Japan Securities Finance : INTEGRATED REPORT - 3.Group Management Strategy (ir2025 03 en)

Corporate Strategy

Securities Financing Centered on Loans for Margin Transactions

Message from the Responsible Executive Officer

We will achieve growth by meeting the diverse transaction needs of the securities and financial sectors in Japan and overseas.

Our core loans for margin transactions business, licensed under the Financial Instruments and Exchange Act, serves as infrastructure for the securities market as a source of funds and stock certificates for the smooth implementation of standardized margin transactions. Securities financing, which has become a key pillar of our earnings in recent years, leverages the expertise we have cultivated in handling securities and funds through our founding business of loans for margin transactions. It comprises five business areas: (1) bond repo and gensaki transactions, (2)

equity repo transactions, (3) general stock lending, (4) loans for negotiable margin

Business Environment and Recognized Issues

In stock-related businesses such as loans for margin transactions and general stock lending, demand for stock lending transactions has been rising amid robust equity market conditions since the second half of FY2022. In terms of transaction needs, in addition to conventional covering of short sales, there has been

a trend toward borrowing Japanese equities for use as collateral. Furthermore, the balance of equity repo transactions continues its uptrend in line with the growing purchases of Japanese stocks by foreign financial institutions and others.

In the bond-related business, balances of bond repo and gensaki transactions have remained high, reflecting growing demand for Japanese government bonds and similar instruments from domestic and overseas financial institutions, given stronger settlement risk management and tighter international financial regulations.

One challenge we face is that the performance of loans for margin transactions, our founding business, is significantly affected by stock market conditions and the balance of standardized margin transactions. To ensure that we can continue to provide stable infrastructure functions for securities and financial markets even during market downturns, we have been promoting securities financing to diversify our revenue sources beyond loans for margin transactions and to maintain financial soundness.

We will continue to expand securities financing by making the most of our high credit rating

(creditworthiness) backed by solid equity capital and the expertise we have cultivated in finance and securities-related businesses.

transactions, and (5) loans to retail. These businesses broadly provide liquidity to the securities and financial markets by meeting the financing needs of securities firms, financial institutions, and others for their securities inventories, as well as their need

Strategies in the Eighth Medium-Term Management Plan

to borrow securities for collateral purposes in various financial transactions. We are promoting securities financing as one of our growth engines, and are also working to expand our services by increasing the number of business partners we work with, including foreign financial institutions, and by diversifying securities handled to

include foreign stocks and foreign government bonds. Recently, there has been an

• Enhance the Loans for Margin Transactions Business

  Further Enhancing Our Presence

  • Continuous engagement

  • Building relationships with clients

  • Effective public relations efforts

  Enhancing Deal Planning and Responsiveness

  • Human resource development

  • Building transaction expertise and a proven track record

  Gathering Information and Identifying

  Potential Clients

  • Discovering transaction schemes

  • Cultivating new clients

  • Deepening relationships with existing clients

  In addition to ensuring the stable operation of the loans for margin transactions business by appropriately responding to changes in the stock market environment in ways such as expanding the number of loanable

  Challenges for Future Expansion

  increase in transactions where assets in the Asia region, including Japanese equities,

  are accepted as collateral in exchange for high-quality qualified liquid assets (HQLA) such as Japanese yen and Japanese government bonds. As an institution specializing in transactions related to stocks and bonds, we will continue to provide agile and flexible proposals to meet the diverse transaction needs of the securities and financial sectors in Japan and overseas.

  Morikuni Shimoyamada

  Senior Managing Executive Officer Responsible for Margin Loan Department,

  Institutional Sales Department, Retail Business Department

  stock issues and stepping up the procurement of stock certificates, we will continue to review measures to promote the use of loans for margin transactions by accurately identifying the trading needs of market participants.

  Business Environment and Strengths

  	Service	Details
  Securities Financing	Loans for negotiable margin transactions	While loans for margin transactions provide funds and stocks necessary for the settlement of standardized margin transactions, the business of loans for negotiable margin transactions involves lending funds to securities companies to enable them to purchase stocks in negotiable margin transactions.
  	Loans to financial instruments companies	We are responding to the diversification of financing methods of securities companies through transactions such as those in which stocks are used as collateral when lending funds to securities companies (general loans), and those in which cash is deposited in exchange for borrowing stock held by a securities company (equity repo transactions).
  	Loans to retail	These are transactions that involve lending funds to individual investors and others, using stock as collateral. The main service in this business is COM-STOCK loans (securities-backed loans that can be transacted online).
  	General stock lending	General stock lending is the business of procuring stock from institutional investors and others, and lending it to securities companies that mainly require it for trading, thus contributing to the stability of the settlement system.
  	Bond repo and gensaki transactions	This is the business of matching (brokering) various financial institutions' lending and borrowing needs, mainly for Japanese government bond repo and gensaki transactions (transactions in which bonds are exchanged for cash).

  Securities Financing

• Expand and Enhance Securities Financing

In securities financing, we will deepen relationships with existing clients while continuing to expand our client base, primarily overseas. To increase the number of securities borrowers, we will actively attend international conferences and other events to further enhance our presence and cultivate new

business with foreign financial institutions and others. To increase bond procurement sources, we will work to strengthen relationships and expand transactions with regional financial institutions and others. With respect to loans to financial instruments companies, we will continue to flexibly respond to client needs, enhancing our commercial appeal and improving transaction convenience in various ways, including diversifying types of collateral accepted and currencies handled. We will also advance our response to the

digitalization of securities and explore collaboration with

new market entrants, including fintech companies, in Japan and overseas. At the same time, we will focus on developing human resources to drive these initiatives forward. (Please refer to the "An Employee Roundtable Discussion" on page 44 for details.)

Status of Bond Repo and Gensaki Transactions and Equity Repo Transactions Equity Repo Transactions

Since the 2010s, balances of bond repo and gensaki transactions and equity repo transactions have continued to trend upward as a result of our efforts to expand transactions with non-residents by participating in overseas conferences and to diversify transaction

Bond Repo and Gensaki Transactions

Bond repo and gensaki transactions mainly involve the exchange of Japanese government bonds for cash. In recent years, there has been an increase in transactions in which these bonds are procured from institutional investors in Japan and lent to overseas financial institutions and hedge funds. Factors driving this increase include the globalization of Japan's bond market due to the increased entry of foreign-affiliated financial institutions, and the significant increase in the ratio of overseas financial institutions participating in Japan's repo market due to increased demand for collateral to reduce settlement risk and for Japanese

government bonds to comply with financial regulations. Amid these circumstances, transactions now include the exchange of equities for government bonds, not only securities for cash.

Outstanding Bond Repo and

Gensaki Transaction Balance (Average)

Domestic financial institutions, etc.

Overseas financial institutions, etc. (Japan-based)

schemes, including accepting foreign securities as collateral and using derivatives such as total return swaps (TRS). The following sections outline specific initiatives and risk management related to bond repo and gensaki transactions and equity repo transactions.

Institutional investors in Japan, including regional financial institutions, have investment needs with respect to the Japanese government bonds they hold, but directly lending those bonds to overseas entities such

as financial institutions involves the significant burden of establishing business relationships, including creating credit lines and handling international contracts. As

one of the leading players in the repo market, we cover almost all financial institutions in Japan and serve as

a bridge between the investment needs of domestic institutional investors and the procurement needs of overseas financial institutions from a relatively neutral standpoint. Going forward, we will continue to increase bond repo and gensaki transactions both domestically and internationally.

Number of Counterparties (Contract Basis)

Domestic financial institutions, etc.

Overseas financial institutions, etc. (Japan-based)

In order to meet the diverse needs of our domestic and overseas clients for purposes including fund procurement and fund management mainly using domestic and overseas equities, we are increasing the number of contract-based transactions (such as stock loan agreements, Global Master Securities Lending Agreements (GMSLAs), TRSs, and loan agreements). Amid the recent trend toward stronger corporate governance, market expectations for awareness of the cost of capital in management has led to widespread purchases of Japanese stocks by overseas financial institutions and other investors. Against this backdrop,

Outstanding Equity Repo Transaction Balance (Average)

Domestic financial institutions, etc.

Overseas financial institutions, etc. (Japan-based)

Overseas financial institutions, etc. (Overseas-based)

(Billions of yen)

1,400

1,200

1,000

800

600

400

200

0

2020 2021 2022 2023 2024 (FY)

equity repo transactions for funding purposes have increased, and our transaction balance has been trending upward.

In addition, we are actively meeting the needs of overseas financial institutions for funding in Japanese yen collateralized by Asian equities. Going forward, we will continue to leverage our neutral position, high credit ratings and accumulated transaction expertise to flexibly meet the needs of our clients in ways such as diversifying the types of collateral accepted and currencies handled.

* The standard international contract for securities lending transactions

Number of Counterparties (Contract Basis)

Domestic financial institutions, etc.

Overseas financial institutions, etc. (Japan-based)

Overseas financial institutions, etc. (Overseas-based)

(Companies)

30

20

10

0

2020 2021 2022 2023 2024 (FY)

Overseas financial institutions, etc. (Overseas-based)

(Billions of yen)

10,000

8,000

6,000

4,000

2,000

0

12,000

2020 2021 2022 2023 2024 (FY)

Overseas financial institutions, etc. (Overseas-based)

(Companies)

200

175

150

125

100

2020 2021 2022 2023 2024 (FY)

• Funding to overseas financial institutions (overseas-based) and lending of Japanese government bonds collateralized by Japanese equities to foreign-affiliated financial institutions remain solid.

• Transactions with overseas financial institutions (overseas-based) are steadily increasing.

• As we focus on securities demand rather than funding demand, our presence in specific collateral (SC) transactions* is growing.

* In general collateral (GC) transactions, no specific security is designated, as the primary purpose is to meet funding requirements. In SC transactions, a specific security is designated, as the primary purpose is to obtain that security.

Expanding Overseas Transactions through Participation in International Conferences and Other Events Risk Management for Securities Financing

For JSF, international conferences provide a valuable point of contact with potential new clients. We actively participate in international conferences and have expanded our scope to locations worldwide. In addition to having participated in the ISLA, PASLA, ISLA Americas, and other conferences held in Europe, North America, and Asia, in 2025 we participated for the first time in the SASLA conference held in South Africa.

Transaction lots are large for securities financing, especially for bond repo and gensaki transactions, and their balances have increased significantly due to the growth of the business, as explained above. This tends to inflate the balance sheets. Following here is an explanation of the structure and risk management in this business.

Bond repo and gensaki transactions are brokerage transactions that match the needs of lenders and borrowers. As a result, on the balance sheets, both assets (cash collateral for securities borrowed and securities purchased under resale agreements) and liabilities (cash collateral received for securities lent and securities sold under repurchase agreements) expand, as shown in (1) below. In recent years, the balance of bond repo and gensaki transactions has been at a high level. However, we reduce net exposure through a series of measures, including receiving and paying

cash equivalent to the market value of the bonds as collateral for the bonds involved in these transactions, marking the bonds to market during the transaction period, and executing margin calls (receiving/paying the difference between the cash collateral and the market value of the bonds) as appropriate (see (2) below). In addition, most of our clients are eligible for debt assumption by financial institutions with relatively high credit ratings or by the Japanese Securities Clearing Corporation (JSCC).

These risk controls have helped limit increases in net exposure and credit risk even as the balance sheets and transaction balances have grown.

CASLA

ISLA

GFF

PASLA

ISLA

Americas

SASLA

(Billions of yen)

JSF conducts daily

mark-to-market valuations (receipt and payment of the difference between the market value and cash collateral), which limits exposure.

Exposure

(Traded (Collateral) securities)

(2)

• International Securities Lending Association (ISLA)

  Industry association representing the common interests of securities financing market participants across Europe, the Middle East and Africa (established in 1989)

• Pan Asia Securities Lending Association (PASLA)

  APAC market equivalent to ISLA (established in 1995)

• Canadian Securities Lending Association (CASLA) Canadian market equivalent to ISLA (established in 2009)

  Entered in both assets and liabilities

• South African Securities Lending Association (SASLA) African market equivalent to ISLA (established in 1989)

• International Securities Lending Association Americas (ISLA Americas)

  Industry association dedicated to research and education on various regulatory responses and topics in the financial services industry

  (established in 1914)

• Global Funding and Financing (GFF) International conference on securities financing, organized by Clearstream

(1)

Entered in both assets and liabilities

When attending conferences, we meet with a diverse group of clients based outside Japan, including securities firms, banks, tri-party agents and other financial institutions, as well as stock exchanges, platform operators and magazines and other media outlets based in various countries. These meetings enable us to acquire up-to-date information about the latest technologies and overseas market trends and regulations in the finance sector, which we then share within our organization.

In addition, JSF participated for the first time as a sponsor at the PASLA conference held in Macau in February 2025. Participation in overseas conferences has led to the conclusion of an increasing number of new transactions in Asia, thereby contributing to the diversification of the Company's revenue. (Please refer to "An Employee Roundtable Discussion" on page 44 for details.)

The balance of transactions in other securities financing, such as equity repo transactions, has also been trending upward. In equity related transactions, JSF applies the same risk control measures as for bond repo and gensaki transactions, and also sets appropriate haircuts (value markdowns) based on the volatility and market liquidity of the equity involved in the transactions to limit the increase in exposure.

As with other securities finance businesses, such as loans for margin transactions, securities financing is managed within an integrated risk management framework by measuring the amount of credit risk on a daily basis and keeping it within the limit for risk capital set based on JSF's financial strength. In addition, we monitor counterparty exposure for each counterparty on a daily basis to ensure that exposure in times of stress remains within a certain limit, thereby preventing excessive exposure to specific counterparties.

Risk Appetite Framework

Message from the Responsible Executive Officer

Risk appetite is the type and total amount of risk that a company takes on in order to achieve its medium-term management plans. JSF's management goals center on capital efficiency, profitability and shareholder returns, and we clearly identify risks that we should be willing to take1 and risks that we should avoid2 in order to achieve those goals within the scope of our management capabilities. Our risk appetite framework (RAF) integrates business management and risk management. In setting the management goals for the medium-term management plan, we review the Company's risk appetite and the associated indicators and conduct regular monitoring.

In addition, the Company plays a public role as a provider of securities market infrastructure, so we are strongly aware that the risks we take on should in no way impact our ability to maintain financial soundness or stably operate our loans for margin transactions business.

We will continue strengthening our monitoring system, developing an operational structure that places greater emphasis on risk and return, and promoting Group-wide RAF management, while further enhancing our RAF to increase corporate value over the medium to long term.

Notes: 1. Risks to be taken: Risks associated with revenue-generating activities

2. Risks to be avoided: Unacceptable risks such as conduct risk

Risk Appetite Framework

Hiroshi Sagawa

Managing Executive Officer Responsible for Risk Management Department

Governance

In the execution of business management, we set more detailed targets and formulate plans for each business in promoting the medium-term management plan, keeping in mind our risk management policy, risk appetite and risk appetite indicators decided by the Board of Directors. The Board of Directors works to improve and strengthen the

Operation

In the operation of the RAF, the Board of Directors establishes a risk management policy for overall management based on the social role that JSF should play as a company responsible for infrastructure functions of Japan's securities market and its medium- to longterm vision for the future. At the same time, the board

determines the basic items of the RAF, such as risk appetite

Process for Setting and Managing Risk Appetite

1. Confirm premises for management plan formulation

   effectiveness of the RAF on an ongoing basis by monitoring risk appetite and risk appetite indicators as part of its supervision of business execution. If risk appetite indicators deviate from the levels set, the board analyzes the causes and formulates countermeasures.

   and the risk appetite indicators that specifically reflect its components, in conformance with the medium-term

   management plan. Risk appetite is set from a wide range of perspectives, including management stability and financial soundness, as well as the social responsibility for the infrastructure functions of and contribution to Japan's securities market.

   Formulate multiple scenarios that take into account changes in the domestic and overseas environment, and verify premises for formulating medium-term management strategies, including capital and liquidity constraints.

Social and public role

Business characteristics (licensed business, concurrent businesses), risk characteristics

Risk culture

RAF operational structure

Corporate philosophy and management strategy

Business management

Risk management

management plan

Integrated management

Management Committee

Type and amount of risk to

be taken (Risk appetite)

Risk appetite indicators

Improvement Monitoring

Analysis and reporting

1. Consider medium-term management plan proposals

   
   
   

   Consider management plan proposals that encompass management goals, risk appetite, and management strategy in order to realize the Vision of the Future Targeted by JSF.

1. Verify risk appetite

   Review as appropriate based on verification results

   Evaluate the propriety of financial plans and risk appetite through stress tests, and revise management plan proposals, as necessary.

1. Determine medium-term management plan

   The Board of Directors discusses and decides management goals, risk appetite and management strategies.

1. Monitor risk appetite compliance

2. Reset risk appetite

Upper limit exceeded or other reason

Basic Policy

The Group considers the RAF to be part of its corporate governance framework. Our objective is to maintain the high degree of financial soundness required of a securities finance company responsible for the infrastructure functions of Japan's securities market, while improving medium- to long-term corporate value as expected of a listed company.

To this end, the RAF enhances the transparency of the review and decision-making process for establishing the Company's overall risk-taking policy, including capital allocation and strengthening profitability. It also optimizes the allocation of management resources and reinforces monitoring.

Fostering and Embedding a Risk Culture

We must provide risk management education and training and share risk information to foster and embed a risk culture across the Group. Therefore, we conduct regular in-house training to help employees deepen their understanding of the RAF and enable them to apply it in business operations. Regarding risk information, we conduct surveys of market trends and monitor business partners as needed and share necessary information in cooperation with relevant business operations departments.

In addition, risk governance is further strengthened through a continuous cycle in which operation of the RAF keeps risk culture in focus, thereby further fostering and embedding this culture.

We will continue to promote greater sophistication in our risk governance, which is an integral part of our corporate governance, with the aim of achieving sustainable growth and increasing corporate value over the medium to long term.

Risk Management

Basic Policy

JSF plays a public role as a provider of infrastructure for securities and financial markets, so we are strongly aware that the risks we take on should help maintain financial soundness and increase corporate value. Furthermore, we position risk management as one of our most important

Risk Management System

We broadly classify assumed risks for management as credit risk, market risk, liquidity risk, operational risk and system risk. For credit risk and market risk, we strive to secure profits while quantitatively identifying risks and keeping them within levels that match our financial strength. For liquidity risk, operational risk and system risk, we strive to prevent their manifestation by implementing appropriate management according to risk characteristics.

Risk Management System

management issues, and through the JSF Business Conduct Guidelines and our risk management policy we instill a mindset and risk culture that emphasizes risk management throughout JSF.

Regarding reporting, credit risk and market risk are reported to the Management Committee following

discussion at the Risk Management Committee, and liquidity risk is reported to the Management Committee following deliberations at the Asset Liability Management (ALM) Committee. The officers responsible for each committee regularly report to the Board of Directors on the status of risks and measures to improve risk management.

Capital Adequacy Ratio (Adequacy of Equity Capital)

As one of the conditions for our involvement in the Japanese Securities Clearing Corporation (JSCC) clearing and settlement system and in the operations of the Bank of Japan, we are required to calculate, manage and maintain

our capital adequacy ratio above a certain level in accordance with the Financial Instruments and Exchange Act. Specifically, we precisely calculate and manage this ratio on a monthly basis, monitor the impact of daily market fluctuations on equity capital, and quickly report this information to management.

To ensure we can maintain these levels, we implement management measures such as setting upper limits on the risk equivalent amount for each business segment.

Integrated Risk Management

We quantify credit risk and market risk using statistical methods. Operational risk and system risk are quantified using a basic approach. We manage calculated risk amounts within the scope of allocated risk capital for each risk type.

Risk capital is allocated to each business based on the assumed maximum amount of risk, after securing a risk buffer for times of stress.

In addition, we verify our capital adequacy by using stress tests to calculate impacts on our equity capital, and formulate action plans, as necessary. We conduct two types of stress tests. The first type is monthly tests based on individual stress scenarios. These include credit stress,

such as the bankruptcy of a counterparty, and market stress, such as fluctuations in the yield curve or a sudden drop in stock prices. The second type consists of comprehensive semiannual stress tests based on scenarios that reflect the current financial environment.

In addition, we are going beyond integrated risk management, further enhancing our approach by linking it with the risk assessment framework (RAF) in ways such as using calculated risk amounts for risk-return analyses by business category and transaction type.

Management

Committee or department

Managing departments

Board of Directors

President Management Committee

Executive Officer Responsible for Risk Management Department

ALM Committee

Risk Management Committee

Executive Officer Responsible Executive Officer

for Information Systems Responsible for Internal Planning Department Audit Department

Checks

Information Systems Planning Committee

Risk Management Department

(Supervising department for risk management)

Information Systems

Planning Department

Liquidity risk

Checks

Market risk

Checks

Credit risk

Checks

Operational risk System risk

Checks Checks

Operation departments

Treasury

Department

Treasury

Department

Margin Loan Department

Institutional Sales Department

Retail Business Department

Margin Loan Department

Treasury Department

Osaka Branch

Each department

Each department

Executive Officer Responsible for Treasury Department

Integrated Risk Management

Risk tolerance

limit

Risk capital

Illiquid assets such as fixed assets

Internal Audit Department

Supervising department for internal audits

Based on this approach to risk management, the system we have developed supports the expansion of our balance sheet through the risk appetite framework described as follows.

Equity capital

Capital allocation limit

Measurement results

Credit Risk Management Liquidity Risk Management

JSF quantifies and manages credit risk using default rates for in-house ratings that it has calculated for each of its business partners. To manage credit risk (except for loans to retail), we adopted the Monte Carlo simulation method starting in FY2025 to improve the sophistication of credit risk measurement.

For credit management, we screen business partners, securities accepted as collateral, and loans, and set and manage transaction limits for each business partner. For each loan transaction, we reduce exposure by marking to

market the relevant collateral on a daily basis and requesting additional collateral as needed. In the event of borrower bankruptcy, we take steps including selling securities held as collateral to promptly collect receivables, and each business unit also conducts rigorous self-assessments of the assets under its management. Additionally, we manage large credit positions by calculating the stress exposure for each business partner across our businesses on a daily basis and sharing this information with business departments.

JSF recognizes liquidity risk as a significant risk and strives to ensure the liquidity necessary for stable business operations by obtaining commitment lines from multiple financial institutions and by diversifying funding methods and maturities.

For cash flow management, we set a minimum amount of liquidity reserves based on the assumption that certain stress events will occur in financial markets. We monitor the state of liquidity reserves by formulating cash flow forecasts and confirming the amount of funding available, as well as the status of highly liquid asset holdings, while confirming concentrated maturities for large amounts of funds. We also

have a system for reporting the status of daily cash flow to management. Furthermore, we conduct stress tests that simulate scenarios such as cash outflows during stress in the funding environment to assess and monitor the required level of liquidity on hand.

In addition, we manage liquidity risk on a consolidated basis by receiving daily reports from JSF Trust and Banking that include cash flow forecasts and the status of its liquidity reserves. Furthermore, we prepare for unforeseen circumstances with measures to supplement liquidity, such as holding a certain amount of government bonds that we can immediately convert into cash.

Market Risk Management Operational Risk Management

The market risk of our portfolio securities and other assets is quantified using the historical method or variance-covariance methods, and results are promptly shared with the front office and management to ensure proper risk management. Furthermore, to validate the reliability of our market risk quantification model, we conduct back testing to compare calculated VaR with hypothetical profit and loss

from a given portfolio. At the same time, we appropriately control investment losses by setting loss limits on an overall profit and loss basis. Trigger points are set just short of the limits to enable prompt formulation and implementation

of action plans based on the situation, before the limits are breached.

Each department at JSF is responsible for managing operational risk, which we mitigate by ensuring that employees are fully versed in appropriate administrative procedures through the development of rules, manuals

and other guidelines, as well as through training and other education. In addition, we regularly conduct internal audits to prevent incidents and to improve administrative processes.

System Risk Management

JSF has established an information security management policy as the basis for information security measures, with the System Planning Department responsible for managing system risks and implementing necessary measures for each risk. To ensure stable operation of our information systems, we proactively prevent system failures by employing redundant networks and equipment. To ensure secure and efficient system development and operation, we clarify work procedures and establish monitoring

systems. In addition, we protect our information assets, encompassing information and systems, through measures against unauthorized access and cybersecurity threats. We have also established rules that all officers and employees must adhere to, and ensure thorough understanding.

Furthermore, we have implemented measures to minimize and quickly recover from the impact of system failures, such as preparing various response manuals and conducting training.

Group Company Initiatives

JSF Trust and Banking Co., Ltd.

Net assets ¥24.4 billion Balance of trust assets: ¥5,562.5 billion Number of employees: 43

Business Description and Policy

A wholly owned subsidiary of JSF, Nihon Building was established in 1958 as the JSF Group's real estate leasing company. Nihon Building is tasked with providing suitable, comfortable offices and various facilities to a range of clients, including those in the securities and financial sectors.

In addition to working for the Group, such as managing the JSF head office building, and steadily promoting the leasing business for buildings owned by the Group mainly in the Nihonbashi-Kayabacho district, Nihon Building will continue to improve its services

in cooperation with parent company JSF, while responding to changes in the business environment, including the redevelopment projects under way in the Nihonbashi and Kabutocho districts.

Shinichi Sugiyama

President

Ordinary Profit (Non-consolidated)

(Millions of yen)

800

715

600

400

200

0

2020 2021 2022 2023 2024 (FY)

Nihon Building No. 3

Net assets: ¥8.1 billion Number of employees: 17

(As of March 31, 2025)

Nihon Building Co., Ltd.

(As of March 31, 2025)

Business Description and Policy

JSF Trust and Banking Co., Ltd. was established in 1998 amid financial system reforms known as the "Japanese Big Bang." A wholly owned subsidiary of JSF, it aims to contribute to the development of financial and capital markets as the JSF Group's trust business. Since its establishment, JSF Trust and Banking has been enhancing and expanding its investment service systems and evolving its financial technologies to meet needs that become more diverse year by year. Through these efforts, it has built, deepened and enhanced a proprietary business model for its management trust business that includes preservation trusts for securities companies and other financial instruments companies.

The Medium-Term Management Plan and Our Progress

Tai Nishida

President

During the Seventh Medium-Term Management Plan, which began in FY2023, we have been implementing the following key management policies: (1) Further expand the management trust business; (2) Provide credit services that complement trust services; (3) Based on appropriate risk management, generate stable earnings from securities investments; and (4) Work to enhance internal control

and governance systems and bolster their supporting operational structure, including human capital and systems development, as a key management strategy.

In FY 2024, in the core trust banking business, various preservation trusts-including client money segregation trusts-performed well. As a result, the fiscal year-end balance of trust assets exceeded ¥5 trillion for the first time, and trust fees reached a record high for the second consecutive year. The banking business recorded steady

earnings from various types of credit services focused on the financial sector and from securities investment services that

take market risks into consideration. As a result, ordinary profit was ¥1,755 million and net profit was ¥1,226 million, with overall performance remaining solid.

FY2025 is the final year of the Seventh Medium-Term Management Plan. As we prepare for the next plan, market trends indicate the ongoing emergence of new business needs resulting from systemic enhancements in financial and capital markets and the progress of technological innovation such

as digital transformation. At the same time, our longstanding track record has enhanced our market recognition.

Management trusts, which include the niche services mentioned above, are our core business. We will enhance our expertise and efficiency in this business, further strengthening existing services and steadily expanding their scope, with the aim of achieving our corporate vision. We likewise remain deeply mindful of our social responsibilities and public mission as a trust bank, and we will continue to meet the trust placed in us.

Strengths and Opportunities

Our strengths lie in our neutrality as an important member of the JSF Group; our expertise, ability to make proposals, and agility in the management trust business developed through the experience and track record we have built since our founding; and our meticulous administrative support capabilities. The system-side measures connected to these strengths are also important points. Under the Seventh Medium-Term Management Plan, we have begun to upgrade key core systems and improve the functionality of peripheral systems to enhance client services and establish a

Trust Fees

(Millions of yen)

stable, efficient operational structure.

Another of our strengths is our collaboration with JSF, our parent company. We have promoted collaboration

in the areas of sales, risk management and operational management, while striving to enhance not only our own but also the entire Group's human capital through systematic personnel exchanges. We will continue striving to strengthen this kind of collaboration in a way that leads to the mutual enhancement of the operational management capabilities of both companies.

Ordinary Profit (Non-consolidated)

(Millions of yen)

2,000

1,500

1,690

2,000

1,500

1,755

1,000 1,000

500 500

0

2020 2021

2022

2023

2024 (FY)

0

2020 2021

2022

2023

2024 (FY)

Strengthening Human Resource Development and Improving Engagement

Initiatives for Human Capital Development

Supporting the growth of each employee improves our corporate vitality and organizational transformation capabilities

As our business structure has long been centered on our licensed business of loans for margin transactions, teamwork is a strength we have relied on to maintain the accurate and steady execution of ongoing operations. However, to respond to our rapidly changing environment, we believe an important management issue is to create a work environment in which diverse employees can fully demonstrate their individuality and strengths, enthusiastically and autonomously explore and transform their work, and grow as they accumulate experience and achievements. Based on this belief, the new

1. Recruitment

2. Training and career path

3. Evaluation and compensation

4. Environment

• In addition to the hiring of new graduates, we actively and continuously hire people with established experience in order to secure a diverse workforce.

• We have created environments for autonomous career development that allow employees to maximize their individuality and strengths and grow on their own through their work.

• In order to support autonomous career development and taking on challenges, we have established new human resources development programs that include the revision of some programs and the establishment of other new training programs.

• We are building a stronger talent pool that can take a leading role in shaping management strategy based on diversity, expertise, and independence.

• We will appropriately assess the contribution of employees' work performance, including the degree to which they have developed their abilities, achieved results, and fulfilled their expected roles.

• We will assess our employees' independent approach and actions toward their work, such as work reform, work efficiency improvement, and voluntary efforts to achieve ambitious goals.

• We will create a work environment that ensures work-life balance by promoting the use of various leave systems to help employees balance childcare or nursing care with their work.

• We will promote the creation of a comfortable work environment that enables diverse work styles, including the utilization of telework.

  human resource strategy in the Seventh Medium-Term Management Plan is a synthesis of a policy (our human capital policy) and measures (human resource development programs) for strengthening our base of human resources, which are the source of corporate value creation.

  We have been working to strengthen our human resources foundation. In terms of recruitment, we continue to actively hire both new graduates and experienced

  Implementing Our Human Resource Development Programs

Wataru Sato

Managing Executive Officer Responsible for Human Resources Department

In the "Initiatives for Achieving the Vision" section of our human capital policy, we set out new human resource development programs designed to support employees' autonomous career development and their efforts to take on challenges for personal growth. We are working to diversify our human resource portfolio and strengthen the foundation of our human resource capabilities through the following initiatives and other efforts.

professionals through various means. Regarding training, we continue to strengthen and expand our skills development system with a focus on autonomous skill improvement. For example, we broaden external experience through temporary assignments to financial institutions in Japan and overseas and through trainee placements. In addition, use of our "Challenge Program," which supports employees' voluntary and proactive learning (enabling applicants to participate in external training programs

of their own choosing), has been increasing each year, reflecting employees' growing engagement in autonomous career development and personal growth. To develop management talent, we continuously conduct "Next-Generation Management Training," in which outside directors with management experience give talks on the qualities expected of such individuals going forward. Furthermore, through effective implementation of specific measures that we will formalize going forward, we intend to continuously support the growth of each employee, thereby improving employee engagement, which will improve Company-wide vitality and organizational transformation capabilities.

Human Resource Development Program

Set career goals

Synergy

On-the-job training

Off-the-job training

Rank-based training Theme-specific training Lectures and external seminars

Practice in the

Synergy workplace Synergy

Self-development

e-Learning Distance learning courses

Qualification acquisition support system Self-development support system

Our human capital policy comprises our vision, criteria describing the ideal human resources that the Company wants to cultivate and strengthen, and initiatives for achieving the vision. These initiatives will be formalized one by one in each area of recruitment, development and career path formulation, evaluation and compensation, and environment improvement.

Vision

JSF

Talent who respect diverse values and work together with other employees to enhance corporate value

Talent who are able to accurately and steadily perform highly complex tasks, and contribute to maintaining the reliability of the Company's infrastructure functions

Talent who are able to strive to gain a deeper and broader understanding of their assigned work, and who are able to lead business transformation while enhancing their expertise in their respective fields

Talent who have expertise in a certain field and are able to lead and contribute within the Company by making use of their expertise

Individuals who take the initiative, set high goals and work independently to achieve those goals with the involvement of the people around them

Talent who are able to take a leading role in shaping management strategy from a broad perspective

Staff/Leaders

Managers Specialists

Senior management Experts

Career Stage

Ideal

We aim to achieve sustainable growth and enhance corporate value by aligning our human capital initiatives with our management plan. The diagram below shows the relationship between JSF's securities financing business and human resource development to provide a clearer picture of these initiatives.

To support the further growth of the securities

of digital technologies; and (4) the ability to cultivate new transactions through innovation. Under our human capital policy, we are working to build a workforce with these qualities through talent development and career growth using both OJT and Off-JT, recruitment that effectively combines experienced professionals and new graduates, the enhancement of organizational vitality

Promoting Active Participation of Women

In order to step up the active participation of women, we have set a target of maintaining a ratio of 40% or higher for women out of total hires, including both new graduates and experienced hires. In addition, we

provide career development support, including a range of training programs, to enable women to take on

leadership roles at an early stage of their careers. We also provide a supportive environment that enables women

to balance work with childcare, nursing care and other responsibilities, while making the most of their individual abilities and strengths. Through such measures, we plan to increase the ratio of women in managerial positions.

financing business, the Company requires personnel

through the promotion of diversity and inclusion, and

Employees Managerial Positions New Graduate Hires

with the following qualities: (1) a deep understanding of securities financing-related markets; (2) international expertise that enables the expansion of transactions in overseas markets, particularly in Asia; (3) knowledge

other initiatives. Through these initiatives, we aim to develop hands-on managers and specialists, expecting them to become senior management as they gain experience in real business operations.

(Number)

250

35.2

200

30

150

100

20

50

0

10

165

300

Men

Women Ratio of women

(%)

40

(Number)

120

Men

Women Ratio of women

5

110

6 4

100

3

2

90

1

0

0

106

5.4

(%)

6

Number)

6

4

2

0

60

50.0 50

40

30

20

10 0

3

3

8

Men

Women Ratio of women

(%)

70

OJT

OJT

• Engagement in initiatives aimed at cultivating new transactions

• Participation in international forums

• Market data collection and analysis

Recruitment/ D&I

Enhancement of workforce

Off-JT/

Recruitment/D&I

• Acquisition of high-potential talent (new graduate recruitment)

• Securing job-ready talent through experienced hires

• Promotion of diversity and inclusion

Self-development

Off-JT/Self-development

• Effective use of training programs

• Development of core skills (foundational skills)

Industry-academia collaboration, international cooperation,

etc.

Specialists

Hands-on managers

Senior management

Required qualities and expertise: Digital technologies

Ability to develop new transactions

Management Plan

2021 2022 2023 2024 2025

2021 2022 2023 2024 2025

2020 2021 2022 2023 2024

(FY)

Human Capital Policy

Through the use of telework and other initiatives, we will achieve efficient and diverse work styles unrestricted by time and place and promote the creation of a

comfortable work environment. Telework is available to all employees, and accounts for about 40% of days worked per week on average, post-pandemic.

In addition, JSF has set the rate of paid leave taken and overtime hours worked as important indicators, and

encourages employees to reduce overtime work and take leave at an appropriate frequency and duration. We also pay attention to changes in employees' work conditions, such as the psychological burden of work and stress caused by the work environment. Employees who are dealing with issues are identified and followed up with quickly to help improve conditions.

Rate of Paid Leave Taken

(%)

74.2

73.5

73.4

79.3

74.6

80

Promoting Active Participation of Experienced Hires

In aiming for sustainable growth and improved corporate value, we are flexibly recruiting talent from a wide range of industries in accordance with the evolution of our business. This includes people capable of providing

all regardless of nationality. We also provide support for experienced personnel we hire so that they can maximize their abilities in the workplace. We provide them with opportunities to acquire knowledge both in their

70

60

50

64.5

diversified financial services, people who can help us enter new fields and people with specialized expertise,

specialized fields and in our main business areas.

40 2019 2020 2021 2022 2023 2024（FY）

As outlined under "Initiatives for Achieving Our Vision," we promote balance between work and childcare or nursing care by establishing various support systems, ensuring that employees are informed of system changes resulting from legal or regulatory revisions, and maintaining frameworks for individual consultation and support. With regard to childcare in particular, the rate of employees taking a childcare leave of absence remains at 100% for women, while we have set a target of 40% or higher for men (the

FY2024 result was 100%). All employees who have taken a childcare leave of absence have returned to work.

We will continue to create a workplace and systems that make it easier for all employees to take a childcare or nursing care leave of absence. For employees wishing to do so, we conduct individual interviews to identify their concerns, anxieties and needs, and respond flexibly

while ensuring psychological safety, including through the development of plans to facilitate a smooth return to work.

Initiatives for Achieving Diversity

Achieving diversity is crucial for creating a sustainable society. JSF is working to appoint a broad range of talent to advance its diversity initiatives. However, the proportion of women in management cannot yet be regarded as high. This gender gap can be attributed to several factors, including the historically low number of female applicants for and hires into career-track

positions under an employment management system that distinguishes between career-track and general positions, as well as the fact that, given the limited number of mid-career departures, the Company has not actively pursued experienced hires, including men. In the legal profession

advancement of women and the diversification of talent to progress steadily. In fact, I understand that many female employees and experienced hires

are actively involved in JSF's efforts to expand transactions with overseas financial institutions, including local sales activities abroad as well

Shoko Sugino

(Chairperson of the Audit Committee)

to which I belong, women were once extremely rare, but the situation has changed significantly. At JSF, the number of female employees in their 20s and 30s has likewise increased in recent years through new graduate and experienced hire recruitment, and many are now building their careers. In light of this, I expect the

Initiatives to Promote Human Capital Management

JSF formulated its Human Capital Policy in 2023. Developed under President Kushida's leadership, this basic policy promotes initiatives in human capital

formation, including human resource development, to strengthen the human resource base that underpins corporate value creation. Personally, I view JSF's employees as having a strong sense of mission with respect to the Company's public role, a high degree of self-discipline, and a consistently solid level of competence. However, this alone is not sufficient. To

advance structural reform and enhance corporate value, the Company will need to take on challenges that are not bound by precedent, and this will require distinctive

Toward Future Enhancement of Corporate Value

JSF is a company that requires careful navigation, as it must steadily fulfill its public role in operating the standardized margin transactions business while also focusing on growth areas to enhance corporate value over the medium to long term. In recent years, the

securities financing business has grown significantly. In addition to the loans for margin transactions business that the Company has long been engaged in, new business initiatives seeded over this period are steadily bearing fruit. Going forward, there remains scope to improve

the quality of operations by accurately identifying customer needs, carefully assessing risk and return, and

as meetings and presentations at international finance and securities conferences. By approaching diversity with a focus on gender as a starting point, I believe JSF is gradually fostering a culture in which individuals are

evaluated based on their abilities and contributions rather than on their gender or how they joined the Company.

and highly motivated talent. I sense the executive team's strong recognition of this issue. In addition to developing existing talent, the Company is also working to diversify its talent portfolio by hiring individuals from a wide variety of backgrounds, regardless of age, gender, or nationality.

I believe reforms to strengthen the human resource base will need to continue. However, how to maintain and enhance employee engagement-long rooted in the Company's public mission-will also become an important challenge. I would also like JSF to continue to value the identity it has cultivated over its long history as

a provider of securities and financial market infrastructure.

continuing to develop new services. As stated in JSF's Human Capital Policy, the vitality of both the organization and its people is essential to corporate growth. As a provider of infrastructure functions for securities and financial markets, JSF must continue to be a sustainable organization, and I believe it already has the qualities required to do so. I hope JSF will remain an attractive company where employees continue to feel a strong sense of attachment, find value and purpose in their work, and engage with it in a positive and forward-looking manner. I will also continue to contribute to these efforts in my capacity as an independent outside director.

Group Management Strategy

An Employee Roundtable Discussion

Employees discuss the expansion of securities financing and the human resource development initiatives that support it. Nao Endo

Human Resources Department

(Joined JSF in 2015)

Kenta Yamamoto

Treasury Department

(Joined JSF in 2019)

Hinano Masuda

Margin Loan Department

(Joined JSF in 2017)

Kohei Takeda

Institutional Sales Department

(Joined JSF in 2012)

Responsibilities and Motivation

Takeda: I currently work in the Institutional Sales Department. Each project requires considerable time- negotiating terms with counterparties, finding common ground, and structuring the scheme- but I feel a great sense of accomplishment when a deal finally comes together.

Masuda: I currently work in the Margin Loan Department, where I am involved in acquiring shares to cover shortages in loans for margin transactions. Margin transactions are subject to volatility and the stock lending market is also highly fluid, so we need to respond in real time while assessing the supply and demand balance. This can be stressful because of the many contingencies that affect the entire stock market, but I find it very rewarding.

Yamamoto: After joining JSF, I was assigned to the Settlement & Custody Department, then temporarily assigned to the Japan Securities Dealers Association for two years, and now I work in the Treasury Department, where I am involved in bond repo and gensaki transactions. Various transactions proceed in parallel, so I need to quickly present trading terms in response to counterparty requests, which requires speed and agility.

Also, because JSF deals with government bonds, we are subject to the influence of political and international trends. We must therefore stay highly attuned and quickly respond to political, economic, and financial market developments around the world. My work is challenging, but rewarding.

Endo: I have worked in the Treasury Department and the Margin Loan Department, and am now in the Human Resources Department. The basic rule at JSF is to rotate

employees through approximately three-year stints in three departments during the first 10 years. I was assigned to the Human Resources Department as my third department in April 2025. The Human Resources Department is primarily responsible for recruiting new graduates and planning

and managing human resource development. Recruiting involves consideration of how best to communicate the appeal of JSF, and what kinds of personnel we should attract to help JSF grow amid significant changes in the business environment, such as increasingly sophisticated trading and risk management. We examine these issues with a broad perspective and stay informed about conditions across many departments.

Growth of Securities Financing

Takeda: JSF's securities financing business has grown in recent years. This is partly due to the expansion of our pool of

business partners from mainly securities companies in Japan to securities companies outside Japan and other financial institutions, as well as the diversification of collateral we accept beyond Japanese stocks and Japanese government bonds to include foreign stocks, foreign government bonds, and corporate bonds.

In this environment, JSF participates in many conferences outside Japan every year in order to broaden its international business relationships. I attended the Pan-Asia Securities Lending Association (PASLA) conference held in Macau in February 2025 for the first time, along with Mr. Yamamoto and two other colleagues. Although the schedule was demanding, meeting with about 30 companies over two days, I was able to gain insight into needs that differ from those in Japan.

Yamamoto: I believe that having young employees from each department gain experience by participating in conferences outside Japan is steadily enhancing our organization, and

that this is helping us expand our business. I participated in PASLA for the first time. Many of the participants were from Europe and the United States. They were not just looking at Asian markets, but at markets around the world, gathering information and looking for trading ideas. I realized that doing business with people like that goes beyond simply being able to speak English and requires me to learn more about a broad range of transactions.

Masuda: JSF employees began consciously using the term securities financing around the time I joined the company in 2017, and I feel that our work has diversified in recent years.

As part of my work in securities financing, I attended the May 2025 annual meeting of the Canadian Securities Lending Association (CASLA), which brings together securities-related organizations from North America, including Canada and the United States. I met with many of the participants. In addition, as noted on our website, in September 2025 I was featured

as an emerging talent in the international securities finance industry magazine Securities Finance Times. The article has generated a strong response, including many questions and inquiries from our business partners.

Endo: The Human Resources Department intends to expand its training programs so that all employees can take on a variety of challenges early in their careers. As mentioned earlier, with the expansion of securities financing, JSF has been increasing its participation in overseas conferences and its meetings with international business partners. To support these initiatives, in 2025 we introduced English lessons for employees scheduled to go on overseas business trips, using the actual materials they will work with in the field. In

addition, to strengthen core capabilities across the Company, we provided training on securities financing operations to all

employees in 2024, and to newly hired employees in 2025. In addition, we invite external experts to give lectures on topics such as interest rate trends and financial regulations.

Human Resource Development Initiatives

Endo: As part of our human resource development efforts, we introduced a challenge program in 2024 to support employees who are proactively considering their careers.

Under this program, the Company covers the full cost of external courses that are not part of existing training

programs, provided participating employees are motivated to improve their skills and the courses are deemed work-related. Many employees are taking advantage of this program, submitting applications for a variety of courses, including English conversation classes they find effective and specialized seminars on risk management.

Takeda: I used JSF's corporate-sponsored study system to attend graduate school for two years and earned a master's degree in financial engineering. I attended lectures on weekday evenings, and I was grateful that everyone in my department cooperated so that I could attend.

Endo: JSF is a small company with a corporate culture of tolerance and mutual respect. This atmosphere has helped foster Company-wide enthusiasm for actively making use of our training programs.

Masuda: About three years ago, I attended an English conversation school for a year. I'm planning to use the challenge program to take online English lessons taught by native instructors.

Yamamoto: I took online English conversation training during my first and second years with JSF. JSF's wide-ranging business operations are supported by a broad range of training covering fields such as IT, digital transformation, and accounting. I would like to take advantage of this training with my future career development in mind.

My temporary assignment to the Japan Securities Dealers Association was also very educational. I was able to gain knowledge that I could not have acquired within JSF. The Japan Securities Dealers Association is an organization with

a stronger infrastructure focus, and I was grateful for the valuable opportunity to experience firsthand what it means to support the securities market.

Endo: In expanding our training offerings, we research programs that are likely to become necessary at JSF in the future, such as popular English courses and data analysis using the Python programming language. I make a point of

trying them out myself through the challenge program. We are committed to creating a training system that even more employees find useful.

Future Actions and Commitments

Masuda: Japanese equities are once again attracting attention worldwide, backed by a favorable market environment. I think it is important for JSF to continue providing a stable supply of equities from a neutral position in order to support the liquidity and reliability of Japan's stock markets. I hope to contribute to that effort by further deepening my insights into Japan's stock markets through my day-to-day work. I also want to broaden my expertise beyond Japanese equities by actively gaining knowledge and practical experience in international securities financing, and to improve my data analysis skills through technology as well as my communication skills, including English.

Takeda: The securities financing market is expanding worldwide, and there are many needs that we have not yet addressed. Meeting more of these needs will expand JFS's role and, in turn, support the Company's growth and the development of the financial sector. More employees therefore need to grow so that they can take on securities financing responsibilities.

Yamamoto: I believe JSF can develop its people more easily if it provides greater opportunities for temporary

assignments in securities financing at other companies, as well as additional learning opportunities. In addition to growing

as individuals, we need to strengthen our organizational capabilities so that we can identify and address new challenges in securities financing. Closer communication and collaboration among departments are crucial, and we need to maintain flexibility in initiatives such as improving existing systems and analyzing approaches used by other companies.

Endo: The Institutional Sales Department has built up extensive knowledge in new business areas, and we hope to share it with other departments and strengthen the organization as a whole through cross-departmental

training and other measures. For areas in which JSF is less knowledgeable, I would like to draw on frontline opinions to expand learning opportunities, such as study sessions with external organizations, temporary assignments at other companies, and seminars led by external lecturers.