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

Effective from:
January 27, 2003
Amended:
  • December 2, 2004
  • March 29, 2005
  • May 23, 2006
  • March 31, 2007
  • September 30, 2007
  • October 1, 2007
  • January 5, 2009
  • September 10, 2010
  • December 13, 2011
  • March 31, 2012
  • March 31, 2013
  • July 10, 2015
  • March 31, 2016

The Bank of Japan (hereafter "the Bank") set the following requirements for establishing Direct Participants' Accounts or Customers' Accounts and approving Indirect Participants or Foreign Indirect Participants in the JGB Book-Entry System, which the Bank operates as a Book-Entry Transfer Institution (furikae kikan) based on the Act on Book-Entry Transfer of Company Bonds, Shares, etc. (Act No. 75 of 2001, hereafter "the Act").

  1. An entity applying to the Bank to become a Direct Participant that can establish a Customer's Account or an Indirect Participant1 shall satisfy the following two requirements for approval 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 itself establish a Customer's Account in Japan.
    1. (a) That the applicant is either an entity described in Article 44, Paragraph 1, items 1 through 12 of the Act or a Book-Entry Transfer Institution (furikae kikan; other than the Bank) as defined by Article 2, Paragraph 2 of the Act.
    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 for approval 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 Act and the Bank's objectives stipulated in Article 1 of the Bank of Japan Act.
    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 among securities clearing and settlement systems as defined by Section 7, and Central Counter-Party Institutions for Interbank Funds Transfer (as defined by Article 2, Paragraph 6 of the Payment Services Act [Act No. 59 of 2009]).
  3. An entity applying to the Bank to become a Foreign Indirect Participant2 shall satisfy the following two requirements for approval as a Foreign Indirect Participant.
    1. 2 A 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 Article 44, Paragraph 1, Item 13 of the Act.
    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 Customer3 of the Bank that falls into either of the following two categories shall be approved as a Customer of the Bank.
    1. 3 A 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 is a counterparty to the Bank in its business under Article 41 of the Bank of Japan Act.
  5. Regarding the requirements in sections 1(b) and 3(b), the following two different criteria shall apply depending on whether the applicant is a securities clearing and settlement system as defined by 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 Act 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 by Section 7 or a Central Counter-Party Institution for Interbank Funds Transfer, 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 Act and the rules and procedures of the system.
  7. A securities clearing and settlement system is defined as follows:
    1. (a) a Book-Entry Transfer Institution (furikae kikan; other than the Bank) as defined by Article 2, Paragraph 2 of the Act,
    2. (b) a Financial Instruments Clearing Organization as defined by Article 2, Paragraph 29 of the Financial Instruments and Exchange Act (Act No. 25 of 1948), or
    3. (c) a legal person which is established under laws and ordinances of a country other than Japan, and is deemed by the Bank, taking into consideration such factors as laws and ordinances of the said country, to have functions similar to those of the institutions listed in (a) and (b) above.
  8. Detailed criteria with regard to requirements concerning an applicant's financial condition in sections 5(a) (including the case where the criteria in Section 5(a) are applied mutatis mutandis in Section 6) and 5(b) are set out in the Appendix.

Appendix : 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 1 and 2. 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,* the applicant would not be capable of fulfilling the requirements after joining the system.
    • Including changes in the applicant's situation after the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period).
  2. In the case where the applicant acquires the whole business of a current Direct Participant that can establish a Customer's Account, an Indirect Participant, or a Foreign Indirect Participant (hereafter collectively referred to as a "Participant") due to organizational restructuring (in the case where the predecessor is a foreign corporation providing the type I financial instruments business pursuant to Article 28, Paragraph 1 of the Financial Instruments and Exchange Act, it includes the case where the applicant acquires the whole business of its Japanese branches), and if the Bank considers that the admission of the applicant as a Participant is equivalent to succession to the position of the current Participant, the financial condition of the applicant shall be deemed sound and the requirements in the table 1 and 2 shall not apply.
    Organizational restructuring refers to one of the cases described below or a combination of these cases.
    1. a. Merger
    2. b. Corporate split
    3. c. Acquisition of the whole business
  3. In the case where an applicant is a Direct Participant applying to become an Indirect Participant, or vice versa, provision set forth in Section 2 above shall apply mutatis mutandis.

 

Table 1 Applicants Seeking Approval as a Direct Participant or an Indirect Participant
Types of applicants Criteria
Applicants that have already closed their books at the end of an accounting period Applicants that have not yet closed their books at the end of an accounting period (including entities planning to inaugurate business)
Banks (excluding foreign banks' branches as defined by Article 47 of Japan's Banking Act [Act No. 59 of 1981]), long-term credit banks, agricultural cooperatives, federations of agricultural cooperatives, fishery cooperatives, federations of fishery cooperatives, fishery processing cooperatives, federations of fishery processing cooperatives, credit cooperatives, federations of credit cooperatives, shinkin banks, federations of shinkin banks, labor banks, and federations of labor banks.
  1. (1) The capital adequacy ratio1 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) on a consolidated and a non-consolidated basis must be 4.5 percent or more of Common Equity Tier 1 ratio, 6 percent or more of Tier 1 Capital ratio and 8 percent or more of Total Capital ratio for applicants under the uniform international standard, and 4 percent or more for applicants under the domestic standard. In addition, for applicants that are required by statutory regulations to meet the capital buffer requirements, such applicants' capital buffer ratio must satisfy the requirements set forth by the statutory regulations.
  2. (2) If an applicant's parent company is a bank holding company, in addition to above (1), such bank holding company's capital adequacy ratio2 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) on a consolidated basis must be 4.5 percent or more of Common Equity Tier 1 ratio, 6 percent or more of Tier 1 Capital ratio and 8 percent or more of Total Capital ratio for applicants under the uniform international standard and 4 percent or more for applicants under the domestic standard. In addition, for applicants that are required by statutory regulations to meet the capital buffer requirements, such applicants' capital buffer ratio must satisfy the requirements set forth by the statutory regulations.
  3. (3) Even when the applicant's capital buffer ratio under above (1) and (2) does not satisfy the required capital buffer ratio set forth by the statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (1) and (2) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio.
  1. (1) Applicants' estimates of the capital adequacy ratio and capital buffer ratio at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy (1) and (2) set forth in the left column.
  2. (2) Even when the applicant's estimates of the capital buffer ratio under above (1) do not satisfy the required capital buffer ratio set forth by the statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (1) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio.
Foreign banks' branches as defined by Article 47 of Japan's Banking Act.
  1. (1) If a foreign bank that operates an applicant is subject to home-country statutory regulations laid down in line with Basel lll: A global regulatory framework for more resilient banks and banking systems (December 2010) published by the Basel Committee on Banking Supervision, its capital adequacy ratio3 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must be 4.5 percent or more of Common Equity Tier 1 ratio, 6 percent or more of Tier 1 Capital ratio and 8 percent or more of Total Capital ratio. In addition, for the foreign bank that is required by its home-country statutory regulations to meet the capital buffer requirements, such foreign bank's capital buffer ratio must satisfy the requirements set forth by the statutory regulations.
  2. (2) If a foreign bank that operates an applicant is subject to home-country statutory regulations laid down in line with International Convergence of Capital Measurement and Capital Standards (July 1988) or International Convergence of Capital Measurement and Capital Standards: a Revised Framework (June 2004) published by the Basel Committee on Banking Supervision, its capital adequacy ratio4 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must be 8 percent or more.
  3. (3) If a foreign bank that operates an applicant does not fall under above (1) or (2), its capital adequacy ratio calculated based on the method set out in line with the Banking Act at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must be 4.5 percent or more of Common Equity Tier 1 ratio, 6 percent or more of Tier 1 Capital ratio and 8 percent or more of Total Capital ratio. In addition, the foreign bank's capital buffer ratio calculated based on the method set out in line with the Banking Act must satisfy the requirements set forth in the Banking Act.
  4. (4) Even when the capital buffer ratio of the foreign bank that operates the applicant under above (1) and (3) does not satisfy the required capital buffer ratio set forth by the statutory regulations, the foreign bank shall be deemed to satisfy the capital buffer requirements set forth under above (1) and (3) unless there are special circumstances that the foreign bank is not taking proper actions to improve its capital buffer ratio.
  1. (1) Applicants' estimates of the capital adequacy ratio and capital buffer ratio (except when a foreign bank that operates an applicant falls under (2) set forth in the left column) at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy (1) through (3) set forth in the left column.
  2. (2) Even when the applicant's estimates of the capital buffer ratio under above (1) do not satisfy the required capital buffer ratio set forth by the statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (1) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio.
Financial instruments business operators as defined by Article 2, Paragraph 9 of the Financial Instruments and Exchange Act (limited to those providing the type I financial instruments business pursuant to Article 28, Paragraph 1 of the same Act).
  1. (1) The Japanese capital requirement ratio5 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) on a non-consolidated basis must be 140 percent or more.
  2. (2) If an applicant is an upstream consolidated company (a special financial instruments business operator as defined by Article 57-2 of the Financial Instruments and Exchange Act, whose parent company is an ultimate designated parent company as defined by Article 57-12 of the same Act, the same for (3) below and for (2) in the right column), in addition to above (1), (a) its capital adequacy ratio6 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) on a consolidated basis must be 4.5 percent or more of Common Equity Tier 1 ratio, 6 percent or more of Tier 1 Capital ratio and 8 percent or more of Total Capital requirement ratio OR (b) its Japanese capital requirement ratio7 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) on a consolidated basis must be 140 percent or more.
  3. (3) If an applicant is an upstream consolidated company, in addition to above (1) and (2), the applicant's capital buffer ratio must satisfy the requirements set forth by the statutory regulations.
  4. (4) If an applicant is a special financial instruments business operator as defined by Article 57-2 of the Financial Instruments and Exchange Act but its parent company is not an ultimate designated parent company as defined by Article 57-12 of the same Act, in addition to above (1), its Japanese capital requirement ratio8 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) on a consolidated basis must be 140 percent or more.
  5. (5) Even when the applicant's capital buffer ratio under above (3) does not satisfy the required capital buffer ratio set forth by the statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (3) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio.
  1. (1) Applicants' estimates of the Japanese capital requirement ratio at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy (1), (2) or (4) set forth in the left column.
  2. (2) If an applicant is an upstream consolidated company, in addition to above (1), the applicant's estimates of the capital buffer ratio at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy (3) set forth in the left column.
  3. (3) Even when the applicant's estimates of the capital buffer ratio under above (2) do not satisfy the required capital buffer ratio set forth by the statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (2) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio.
Insurance companies as defined by Article 2, Paragraph 2 of Japan's Insurance Business Act (Act No. 105 of 1995).
  1. (1) The ratio9 showing the adequacy of the applicants' solvency and the applicants' and their subsidiaries' solvency to meet insurance claims and other claims at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must be 200 percent or more.
  2. (2) If an applicant's parent company is an insurance holding company, in addition to above (1), the ratio10 showing the adequacy of such insurance holding company and its subsidiaries' solvency to meet insurance claims and other claims at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must be 200 percent or more.
Applicants' estimates of the ratio showing the adequacy of the applicants' solvency to meet insurance claims and other claims at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy (1) and (2) set forth in the left column.
Book-Entry Transfer Institutions (furikae kikan; other than the Bank) as defined by Article 2, Paragraph 2 of the Act The financial condition at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must satisfy the requirements on financial soundness as applied to applicants under the Act. Applicants' estimates of the financial condition at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy the requirements on financial soundness as applied to applicants under the Act.
Financial Instruments Clearing Organizations as defined by Article 2, Paragraph 29 of the Financial Instruments and Exchange Act and Central Counter-Party Institutions for Interbank Funds Transfer as defined by Article 2, Paragraph 6 of the Payment Services Act. In light of the financial condition at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period), the Bank has no special reasons to believe that applicants are incapable of carrying out their business adequately. In light of applicants' estimates of the financial condition at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business, the Bank has no special reasons to believe that applicants are incapable of carrying out their business adequately.

Table 2 Applicants Seeking Approval as a Foreign Indirect Participant

Table 2 Applicants Seeking Approval as a Foreign Indirect Participant
Types of applicants Criteria
Applicants that have already closed their books at the end of an accounting period Applicants that have not yet closed their books at the end of an accounting period (including entities planning to inaugurate business)
Entities subject to home-country statutory regulations laid down in line with International Convergence of Capital Measurement and Capital Standards (July 1988) or International Convergence of Capital Measurement and Capital Standards: a Revised Framework (June 2004) published by the Basel Committee on Banking Supervision. The capital adequacy ratio11 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must satisfy the requirements set forth by applicants' home-country statutory regulations to which the applicants are subject. Applicants' estimates of the capital adequacy ratio11 at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy the requirements set forth in the left column.
Entities subject to home-country statutory regulations laid down in line with Basel lll: A global regulatory framework for more resilient banks and banking systems (December 2010) published by the Basel Committee on Banking Supervision
  1. (1) The capital adequacy ratio12 at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must satisfy the requirements set forth by applicants' home-country statutory regulations to which the applicants are subject, according to the categories of Common Equity Tier 1 ratio, Tier 1 Capital ratio and Total Capital ratio (limited to those which are required to be calculated by the statutory regulations). In addition, for applicants that are required by their home-country statutory regulations to meet the capital buffer requirements, such applicants' capital buffer ratio13 must satisfy the requirements set forth by the statutory regulations.
  2. (2) Even when the applicant's capital buffer ratio13 under above (1) does not satisfy the required capital buffer ratio set forth by its home-country statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (1) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio13.
  1. (1) Applicants' estimates of the capital adequacy ratio12 and capital buffer ratio13 at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy (1) set forth in the left column.
  2. (2) Even when the applicant's estimates of the capital buffer ratio13 under above (1) do not satisfy the required capital buffer ratio set forth by its home-country statutory regulations, the applicant shall be deemed to satisfy the capital buffer requirements set forth under above (1) unless there are special circumstances that the applicant is not taking proper actions to improve its capital buffer ratio13.
Entities14 not subject to home-country statutory regulations laid down in line with International Convergence of Capital Measurement and Capital Standards (July 1988), International Convergence of Capital Measurement and Capital Standards: a Revised Framework (June 2004) or Basel lll: A global regulatory framework for more resilient banks and banking systems (December 2010) published by the Basel Committee on Banking Supervision. The financial condition at the end of the most recent accounting period (if the most recent accounting period is semiannual, the end of such semiannual period) must satisfy the requirements on financial soundness as applied, in applicants' home-country, to an entity who has received a "license or registration or other disposition similar to these" as prescribed in Article 44, Paragraph 1, Item 13 of the Act. Applicants' estimates of the financial condition at the end of each annual accounting period (accounting period shall be limited to the end of fiscal year period) for the first three years after the inauguration of business must satisfy the requirements set forth in the left column.
  1. Consolidated and non-consolidated ratios are calculated based on the law concerning the business category to which the applicant belongs.
  2. The consolidated ratio calculated based on the Public Notice of the Financial Services Agency No.20, 2006.
  3. Calculated based on the method set forth by the home-country statutory regulations laid down in line with Basel lll: A global regulatory framework for more resilient banks and banking systems (December2010) published by the Basel Committee on Banking Supervision.
  4. Calculated based on the method set forth by the home-country statutory regulations laid down in line with International Convergence of Capital Measurement and Capital Standards (July 1988) or International Convergence of Capital Measurement and Capital Standards: a Revised Framework (June 2004) published by the Basel Committee on Banking Supervision and to which the applicant is subject.
  5. The ratio stipulated in Article 46-6, Paragraph 1 of the Financial Instruments and Exchange Act.
  6. The consolidated ratio calculated based on Article 2 and 3, the Public Notice of the Financial Services Agency No.130, 2010.
  7. The consolidated ratio calculated based on Article 4, the Public Notice of the Financial Services Agency No.130, 2010.
  8. The consolidated ratio calculated based on Article 2, the Public Notice of the Financial Services Agency No.128, 2010.
  9. The standards stipulated in Article 130 of Insurance Business Act.
  10. The standards stipulated in Article 271-28-2 of Insurance Business Act.
  11. Calculated based on the method set forth by applicants' home-country statutory regulations laid down in line with International Convergence of Capital Measurement and Capital Standards (July 1988) or International Convergence of Capital Measurement and Capital Standards: a Revised Framework (June 2004) published by the Basel Committee on Banking Supervision and to which applicants are subject.
  12. Calculated based on the method forth by applicants' home-country statutory regulations laid down in line with Basel lll: A global regulatory framework for more resilient banks and banking systems (December 2010) published by the Basel Committee on Banking Supervision.
  13. The capital buffer ratio indicates the portion of applicants' capital adequacy ratio derived from a capital buffer set forth under applicants' home-country statutory regulations to which applicants are subject, or standards that are equivalent to it.
  14. Include cases where applicants' home country do not have such regulations.

Note: This translation is based on the Japanese original, prepared for reference purposes only. The Bank will not be responsible for the accuracy or the completeness of the translation. Also, the latest amendments to the Requirements are not necessarily reflected in a timely manner. The only authentic text is the Japanese one.