of an entity which is currently a Direct Participant, an Indirect Participant, or a Foreign Indirect Participant; or
  4. d. Where an applicant is a Direct Participant applying to become an Indirect Participant, or vice versa.

3. Financial requirements for applicants that do not fall into any of the categories in the table will be decided individually upon request.

  1. 6Calculated based on the method laid down in the home-country regulations to which the applicant is subject.
  2. 7The ratio stipulated in Paragraph 1, Article 52 of Japan's Securities and Exchange Law.