For the Development of Financial and Capital Markets
The securities business, the core business of Daiwa Securities Group, serves as an important social and economic infrastructure. It facilitates the smooth flow of money by matching fundraising needs through the issuance of securities and investment needs of investors via financial and capital markets. Maintaining and developing this infrastructure is about developing sound financial and capital markets for the next generation, which we identify in the Group's materiality in Finance. We consider this to be a major mission for the Group toward the realization of SDG Goal 9 "Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation."
Initiatives for Maintaining Market Functions
Role and Importance of Settlement Functions
Securities settlement - a mainstay of the Group's overall operations - is the delivery of stocks, bonds, or other instruments and funds both to and from the buyer and seller of a securities transaction. Settlement functions also serve as a social infrastructure, and therefore security, reliability, and convenience are important. In secure and trusted markets, financial instruments can be reliably converted into cash when necessary. This is the very reason why such markets attract investment money from all over the world and enable companies and others with funding demand to procure funds.
Number of settlement transactions handled
11,000 transactions on average
Approximately 2.8 million transactions (mainly by institutional investors within and outside Japan)
Responsibility as a Securities Company
Daiwa Securities was the first major securities company to announce its policy to accept foreign stock sell orders during the 10 consecutive holidays associated with the change of the imperial era in the spring of 2019. This measure was implemented from the perspective of customer protection in case stock prices fluctuated in overseas markets. If anything that could stall securities settlement should occur, it would not only affect us but also damage trust in markets as a whole. It could even have a significant impact on the global economy. We consider it vital to settle transactions accurately and promptly as required in order to ensure that markets function as a social infrastructure and become a driver for economic development. We are therefore striving to build a structure enabling the smooth execution of settlement operations.
Amid the emergence of investors engaged in frequent trading utilizing computers, we have implemented a reliable system that has high processing capability and can reliably settle a massive number of transactions. We believe, however, that no matter how well operations are systematized, the most important thing for the securities settlement operation is still human resources. Staff members must have a wide range of knowledge to grasp the situation quickly when an irregular event occurs and then respond to it appropriately. For that reason, we are making efforts to visualize and accumulate the experience and expertise acquired through our daily operations, as well as expanding the business knowledge of each individual and the scope of operations they can cover by providing cross-business training and continually rotating tasks.
Meanwhile, the securities industry recognizes that, to boost the competitiveness of Japan's financial and capital markets, it is necessary to further increase convenience and strengthen risk management. With this awareness, the entire industry is currently working on reducing settlement time. Daiwa Securities has played a central role in a working group launched by the Japan Securities Dealers Association, identifying and examining a variety of issues towards the reduction of settlement time. The T+1 (trade date plus one day) settlement cycle already started for government bond trading in May 2018, and the T+2 settlement cycle for stock trading started in July 2019.
Moreover, cross-border foreign exchange transactions entail settlement risk associated with time differences in settlement for the currencies involved (for example, the risk of being unable to receive dollars in U.S. time even when paying yen in Japan time). Daiwa Securities is the only Japanese securities company that participates directly in Continuous Linked Settlement (CLS) as a settlement member. We will fulfill greater responsibility for the stability of financial markets by reducing the settlement risk of foreign exchange transactions.
We are determined to continue settlement operations no matter what happens. In accordance with such determination, we have drawn up a business continuity plan (BCP) and regularly conduct training in preparation for unforeseen circumstances, such as natural disasters and terrorism.
The reliability of settlement is extremely important for maintaining customer trust. We will continue to meet increasingly sophisticated customer needs and quickly provide solutions by taking advantage of our reliable settlement infrastructure and human resources.
Considering Application of Blockchain/ Distributed Ledger Technology to Securities Business
Daiwa Securities and Daiwa Institute of Research (DIR) played central roles in carrying out the second phase of a project to consider the application of blockchain/ distributed ledger technology (DLT) to the securities trade matching operations*. The project was conducted jointly with 26 companies, including institutional investors, financial institutions, and computer system companies.
This is a project using an industrial collaborative framework led by Japan Exchange Group. The first phase of the project was conducted in 2017, confirming the usefulness of the application of DLT to the trade matching operations. Following such confirmation, the second phase of the project was conducted from September 2018 through January 2019. In that phase, discussions were held on data items in the operations, the standardization of the operational process, policy on operating the DLT infrastructure, and other issues. The project participants then drew up a more concrete plan toward the construction of a system. The results of the project were released as a working paper in February 2019.
Daiwa Securities Group expects that the initiatives of this project will lead to the reduction of costs in the entire domestic securities industry and the enhancement of convenience, which will ultimately contribute to the benefit of investors. We will continue working to realize the plan in order to provide useful services to customers.
- *Operations in which a securities company and an institutional investor confirm the trading volume, fee, etc. with each other after the execution of securities trading
Initiatives for Development of Market Functions
Private Equity Investment in Myanmar
In 2016, Daiwa PI Partners started considering private equity investment in Myanmar in earnest following the country's move to revise its laws and regulations, including corporate laws and investment laws, alongside its opening up of the economy and deregulation. The company has so far invested in five deals. Among the investee companies, Frontiir Pte. Ltd., a major Internet service provider, offers people in Myanmar stable access to the Internet at reasonable prices. Oway Pte. Ltd., which engages in the online travel agency and taxi hailing application businesses, and Rent 2 Own Holdings Pte. Ltd., which provides motorcycle rental and other services to individuals, contribute to enhancing living standards of people in Myanmar by providing means of transportation indispensable for their lives. Royal Golden Owls Co., Ltd., which operates an online e-commerce marketplace focusing on fashion and apparel products, provides a variety of products to a wide range of consumers in Myanmar, thereby helping to improve people's convenience and living standards.
In Myanmar, in which economic development has just begun, there are a large number of start-up companies with growth potential. We believe that, by continuing to provide capital to these companies, we will be able to promote their growth and contribute to enhancing the social infrastructure and living standards of people in Myanmar.
Myanmar SME/ Two-Step Loan Project for Agriculture and Rural Development
DIR has long been participating in the Republic of the Union of Myanmar Two-Step Loan Project for Agriculture and Rural Development (known as "Agriculture-TSL") and the Project for the Development of Finance for Small and Medium-sized Enterprises (known as "SME-TSL") together with Japan Economic Research Institute Inc. and Sanyu Consultants Inc. The participation is part of our efforts to contribute to financial inclusion, which is listed as an SDG target, and has continued for eight years since 2012.
Agriculture-TSL is aimed at promoting agricultural mechanization in Myanmar and designed to assist Myanmar Agricultural Development Bank (MADB) in enhancing its capacity to extend long-term low-interest loans suited to the purchase of large agricultural machines. The project team provides practical training directly to more than 200 MADB branches across the country through on-site visits, while making proposals aimed at improving the business efficiency of MADB and advancing the modernization of its facilities.
SME-TSL sets up low-collateral credit lines and credit lines for companies doing business with Japanese companies with the aim of improving small- and medium-sized companies' access to funds for capital investment. Technical assistance has been provided to the overall banking operations of Myanma Economic Bank (MEB), which manages loans extended through seven private-sector banks.
By playing central roles in these two projects, DIR has gained deep trust from the Myanmar government and private companies and progressively increased its presence in the country. Both projects contribute to the economic development of Myanmar, and DIR remains committed to working on projects similar to these that will contribute to the realization of SDGs.
Support for Stock Market Development in Vietnam
In March 2019, DIR started providing technical support aimed at development of the stock market in Vietnam as entrusted by the Japan International Cooperation Agency (JICA). The company will implement a variety of support measures including the provision of training in both Vietnam and Japan to the State Securities Commission of Vietnam (SSC), the supervisory authorities of the capital market, as well as the HoChiMinh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX), over a period of three years until February 2022. Specifically, the support is centered on the following four themes, aiming to enhance the transparency and fairness of the stock market in the country:
- 1.Reinforcement of the stock market's capacity for monitoring against unfair trading
- 2.Tightening of regulations on and supervision over securities companies
- 3.Improvement of listing management and screening procedures
- 4.Penetration of investor-oriented management approach
If this project helps improve the transparency and fairness of the Vietnamese stock market, it is expected to contribute to the Daiwa Securities Group's business related to Vietnamese stocks in the medium to long term. That is because if Vietnamese companies start incorporating a more investor-oriented perspective into their management, investor trust in the stock market will increase, leading to market invigoration.
Support for the development of a stock market is aimed at contributing to the economic development of the relevant country, and DIR will continue to actively provide support to other emerging countries as well.
Maintenance and Development of Financial and Capital Market Functions 28