Q&A

Q&A

Q1 What happens to my securities and money if my securities firm goes bankrupt?
A
  • Securities firms are required by law to strictly divide and manage the money, shares, bonds, investment trusts, and other securities entrusted by customers separate from the money, securities, and other assets that belong to the securities firm itself. This is called the "separate management" of customer assets.
  • By the proper execution of separate management, even if a securities firm goes bankrupt, in principle this will have no effect on customer assets, and customers can have their own money and securities returned from the bankrupt securities firm.
  • Regardless, in the unlikely event that a bankrupt securities firm cannot smoothly return customer assets for some reason, Japan Investor Protection Fund (JIPF) pays compensation for unreturned money and securities up to ¥10 million in total of money and securities (market value) per customer.
  • In this way, the assets which customers entrust to securities firms are protected by the dual systems of separate management and the investment protection fund system.
  • For details regarding the separate management system, see the Japan Securities Dealers Association web page: http://www.jsda.or.jp/sonaeru/bunbetsu/ [in Japanese]
Q2 Is my securities firm a JIPF member?
A
Please refer to the members' list to confirm that your securities firm is a JIPF member.
However, all securities firms with head offices, branch offices, or sales offices in Japan are required by law to subscribe to the investor protection fund (to become JIPF members), as are securities firms that only conduct transactions via the Internet.
Q3 Are investment trusts that I purchase at a bank or other financial institution that is not a securities firm covered by JIPF?
A
Banks and other financial institutions that are not securities firms are not JIPF members. Consequently investment trusts purchased at banks are not covered by JIPF. (Nevertheless, separate management is required by law even for investment trusts purchased at banks and other financial institutions).
Q4 Are all money and securities entrusted to securities firms eligible for compensation by JIPF?
A

Please note that there are cases where money and securities are not covered by JIPF, even though they are entrusted to securities firms, depending on the customer attributes and transaction contents.

  1. (1) Customers Eligible for Compensation

    Customers covered by JIPF are those customers of JIPF member securities firms who are not so-called "professional investors" such as financial institutions, the state, and local governments. (Legally, these customers who are covered are referred to as "General Customers").

    *) Even for General Customers, assets of customers executing transactions in the name of others are excluded from the range of compensation . Also, officers and other executives of the bankrupt security firm are not included among the customers eligible for compensation.

  2. (2) Transactions Eligible for Compensation

    The money, securities, and other customer assets eligible for compensation are limited to those entrusted for Type I Financial Instruments Business transactions conducted by securities firms regarding the securities-related business. Even among transactions conducted by the same securities firm, customer assets related to foreign exchange margin transactions (FX transactions) and other transactions that are not included in the securities-related business are not covered by JIPF.

    *) Even among transactions eligible for compensation, shares, corporate bonds and other securities, issued by the bankrupt securities firm are excluded from the range of compensation. (See Q6).

  • The main transactions covered by JIPF are as follows.
    • Share transactions (including shares issued overseas)
    • Public and corporate bond transactions (including bonds issued overseas)
    • Investment trust transactions (including investment trusts issued overseas)
    • Deposits concerning margin transactions of shares
      (Note) The items for which compensation can be received are margin deposits and collateral securities in place of margin deposits
    • Clearing margins concerning securities futures transactions and securities options transactions on domestic exchanges
      (Examples) Clearing margins and collateral securities in place of clearing margins for Nikkei 225 futures transactions or Nikkei 225 options transactions on the Osaka Securities Exchange
    • Clearing margins concerning margin transactions of stock price indices on domestic exchanges
      (Examples) Clearing margins and collateral securities in place of clearing margins concerning exchange equity index margin contracts on the Tokyo Financial Exchange
  • Among transactions handled by securities firms, the main transactions not covered by JIPF are as follows.
    • Over-the-counter securities derivatives transactions (securities futures, options, and CFD [contract for difference] transactions negotiated outside of exchange markets).
    • Securities market derivatives transactions on overseas exchanges (securities futures, options, and securities CFD transactions on overseas exchanges)
    • Currency-related transactions on exchanges (exchange foreign margin contracts on the Tokyo Financial Exchange, etc.)
    • Foreign exchange margin transactions (FX transactions)
    • Transactions of financial instruments that fall under the Type II Financial Instruments Business such as collective investments
Q5 How can I judge whether I can receive compensation from JIPF?
Figure of How can I judge whether I can receive compensation from JIPF?
Q6 Are valuation losses on purchased securities and losses from the default of the securities issuer covered by JIPF?
A
  • JIPF compensation only covers losses of money and securities that are required to be separately managed by law in cases where they cannot be returned to customers when a securities firm goes bankrupt.
  • Consequently, even if there is a valuation loss from the price decline of a securities that had been entrusted to a bankrupt securities firm by a customer at the time it went bankrupt, JIPF only provides compensation for the market value of the concerned securities at that time, and does not compensate for valuation losses (differences between market value and the principal invested).
  • Also, JIPF does not provide compensation in cases where an issuer cannot pay the interest and redemption money of bonds the issuer has issued because the issuer has gone into default.
Q7 How are the amounts of compensation by JIPF calculated?
A
  • JIPF pays monetary compensation of up to ¥10 million per person for money and securities that could not be returned by a bankrupt securities firm.
  • Even in cases where the customer assets that could not be returned are securities, the compensation is provided in money, not in securities. In this case, the compensation amount of the securities is the closing price on the day JIPF made public announcements that it will provide compensation in newspapers and by other means, in cases where the concerned securities are listed on an exchange.
  • In cases where the customer has obligations to the securities firm (for example, in cases where the securities firm paid the purchase price on behalf of the customer), the amount of the concerned obligations is deducted when calculating the compensation amount.

    Compensation Amount Calculation Method

    Figure of Compensation Amount Calculation Method

Q8 Will my assets beyond JIPF’s compensation limits not be returned at all?
A
In cases where the amount of the money and other assets that cannot be returned from a securities firm exceeds JIPF's limits, JIPF cannot provide compensation for the amount exceeding the limits.
However, customers have rights as creditors against the bankrupt securities firm for those customer assets that exceed JIPF’s limits.
For that reason, customers can make claims against the bankrupt securities firm through bankruptcy proceedings and civil rehabilitation proceedings regarding assets outside JIPF’s range of compensation that are not returned, like other general creditors. However, the portion of the assets that are returned may vary or no assets may be returned at all, depending on the financial conditions of the bankrupt securities firm.
Q9 What is the compensation system for over-the-counter securities derivatives transactions and foreign securities market derivatives transactions?
A
As indicated by the term "over-the-counter," over-the-counter securities derivatives transactions are concluded not by placing an order on an exchange market, but rather through negotiated transactions between customers and securities firms for securities futures, options, and securities CFD transactions. Also, foreign securities market derivatives transactions refer to transactions of securities futures, options, and securities CFD transactions concluded not on domestic exchanges, but on overseas exchanges.
Money, securities, and other customer assets concerning over-the-counter securities derivatives transactions and foreign securities market derivatives transactions are all not covered by JIPF. (See Q4(2)).
Q10 What is the compensation system for transactions that fall under the Type II Financial Instruments Business such as trust beneficial rights or a partnership contract, and regarding FX transactions?
A
Transactions that fall under the Type II Financial Instruments Business such as transactions concerning trust beneficial rights or a partnership contract, and FX transactions are not covered by JIPF. (See Q4(2)).