As long as the institutional transactions are concerned, it is quite common that the institutions that perform investments and the institutions that perform settlement are different entities not only in Japan but also in other countries. However, typical in Japan is that trust banks retain the rights and obligations for the confirmation of investment. For this reason, PSMS was developed to realize the straight-through processing (STP) suitable to the specifics of the securities settlement environment in Japan.
Securities markets have been globalized so quickly. Until recently, securities settlement systems used to be constructed on the vernacular architecture of data syntax and codes, which can be only used in the domestic market, but settlement systems must be created in the future that incorporate the factor of connectivity to overseas counterparts. To achieve this, PSMS was developed based on the following standard data syntax and codes:
While PSMS was implemented under the T+ 3 environment, this aims to complete the matching of the trades on the trade date, T+ 0, to keep pace with the movement of securities industry to shorter settlement cycle, T+ 1. We believe that completion of trade matching on T+ 0 will help increase the convenience for the investment trust management services. To be precise, open-end investment trust is required to calculate and announce the Net Asset Value every day, which should be done accurately and promptly. The PSMS provides facilities to match the investment instruction data sent by investment trust companies and trade report data sent by securities companies on a real time basis, and then sends matched data to trust banks. This enables trust banks to smoothly and accurately calculate the NAV and match such NAV calculated by investment trust companies more quickly and accurately.
On May 17, 2004, with the implementation of the delivery versus payment (DVP) system for trades other than the stock exchange transactions, PSMS linked to the Book-Entry Transfer System. The matched settlement instruction data the linkage instruction to the Book-Entry Transfer System is set in PSMS is automatically transmitted to the Book-Entry Transfer System, thereby completing the settlement process without any manual interventions. The participation to PSMS is requisite for putting the DVP settlement into practice.
Digitization of trade data and dematerialization or immobilization of securities is the prerequisite for bringing STP into operation. As a practical step for this development, an amendment to the Ordinance of the Cabinet Office was issued on October 1, 2001, which allows securities companies to send trade reports to their customers in the electronic or magnetic form through PSMS with the condition of agreement of customers.
On July 7, 2003, an amendment to the Ordinance of the Cabinet Office about securities companies, and a members' notification of Japan Securities and Dealers Association (JSDA No.15-33) relating to the average price were issued, which allow securities companies not to send trade confirmations regulated by the Securities and Exchange Law （Article 41） to their customers, and to send trade reports using an average price with the condition of the Ordinance of the Cabinet Office about securities companies such as agreement of customers. The development for this amendment made it possible for securities companies to send trade reports using average price to their customers in the electronic or magnetic form through PSMS.
Since May 2005, Japan Government Bond Clearing Corporation (JGBCC) started the clearing business of Japan Government Bonds. At the same time, PSMS linked data to the JGBCC System. The matched trade report data of Japanese Government Bonds the linkage instruction to the JGBCC is set in PSMS is automatically transmitted to the JGBCC System, and PSMS receives data generated by the JGBCC System such as credit approval status, netting result, etc. and sends these data to the JGBCC participants.
Pre-Settlement Matching System