Structure of book-entry transfer system for stocks, etc.(book-entry stocks)

The book-entry transfer system for stocks, etc. refers to the computerized management (issuance, transfer and cancellation) of shareholders' ownership rights (which had formerly been administered on the assumption of the physical existence of share certificates, etc.) through accounts established by JASDEC and securities companies etc. in accordance with the Act on Book-Entry Transfer of Company Bonds, Shares, etc. which abolished stock certificates, etc. for the stocks, etc. of publicly listed companies.
Having obtained the consent of issuers to do so, JASDEC conducts transactions through this book-entry transfer system for stocks, etc. in stocks listed publicly on securities exchanges, warrants for new shares, corporate bonds with warrants for new stock, investment units, preferred shares, beneficial interests in investment trusts and other items pertaining to these instruments.

Advantage of Book-entry Transfer System for Stocks, etc
Eliminate printing cost, stamp duty, cost for safekeeping and transfer,
Lower administrative cost for issuing and registration,
Remove the risks of forgeries, loss or robbery,
Reduce determination period of record date for shareholders
Diversify the procedures to receive dividends,
and Promote more efficiency for securities settlements.

A new registration procedure is carried out when a company (the Issuer) issues a new listing on the stock exchange. The existing shareholders of the Issuer make a request (to securities companies, etc.) for intermediation of account notification so that the Issuer can receive information about the accounts it is to open to receive the share records already existing at securities companies, etc. The Issuer then makes a new record notification (to JASDEC), based on the account notification information it has received.

The transfer of the stock will not be valid unless the book-entry transfer application results in an increase in the number of shares listed in the holding column of the account of the stock book-entry transfer receiver (transferee) equal to the number of shares involved in the transfer. The Participant whose recorded number of shares in their account is to be reduced as a result of the book-entry transfer (the transferer) shall apply to its upper-positioned Account Management Institution (the Account Management Institution who opened the Participant's account) for the book-entry transfer of the shares.

A Participant may request an Account Management Institution to arrange for the purchase of the Participant's shareholding of less than one unit that is recorded in the Participant's account (this request will be accompanied by a request for a book-entry transfer of the shareholding of less than one unit to the account of the Issuer). Conversely, a Participant may request an Account Management Institution to arrange for the sale to the Participant of an Issuer's shareholding of less than one unit of shares of a type already recorded in the Participant's account (if the Issuer has adopted a system for the sale of shareholdings of less than one unit).

When the Issuer wishes to cancel some of its treasury shares, it shall carry out a procedure for the partial cancellation of the record of treasury shares recorded in the Issuer's account.

For example, in the case of a merger where the shares of both the surviving company and the expiring company are listed, and where the shareholders of the expiring company are to be allotted book-entry stock in the surviving company as compensation, JASDEC notifies the Account Management Institutions about the merger. On the day that the merger takes effect, the Account Management Institutions record, in the accounts all shareholders of the expiring company, shares in the surviving company (the numbers of which are equivalent to the number of shares held in the expiring company multiplied by an allotment ratio) and erase the expiring company's shares.

Based on Article 151 of the Law Concerning Book-Entry Transfer of Company Bonds, Shares, etc., (the Transfer Law) the Transfer Institution makes general shareholder notifications by notifying the Issuer of the records of the Transfer Account Book as of the date of settlement. To endure that this notification occurs smoothly and correctly, the Book-entry Transfer System for Stocks, etc., requires in principle that all reporting from Account Management Institutions to the Transfer Institution and all notifications from the Transfer Institution to the Issuer be handled via computer. The Transfer Institution prepares for the General Shareholder Notification and other notifications by receiving lists of Account Management Institution participants' names and titles, and other necessary information in advance from the Account Management Institutions, and carries out participant name checking and other necessary management functions.

Based on Article 154 of the Transfer Law, the Transfer Institution makes individual shareholder notifications by notifying the Issuer of the records in the Transfer Account Book of participants who are attempting to exercise their minority shareholder rights, etc. Participants who attempt to exercise their minority shareholder rights may request (via their Account Management Institution) the Transfer Institution to make an individual shareholder notification to the Issuer on their behalf.

Within the Book-Entry System for Stocks, etc., it is possible to apply for documents verifying the records of the Transfer Account Book or other information about these matters. Participants themselves, or the Issuer or other individuals who have a material interest in the participant's account, may, if they have a valid reason to obtain the information, pay the required fees to the participant's upper-positioned Account Management Institution and request the Institution to supply the information.