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Introduction of a DVP Mechanism for Settlement of Dematerialized Corporate Bonds

January 10, 2006
Bank of Japan

In Japan, most of the corporate bonds, municipal bonds, government-guaranteed bonds, samurai bonds, etc., (hereafter collectively referred to as Corporate Bonds) were issued in the form of registered securities under the Corporate Bonds registration system; however, the registration system involved some inconveniences.For instance, securities were registered at a large number of registrar banks, and securities transfers involved complex procedures.

To address these inconveniences, the Law Concerning Book-Entry Transfer of Corporate and Other Debt Securities was enforced in January 2003, establishing the legal framework for the full dematerialization of Corporate Bonds.Under the law, Japan Securities Depository Center, Inc. (JASDEC) was entrusted with the role of an operator of the book-entry transfer system for dematerialized Corporate Bonds, and started system operations today.The Bank of Japan (hereafter the Bank) took measures necessary for the introduction of a real-time delivery-versus-payment (DVP) mechanism for settlement of dematerialized Corporate Bonds,1 such as establishing a link between the BOJ-NET Funds Transfer System and JASDEC book-entry transfer system for Corporate Bonds.With the introduction of the book-entry transfer system for Corporate Bonds, the Bank started BOJ-NET funds transfer services for DVP settlement of Corporate Bonds today.In addition, the Bank revised the DVP mechanism for dematerialized commercial paper (CP), originally introduced in March 2003, in line with the DVP mechanism for dematerialized Corporate Bonds.

Furthermore, the Bank started to accept dematerialized Corporate Bonds as eligible collateral for its various credit operations, and made it possible to post or return these bonds as collateral on an online basis through the BOJ-NET credit and collateral management system.

The Bank believes that the full dematerialization of Corporate Bonds and the introduction of DVP settlement will contribute greatly to the enhancement of the safety and efficiency of Corporate Bonds settlement and eventually to the development and expansion of the Corporate Bonds market.The Bank, in cooperation with relevant parties, continues to actively support further improvement of securities settlement systems in Japan.

  1. DVP is a link between a securities transfer system and a funds transfer system that ensures that delivery occurs if, and only if, payment occurs. In the real-time DVP mechanism, both securities and funds transfers take place on a real-time gross basis.