Clearing & Settlement Organization
Japan Securities Clearing Corporation (Clearing Organization)
The main functions of the clearing organization are the assumption of obligations from participants, netting, settlement instructions, and settlement guarantees.
Assumption of obligations
When transactions are executed, sellers are obligated to deliver securities and the have the right to receive cash, and buyers are obligated to pay cash and have the right to receive 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. This allows all participants to trade without worrying about the credit risk of the trading counterparty.
Thus, clearing operations become more efficient.
Netting
Netting is conducted in trading cleared in a clearing organization to reduce the settlement quantity. 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 while cash is netted based on the 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 the 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.
Settlement guarantee
Since the clearing organization, as a CCP, assumes the obligations and acquires the settlement rights 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.
Japan Securities Depository Center (Settlement Organization)
Japan Securities Depository Center, Inc. (JASDEC) is a "Book-Entry Transfer Institution" under the Act on Book-Entry Transfer of Corporate Bonds and Shares and provides book-entry transfer and related services for a wide range of dematerialized securities, including listed shares, Convertible Bonds (CB), Exchange Traded Funds (ETF) and Real Estate Investment Trust (REIT).
Settlement of securities related to regular stock transactions in the exchange market is conducted on the second business day after the transaction date (T+2) 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.