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Addressing risk through best practice in Japan: Shortening settlement cycles and imposing fail charges

Taketoshi Mori, Head of Securities Market Infrastructure, Global Network Management, Transaction Services Division, Bank of Tokyo-Mitsubishi UFJ

Abstract
From 2002 to 2009, the Japanese securities settlement infrastructure and environment improved dramatically to realise delivery vs. payment settlement and dematerialisation of government bonds, commercial papers, corporate bonds, investment funds and even stocks. However, after the financial crisis, they recognised this improvement was still insufficient and that there was a significant need to improve the efficiency of the securities settlement system further and to enhance the risk control mechanism in order to reinforce the competitiveness of the financial and capital markets. Through feasibility studies and active discussion by market participants, the standard Japanese Government Bond settlement cycle is scheduled to be shortened by one day to T+2 from 23rd April, 2012, and the fail charge system has been effective since 1st November, 2010, and has quickly penetrated the market. The study is continuing on T+1 settlement for outright trades. Both the shortened settlement cycle and the fail charge are expected to contribute to market stabilisation especially in irregular economic and/or market situations. The regulators of Japan FSA and Bank of Japan are positive and supportive of these initiatives.

Keywords
shortening settlement cycles, fail charges


Taketoshi Mori is Head of Securities Market Infrastructure, Global Network Management in the Transaction Services Division of the Bank of Tokyo-Mitsubishi UFJ Ltd. He joined the Bank of Tokyo-Mitsubishi UFJ Ltd (Mitsubishi Bank) in 1984 and has substantial experience as a loan officer and supervisor of overseas units, securities services and risk management. He has worked as market leader for the bank’s securities services business for the past ten years. Taketoshi is a committee member of JASDEC; Japan Bankers Association; Japan Securities Dealers Association; and JGBCC. He is engaged in the special task of SWIFT activities to develop and promote straight through processing in business processes and is convener of the Japanese Market Practice Group of the SWIFT securities message group. He is a steering committee member of the Securities Market Practice Group as a representative of Asia and Pacific region and a member of the International Securities Services Association Corporate Action Working Group. Regarding ISO 20022, he is a member of SEG and the Business Validation Group in the SWIFT reverse engineering project. Taketoshi is deputy chair of the Working Group on the shortening of JGB settlement cycle and renewal of BoJ-net and failed transaction rules for bonds and establishing CCP for OTC Derivatives in Japan. In order to develop the market rules and to improve market infrastructure in Japan, he actively participates in the working groups above as a key member, and facilitates discussions aiming to reach the best conclusion based on mutual understanding. He also participates in the Asian Bond Market Forum headed by the Asian Development Bank in order to integrate and harmonise the regulation and market practice and messages in ASEAN + China, Japan, Korea Bond Market. Taketoshi is an Editorial Board member for the Journal of Securities Operations & Custody and a regular speaker at major conferences in the field.
 

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