Japan Exchange Group, Inc.

Trading and clearing operations for cash and derivatives products are processed through systems, and if a system failure occurs, market confidence could be undermined and trading volumes could decline. In addition, if the performance of the trading system falls behind that of competitors, this could have a material impact on business operations and operating results. The Group is working on standardizing development methods, conducting thorough operational verification testing, and enforcing rigorous quality control, while continuously promoting the expansion of rapid recovery measures in the event of a failure.

Trading-related revenue (39.0% of consolidated operating revenue for FY2026 (ending March 2026)) and clearing-related revenue (27.3% of the same) are heavily dependent on the trading value and trading volume of securities and derivatives, and if trading volume declines due to an economic downturn or deterioration in market conditions, this could have a material impact on operating results. Listing-related revenue (9.4% of the same) also depends on the market capitalization of listed companies and the number of new listings, and is particularly significantly affected by the state of the Japanese economy. The Group is working to stabilize earnings by creating new services and to maintain a robust financial base.

Japan Securities Clearing Corporation, as a clearing organization, guarantees the performance of settlement, and if a clearing participant defaults on settlement, the Group is obligated to compensate for losses that cannot be covered by collateral, etc. For cash transactions, the total loss compensation limit for Tokyo Stock Exchange and Osaka Exchange is set at ¥10.4 billion, ¥17.4 billion for financial derivatives transactions, and ¥9.1 billion for commodity derivatives transactions. Although the Group has established a multi-layered framework to ensure settlement performance, including the clearing participant system, monitoring, collateral system, DVP settlement, and liquidity assurance, losses may still arise for the Group under extreme market conditions.

The Group conducts its business under multiple licenses and approvals, including an exchange business license and a financial instruments obligation assumption business license, granted based on the Financial Instruments and Exchange Act and the Commodity Derivatives Act, and if the Group's licenses, etc. are revoked or business is suspended for any reason, this could have a material impact on business operations and operating results. At present, no event constituting grounds for revocation has occurred, but as the Group operates under extensive laws and regulations, this is recognized as a future risk. The Group has established various risk management systems and continues its efforts toward legal compliance.

The Group's share of domestic listed equity trading value was approximately 80% from January to December 2025, but off-exchange trading (PTS, OTC, etc.) is on an increasing trend at approximately 20%, which could pose a threat of losing share in the future. In addition, competition with the Singapore Exchange in Nikkei Stock Average futures and options trading, as well as intensifying price competition among exchanges worldwide, could force fee reductions. The Group is working to maintain competitiveness through reviews of market systems, upgrading of trading systems, and strengthening of the digital and network businesses.

Osaka Exchange's flagship products, Nikkei Stock Average futures and options trading, are based on a license agreement with Nikkei Inc., and if events such as breach of contractual obligations or a material change in control occur, the contract could be terminated, potentially forcing the suspension or discontinuation of such trading. In addition, since the agreement is not exclusive, if a third party obtains rights to use the Nikkei Stock Average and offers competing products, there is a risk that trading volume on the Osaka Exchange market could decline. A significant change in the license fee could also have a material impact on operating results.

The Group holds corporate information of trading participants and listed companies, as well as personal information, and if important information is leaked due to intentional acts or negligence by officers or employees, or unauthorized access from outside, this could have a material impact on business operations and operating results through damages, disciplinary action by regulatory authorities, and reputational damage. The Group has obtained and maintains ISO/IEC27001 certification, and has established information management policies, conducts education and training through e-learning, and implements system security measures.

If damage exceeding expectations occurs due to natural disasters such as earthquakes and storms/flooding, disruption of electric power or communications infrastructure, cyber terrorism, or the spread of epidemic disease, this could result in serious situations such as prolonged business disruption, massive economic losses, and loss of social trust. The Group has formulated a BCP (Business Continuity Plan), conducts regular drills in cooperation with relevant institutions, and is working to strengthen its east-west mutual backup framework in both operations and systems, including the establishment of the Kansai Data Center.

Foreign investors accounted for approximately 60% of equity trading value and approximately 70% of Nikkei Stock Average futures and TOPIX futures trading volume from January to December 2025, making them important market participants, and if the attractiveness of investment declines due to deterioration in the performance of the Japanese economy or stock market, exchange rate fluctuations, or tightened regulations, trading volume could decline significantly, which could have a material impact on the Group's business operations and operating results. The Group is actively working to strengthen sales activities and relationships with domestic and foreign investors and to capture flow into the Japanese market.

Continuous capital investment in IT is essential for maintaining the competitiveness of the exchange, and following the arrowhead system renewal in November 2024, a renewal of J-GATE is also planned for around the second half of 2028; however, these investments do not necessarily lead immediately to increased earnings. If sufficient revenue commensurate with costs cannot be generated due to deteriorating market conditions or other factors, this could put pressure on business performance and could also have a material impact on subsequent additional capital investment. The Group takes measures to conduct precise financial management by regularly monitoring the progress of its business strategy and changes in the business environment.