Impact of Lehman Brothers bankruptcy on post-trade system in Japan

4 July, 2009 Dhaka, Bangladesh Japan Securities Depository Center, Inc.

IMPACT of Subprime Crisis and Lehman Brothers Bankruptcy on Asian Economies and Japan 2 .

1 -0.0 -4.0 -0.1 e1.9 5.1 4.5 4.9 7.2 8.2 6.5 5.1 3 Singapore (Source) International Monetary Fund.2 -2.8 6.8 5.5 -6.0 2010e 7.3 2.4 8.7 7.4 4.0 1.8 4.6 2.4 5.1 6.7 8.3 10. April 2009 .6 5.3 6.4 2.5 -2.Impact of Subprime Crisis on Asian Economies .6 0.8 0.5 -3.8 08-10 7.5 1.1 2005-07 11.0 -4.3 5.4 5.5 4.7 9.5 0.5 2.5 6.9 4.3 4.7 6.7 3.5 -3.1 2009e 6.6 e8.0 2.3 e5.2 -0.0 0.5 0.0 6.7 5.0 3.2 4.3 6.0 7.0 4.2 -7.1 6.8 2.0 9.5 0.Real GDP Growth Rate Country.8 2008 9.5 -10.5 5.9 6.6 2.0 4.5 -3.6 5. World Economic Outlook Database.3 4.2 2.5 3.5 -0.4 6. Region China India Bangladesh Mongolia Vietnam Indonesia Pakistan Malaysia Thailand Korea Hong Kong Japan Taiwan 2007 13.3 1.

3 -43.69 (04-Nov-08) (28-Oct-08) (29-Oct-08) (09-Mar-09) (20-Nov-08) (09-Apr-09) (24-Feb-09) (27-Oct-08) (24-Oct-08) (29-Oct-08) (09-Mar-09) (10-Mar-09) (12-Mar-09) (26-Jan-09) (19-Feb-09) (c) 25-Jun-09 2.345.214.68 2.054.08 919.1 -36.253.62 6.67 235.83 4.089.853.70 1.5 2.3 -42.71 %change (b)/(a) -17.352.408.044.81 6.302.891.17 1.84 938.6 -41.0 -46.310.40 4.90 1.50 11.4 -20.00 19.9 -23.92 654.67 12.17 476.079.6 13.9 2.815.177.9 4 Pakistan Mongolia .76 18.03 1.706.7 -35.8 -9.804.34 2.925.9 -38.583.4 -19.570.60 2.1 (c)/(a) 40.044.5 -50.Asian Stock Performance Market China Indonesia Malaysia India Taiwan Bangladesh Vietnam Hong Kong Korea Thailand Singapore Japan Index SSE Composite Jakarta Composite KLSE Composite SENSEX TSEC weighted General VN Hang Seng KOSPI Composite SET Straits Times Nikkei225 TOPIX KSE100 TOP20 (a) 12-Sep-08 2.128.15 1.5 -43.92 8.34 4.20 9.05 453.73 590.2 -40.06 1.4 -4.95 7.98 700.75 384.5 -48.46 9.3 1.2 -15.0 -42.14 (b) Lowest after 12-Sep-08 1.160.6 -5.015.000.392.61 2.5 -41.7 -10.67 1.850.111.77 7.93 4.457.477.41 8.03 14.93 2.8 -21.7 -5.3 2.76 1.074.456.505.275.11 14.39 829.796.Before & after Lehman Brothers bankruptcy .05 2.

financial sector¶s involvement in subprime products was limited.Impact of Subprime Crisis on Japan (1) Financial Sector First. But after Lehman Brothers¶ bankruptcy« Sharp decline in stock prices + Bad loans + Low liquidity =Negative effect on financial institutions¶ balance sheets Manufacturing Sector Sudden higher value of the yen + Falling-off of consumer demand = Sharp decline of export & overseas production 5 .

Impact of Subprime Crisis on Japan (2) (Billion Yen) Valuation profits/losses for equity holdings Exposures to subprime-related products Book value Realized profits/losses Sep 08 Major Banks. Exposures of Japanese deposit-taking institutions to subprime-related products.201 111 -597 1. 2008-2009 . Dec 08 Mar 09 Sep 08 Regional Banks Cooperative Financial Institutions Dec 08 Mar 09 Sep 08 Dec 08 Mar 09 Sep 08 Total Dec 08 Mar 09 2.620 666 474 -132 -327 -268 3.690 450 -390 719 496 397 46 39 31 31 30 22 797 565 449 -727 -842 -916 -47 -48 -52 -29 -29 -34 -803 -919 -1.001 6 (Source) Financial Service Agency. etc.

IMPACT of Lehman Brothers Bankruptcy on the Post-trade system in Japan 7 .

Trade. Clearing and Settlement flow in securities transaction Non-Exchange Trade Exchange Trade Broker Participant JASDEC (PSMS) Trade Data Participant Market Customer Trade Data Stock Exchange Matching JDCC JSCC (DVP Clearing) Net-Net Clearing (DVP Clearing) Gross-Net Securities Settlement Cash Settlement Settlement 8 JASDEC Bank of Japan .

appropriated proceeds of a sale of securities intended for delivery to Lehman Brothers Japan Inc.Action taken after Lehman Brothers Bankruptcy Day September 2008 filed for Chapter 11 bankruptcy apply to the court for bankruptcy rehabilitation issued the order of retention of assets within Japan and the business improvement order toward Lehman Brothers Japan. stopped payment of cash and delivery of securities to Lehman Brothers Japan Inc. Inc. stopped payment of cash and delivery of securities to Lehman Brothers Japan Inc. Inc 15 16 15 16 16 FSA Stock Exchanges JSCC 17 25 16 JDCC 17 22 9 * Lehman Brothers Holdings. . fulfilled obligations of payment with Participant Fund sold securities intended for delivery to Lehman Brothers Japan Inc. started buying and selling securities to close out unsettled clearing positions of Lehman Brothers Japan Inc. Inc imposed trading suspension toward Lehman Brothers Japan. Inc suspended new obligation assumption for Lehman Brothers Japan Inc. announced the completion of close-out transactions related to Lehman Brothers Japan Inc. for Participant Fund (Source) Bank of Japan ³Reports and Research Papers´ March 2009 LBHI *(US) Lehman Brothers Japan.

Inc Shortage of Cash X X JSCC Cash Delivery Completed Securities Company 10 Covered by over-draft agreements with fund-settling banks (16~18 September) Securities Company .Action taken by JSCC right after Lehman Brothers¶ Default Obligation Assumption Suspended Purchased from the market (17 September ~) Shortage of Securities Obligation Assumption Guaranteed Failure of Securities Delivery Cleared away Securities Company Lehman Brothers Japan.

2008 (thousand Shares) 16.Average Daily Volume of Failed-Delivery in JSCC .000 12.000 10.000 0 11 Note1: Figures are average daily failed-delivery shares against expected number of shares to be settled based on netting for JASDEC eligible domestic stocks.000 6. .000 14.000 1 2.000 8.000 4.

Action taken by JDCC right after Lehman Brothers¶ Default Securities Delivery Completed (16 September) Securities Company Securities Company JDCC Shortage of Cash X X Lehman Brothers Japan. Inc Custodian Bank Sold to restore Participant Fund Covered by Participant Fund (16 September) Obligation Assumption Suspended 12 Obligation Assumption Guaranteed .

JDCC > used its Participant Fund >>> Participant Fund was covered by selling securities intended for delivery to Lehman Brothers Japan. and > purchased securities from the market ± For the shortage of cash. JSCC > was financed by over-draft agreements with fund-settling banks.CCPs¶ Loss Compensation Scheme functioned properly . Inc. later 13 . and its Clearing Fund later  JDCC ± For the shortage of cash. Inc.DVP limited losses of counterparties within price volatility . JSCC > was financed by over-draft agreements with fund-settling banks >>> Amount financed was covered by selling securities intended for delivery to Lehman Brothers Japan.Default Protection by JSCC & JDCC in Lehman Brothers bankruptcy  JSCC ± For the shortage of securities.

Inc. (n-watanabe@jasdec.For inquiries« Please contact: Naoko Watanabe International Department Japan Securities Depository Center.com) 14 .

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