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 such maintenance and development to be a major mission for the Group toward the realization of SDG 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

  • Daily
    10,000 transactions on average
  • Annually
    Approximately 2.6 million transactions (mainly by institutional investors within and outside Japan)

Responsibility as a Securities Company

By distributing two-in-one devices*1 to employees and expanding telecommuting systems, Daiwa Securities has enabled all employees, from those in frontline divisions to back office divisions, to carry out work nearly equivalent to that performed at the office no matter where they are. In settlement operations, which should never be suspended, even during the COVID-19 pandemic, enhancing telework through digital transformation (DX) has enabled us to fully demonstrate our capability in achieving a balance between reducing employees’ risk of infection and fulfilling our social responsibilities as a securities company.
If anything that could stall securities settlement should occur, it would not only affect the Group 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 and for domestic corporate bonds in July 2020.
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)*2 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 the spread of new infectious diseases, 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.

  • *1 A mobile device that can be used as a desktop PC within the company and as a laptop PC or tablet outside the company
  • *2Continuous linked settlement

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 Southeast Asia

Daiwa PI Partners is engaged in full-scale private equity investment in Southeast Asia and has invested in a total of 14 projects to date in response to economic development and economic opening in the region. In addition, Daiwa PI Partners established DAIWA Myanmar Growth Fund in 2019. The investment targets include Commercial Plastic Holding, which manufactures recycled plastic in Myanmar. By reducing the amount of plastic bottle waste while expanding the use of recycled products, the company is contributing to improvement of environmental problems in the country. Onstar Express, which conducts logistics in Indonesia, is contributing to enhancing the people’s convenience and living standards by undertaking last-mile logistics to end users who place orders with e-commerce companies.
Southeast Asia is undergoing amazing economic development, and there are many startup companies with high growth potential. We will continue to provide financing to these companies to support their growth and contribute to enhancing social infrastructure and the living standards of people in the region.

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). This is a large-scale project implemented pursuant to a request made to the Japanese government as part of the 2011 – 2020 Securities Market Development Strategy established by the Prime Minister and announced by the Vietnamese government in March 2012. The project started with implementation over three years by a team of 12 consultants including from the JPX Group and others with DIR playing a leading role.

The initial plan was to provide knowledge, training to improve practical skills, and support for the creation of practical manuals to the State Securities Commission of Vietnam (SSC), the supervisory authority of capital markets, as well as the HoChiMinh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX), with the goal of achieving international standards of fairness, transparency, and efficiency. In addition, to this, the scope of the work was significantly expanded to include support for the formulation of enforcement ordinances and notifications pursuant to the new Securities Act, which was adopted in November 2019 and came into effect in January 2021, as well as support for the creation of strategies for development of securities markets. Since March 2020, activities have comprised primarily online consultation and courses as well as exchanges of documents in response to the COVID-19 pandemic, and a new format of business implementation with the participation of Japanese authorities and market participants, which was difficult to achieve with conventional activities centered on local travel, was introduced and received high praise from both countries.

Ordinances and notifications pursuant to the new Securities Act have been enacted in Vietnam in 2021, and their plans for the Vietnam Stock Exchange (VNX) to commence operations as a holding company of the two existing stock exchanges. It is expected that the development of Vietnamese securities markets will enter a new stage under the framework of the new legal system and securities market, and it can be said that the importance of this project continues to increase.

The four specific expected outcomes of this project are as follows:

  1. 1.Reinforcement of the stock market's capacity for monitoring against unfair trading
  2. 2.Tightening of regulations on and supervision over securities companies
  3. 3.Improvement of listing management and screening procedures
  4. 4.Penetration of investor-oriented management approach

If this project helps improve the transparency and fairness of the Vietnamese stock market through activities with these objectives, 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.

Development of Asian Bond Markets

DIR is undertaking activities that contribute to the long-term development of bond markets in various countries in Asia.
One representative example is participation in the Asian Bonds Markets Initiative (ABMI) framework. Taking a lesson from the Asian currency crisis that occurred in the late 1990s, ABMI seeks to secure stability in financial markets by expanding the means of financing through the development of markets for bonds denominated in local currencies. It is a regional cooperative framework that was established in 2003. Specific measures of the framework are decided at the ASEAN + 3 (the 10 ASEAN members countries plus Japan, China, and South Korea) Finance Ministers’ and Central Bank Governors’ Meeting. The framework provides regional support under the leadership of the Asian Development Bank (ADB) for enactment of laws and regulations, infrastructure development, bond issuance, and demand stimulus, as well as country-specific support under the jurisdiction of the ASEAN Secretariat.
DIR used these types of country-specific support programs to provide technical support to bond markets in the Philippines, Indonesia, and Myanmar in succession in collaboration with Group companies and other companies as necessary since 2004. And in all countries, the support recipients are governmental agencies such as relevant ministries and agencies, central banks, and supervisory authorities. To date, DIR has set topics suited to the development phase of each country based on discussions and consultations with executives and practitioners of government agencies in the various countries, such as the establishment of legal systems, construction of issuance and secondary markets, and the development of bond investment products, and has also provided knowledge and expertise and proposed schemes. Pursuant to a contract from the Japan International Cooperation Agency (JICA), DIR conducted a feasibility study of a project bond to provide funds to public infrastructure in the Philippines and proposed measures for future market activation.
These contributions to the development and fostering of bond markets in Asian countries facilitate the circulation of necessary funds from entities that have excess funds to those that lack of funds, and from monetary and fiscal perspectives, they are activities that can contribute to achieving the SDGs by solving social issues. DIR is committed to continuing these initiatives in the future.