Assumption of ObligationDVP Settlement System
Outline of DVP Settlement
- The settlement between JSCC and its Clearing Participants are conducted via DVP (Delivery Versus Payment) settlement system. A DVP settlement links the delivery of securities and the payment of funds, that is, securities can be delivered on the condition that the corresponding payment is completed, while payment can be received on the condition that the corresponding securities are delivered. Consequently, should defaults occur, the counterparty will not be left with non-receipt of securities or funds. (See Figure below.)
- Among the cash transactions (including money/securities loan transactions via securities finance companies) executed at each exchange of which JSCC assumes obligations, JSCC’s DVP settlement system covers the following transactions; Regular transaction (note 1), off-floor distribution and off-floor trading (note 2) of the stocks, the convertible bonds (CB) and the investment trusts with which JASDEC deals. (When-issued transactions (note 3) and same-day transactions (note 4) are not eligible for DVP settlement.) In addition, government bonds are also settled via DVP settlement system.
- Note 1:
- Regular transactions refer to trades that are supposed to be settled on the third day (excluding non-business days) from the day when the trading contract is entered into. This is the most basic form of trading at securities exchanges.
- Note 2:
- Limited to transactions that have the same settlement day as regular transactions.
- Note 3:
- When a listed company issues new shares through rights offering, there is some time lag before new shares are actually issued. When-issued transactions refer to trading of these new shares prior to their actual issuance, which is supposed to be settled after a certain period following the issuance date.
- Note 4:
- Same-day transactions refer to trades that are settled on the same day as the trading contract is entered into. This type of transaction is used when stocks or funds are needed urgently.
＜Figure＞ DVP settlement scheme (Ordinary settlement of stocks)
- Example) Number of shares and amount of funds to be settled
- Securities Company A:
Securities; Delivers X shares (¥1 million) and receives Y shares (¥1.5 million)
Funds; Pays ¥500,000 - Securities Company B:
Securities; Receives X shares (¥1 million) and delivers Y shares (¥1.5 million)
Funds; Receives ¥500,000 - (Note) Assuming that Securities Companies A and B do not have transactions other than the above.
- The provisional amount of funds settlement (*1) for Securities Company A is to pay ¥500,000 (*2), thus in order to receive Y shares, Securities Company A is required to deliver X shares and pay ¥500,000 as a cash collateral for the provisional payment to JSCC by 1:00 pm.
- Securities Company B does not have to deposit cash collateral since it is supposed to receive funds. In order to receive X shares, Securities Company B is required to deliver Y shares to JSCC by 1:00 pm Meanwhile, it will receive the funds at 2:45 pm.
- The cash collateral from Securities Company A shall be provided for the funds settlement at 2:15 pm.
- *1：
- The amount of funds settlement is provisional at this point since the payment resulting from Fails is not taken into account.
- *2：
- The amount of ¥500,000 is the difference between the value of Y shares (¥1.5 million) and X shares (¥1 million).
Collateral System
- A receiving participant may receive securities before completion of the funds settlement (cut-off time for payment) by depositing with JSCC cash or securities as collateral, which is equivalent to the value of the securities to receive.
- (1) Cash collateral (compulsory)
- The participants whose provisional amount of funds settlement is paying based upon the settlement volume (net paying participants), are required to deposit that provisional amount as cash collateral for funds settlement with JSCC by 1:00 pm on the settlement day. This enables the participant to receive all securities except the Failed ones at 1:00 pm. Then the cash collateral shall be provided for the funds settlement at 2:15 pm, which is the cutoff time for additional fund payment. (Note 5)
- Note 5:
- In the case where the amount of the cash collateral is not equal to the fixed amount of payment taking the value of Failed securities at the cutoff time for securities settlement (1:00 pm) into account, the difference is adjusted through either additional fund payment (by 2:15 pm) or return of surplus money (2:45 pm).
- (2) Deposit for Facilitation of DVP Settlement (optional)
- By depositing cash or securities with JSCC by midday on the settlement day, participants may receive securities equivalent to the deposited amount (with regards to securities, its value is calculated by multiplying assessment rates).
