G20 Japan

Mandatory clearing applies to credit derivative transactions referencing an index of iTraxx Japan and interest rate swap transactions which reference TONA compounded in arrears and certain Euroyen TIBOR rates that are entered into between Registered Financial Institutions or FIBOs and other Registered Financial Institutions or other FIBOs.

The clearing requirement applies at the time the Transaction is entered into.

Key exemptions include: the Trustee Exemption, the Intra-group Exemption, the JFSA Commissioner Designated Transaction Exemption, the Non-Clearing Member Exemption (credit derivative clearing only) and the FIBO etc. Clearing Exemption (with respect to interest rate swap clearing only).

Market initiatives have been identified. Overseas requirements are not deemed equivalent.

Mandatory trade execution applies to certain fixed to floating interest rate swaps in Japanese yen entered into between Registered Financial Institutions or Type I FIBOs and other Registered Financial Institutions or other Type I FIBOs on or after 1st September, 2015.

Key exemptions include: the Trustee Exemption, the Intra-group Exemption, the JFSA Commissioner Designated Transaction Exemption, the FIBO etc. Trade Execution Exemption and package deals in which two or more transactions are executed at the same time.

Market initiatives have been identified. Overseas requirements are not deemed equivalent.

Trade reporting applies to Reporting Dealers (which includes Type I FIBOs and certain Registered Financial Institutions) in respect of certain Forward Transactions, Index Forward Transactions, Option Transactions, Index Option Transactions, Swap Transaction and Credit Derivative Transactions where such were entered into after 1st November, 2012.  Two-sided reporting applies.

Key exemptions include: Transactions with Exempt Entities, Intragroup Transactions and the Small Reporting Dealer Exemption.

Reporting must occur (a) to a trade repository or a foreign trade repository within three business days from the date of each transaction being entered into or amended or (b) to the Commissioner of the JFSA within three business days calculated from the first day of the week following the date the transaction was entered into or amended.

Type I FIBOs and Registered Financial Institutions are required to maintain statutory records concerning order forms, transaction diaries and transaction records on intermediary or agency services.

Market initiatives have been identified. Overseas requirements are not deemed equivalent.

Dispute Resolution, Portfolio Reconciliation and Portfolio Compression

Only margin-related dispute resolution requirements apply. There are no portfolio reconciliation or portfolio compression requirements.

Under the Japanese Margin Rules, margin disputes must be resolved using a method of calculation agreed upon in advance by the parties. Under the JFSA Supervisory Guidelines, there is a high-level principle that parties should develop in advance measures to be taken if a dispute arises, making a proper response and recording and preserving the details.

The rules and guidelines apply to the same entities identified in Collateral below from when the margin requirements apply to them and in respect of Non-Cleared OTC Derivative Transactions.

Market initiatives have been identified. Overseas requirements are not deemed equivalent.

The collateralisation regime is comprised of the Japanese Margin Rules (which set out the mandatory collateralisation requirements prescribed by law) and the JFSA Supervisory Guidelines (which set out the JFSA’s supervisory collateralisation policy). Both must be complied with.

The Japanese Margin Rules apply to Type I FIBOs and Registered Financial Institutions which respect to in-scope transactions entered into with other Type I FIBOs, other Registered Financial Institutions or In-scope Foreign Derivative Dealers provided that the relevant compliance date has passed and that both parties are above the applicable threshold (if any). The JFSA Supervisory Guidelines apply more broadly to (i) Regulated Dealers (including Type I FIBOs and Registered Financial Institutions) with respect to in-scope transactions entered into with other Regulated Dealers or Foreign Derivative Dealers (in the case of the VM guidelines) and (ii) Regulated Dealers subject to the IM requirements under the Japanese Margin Rules (in the case of the IM guidelines).

The requirements apply to Non-Cleared OTC Derivative Transactions (which includes certain commodity transactions where one party is a Specified OTC Commodity Derivative Transaction Dealer) entered into on or after the relevant compliance date.

Key exemptions and exclusions include: Trust Property Transaction Exemption, physically-settled FX spot, forward or swap transactions, physically-settled commodity derivative transactions and transactions entered into on certain financial instruments or commodity markets.

A wide range of asset classes are eligible as collateral including cash, debt securities and index equities. Certain assets are subject to credit quality assessments, criteria to avoid wrong-way risk and haircuts and there is a general guideline requiring the appropriate diversification of assets.

Specific margin maintenance requirements apply to initial margin including segregation and prohibition on re-use.

Legal opinions are not required.

Market initiatives have been identified. Certain collateralisation requirements in Australia, Canada, the EU, Hong Kong, Singapore, the UK and the US are deemed equivalent.

There is no documentation or valuation requirement.