Japanese Government Bond (JGB) service
Clients eligible for the Clearstream Banking JGB service are those acting as:
- Intermediaries; or
- Proprietary traders.
All intermediaries in the custody chain are required to have Foreign Indirect Participant (FIP) status. The last financial institution in the custody chain with which the final beneficial owner has the account with must, in addition to their FIP status, also have obtained the QFI status for JGBs from the National Tax Agency (NTA) via BOJ. CBL and CBF have already obtained FIP and QFI statuses required to hold tax-exempt JGBs. It is additionally required for FIP holders to appoint CBL as their designated participant prior to account opening for JGBs under CBL/CBF.
In addition, these clients who open a proprietary account must be either:
- A non-resident investor qualified for tax exemption; or
- A Designated Financial Institution (DFI).
Clients that are institutions with DFI status from the Financial Services Agency (FSA) in Japan are eligible for the CBL JGB service.
Eligible clients that are DFI must be:
- Resident for tax purposes in Japan (Japanese residents, Japanese resident corporations in Japan and branches of such resident corporations);
- Overseas branches of Japanese corporations;
- Overseas affiliates of Japanese corporations.
Settlement process
JGBs are eligible for internal and external transactions but are currently not eligible for Bridge transactions with Euroclear Bank.
JGBs are settled, in a rolling settlement cycle, two days after trade date (T+2) in the JGB book-entry system of Bank of Japan. HSBC Tokyo (depository 1U) acts as CBL depository.
The settlement cycle for on-shore JGB settlement is T+1.
Changes to clients details
Proprietary trader clients are reminded to notify Clearstream Banking Tax Services immediately if there are any changes to the client's address, name, tax status or any other relevant information already reported by Application Form as soon as the change occurs by providing the completed and signed “Application Form for Amendment concerning withholding Tax Exemption” or “Notification Form for Amendment concerning withholding Tax Exemption” (for Partnership or Trust only).
Intermediary clients are also reminded to notify Clearstream Banking Tax Services immediately if there are any changes to the clients address, name, representatives or any other relevant information already reported to grant AMI, FIP and QFI statuses as soon as the change occurs. Necessary documents/procedures which will, upon such notification, be provided to the client.
Documentation requirements
The documentation to be submitted in order to qualify to hold JGBs in Clearstream Banking varies depending on whether the client is to hold the JGBs as proprietary assets or as an intermediary.
Important note: Clients may hold proprietary assets and assets for third parties, but the respective holdings must be held in strictly separate accounts. For clients holding third party assets, the holding in each account may strictly be held on behalf of one single beneficial owner only.
Please refer to the Market Taxation Guide - Japan under Japanese Government Bonds (JGBs) - rates, eligibility, availability of relief etc. for further details on documentation requirements on holding JGBs as proprietary assets, as a Designated Financial Institution (DFI) or as an intermediary.
Reporting
| 1. | Transaction reporting - clients consent to data disclosure by CBL to Bank of Japan | |
| The Bank of Japan requires a quarterly reporting of information about settlement activities for JGBs. Clearstream will perform the reporting on behalf of its clients. The following information must be provided by CBL to the Bank of Japan: | ||
- | The total number of institutions holding JGBs with CBL (DFI, FIP and non-FIP); | |
- | The number of each type of institution (DFI, FIP and non-FIP); | |
- | The total outstanding value of JGBs held with CBL; | |
- | The total outstanding value of JGBs held by each type of institution (DFI, FIP and non-FIP); | |
- | The total volume and value of JGB settlements; | |
- | The volume and value of each type of JGB settlement (external, internal and Bridge settlements; DvP and non-DvP settlements related to securities lending and borrowing; and settlements by Japanese participants). | |
Clients are advised that the transmission of the above listed data allows “indirect” client identification. Specific consent is hereby granted to CBL by the clients holding JGBs in CBL to disclose client information to Bank of Japan as described in accordance with this clause 1. | ||
| 2. | Book-entry Transfer Account Book | |
| It is required for the FIP and the QFI contracting with the end investor to keep a transactions and holdings record (also known as a "Book-entry Register Book"), which would be reported to Bank of Japan and the national tax authorities, upon receipt of a specific request. However, clients holding proprietary holdings do not need to take any action. CBL will perform the reporting. | ||
Note: Clients are strongly requested to comply with the reporting and account opening rules for the JGB service. Reversals of transactions when changing proprietary with intermediary business and/or correction of the reports after the deadline are not allowed.
Non-compliance with the rules may result in a withdrawal of the FIP/QFI status of the failing FIP/QFI. Any and all liabilities, costs, expenses or penalties that Clearstream might incur in this regard will be passed on to the failing party.
Report content
The following data must be provided in the report:
- Date: Actual Settlement Date of the Transaction;
- ISIN;
- Description;
- Classification: must always be “nonresident”;
- Subdivision (1): must always be “nontaxable”;
- Subdivision (2): must always be “client ledger I”;
- Increase / Decrease: Transaction amount;
- Total Balance: Balance after each transaction within the reporting period;
- Previous QFI: The QFI or Direct Participant of the previous bond holder;
- First day of holding period: the 1. day after the interest payment date;
- Interest amount received;
- Redemption amount received;
- Interest Rate;
- Previous interest payment date;
- Next interest payment date;
- Redemption date.
Income and redemption payments
DFIs resident for tax purposes in Japan and holding proprietary assets held through CBL are entitled to exemption (full relief) from Japanese withholding tax on JGB interest payments.
Entitlements for interest or redemption payments on JGBs will be determined based on settled positions, at 15:00 Japan Standard Time (JST) on one business day prior to the interest or redemption payment date (PD-1), in the books of the BOJ.
Transfers of JGBs made after 15:00 JST on one business day prior to the interest or maturity date (PD-1) will not be accepted for settlement on PD-1. Instructions received for the transfer of these securities will be blocked by our depository, HSBC Japan. Clients are advised not to send any transfer instructions to Clearstream Banking during this period for requested settlement date equal to PD-1.
For holdings in Clearstream Banking that qualify for income distribution, the entitlement is determined after the end of day processing in Clearstream Banking. Clearstream Banking will not reject or block any transfer instructions sent by clients.
Pending domestic trades with a requested settlement date equal to PD-1 that did not settle by the 15:00 JST cut-off time will be reported to clients in the MT564 as PEND or PENR //ELIG, whereas they will be considered as non-eligible by the BOJ.
Transferring holdings to Clearstream Banking
When preparing an asset/portfolio transfer, clients must, before the transfer occurs, advise Clearstream Banking that they are appointing Clearstream Banking as a Designated Participant, as follows:
Clients transferring proprietary holdings
Submit the Application Form, which should be certified by Clearstream Banking as the new QFI. Please note that eligibility of tax exemption should be confirmed by the relevant QFI in the custody chain respectively.
Clients transferring third-party holdings
- If the local representative is to remain:
The client must inform their local representative to arrange for Clearstream to be added as a Designated Participant. - If the local representative is to change:
The client must notify Clearstream Banking of the intended change and complete an application form, which will, upon such notification, be provided to the client. The application form will be processed via Bank of Japan and clients must be aware that additional documentation may be required by Bank of Japan to carry out the change of local representative as well as designated participant to Clearstream Banking.
Beneficial Owner Disclosure Requirement
Under the Special Taxation Measures Law, clients considered as beneficial owners are required to be disclosed by CBL to the local tax authorities through our depository. Specific consent is hereby granted to CBL by clients holding Japanese Government Bonds to disclosure client information in accordance with this clause.