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Risk management through DVP settlement system for NETDs

JDCC has established various structures and maintained tight control of risk so that DVP settlement can be conducted securely through the DVP settlement system for NETDs

Risk management by means of Transfer Condition

JDCC applies the following three conditions (the general term we use to refer to these is ‘Transfer Condition) whenever it assumes obligations in relation to individual transactions executed by DVP participants seeking to use of the DVP settlement system for NETDs

1. Assurance Assets (Margin Value) condition

JDCC seeks that the Assurance Assets (Margin Value) of each DVP participant go over his net debit. Assurance Assets consist of three elements: (1) Cash deposited with the JDCC by DVP participant(this is referred to as Prticipants Fund); (2) stocks, government bonds and other securities deposited with JDCC by DVP participant(this is referred to as Pledged Securities); and (3) stocks and other securities transferred to the JDCC account by means of the DVP settlement system for NETDs on the settlement day(this is referred to as Securities-to-be-Received) By means of this methodology, even if a DVP participant were to default, all obligations of JDCC can be covered and paid out converting the Assurance Assets of the participant into cash, thus ensuring that payment can always be made.

1.Conditions on Margin Value (Transferring and Receiving)

2 Net Debit Cap condition

The JDCC sets an upper limit (this upper limit is referred to as the Net Debit Cap) to the Net Debit that each individual DVP participant may have on the basis on an analysis of actual usage made by the DVP participant over the course of a certain period. The Net Debit Cap controls the maximum amount of exposure to the DVP settlement system for NETDs that is available to the individual DVP participant with the aim of limiting the risk within the boundaries of the Commitment Assets that the JDCC has already provisioned for the purpose of covering risk.

2:Net Debit Cap condition (Receiving)

3 Transferable Securities Balance condition

In addition, the JDCC seeks that the transferring DVP participant has securities balance in excess of the volume of securities required for book-entry transfer by means of the DVP settlement system for NETDs.

3:Transferable Securities Balance condition (Transferring)(diagram)

Changes of risk management conditions

JDCC ensures that the abovementioned conditions laid down for the execution are enforced for individual transactions undertaken by DVP participants seeking to use the DVP settlement system for NETDs. Only when these conditions have been satisfied, JDCC will assume obligation related to the DVP settlement system for NETDs. Changes of the risk management conditions with the obligation assumption by the JDCC are as follows:

Company A has deposited participants fund 2 with the JDCC. At this stage no calculation of the value of the assets is made as there are no securities book-entry transfer at present.

1: At start of operations (diagram)

Stocks with settlement value 3 are transferred from Company A to Company B. Company A now has the right to receive settlement value 3 as consideration. (Total Credit of company A is booked as 3)

2: Execution of DVP settlement with Company B (transffering 3 stocks to Company B)

7 stocks with settlement value 7 are transferred from Company C to Company A. Simultaneously total debit of company A is booked as 7 and Assurance Assets of company A are increased by 4.9(value applied appraisal rate 0.7 on the market value of Securities-to-be-Received).

3: Execution of DVP settlement with Company C (receiving 7 stocks from Company C)

Maintaining of Liquidity Resource

JDCC always maintains Liquidity Resource from Participants Fund and Bank Credit Line, even if DVP participants were to default, it would be able to complete fund settlement of the day up to the specified time with such resources .
JDCC maintains a scale of Liquidity Resource at a level twice as high as that required by the internationally recognized ‘Lamfalussy standards’ for settlement systems conducting netting operations. DVP settlement system for NETDs boasts such an extremely high level of stability that even if the two DVP participants with the largest Net Debit Cap were to default with the maximum Net Debit at the same time, fund settlement would be able to be completed

Execution of monitoring of DVP participants

JDCC monitors DVP Participants on an ongoing basis about the internal system for business operation and financial basis ,etc and thereby controls the impact that any changes to the credit or operational risk profiles of individual DVP participants may have on the DVP settlement system for NETDs.

Related pages

Please refer to the following for information about the JDCC (established June 2003 and wholly owned by JASDEC) which is the main operator of the DVP settlement system for NETDs

For enquiries about the DVP settlement system for NETDs please contact:

  • JASDEC DVP Clearing Corporation Business Administration Department
    Telephone : +81-3-3661-0181
    E-mail :

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