Clearing & Settlement

Clearing & Settlement

Update : Mar. 23, 2014



The operational flow from trading to settlement is divided into three phases; 'trading in markets,' 'clearing at the clearing organization' and 'settlement at settlement organizations.'
In Japan, there are four stock exchanges including TSE that handle trading of cash products. The clearing operations are conducted by Japan Securities Clearing Corporation (JSCC) for equity and fixed income products traded on these markets. In the past, each exchange market had its own clearing institution. However, since January 14, 2003, the exchanges have entrusted clearing of transactions to JSCC, which has provided cross-market clearing operations.
Further, the clearing operations for Index Futures & Options (e.g. Nikkei 225 and TOPIX), Individual Options and JGB Futures & Options have been conducted by JSCC since clearing functionality of OSE Listed Derivatives was integrated into JSCC on July 16, 2013. And also, JSCC has been providing the clearing services for securities transactions executed on PTS, OTC derivatives, and OTC JGB Transactions.

Japan Securities Clearing Corporation (JSCC) website JSCC logo

Trades cleared by JSCC are settled at the following organizations.
Stocks and convertible bonds ---Japan Securities Depository Center, Inc. (JASDEC)
Japanese government bonds---The Bank of Japan
Funds---The Bank of Japan or commercial banks which JSCC designates as fund settlement banks

Functions / Roles of Organizations related to Trading, Clearing, Settlement

Clearing Organization

The main functions of the clearing organization are assumption of obligations from participants, cross-market netting, settlement instruction, and settlement guarantee.

Assumption of obligations

When transactions are effected, sellers have the obligation of delivering securities and the right of receiving cash, and buyers have the obligation of paying cash and the right of receiving securities. The clearing organization assumes these obligations and acquires these rights as a central counterparty (CCP) between sellers and buyers.
As a result of this assumption of obligations, the counterparty for settlement is changed from the original trading counterparty to the clearing organization. Therefore all participants can trade without worrying about the credit risk of the trading counterparty. Thus, clearing operations become more efficient.


The clearing organization offsets the selling and buying amounts of securities and cash to be settled on the same day for mitigation of settlement volume.
Securities are netted by issue while cash is netted on the basis of total amount of payment and receipt.

Settlement instructions

The clearing organization determines the settlement amount, notifies each clearing participant of that amount, and then notifies the settlement organizations so they may conduct settlement. Depending on the settlement method, there may be cases where the clearing participant gives instruction to the settlement organization in accordance with notification from the clearing organization. Stocks, etc. cleared by JSCC, and eligible for JASDEC, are settled on a DVP basis.

Settlement guarantee

Since the clearing organization, as a CCP, assumes the obligations and acquires the rights of settlement for the executed transaction, it has to finalize settlement between participants even if a participant fails to conduct settlement. This system enables every market participant to trade securely.
If a loss occurs in the clearing organization because a clearing participant fails to conduct settlement, JSCC provides a settlement guarantee scheme as follows.
---The loss is compensated using the defaulting participant's assets, such as its clearing funds deposited with JSCC.
---If such amount is insufficient, the loss is to be compensated by the market, JSCC’s shareholder equity, and other clearing participants.
JSCC adopts a loss compensation scheme with multi-layered financial resources based on the principle of self-responsibility on the part of the defaulting participant.

Settlement Organization

Japan Securities Depository Center, Inc.

Japan Securities Depository Center, Inc. (JASDEC) is the book-entry transfer institution in accordance with the Act on Transfer of Bonds, Shares, etc. which facilitated the dematerialization of a wide range of securities. All domestic listed stocks became paperless in January 2009. JASDEC offers following services.

1. Book-entry transfer for stocks, etc.
2. Book-entry transfer for commercial papers
3. Book-entry transfer for corporate bonds
4. Book-entry transfer for investment trusts
5. DVP settlement services for off-exchange transaction deliveries
6. Pre-settlement matching system
7. Custody services for foreign stocks
8. Other businesses

Settlement of securities related to regular stock transactions in the exchange market is conducted on the third business day after the transaction date (T+3) through book-entry transfer between JSCC's account and the clearing participant's account at JASDEC.
Settlement of securities between customers and securities companies is conducted through book-entry transfer to or from the customer's account at securities companies, etc.

Please refer to the JASDEC website for more information.

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