Developing Database on Securities Holders Information: The Case of Japan Yoshiko Sato Financial Statistics Section Research and Statistics Department Bank of Japan WPFS Workshop on Securitization, May /17

Motivation Who holds securities ? But identifying the exact holder is always one of the most challenging tasks for statistical compilers. － Balance sheets are useful but not always available. (Non-financial corporations, Other financial inst., Households) How can we know who holds securities ? CSD data is a strong candidate to shed light on the unknown sectors. － the need to identify the final holder or the holding sector is increased, especially after the recent financial crisis. 2/17

Existing statistics for holding sector Example: Structured-financing instruments in the flow of funds account statistics (FFA) Balance sheets of non-financial corporations and some of other financial institutions are not always available. The figure of other financial institutions is estimated with low accuracy. 3/17

Central Securities Depository (CSD) An institution that offers safekeeping and book-entry transfer services of securities in a centralized network. － In some countries, it offers dividends payment services or it engages in securities lending (not in Japan). Two advantages in data collection (1) centralized information (2) wider universe than that of the administratively collected data (Information gaps may exist outside the scope of authorities.) One and only platform 4/17

Central Securities Depository (CSD) Background: Dematerialization is almost completed in － CP(2002-), Corporate bonds(2003-), Investment trusts(2007-), Stocks(2009-).  JASDEC (Japan Securities Depository Center) CSD in Japan  The Bank of Japan － deals with general securities such as CP, Corporate bonds, Investment trusts, Stocks, etc. － deals with central government bonds. Today’s focus 5/17

Recent exploration of the CSD data (1) Chain of accounts (2) Finality of ownership (3) Security by security Distinctive features Statistical improvements in FFA (4) ABCP (5) Local government bonds (6) Privately placed asset-backed securities 6/17

Accounts for B SelfCustomer A (Direct AMI) C (Indirect AMI) B (Direct AMI) D (Indirect AMI) Investor HInvestor JInvestor I E (Indirect AMI) CSD (1) Chain of accounts Accounts for A SelfCustomer Accounts for C SelfCustomer Accounts for D SelfCustomer Accounts for E SelfCustomer Investor G Investor F Investor K Direct AMI: Direct account management institution Indirect AMI: Indirect account management institution /17

(2) Finality of ownership Direct systemIndirect system Notes: The chart is made by the author based on Kanda (2009). CSD custodian investor (seller)(buyer) CSD custodian investor (seller)(buyer) U.S. and U.K Japan and some other countries A custodian legally holds assets and an investor keeps equitable interest or securities entitlement to these assets. A custodian is just keeping an investor’s account and does not take over the ownership of securities. 8/17

(3) Security by security ItemsSearched result Name of the issue ← ① The second issue of ABC special purpose corp. Type of issueT, SB ISIN code ← ② JP90B001AB55 Issuing agentX bank Paying agentY bank CurrencyYen Total amount5,300,000,000 Interest rate2.013% Interest payment dateMay 31, 2010 Next scheduled repayment dateJune 30, 2010 Factor (ratio of outstanding/face value) ・・・ An example of a search result in the JASDEC website (corporate bond) Identifier: ① Name of the issue or ② ISIN code 9/17

Statistical improvements in FFA － The figures were once estimated by assuming that ABCP was a part of other structured- financing instruments (Sato[2009]). － “CP issued by SPC” released by the JASDEC is now used for the outstanding of ABCP. (4) ABCP (5) Local government bonds (6) Privately placed asset-backed securities By communicating with JASDEC, we confirmed definition of several series of CSD data. － The information on the outstanding amount of local government bonds was not centralized. － The amount held by non-residents is now used for the ROW sector. － The CSD’s aggregate data is the most centralized and reliable primary source. － Still under examination. It is a remaining part of the structured-financing instruments after ABCP. － Classification by type of collateral is required (financial/real). － Improvement is expected next year. 10/17

(1) Cascade structure of accounts (2) Confidentiality of customer accounts (3) Cooperation with CSD and with securities-related industry Challenges for statistical development of CSD data There are general challenges pertaining to CSD data as a statistical source to identify final holders of securities. We looked at the cases of OECD countries. Here we would like to express special gratitude to the six countries (U.S., U.K., Australia, Germany, Spain, Chile) for cooperating on our research. 11/17

CSD data usage in OECD countries 12/17

(1) Cascade structure of accounts Most countries have access to supplementary source data other than CSD. ・ CSD data are selectively used (e.g. for ABCP) or not used. ・ Sometimes they are supplemented by the data given by intermediate institutions (custodians or issuing and paying agents). To obtain supplementary information about customer accounts in DAMI Approach in Japan 13/17

Accounts for B SelfCustomer A (Direct AMI) C (Indirect AMI) B (Direct AMI) D (Indirect AMI) Investor HInvestor JInvestor I E (Indirect AMI) CSD (1) Cascade structure of accounts Accounts for A SelfCustomer Accounts for C SelfCustomer Accounts for D SelfCustomer Accounts for E SelfCustomer Investor G Investor F Investor K CSD and DAMI do not know the change of ownership. Supplementary information on customer accounts in DAMI will help us estimate the holding sector in the entire market. 14/17

(2) Confidentiality of customer accounts Confidentiality clause will help ・ A contract with confidentiality clause allows compilers to use only aggregate data. ・ Compilers do not need firm level information as far as the sector of final holders are correctly reported. 15/17

(3) Cooperation with CSD and with securities-related industry General understanding for the statistical value of CSD data is important. Participants: CSD, securities companies, securities dealers association, etc. Observers: Bank of Japan, Financial Services Agency In Japan, a conference was held in late 2009 and discussed that the availability of additional CSD data could increase understanding about securities market. － CSD is a private company. － Four countries using CSD data have already had a contract, which implies there is general understanding. 16/17

Conclusion There are general challenges for statistical development of CSD data as a statistical source of securities holders information. But they can be overcome. 17/17 CSD data will continue to be a strong candidate to shed light on sectors such as households, non- financial corporations, or some other financial institutions. － Thank you for your attention － Sharing experiences among OECD countries is important.