New JGB Book Entry System Outlined

The leading custodian banks in Japan met with the Ministry of Finance (MOF) and the Financial Services Agency (FSA) in Tokyo earlier this week to discuss the mechanics of the changeover to the new JGB Book entry system scheduled for

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The leading custodian banks in Japan met with the Ministry of Finance (MOF) and the Financial Services Agency (FSA) in Tokyo earlier this week to discuss the mechanics of the changeover to the new JGB Book-entry system scheduled for introduction in January 2003.All issued marketable JGBs will shift to the new system, as will all new issues, and will thenceforward be held in book entry form only. After the shift to the new system, investors who are able to hold Registered JGB (LT) under the current system will not be able to hold newly-issued JGB in the form of Registered JGB. Investors will be deemed to have acceded to the new system unless they indicate otherwise – they can expect to be contacted by their custodian shortly.

The banks were able to confirm at the meeting that an English translation of the Transfer of Corporate Debt Securities Law and the Government and Ministerial Ordinance will probably be published in August or September. However, the authorities have not yet decided whether to prepare English translations for the other laws at this time. “The authority will consider translating the Special Taxation Measures Law in view of the growing demand, and also consider actions towards foreign investors to promote better understanding about the new JGB Book-entry system,” explains a spokesman for BoTM in Tokyo.

The banks also learned that the Investor Protection Trust (IPT)will be set at about 10 billion in total, and all Japanese account-holders will contribute. Foreign firms are excluded, both from contributing, and from the benefits of the Trust Foreign Indirect Participants (FIP) will be able to become Account-Keeping Institutions(AKI), but will have to apply for the status before the end of this year.

Foreign firms will be banned from the primary market in JGB STRIPS (Separate Trading of Registered Interest and Principal of Securities), though they will be allowed to trade STRIPS created by Japanese firms. Any foreigner buying STRIPS will also have to submit a separate claim for withholding tax exemption, though there are indications that the procedure will eventually be streamlined. Foreign collective investment schemes might not be eligible for tax-exempt treatment of STRIPS at all.

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