The Japanese Ministry of Finance today released details of the JGB STRIPS (Separately Traded Registered Interest and Principal Security) that are scheduled for introduction this month.
It was announced in an official gazzete that the strippable JGBs subject will be any bonds with terms of 2, 5, 10, 20 and 30 years, issued on and after today’s date. However, it is expected that the first strippable JGBs will not be issued until after the new book-entry system for JGBs is implemented on 27 January.
“From an operational point of view, as the stripped coupon will be identified by a separate ISIN from the principal, we do not foresee any impact on settlement instructions and balance reporting,” says a BTM spokesman in Tokyo. “The requirement would be to simply quote the right ISIN.”
Only the 20 top-ranked banks and securities houses purchasing newly issued JGBs in the primary market will be allowed to strip JGBs. The trading rules do allow market participants to trade the right to receive coupon for each period separately, but individual investors are not allowed to purchase STRIPS. JGBs subject to withholding income tax and held by business entities are not strippable, and nor are floating rate and index-linked JGBs.