Interim Report of the Study Group on T+1 Transition

Regarding the settlement period for stock transactions, Japan migrated from T+3 to T+2 in July 2019, and currently settlement takes place two business days (T+2) after the transaction date (T day) when stock trading occurs.

Regarding this stock settlement period, major countries and regions are implementing or considering T+1 migration. For example, North America migrated to T+1 starting in May 2024, and Europe has published a schedule for T+1 migration in 2027.

It has been pointed out that shortening the settlement period for stock transactions has merits such as reducing settlement risk, improving capital efficiency and reducing collateral burden, and further streamlining and improving efficiency of settlement operations.

On the other hand, T+1 migration has been criticized for issues arising from tightened post-trade processing. For example, challenges include addressing increased fail risk where securities are not delivered by the securities settlement deadline, and increased operational risk such as clerical errors due to increased administrative burden per hour. Additionally, when the settlement period is T+1, non-residents in countries and regions located east of Japan may have to conduct trade confirmation and settlement processing for Japanese stock transactions at night due to time differences, which raises concerns that this could lead to avoidance of Japanese stock trading.

While such challenges are anticipated, as international implementation and consideration of T+1 stock settlement periods progress, it is necessary for market participants to begin practical examination of methods and issues for advancing T+1 migration so that Japan's securities settlement system is not left behind international standards.

Financial Administration Policy for FY2024 (August 30, 2024)

"Regarding T+1 migration of stock settlement periods, practical examination will be advanced in cooperation with market participants while monitoring overseas market trends."

T+1 Migration Study Group (Non-public)

Structure:

• Secretariat: Financial Services Agency, Japan Securities Dealers Association, Japan Securities Clearing Corporation, Tokyo Stock Exchange
• Members: Securities companies, Japan Securities Depository Center, Japan Securities Finance, Trust Association, Investment Trust Association, Custody banks, etc.
• Observers: Ministry of Justice

Main Agenda Items: Overseas trends and opinions of foreign investors and foreign financial institutions, fail-related matters, infrastructure-related matters, securities lending-related matters, etc.