Client Offering Article 38(6) CSDR - Credit Suisse Securities Japan Limited

Article 38(6) CSDR - Credit Suisse Securities Japan Limited

Legally Required Participant Disclosure

1. Introduction[1]

The purpose of this document is to disclose the levels of protection associated with the different levels of segregation in respect of securities held directly for clients with Central Securities Depositories (CSDs) within the European Union (EU), including a description of the main legal implications of the respective levels of segregation offered and information on the insolvency law applicable.

This disclosure is required under Art. 38 (6) of the Central Securities Depositories Regulation (CSDR) in relation to CSDs domiciled in the EU.

This document is not intended to constitute legal or other advice and should not be relied upon as such. You should seek your own legal advice if you require any guidance on the matters stated herein.

Credit Suisse Securities (Japan) Limited, a securities broker-dealer domiciled in Japan (CSSJL), is a Participant of CSDs domiciled in the EU. According to Art. 38 para. 5 and 6 CSDR a Participant of such CSD shall offer its clients at least the choice between omnibus client segregation and individual client segregation and inform them of the costs and risks associated with each option including a description of the main legal implications of the respective levels of segregation offered and information on the insolvency law applicable. Under CSDR, CSDs of which CSSJL is a Participant have their own disclosure obligations.

2. Background

In CSSJL's own books and records, CSSJL records each client's individual entitlement to securities that it holds for that client in a separate client account. CSSJL also opens accounts with a CSD in its own name (i.e. the account is held in the name of CSSJL but designated as client account) in which it holds clients' securities. As a general rule, CSSJL makes two types of accounts with CSDs available to clients: Individual Client Segregated Accounts (ISAs) and Omnibus Client Segregated Accounts (OSAs).

An ISA is used to hold the securities of a single client and therefore the client's securities are held separately from
the securities of other clients and CSSJL's own
proprietary securities.

An OSA is used to hold the securities of a number of clients on a collective basis. However, CSSJL does not hold its own proprietary securities in OSAs.

3. Main legal implications of levels of segregation

Insolvency (bankruptcy)

If CSSJL were to become insolvent, the insolvency proceedings would take place in Japan and be governed by Japanese Insolvency Acts (see glossary).

Clients' legal entitlement to the securities that CSSJL holds for them directly with a CSD would generally (except in specific circumstances, some of which are discussed below) not be affected by CSSJL's insolvency (bankruptcy), regardless of whether those securities were held in ISAs or OSAs.

In practice, the exclusion of securities from CSSJL's bankruptcy estate would further depend on a number of additional factors, the most relevant of which are discussed below.

Exclusion from CSSJL's bankruptcy estate

Under Japanese Insolvency Acts, securities that CSSJL holds on behalf of clients should not form part of the bankruptcy estate. Instead, in an insolvency (bankruptcy) of CSSJL, they are designated to be excluded in favour of the relevant client, subject to any claims CSSJL has against the client.

CSSJL is subject to the client asset rules under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1978, as amended), the Cabinet Office Ordinance Concerning Financial Instruments Exchange Business, Etc. of Japan (Cabinet Office Ordinance No. 52 of 2007, as amended) and the rules of Japan Securities Dealers Association (Client Asset Rules), which contain strict and detailed requirements as to the maintenance of accurate books and records. CSSJL is also subject to regular audits in respect of the compliance with those rules. Subject to the maintenance of the books and records in accordance with the Client Asset Rules, clients should receive the same level of regulatory protection from both ISAs and OSAs. However, ISA could contribute to swifter identification of client assets in a default scenario.

Deposit Insurance Act

In addition to the legal insolvency proceedings as set out above, CSSJL, as a Japanese securities broker-dealer, can be covered by resolution proceedings under the Deposit Insurance Act of Japan (Act No. 34 of 1971, as amended) (DIA) such as Special Resolution Regimes I or II which will be applicable to distressed or insolvent securities broker-dealers if a significant disruption of the Japanese financial market or other financial system is likely to occur. Those Special Resolution Regimes will apply when the prime minister of Japan makes a special confirmation that such measures would be required to be taken, following discussion at the Financial Crisis Response Council of Japan.

Under the Special Resolution Regime I, a financial institution which is distressed but in a solvent status maintains its operations and takes steps to improve its financial condition, supported by liquidity or capital provided by the Deposit Insurance Corporation of Japan (DICJ) without entering into a legal insolvency proceeding.

If a financial institution is in an insolvent status (or there is a risk of becoming insolvent), the Special Resolution Regime II may apply to such financial institution, in which, DICJ will provide financial assistance for the purpose of a business transfer or merger of such financial institution to another financial institution or other measures under DIA.

Japan Investor Protection Fund

Japan Investor Protection Fund (JIPF) will make a compensation to certain non-professional customers to failed Japanese securities broker-dealers up to JPY 10,000,000 per customer when the customer's assets deposited to such broker-dealers will not be smoothly returned to the customer.

Nature of clients' interests

Although clients' securities are held in CSSJL's name at CSDs, CSSJL holds them on behalf of its clients.

For securities that are held in a CSD, the nature of the entitlement embodied in a security also depends on the law, regulations and contractual framework applicable to such other CSDs and further parties involved in the custody chain. In such a case, entitlements that are available for exclusion may be limited to contractual claims against a CSD involved. Moreover, the ability of the client to exclude securities in the case of insolvency may depend on whether a CSD or any custodian in the custody chain could assert any right to set-off, retention right, security interest or similar right with respect to the securities (see also "Security interests" below).


As described above, the statutory requirements are designed to ensure that CSSJL holds securities with a CSD on behalf of its clients in a quantity and a kind at least equal to the securities credited to client accounts. If notwithstanding these requirements there were a shortfall between the number of securities that CSSJL is obliged to deliver to clients and the number of securities that CSSJL holds on their behalf in either an ISA or an OSA, this could result in fewer available securities than clients are entitled to being returned to them on the CSSJL's insolvency. The way in which a shortfall could arise and would be treated may be different as between ISAs and OSAs.

How a shortfall may arise

A shortfall could arise for a number of reasons including as a result of administrative error, intraday movements or counterparty default. In most cases a shortfall occurs as a result of a mismatch between the time when securities are actually booked with ISAs or OSAs and the earlier time when the delivery is booked to the account of the receiving account holder. In Japan, CSSJL credits the client accounts on the scheduled settlement date, which is usually later than the trade date. As a result, a recipient client could dispose of its intermediated securities as soon as they are credited to its securities account, irrespective of whether CSSJL has actually already received the intermediated securities. This process is referred to as contractual settlement. Contractual settlement may therefore cause a difference between CSSJL's number of intermediated securities at the CSD and the clients' higher number of aggregated securities credited to their securities accounts. In the normal course of the settlement this process-immanent difference disappears at the end of the settlement cycle. Contractual settlement increases market liquidity, accelerates deliveries and settlement, and is based on the fact that a failed settlement of an transaction (and the risk that, as a result, CSSJL does not hold sufficient available securities) is rare. The risk involved with shortfalls is further mitigated by the fact that, if a shortfall arises, CSSJL is obliged to acquire without delay securities if and to the extent the total number of available securities is less than the total number of securities credited to clients' accounts (see below).

In the case of an ISA, the securities held in the ISA can only be delivered out for the settlement of transactions made by the ISA client. As a matter of principle, this may reduce the risk of a shortfall in that account, but also increases the risk of settlement failure which, in turn, may incur additional costs (e.g. buy-in costs) and/or delay in settlements.

Treatment of a shortfall

In the case of an ISA, although arguments could be made that the relevant client should not be exposed to a shortfall that is clearly attributable to an account held for another client or clients, it cannot be excluded that a shortfall on any other (ISA or OSA) account would be shared rateably among clients, including clients who do not have an interest in the relevant account[2]. Accordingly, a client holding whose securities are held in an ISA may still be exposed to a shortfall on an account held for another client or clients.

In the case of an OSA, a shortfall attributable to the OSA would be shared rateably among the clients with an interest in the OSA (and potentially other clients). Therefore, a client may be exposed to a shortfall even where securities have been lost in circumstances which are completely unrelated to that client.

If a shortfall arises, CSSJL has the obligation under Japanese law to acquire without delay securities if and to the extent the total number of available securities is less than the total number of securities credited to clients' accounts. If a shortfall arose and was not so covered, clients may have a claim for compensation against CSSJL.

If CSSJL were to become insolvent prior to covering a shortfall, clients would rank as general unsecured creditors for any amounts owing to them in connection with such a claim. Clients would therefore be exposed to the risks of CSSJL's insolvency, including the risk that they may not be able to recover all or part of any compensation claimed.

In order to calculate clients' shares of any shortfall in respect of an OSA, each client's entitlement to securities held within that account would need to be established as a matter of law and fact based on CSSJL's books and records. The shortfall would then be allocated among the clients as described above. It may therefore be a time-consuming process to confirm each client's entitlement and establish the securities available for exclusion. This could give rise to delays in returning securities and initial uncertainty for a client as
to its actual entitlement on an insolvency.

4. Security interests

Security interest granted to a CSD

Where a CSD benefits from a security interest (either it benefits from a statutory right or a contractual right based on its terms and conditions) over securities held by CSSJL with it (including securities held for clients), there could be a delay in the return of securities to a client (and a possible shortfall) in the event that CSSJL failed to satisfy its obligations to a CSD and the security interest was enforced. This applies regardless of whether the securities are held in an ISA or an OSA. However, in practice, we would expect that a CSD would first seek recourse to any securities held in CSSJL's proprietary accounts to satisfy CSSJL's obligations and only then make use of securities in client accounts. We would also expect a CSD to enforce its security rateably across client accounts held with it.

Security interest granted to third party

Where a client purported to grant a security interest over its interest in securities held in an OSA and the security interest was asserted against the CSD with which the account was held, there could be a delay in the return of securities to all clients holding securities in the relevant account (and a possible shortfall in the account). However, in practice, CSSJL would expect that the beneficiary of a security interest (pledgee) over a client's securities would perfect its security by notifying CSSJL rather than a CSD and would seek to enforce the security against CSSJL rather than against the CSD, with which it had no relationship.

CSD disclosures

Set out below are links to the disclosures made by CSDs in the EU in which CSSJL is a Participant.




Euroclear Bank SA/NV

International CSD (located in Belgium)


Link (PDF)

If you click on those links, you leave this information/website. These disclosures have been provided by relevant CSD. CSSJL has not investigated or performed due diligence on the disclosures and websites and clients rely on the CSD disclosures and websites at their own risk.

Graphic representation of OSA and ISA

[1]  At the end of this document is a glossary explaining some of the technical terms used in the document.


Central Securities Depository (CSD) is an entity within the European Union which records legal entitlements to dematerialised securities and operates a system for the settlement of transactions in those securities.

Central Securities Depositories Regulation (CSDR) refers to EU Regulation No 909/2014 on improving securities settlement in the European Union and on central securities depositories, which sets out rules applicable to CSDs and their participants. The CSDR is relevant for the European Economic Area (EEA) and is under scrutiny for incorporation into the EEA Agreement. Upon completion of the adoption process it will also be in force in the EEA.

Japanese Insolvency Acts means Articles 510 to 574 of the Companies Act of Japan (kaisha hou) (Act No. 86 of 2005, as amended), the Bankruptcy Act of Japan (hasan hou) (Act No. 75 of 2004, as amended), the Corporate Reorganisation Act of Japan (kaisha kousei hou) (Act No. 154 of 2002, as amended), the Civil Rehabilitation Act of Japan (minji saisei hou) (Act No. 225 of 1999, as amended) and the Act on Special Treatment of Corporate Reorganisation Proceedings and Other Insolvency Proceedings of Financial Institutions (kin'yuu kikan tou no kousei tetsuzuki no tokurei tou ni kansuru houritsu) (Act No. 95 of 1996, as amended).

Individual Client Segregated Account (ISA), is used to hold the securities of a single client.

Omnibus Client Segregated Account (OSA), is used to hold the securities of a number of clients on a collective basis. 

Participant means an entity that holds securities in an account with a CSD and is responsible for settling transactions in securities that take place within a CSD.