Principles for Financial Market
Infrastructures Disclosure

March 31, 20243
Japan Securities Clearing Corporation

Contents
I. Executive Summary...................................................................................... 4

II. Summary of Changes since the Previous Update ............................................................... 6
III. General Background of the FMI...................................................................................... 8

IV. Principle-by-Principle Summary Narrative Disclosure ...................................................... 22
General Organization ........................................................................................................ 22
Principle 1: Legal Basis ........................................................................................................... 22
Principle 2: Governance .......................................................................................................... 28
Principle 3: Framework for the Comprehensive Management of Risks ................................... 38

Management of Credit Risk and Liquidity Risk ................................................................. 43
Principle 4: Credit Risk ............................................................................................................ 43
Principle 5: Collateral .............................................................................................................. 52
Principle 6: Margin .................................................................................................................. 57
Principle 7: Liquidity Risk ........................................................................................................ 71

Settlement ......................................................................................................................... 79
Principle 8: Settlement Finality ................................................................................................ 79
Principle 9: Money Settlements ............................................................................................... 81
Principle 10: Physical Deliveries ............................................................................................. 84

CSDs and Exchange-of-Value Settlement Systems ......................................................... 86
Principle 11: Central Securities Depositories .......................................................................... 86
Principle 12: Exchange-of-Value Settlement Systems ............................................................ 87

Default Procedures ........................................................................................................... 88
Principle 13: Participant-Default Rules and Procedures.......................................................... 88
Principle 14: Segregation and Portability ................................................................................ 98

Business Risk Management and Operation Risk Management ..................................... 103
Principle 15: General Business Risk ..................................................................................... 103
Principle 16: Custody and Investment Risks ......................................................................... 106
Principle 17: Operational Risk ............................................................................................... 109
Principle 18: Access and Participation Requirements ........................................................... 116
Principle 19: Tiered Participation Arrangements ................................................................... 119
Principle 20: FMI Links .......................................................................................................... 122

Efficiency ......................................................................................................................... 125
Principle 21: Efficiency and Effectiveness ............................................................................. 125
Principle 22: Communications Procedures and Standards ................................................... 127

Transparency .................................................................................................................. 129
Principle 23: Disclosure of Rules, Key Procedures, and Market Data ................................... 129
Principle 24: Disclosure of Market Data by Trade Repositories ............................................ 133

V. List of Publicly Available Information ............................................................................... 134
VI. Glossary.................................................................................. 138

2

Figures
General Background of the FMI III-1: Role of JSCC in the Financial Market and Commodity
Markets .......................................................................... 8
General Background of the FMI III-2: Cleared Products .......................................................... 9
General Background of the FMI III-3: Clearing Statistics ....................................................... 13
General Background of the FMI III-4: Domestic Laws and Regulatory Framework .............. 16
General Background of the FMI III-6: JSCC System Overview ............................................. 21
Principle 2 (Governance) Key Consideration 2 IV-1: Shareholder Composition ................... 29
Principle 2 (Governance) Key Consideration 2 IV-2: Company Organization ....................... 33
Principle 5 (Collateral) Key Consideration 1 IV-3: Eligible Collateral ..................................... 52
Principle 6 (Margin) Key Consideration 3 IV-4: Overview of Initial Margin Calculation Method.................................................................................... 61
Principle 13 Key Consideration 1 IV-5: Loss Compensation by Financial Resources ........... 89

Responding institution: Japan Securities Clearing Corporation
Jurisdiction in which the FMI operates: Japan
Authorities regulating, supervising, or overseeing the FMI: Japan Financial Services Agency,
Ministry of Agriculture, Forestry and Fisheries, Ministry of Economy, Trade and Industry(Regulation and Supervision), Bank of Japan (Oversight)
Date of Disclosure: April 13, 20243
This document is also available at https://www.jpx.co.jp/jscc/en/.
Inquiries: Japan Securities Clearing Corporation, Clearing Planning Department
Contact Point: https://www.jpx.co.jp/jscc/en/form/contact.html
TEL: +81-3-3665-1234

Japan Securities Clearing Corporation has taken every effort to ensure the accuracy of theinformation contained in this document. JSCC shall accept no responsibility or liability for any
actions involving the use of this information. JSCC reserves the right to, without notice, revise oralter the contents of this document, or withdraw or halt its publication. Additionally, unlessotherwise noted, information contained within this document is current as of the end of March20243. Updates may be made following its initial publication. This document is also available on
the JSCC website and is subject to the website’s Usage Policy.
This is a reference translation of the original Japanese document. The original Japanese text shallbe definitive when construing or interpreting this document.

3

I. Executive Summary
Japan Securities Clearing Corporation (“JSCC”) is the primary clearing house in Japan,
providing clearing services (“Clearing Businesses”) for cash products on Tokyo Stock Exchange,
Inc. (“TSE”) and other exchanges/PTS in Japan (“Cash Products”), listed financial derivatives on
Osaka Exchange, Inc. (“OSE”), transactions in commodity markets at OSE, Tokyo Commodity
Exchange, Inc. (“TOCOM”) and Osaka Dojima Exchange, Inc. (“ODEX”), credit default swaps(“CDS”), interest rate swaps (“IRS”), and OTC Japanese Government Bond (“JGB”) transactions1.
JSCC is licensed to perform Financial Instruments Obligation Assumption Services under the
Financial Instruments and Exchange Act (“FIEA”) 2 and to perform Business of Assuming
Commodity Transaction Debts under the Commodity Derivatives Act (“CDA”) 3 , and directly
regulated by the Japanese Financial Services Agency (“JFSA”), the Ministry of Agriculture,
Forestry and Fisheries and the Ministry of Economy, Trade and Industry. In December 2013, the
JFSA released Comprehensive Guidelines for Supervision of FMIs, which incorporates the
Principles for Financial Market Infrastructures (“PFMI”), which is published by the Committee on
Payment and Settlement Systems-Board of the International Organization of Securities
Commissions (“CPSS-IOSCO” or “CPMI-IOSCO”)4, into Japanese regulations, and, in November
2014, the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Economy, Trade andIndustry similarly released “Basic Guidelines on Supervision of Commodity Clearing
Organizations”. JSCC is also subject to oversight 5 by the Bank of Japan (“BOJ”) of financial
market infrastructures, as provided in the Bank of Japan Act 6. JSCC is fully compliant with the
PFMIs and these Guidelines7. This disclosure provides details in accordance with the “Principles
for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology,” todemonstrate its compliance. Unless otherwise specified, this disclosure is current as of the endof March 20243.
Furthermore, JSCC has published quantitative information according to PFMI pursuant to the“Public quantitative disclosure standards for central counterparties” published by CPMI-IOSCO in
February 20158.
JSCC understands the necessity of a robust and comprehensive system for risk management

1

On July 27, 2020, the merger of JSCC and Japan Commodity Clearing House Co., Ltd. (“JCCH”) became effective,
wherein JSCC becoming the surviving entity. As a result of this merger, JSCC integrated the clearing services forcommodity markets which had been offered by JCCH.

2FIEA Article 156-2

3

CDA Article 167

4Name at the time the PFMI’s release. On September 1, 2014, the Committee on Payment and Settlement Systems(CPSS) changed its name to the Committee on Payments and Market Infrastructures (“CPMI”).

5

In March 2013, the BOJ formulated the “The Bank of Japan Policy on Oversight of Financial Market Infrastructures,”clarifying the adoption of the PFMIs as criteria to be used for evaluating the safety and efficiency of systemicallyimportant financial market infrastructures.

6

Bank of Japan Act Article 1

7

In the “Implementation monitoring of the PFMIs: Level 2 assessment report for central counterparties and traderepositories – Japan" publicized by CPMI-IOSCO on February 26, 2015 (the link below), Japan is rated as having
completely and consistently adopted the PFMIs applicable for CCPs licensed under the Financial Instruments andExchange Act and TRs.
Link to the report: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD476.pdf

8JSCC’s quantitative disclosures can be found at the following link: https://www.jpx.co.jp/jscc/en/company/fmipdf2.html

4

to fulfill its responsibility to stably provide its clearing services. To handle the credit, liquidity,
custody, operational, and other risks to which it is exposed, JSCC has established a robust risk
management framework incorporated into its organization, including the Board of Directors andRisk Oversight Committee.

5II. Summary of Changes since the Previous Update
This document is JSCC’s disclosure pursuant to the “Principles for Financial Market
Infrastructures: Disclosure Framework and Assessment Methodology” released by CPSS-IOSCO
in December 2012. As Principles 11 (Central Securities Depositories) and 24 (Disclosure ofMarket Data by Trade Repositories) do not apply to JSCC’s business, these principles are notcovered in this disclosure.
JSCC published its first disclosure on March 31, 2015, then updated it on March 31, 2016,
March 31, 2017, March 31, 2018, March 31, 2019, March 31, 2020, September 30, 2020, March
31, 2021, and March 31, 2022, and March 31, 2023. Major changes in this update from the last
disclosure are as follows:

As of May 29, 2023, JSCC added 3-Month TONA Futures Contracts, Nikkei 225 micro
Futures/mini Options and ESG index futures contracts traded at OSE to the Contracts
Subject to Clearing.
-See “Overview of JSCC’s Background and Clearing Business” under “III. General
Background of the FMI”.
As of September 29, 2023, JSCC obtained an interim order exempting JSCC from therequirement to be recognized as a Clearing Agency under the Securities Act of Ontario
from the Ontario Securities Commission.

See “Legal and regulatory framework” under “III. General Background of the FMI”.
As of November 6, 2023, JSCC changed the Margin calculation methodology for the Listed
Financial Derivatives and Listed Commodity Derivatives, from one using SPAN®
(developed by the Chicago Mercantile Exchange), to a VaR methodology.

-

See Principle 3 (Framework for the Comprehensive Management of Risks), Principle 4(Credit Risk) and Principle 6 (Margin).
As of November 6, 2023, the product name of “TSE Mothers Index Futures” traded on OSE
was changed to “TSE Growth Market 250 Index Futures”.



See “Overview of JSCC’s Background and Clearing Business” under “III. General
Background of the FMI”.
As of November 23, 2023, in association with the end of the trial listing of rice on ODEX,JSCC removed rice from the Contracts Subject to Clearing.

See “Overview of JSCC’s Background and Clearing Business” under “III. General
Background of the FMI”.
As of December 18, 2023, JSCC revised the initial margin requirement calculation
methodology for the OTC JGB Clearing Business.



See Principle 6 (Margin).
As of February 2024, JSCC added Climate Transition Interest-bearing Government Bonds
to the Contracts Subject to Clearing and to the Eligible Collateral.



See Principle 5 (Collateral).
As of March 4, 2024, JSCC added criteria for judgment of the successful clearing of newly
submitted trade in the IRS Clearing Business.

-

See “System and operations” under “III. General Background of the FMI” and Principle 6(Margin).

6

As of March 4, 2024, JSCC added interest rate futures contracts to the trades eligible for
Cross Margining in the IRS Clearing Business.
-

See Principle 6 (Margin) and Principle 13 (Participant-Default Rules and Procedures).
As of March 18, 2024, JSCC added JPX Prime 150 Index Futures traded on OSE andelectricity futures (weekly) traded on TOCOM, to the Contracts Subject to Clearing.

See “Overview of JSCC’s Background and Clearing Business” under “III. General
Background of the FMI”.
From April 1, 2024, JSCC will designate DTCC Data Repository (Japan) K.K. as the traderepository for trade information mandated by the JFSA.

-

See Principle 20 (FMI Links).

As of April 4, 2022, JSCC added LNG Futures Contracts traded at TOCOM to theContracts Subject to Clearing.
-See “Overview of JSCC’s Background and Clearing Business” under “III. General
Background of the FMI” and Principle 6 (Margin).
Starting from April 22, 2022, Cover 2 default assumption applied to all JSCC Clearing
Businesses for sufficient liquid resource calculations.



See Principle 7 (Liquidity Risk).
As of June 27, 2022, JSCC started clearing of transactions traded on the proprietary
trading system operated by the Osaka Digital Exchange Co., Ltd.



See “Overview of JSCC’s Background and Clearing Business” and “System andoperations” under “III. General Background of the FMI”
As of September 21, 2022, JSCC started clearing of contracts executed through holiday
trading of the Listed Derivatives and introduced the risk management framework that deals
with an expansion of Clearing Participants’ exposures that may arise from holiday trading.



See Principle 6 (Margin)
As of March 27, 2023, JSCC established the Dojima Precious Metal Futures Clearing
Qualification covering contracts traded at the precious metal market established at ODEX.

-

See “Overview of JSCC’s Background and Clearing Business” under “III. General
Background of the FMI” and Principle 13 (Participant-Default Rules and Procedures)

In addition to the above changes, this document contains some additions and revisions to theprevious document in association with the minor revisions to the frameworks in each Clearing
Business. Also, this document contains some minor additions and revisions to the previous
document made for the sake of clarification.

7

III. General Background of the FMI
Overview of JSCC’s Background and Clearing Business
JSCC is a majority-owned subsidiary of Japan Exchange Group, Inc. (“JPX”). JPX’s othersubsidiaries include TSE, OSE, TOCOM, JPX Market Innovation and Research, Inc. (“JPX Market
Innovation & Research”), and Japan Exchange Regulation. JSCC was established on July 1,
2002 and licensed as a central counterparty (“CCP”) on January 7, 2003, making it the firstlicensed clearing organization in Japan. As of April 30, 2020, JSCC obtained a license to performthe Business of Assuming Commodity Transaction Debts.
General Background of the FMI III-1: Role of JSCC in the Financial Market and Commodity
Markets

Listed Product Transactions
Tokyo Stock Exchange
Nagoya Stock Exchange

Trading

Osaka
Exchange,

Fukuoka Stock Exchange

Tokyo
Commodity
Exchange,

Sapporo Stock Exchange
Japannext PTSOTC Transactions
Note: Includes OTC
transactions
executed on
Trading Facilities

Osaka Dojima
Exchange

Cboe Japan
Osaka Digital Exchange

Equities, CB,
REIT, ETF

Futures, Options

Clearing

JSCC

Netting

Settlement
Guarantee

Settlement(Fund Settlement)
BOJ/Fund Settlement
Banks

CDS, IRS,OTC JGB

Clearing(Securities Settlement)
BOJ/JASDEC
Euroclear Bank SA/NV

8

Transfer
Instructions(Commodity PhysicalSettlement)

JSCC provides the core clearing services for the Japanese financial and commodity markets,
clearing all cash securities transactions executed on all Japanese securities exchanges and PTS
including TSE (“Cash Products”), Listed Financial Derivatives, Listed Commodity Derivatives(Listed Financial Derivatives and Listed Commodity Derivatives are collectively referred to “Listed
Derivatives”), as well as credit default swaps, interest rate swaps, and OTC JGB transactions. In
addition, JSCC covers the settlement of listed securities and cash related to ETF creation andredemption.
General Background of the FMI III-2: Cleared Products
Category

Details
All trades executed on domestic stock
exchanges and three proprietary trading
systems

Cash Products (*1)

Nikkei 225 Futures (*2)
Nikkei 225 mini
Nikkei 225 micro Futures
TOPIX Futures (*2)
mini-TOPIX Futures
JPX-Nikkei Index 400 Futures (*2)
TSE Mothers Index Futures
JPX Prime 150 Index Futures
TOPIX Core30 Futures
Cash Products andListed Financial
Derivatives

RN Prime Index Futures9
TSE Growth Market 250 Index Futures
S&P/JPX 500 ESG Score Tilted Index
Futures

Index Futures

FTSE Net Zero Japan 500 Index Futures
Nikkei 225 Climate Change 1.5°C Target
Index Futures
TOPIX Banks Index Futures (*2)
DJIA Futures
TAIEX Futures
FTSE China 50 Index Futures
Nikkei 225 Dividend Index Futures
Nikkei 225 VI Futures
TSE REIT Index Futures (*2)
Nikkei 225 Total Return Index (*3)

9

OSE suspended trading of RN Prime Index Futures on December 8, 2023.

9

Nikkei 225 Options (*2)
Nikkei 225 mini Options
TOPIX Options (*2)
Index Options

JPX-Nikkei Index 400 Options (*2)
TOPIX Banks Index Options (*3)
TSE REIT Index Options (*3)

Individual Securities
Options

Individual Securities Options (*2)
5-year JGB Futures
10-year JGB Futures

Bond Futures andOptions

Options on 10-year JGB Futures (*4)
mini 10-year JGB Futuresmini 20-year JGB Futures

Interest Rate
Futures

3-Month TONA Futures
Gold Standard Futures
Gold Mini Futures
Gold Rolling-Spot Futures

Precious Metal
Futures and Options
on Precious Metal
Futures(OSE Listed)

Options on Gold Futures
Silver Futures
Platinum Standard Futures
Platinum Mini Futures
Platinum Rolling-Spot Futures

Listed Commodity
Derivatives

Palladium Futures
Rubber (RSS3) Futures

Rubber Futures(OSE Listed)

Rubber (TSR20) Futures
Soybean Futures

Agricultural Futures(OSE Listed)

Azuki (Red Bean) Futures

Petroleum Futures(OSE Listed)

CME Group Petroleum Index Futures

Corn Futures10Barge Gasoline Futures
Barge Kerosene Futures
Barge Gasoil Futures
Platts Dubai Crude Oil Futures
East Area Baseload Electricity Futures (*5)

Energy/Chukyo Oil
Futures(TOCOM Listed)

West Area Baseload Electricity Futures (*5)
East Area Peakload Electricity Futures (*5)
West Area Peakload Electricity Futures (*5)
LNG (Platts JKM) Futures
Chukyo Lorry Gasoline Futures
Chukyo Lorry Kerosene Futures
Niigata Koshi EXW Futures

Agricultural/Sugar10

Corn 50 Futures

Futures(ODEX Listed)

U.S. Soybean Futures
Azuki (Red Bean) Futures
Gold Rolling-Spot Futures

Precious Metal
Futures(ODEX Listed)

Silver Rolling-Spot Futures
Platinum Rolling Spot Futures
Series of Markit iTraxx Japan index

Credit Default Swaps11

Single Name CDS (59 issues)
JPY Overnight Index Swap

Interest Rate Swaps12 13

JPY TIBOR (1M, 3M and 6M)

OTC JGB Transaction

Outright JGB

10ODEX suspended trading of Raw Sugar Futures trading at ODEX has been suspended sinceon October 4, 2022.

11

See “https://www.jpx.co.jp/jscc/en/cash/cds/product.html” for details of CDS eligible for clearing.

12

Remaining term to maturity (from the date of submission for Clearing to the Termination Date) of IRS that are eligible
for Clearing is as follows: JPY OIS: Not less than 3 days and not more than 14,623 days
 JPY Z TIBOR: Not less than 3 days and not more than 10,971 days
 JPY D TIBOR: Not less than 3 days and not more than 10,971 days
Please note: Clearing of foreign currency (USD, EUR and AUD) denominated IRS has been suspended since April 1,
2020.
See “https://www.jpx.co.jp/jscc/en/cash/irs/product.html” for details of other IRS eligible for clearing.

13

To deal with the permanent discontinuation of JPY-LIBOR publication on Dec. 31, 2021, JSCC converted all IRS
cleared contracts referencing JPY-LIBOR as Floating Rate Option that existed as of the close of business on Dec. 3,2021 into those referencing TONA (OIS) as Floating Rate Option as of Dec. 6, 2021. In addition, JSCC converted thecleared contracts referencing JPY-LIBOR as Floating Rate Option that subsequently came into existence as a resultof Swaption exercises and existed at the close of business on Dec. 30, 2021 into those referencing TONA (OIS) as
Floating Rate Option as of Jan. 4, 2022.
From Jan. 4, 2022, when an IRS referencing JPY-LIBOR as a Floating Rate Option that comes into existence as aresult of a Swaption exercise is submitted for clearing, JSCC will convert such IRS into an IRS referencing TONA
(OIS) as a Floating Rate Option, and clear the resulting trade.

11Cash-secured Bond Lending Transactions
Standard Repo Transactions14
Subsequent Collateral Allocation Repo
Transactions15(*1) Including the settlement of listed securities and cash related to lending and borrowing
and ETF creation and redemption; the same applies hereinafter.
(*2) Including Flexible Contract Month Contracts (referring to contracts whose contract
terms, such as the Last Trading Day and the final settlement method are defined by the
Trading Participant).
(*3) Only Flexible Contract Month.
(*4) No Flexible Contract Month.
(*5) Monthly and Weekly.

14

Referring to Buying/Selling of JGBs with the condition to repurchase/resell, which specifies JGBs subject to
Buying/Selling by issue

15

Referring to Buying/Selling of JGBs with the condition to repurchase/resell, for which JGBs subject to Buying/Sellingare specified as a Basket

12General Background of the FMI III-3: Clearing Statistics16
Cash Products and Listed Derivatives
Cash Products
Index Futures
Index Options
Individual Securities Options
Bond Futures and Options
Interest Rate Futures
Precious Metal Futures and Options on
https://www.jpx.co.jp/jscc/en/listed_products.html
Precious Metal Futures (OSE Listed)
Rubber Futures (OSE Listed)
Agricultural Futures (OSE Listed)
Petroleum Futures (OSE Listed)
Energy/Chukyo Oil Futures (TOCOM Listed)
Agricultural/Sugar Futures (ODEX Listed)17
Precious Metal Futures (ODEX Listed)OTC Derivatives
Credit Default Swaps

https://www.jpx.co.jp/jscc/en/credit_default_swap.html

Interest Rate Swaps

https://www.jpx.co.jp/jscc/en/interest_rate_swap.html
OTC JGBOTC JGB Transaction

https://www.jpx.co.jp/jscc/en/jgbcc.html

General organization of the FMI
As a vital financial market infrastructure (“FMI”) and a vital commodity market infrastructure in
Japan, JSCC employs a governance structure which ensures fairness and robust risk
management. At the highest level, JSCC’s Board of Directors is composed of two full-time
directors and fivesix part-time directors. The board is responsible for approving high-level policies
and budgets, and assessing the appropriateness of directors’ execution of their duties. It is
required to comply with relevant laws and regulations, and is subject to review by statutory
auditors and at the annual general shareholders meeting. JSCC published its Governance
Guidelines, containing, among other things, the roles and responsibilities of the Board of
Directors18.
JSCC executes business plans based on resolutions of the Board of Directors, realizing
JSCC’s corporate philosophy, and overseeing day-to-day operations. The advisory committees ofeach product area, which are composed of Clearing Participants of the relevant product area andother entities, also function to incorporate the opinions of Clearing Participants into JSCC’s
governance. For matters involving actions against Clearing Participants, JSCC consults with the16

In addition to Clearing Statistics, JSCC discloses quantitative information on its website(https://www.jpx.co.jp/jscc/en/company/fmi-pdf2.html) according to the “Public quantitative disclosure standards forcentral counterparties” published by CPMI-IOSCO.

17

ODEX suspended trading of Raw Sugar Futures trading at ODEX has been suspended sinceon October 4, 2022.

18

Available at: “https://www.jpx.co.jp/jscc/en/risk/cimhll00000005q9-att/GG_E.pdf”

13Disciplinary Measures Assessment Committee, which is composed of members that are
independent from JSCC. The Disciplinary Measures Assessment Committee Rules contain theprovisions to the effect that a committee member with a special interest in the deliberation at theDisciplinary Measures Assessment Committee may not participate in that deliberation. See
Principle 2 (Governance) for further details.
According to the internal provisions of JSCC’s Risk Management Policy, which is applied to allof its Clearing Businesses, and the Business Rules of each Clearing Business, JSCC hasestablished a framework for managing the specific risks of each business, including eligibility
criteria for Clearing Participants and a robust collateral system for initial margin and the Clearing
Fund.
From the perspective of managing the credit risk of Clearing Participants, JSCC defines andpublicizes clearing qualifications separately for each of its Clearing Businesses, with the criteria
for each aligned with the nature of that business. Criteria for participation are reasonable, clear,and publicly available, focusing primarily on the entity’s management structure, financial
conditions, and business capability. JSCC continually monitors each Clearing Participant’s
management structure, financial condition, and business execution capability. If JSCC recognizes
a problematic situation, it has the discretion to suspend clearing services in whole or in part forthat Clearing Participant, or revoke its clearing qualification, as necessary. See Principle 18(Access and Participation Requirements) for further details.
As of the end of March 20243, there were a total of 124 Clearing Participants for Cash
Products19 and Listed Derivatives, 11 CDS Clearing Participants, 26 IRS Clearing Participants,
and 41 OTC JGB Clearing Participants.
JSCC secures pre-funded financial resources to be available for a Clearing Participant’s
default, based on the predefined risk appetite 20 for each Clearing Business. For this purpose,
initial margin21 requirements are calculated using an appropriate look-back and holding period inlight of the product features of each Clearing Business, while Clearing Fund contributions arecalculated to cover the expected loss, using stress scenarios for each Clearing Business.
JSCC marks open positions to market at least once a day, for all products, and more frequently
for some products, and requires Clearing Participants to deposit Margin by a specific time intraday.
JSCC makes intra-day margin calls daily in the IRS Clearing Business and the Listed Derivatives
Clearing Business.
For the Listed Derivatives, IRS and OTC JGB Clearing Businesses, each Clearing Participant
is required to deposit intraday margin according to its positions. Furthermore, following a suddenchange in market conditions, JSCC can require an additional deposit of intraday margin, fromeach Clearing Participant.
JSCC can apply margin add-ons on an event driven basis, if it deems necessary. See Principle
6 (Margin) for further details on margins. In addition, JSCC has implemented an additional margin

19

Including ETF Special Clearing Participants (Clearing Participants that are asset management companies under theclearing service related to the settlement of ETF creation and redemption) and Registered ETF Trust Banks (trustbanks which are principal bodies to perform settlement operations under the clearing service related to thesettlement of ETF creation and redemption).

20

Risk Appetite Statement is available at:“https://www.jpx.co.jp/jscc/en/risk/appetite.htmlhttps://www.jpx.co.jp/jscc/en/risk/i1h00a0000001bhh-att/RAS_E.pdf”

21

Under the Business Rules for the securities and similar contracts clearing business and the Business Rules on
Business of Assuming Commodity Transaction Debts, initial margin for Listed Derivatives is referred to as “Margin.”

14

framework based on each Clearing Participant’s counterparty credit risk.
For CDS and IRS clearing, JSCC has introduced a Compression framework, in an effort to
reduce and compress positions by simultaneously unwinding multiple cleared trades. For IRS,
JSCC offers Compression services that allow for the simultaneous participation of multiple
Clearing Participants over pre-defined processing cycles (Vendor-Initiated Compression, JSCCInitiated Compression and Member-Initiated Compression, which Clearing Participants may
jointly or independently utilize) and Compression services that can be performed daily upon therequest of individual Clearing Participants (Per Trade Compression and Blended Rates
Compression). In addition, JSCC accommodates Netting Synchronization, which is the automatic
updating of Compression results to MarkitWire, for IRS.
In the event of a Clearing Participant default, JSCC would suspend the delivery of settlement
funds, securities and commodities and the posted collateral between the defaulting Clearing
Participant and JSCC. Thereafter, JSCC will liquidate positions and compensate losses asprescribed in the Business Rules of each Clearing Business. For any type of transaction, Clearing
Participants maintain no credit risk against their original trade counterparty, as JSCC will
guarantee settlements for non-defaulting Clearing participants 22. In addition, JSCC has secured
liquidity supply from Fund Settlement Banks and its parent company, JPX, (“Liquidity Supply
Facility”) to secure short-term liquidity for use in the event of a Clearing Participant’s default. See
Principle 7 (Liquidity Risk) and Principle 13 (Participant-Default Rules and Procedures) for further
details.
Legal and regulatory framework
JSCC holds a license for “financial instruments obligation assumption service” (i.e. financial
instruments clearing) under FIEA and a license for “business of assuming commodity transaction
debts” under CDA to conduct clearing business as a CCP, and JSCC’s business is governed by
the FIEA, CDA and other Japanese laws. JSCC has established Business Rules for each of its
Clearing Businesses, which are subject to approval by the Prime Minister of Japan or the Ministerof Agriculture, Forestry and Fisheries and the Minister of Economy, Trade and Industry. JSCC is
obligated by the FIEA and CDA23 to conduct its business and operations according to its Business
Rules, thus making these rules legally binding and enforceable. JSCC is subject to the direct
regulation and supervision by the JFSA, the Ministry of Agriculture, Forestry and Fisheries andthe Ministry of Economy, Trade and Industry, and oversight in accordance with objectives
prescribed in the Bank of Japan Act from the BOJ.

22

For the defaulter’s position, where the settlement by delivery of commodities has been fixed (Default Delivery
Position), Clearing Participants that may perform the delivery and receipt of the commodities are solicited throughan auction. If this auction is unsuccessful, the position shall be liquidated by cash and the delivery obligations wouldcease to exist. Upon a default of an ETF Special Clearing Participant, the defaulter’s unperformed obligations
related to ETF creation/redemption at JSCC shall become invalid retroactively upon the time of the application forclearing.

23

FIEA Article 156-7 and CDA Article 175

15

General Background of the FMI III-4: Domestic Laws and Regulatory Framework
Product

MarketCash Products

Japanese Securities
Exchanges,
PTS

Listed Financial Derivatives

Law

Supervisory
Authority

FIEA

JFSA

OSE

TOCOM
Listed Commodity Derivatives

CDA
ODEX

Ministry of
Economy, Tradeand Industry
Ministry ofAgriculture, Forestry
and Fisheries
Ministry of
Economy, Tradeand Industry

CDS
IRS

OTC

FIEA

JFSA

OTC JGB
Some of JSCC’s Clearing Participants are domiciled in European Union (“EU”) countries.
Because of this, JSCC has obtained recognition as a Third Country CCP under European Market
Infrastructure Regulation (“EMIR”) from the EU’s European Securities and Markets Authority(“ESMA”) to provide services to Clearing Participants and trading venues established in EU
countries24.
In Australia, JSCC has received designation as a Prescribed Facility under Corporations
Amendment (Central Clearing and Single‑Sided Reporting) Regulation 2015 (Select Legislative
Instrument No.157, 2015) 25, 26.
Some Affiliates (referring to a person in the same Corporate Group as the Clearing Participant;the same applies hereinafter) of Clearing Participants that clear CDS or IRS in JSCC are
categorized as U.S. Persons, under the guidelines of the U.S. Commodity Futures Trading
Commission (“CFTC”)27. To allow these trading entities to access JSCC’s Clearing Service for aswap, JSCC has obtained an order of exemption from registration as a Derivatives Clearing

24

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000055katt/JSCC-press-release_TC-CCP_en1.pdf” for details.

25

Currently, Corporations Regulations 2001(Statutory Rules No. 193, 2001).

26

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000054catt/JSCC-press-release_Prescribed-CCP_en1.pdf” for details.

27

U.S. Person defined in the “Interpretive Guidance and Policy Statement regarding Compliance with Certain Swap
Regulations (78 Fed.Reg.45292 (July 26,2013)) IV.A.4.” published by CFTC.
See CFTC guidelines on “https://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2013-17958a.pdf”
for details.

16Organization under the Commodity Exchange Act from the CFTC28.
Some of the Clearing Participants that clear IRS in JSCC are incorporated in Hong Kong.
Therefore, JSCC has obtained authorization from the Hong Kong Securities and Futures
Commission (“SFC”), to provide Automated Trading Services, and the designation as a central
counterparty, that can be used for the observance of mandatory clearing obligations, under the
Securities and Futures Ordinance (“SFO”)29.
Some of the Clearing Participants that clear IRS in JSCC are incorporated in Switzerland.
Therefore, JSCC has been recognized as Foreign Central Counterparty under the Financial
Market Infrastructure Act from the Swiss Financial Market Supervisory Authority (“FINMA”) to offer
IRS Clearing Services to those trading entities 30.
Some of JSCC’s Clearing Participants are incorporated in the U.K. So, JSCC made asubmission to the Bank of England with respect to recognition as a Third Country CCP under theCentral Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018,
in order to provide services to Clearing Participants and trading facilities established in the U.K.
Subsequently, JSCC has obtained temporary recognition for the provision of services in the U.K.
as a Third Country CCP31.
In Canada, JSCC received from the Ontario Securities Commission (OSC) an interim order
exempting JSCC from the requirement to be recognized as Clearing Agency under the
Securities Act of Ontario. JSCC also received an interim exemptive relief from OSC and theAutorité des Marchés Financiers (AMF), the financial regulatory authority of Quebec, withrespect to the substituted compliance with the National Instrument setting forth OTC derivatives’customer clearing and customer protection by JSCC’s compliance with the relevant Japanese
regulations32.
Consequently, each trading entity may satisfy their obligations in relation to the central clearing
requirements of OTC derivative transactions that are currently in effect, or expected to be in effectin the future, in the EU, Australia, the U.S., Hong Kong, Switzerland, and the U.K., and Canada,
by clearing its trades in JSCC.
In order to provide trading participants established in the U.S. with direct access to the trading
systems for Listed Derivatives listed on each exchange, OSE and TOCOM received registrationfrom the CFTC as a Foreign Board of Trade (“FBOT”) under the U.S. Commodities and Exchange
Act33. In the registration of OSE and TOCOM from the CFTC, JSCC is designated as a CCP for

28

See JSCC’s press releases on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000053qatt/JSCC-press-release_CFTC-Exemption_en1.pdf” and“https://www.jpx.co.jp/jscc/en/information/press_releases/i1h00a0000000yef-att/JSCC-press-release_CFTCAmended_Exemption_en.pdf” for details.

29

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000051watt/JSCC_HK_ATSCCP_e.pdf” for details.

30

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/i1h00a0000002w0datt/JSCC-press-release_FINMA-recognized_foreign_CCP_en.pdf” for details.

31

See Bank of England website on “https://www.bankofengland.co.uk/eu-withdrawal/-/media/boe/files/financialstability/financial-market-infrastructure-supervision/list-of-third-country-ccps.pdfhttps://www.bankofengland.co.uk//media/boe/files/financial-stability/financial-market-infrastructure-supervision/interim-list-of-third-country-ccp” fordetails.

32

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/20231013.html” for details.

33

See CFTC websites below.

17the clearing of trades executed at OSE and TOCOM.
General Background of the FMI III-5: Authorization, Recognition, Designation, Exemption from
Foreign Regulatory Authorities
Country /RegionCovered Trades

Relevant Authority

Authorization, Recognition,
Designation, Exemption ObtainedEU

All Cleared
TradesESMA

Recognition as a Third Country
CCP under EMIR

Australia

IRS

Australian Securities andInvestments Commission
andReserve Bank of Australia

Designation as a Prescribed
Facility under Corporations
Regulations 2001(Statutory Rules
No.193, 2001)

US

CDS
IRS

CFTC

Order of exemption from
Registration as a Derivatives
Clearing Organization under the
Commodity Exchange Act

Hong Kong

IRS

SFC

Authorization to Provide
Automated Trading Services, andDesignation as a Central
Counterparty, that can be Usedfor the Observance of Mandatory
Clearing Obligations, under SFO

Switzerland

IRS

FINMA

Recognition as Foreign Central
Counterparty under Financial
Market Infrastructure Act

Bank of England

Temporary Recognition as a Third
Country CCP under The Central
Counterparties (Amendment, etc.,
and Transitional Provision) (EUExit) Regulations 2018

UK

All Cleared
Trades(CFTC Press Release: OSE’s FBOT Registration)
https://www.cftc.gov/PressRoom/PressReleases/7772-18(CFTC Press Release: TOCOM’s FBOT Registration)
https://www.cftc.gov/PressRoom/PressReleases/7105-15(CFTC List of Registered FBOTs)
https://sirt.cftc.gov/sirt/sirt.aspx?Topic=ForeignBoardsofTrade18

Canada

IRS

OSC
AMF

Interim order exempting
recognition of Clearing Agency
under the Securities Act ofOntario and exemptive relief withrespect to the substitutedcompliance with the National
Instrument 94-102 by JSCC’s
compliance with the relevantJapanese regulations

System and operations
For cash product transactions, JSCC serves as the CCP for all domestic Japanese financial
instruments exchanges and three Proprietary Trading Systems (“PTS”). It fulfills this role throughclearing eligible products at the time the transactions are executed in the market, whereby JSCC
interposes itself between the parties, assuming the buyer’s obligation for payment and the seller’s
obligation for delivery.
Settlement of equities and bonds between JSCC and Clearing Participants is conducted on a
trade date plus two days basis (“T+2”) via a Delivery Versus Payment (“DVP”) system.
For Listed Derivatives, JSCC serves as the Financial Instruments Clearing Organization forthe products listed on OSE, and as the Commodity Clearing Organization for the products listed
on TOCOM and ODEX. JSCC clears the products at the time the transactions are executed in themarket, whereby JSCC interposes itself between the parties, assuming their obligations, andguaranteeing the settlement.
CDS are cleared once per week on a three-day cycle. Beginning on Tuesday of each week,
the pre-cleared CDS is registered to a confirmation platform to apply for clearing. On the next
business day, the parties to the transaction may modify details of the transaction, after which it issent to JSCC. JSCC will clear the trade at 4:00 p.m. on the third business day.
The clearing of IRS, including OTC transactions, and transactions executed through Electronic
Trading Platforms provided by institutions registered with the JFSA, SEF (Swap Execution
Facilities) registered with the CFTC, or MTF (Multilateral Trading Facility) or OTF (Organised
Trading Facility) operating in the EU under MiFID/MiFIR, is conducted on each business day
during the periods of 09:00 to 12:00, 13:00 to 16:00, and 17:30 to 19:00 (JST). Specifically, uponreceipt of an application for clearing a new trade from a Clearing Participant, JSCC calculates theamount of variation margin and initial margin required to cover the entire portfolio of the relevant
Clearing Participant, including both the new transaction (if a new trade is part of a Package
Trade34, then all new transactions under the relevant Package Trade) and all existing clearedtransactions. If the Clearing Participant’s deposited collateral is at least equal to the required
amount, JSCC would clear the new trade. However, even in the case where a Clearing
Participant’s deposited collateral is insufficient to cover the margin required to clear a trade for
the Clearing Participant or their Customer, JSCC could clear the trade if certain conditions are
met35, to prevent the rejection of a clearing request in certain cases. For example, a temporary

34

By using “Package Trade”, a Clearing Participant may apply to clear multiple eligible IRS Transactions in bulk
(Article 2. (4)-2 of the Interest Rate Swap Clearing Business Rules).

35

JSCC would clear a trade if sufficient collateral to cover the required amount has not been deposited, only under thefollowing conditions:- Notional Amount of the trade submitted for clearing is less than the amount prescribed by JSCC;- Shortfall in the relevant Clearing Participant’s required margin deposit is JPY1bil. or less;19difficulty in depositing collaterals by reason of funding arrangements.
The clearing of OTC JGB transactions, other than Subsequent Issue Allocation Repo
Transactions, are cleared at 18:30 (JST), with Subsequent Issue Allocation Repo Transactions
being cleared at 7:00, 11:00, and 14:00 (JST) every business day. DVP settlement of OTC JGB
transactions is conducted through RTGS (Real-time Gross Settlement) provided by the BOJ.
JSCC outsources all development and operations related to IT systems. It appropriately
manages outsourcing arrangements according to clearly defined outsourcing guidelines andcriteria. The development and operations of IT systems for JSCC’s Clearing Businesses areoutsourced to TSE36. TSE is a JPX subsidiary, and therefore affiliated with JSCC.

- Intraday Margin call or Initial Margin call based on Cleared Contracts as of 19:00 has been resolved; and- The relevant Clearing Participant is not in breach of the criteria concerning raising required Initial Margin amountunder the “GUIDELINES CONCERNING CREDIT STANDING OF CLEARING PARTICIPANTS, ETC. IN IRS
CLEARING BUSINESS”.
36

A part of system processing for the clearing of ODEX-listed Commodity Derivatives is outsourced to ODEX.

20

General Background of the FMI III-6: JSCC System Overview

JSCC Clearing System
Exchanges(Trading System)

Clearing
PTS(Trading System)

Trade
Data

DTCC
Information
Warehouse

Sec./Fund Netting
Fail Management
Voucher Generation

Fund
Settlement
Banks
Bank of Japan

IM, Clearing Fund
Deposit/Withdrawal/Transfer(Listed Derivatives)

JASDEC(Settlement System)

Securities Finance
Company(Equities/OTC JGB)

Fund
Settlement
Instructions

CollateralManagement
Process

Lending
Data

Position Management
Difference Calculation
Close-out Quantity
ReportVoucher Generation

Risk Management
Check on sufficiency
of financial resources

（CDS）
CDS
Trade
Data

Position Management
VM Calculation
Credit Event Handling
Voucher Generation

Other
CentralSecurities
Depository

Participant
Issue MasterFee Management
Statistic Calculation

JASDECBank of Japan
Euroclear
Bank SA/NV(IRS)
MarkitSERVMarkitWire

IRS
Trade
Data

Position Management
VM Calculation
Voucher Generation

Settlement
Securities Settlement
Fund Settlement

Electronic Trading
Platform/
Electronic Trade
Affirmation Platformarrownet
IP-VPN/Ethernet dedicated line
Distribution of Clearing/Settlement Data
Collateral Instructions

Clearing
Participant
Terminal

Clearing Participant

21

Inter-system
Connection

IV. Principle-by-Principle Summary Narrative Disclosure
General Organization
Principle 1: Legal Basis
An FMI should have a well-founded, clear, transparent, and enforceable legal basis for eachmaterial aspect of its activities in all relevant jurisdictions.
Key Consideration 1:
The legal basis should provide a high degree of certainty for each material aspect of an
FMI’s activities in all relevant jurisdictions.
Material aspects and relevant jurisdictions
JSCC views the following activities to require a high degree of legal certainty:
 Trade clearing
 Netting Settlement finality
 DVP arrangements
 Linkages with other FMIs
 Collateral arrangements
 Default management arrangements
Legal Basis for each Material Aspect and Relevant Jurisdiction
JSCC’s activities are governed by Japanese laws and regulations, including the FIEA, CDA,
Civil Code, Companies Act, the “Cabinet Office Ordinance on Financial instruments Clearing
Organization, etc.” and the “Ordinance for Enforcement of the Commodity Derivatives Act.”
However, within JSCC’s CDS Clearing Business, the terms and conditions of cleared CDS
transactions are governed by and interpreted according to English law in the absence of specificprovisions otherwise.
Furthermore, JSCC is subject to the supervision of the JFSA, the Ministry of Agriculture,
Forestry and Fisheries and the Ministry of Economy, Trade and Industry in accordance with the“Comprehensive Guidelines for Supervision of Financial Market Infrastructures” established by
JFSA and the “Basic Guidelines on Supervision of Commodity Clearing Organizations”
established by the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Economy,
Trade and Industry, which covers all aspects of an FMI’s business and operations.
JSCC’s Business Rules are approved by the Prime Minister of Japan and the Minister ofAgriculture, Forestry and Fisheries and the Minister of Economy, Trade and Industry, in
accordance with the FIEA 37 and CDA 38 . JSCC’s rules are authorized pursuant to suchrequirement. JSCC concludes a Clearing Participant Agreement with each Clearing Participant
under which the Clearing Participant is required to comply with JSCC’s Business Rules. Thereby,
JSCC’s Business Rules are legally binding as they are positioned as the contract between JSCC

37

FIEA Articles 156-3 and 156-12

38

CDA Articles 168 and 182

22and each Clearing Participant.
The relationships between JSCC, its Clearing Participants, and customers are governed by
JSCC’S Business Rules, which set out the rights and obligations of each. JSCC’s Rules andClearing Participant Agreements state that all of JSCC’s Clearing Businesses are governed by
the laws of Japan and fall under the jurisdiction of the Tokyo District Court.
Provisions relating to Trade Clearing
JSCC’s Business Rules detail the process of the “Financial Instruments Obligation Assumption
Service” for which JSCC holds a license under the FIEA and the “Business of Assuming
Commodity Transaction Debts” for which JSCC holds a license under the CDA. JSCC’s clearing
services are conducted in accordance with the FIEA and the CDA.
Provisions relating to Netting
JSCC’s Business Rules have specific provisions related to close-out netting arrangements forclaims and obligations between JSCC and Clearing Participants in the case of a Clearing
Participant default. Additionally, the FIEA 39 and the CDA 40 prescribes that JSCC’s close-out
netting process shall prevail over general bankruptcy proceedings.
Provisions relating to Settlement Finality
The provisions dealing with settlement finality are to be prescribed in JSCC’s rules andoperational procedures (documents prescribing handling of clearing operations in accordancewith the rules) and the point at which the settlements between JSCC and its Clearing Participants
are final is detailed in the relevant rules and operational procedures. This provides certainty to allof JSCC’s Clearing Participants as to the finality related to the performance of their obligations to
JSCC. See Principle 8 (Settlement Finality) for further details.
Provisions relating to DVP Arrangements
Settlement for Cash Products and JGBs is conducted by DVP. DVP settlement for Cash
Products is conducted by linking book-entry transfer at Japan Securities Depository Center, Inc.
(“JASDEC”) with fund settlement at Fund Settlement Banks, in accordance with JSCC’s rules 41.
DVP settlement for JGBs42 is conducted through RTGS (Real-Time Gross Settlement) provided
by the BOJ.
All securities settlements (book-entry transfer) are conducted according to Japanese law (Acton Book-entry Transfer of Company Bonds, Shares, etc.).
Provisions relating to Linkage with other FMIs
JSCC currently only has links to CSD (Central Securities Depository) and Trade Repositories.
See Principle 20 (FMI Links) for further details.

39

FIEA Article 156-11-2

40

CDA Article 181

41

Business Rules for the securities and similar contracts clearing business Chapter 5

42Japanese Government Bond Over-the-Counter Transaction Clearing Business Rules Chapter 5

23

Provisions relating to Collateral Arrangements
JSCC holds collateral deposited by Clearing Participants and customers in the manner
specified in Principle 16 (Custody and Investment Risks).
Clearing Participant and customer collateral is segregated from JSCC’s own assets, incompliance with the requirements of the FIEA and the CDA43. JSCC may, however, use collateralto satisfy obligations owed to it following the default of a Clearing Participant, where the conditionsof the FIEA, the CDA and JSCC’s Business Rules are met.
Collateral deposited by Clearing Participants with JSCC is treated as “Clearing Margin” asdefined in Article 119 of the FIEA or Article 179 of the CDA for the Listed Products (Derivatives)
Clearing Business, and “Clearing Deposit” as defined in Article 156-11 of the FIEA or Article 180of the CDA for other collateral. The FIEA and the CDA give JSCC the right to receive payment
from “Clearing Margin” and “Clearing Deposit” before other creditors.
Provisions relating to Default Management Arrangements
The FIEA and the CDA44 states that, in the event of a Clearing Participant default, a CCP’s
rules shall prevail over general bankruptcy proceedings for the settlement of cleared trades
between the defaulting Clearing Participant and the CCP.
Key Consideration 2:
An FMI should have rules, procedures, and contracts that are clear, understandable, andconsistent with relevant laws and regulations.
JSCC’s rules (including amendments) are developed via a process which includes
consultation with and approval from Clearing Participants, lawyers, the JFSA, the Ministry ofAgriculture, Forestry and Fisheries and the Ministry of Economy, Trade and Industry and otherrelevant regulators, as necessary. Through this process, JSCC confirms that its rules are
consistent with laws and regulations.
To date, no conflict between JSCC’s rules, procedures, and contracts and relevant laws andregulations have been identified.
JSCC also removes uncertainty in its rules and prevents misinterpretation by holding informal
discussions with Clearing Participants and discussions in advisory committees and by conducting
public consultations on the outline of new rules or amendments to existing rules, except for
insignificant rule changes.
Key Consideration 3:
An FMI should be able to articulate the legal basis for its activities to relevant authorities,
participants, and, where relevant, participants’ customers, in a clear and understandable
way.
JSCC makes explanations of the legal basis for its activities widely available via its website, inpresentations to the advisory committee for each Clearing Business, and in meetings with

43

FIEA Article 119, Paragraph 4 and Cabinet Office Ordinance on Financial Instruments Exchanges, etc. Article 67,
and CDA Article 179, Paragraph 5 and Ordinance for Enforcement of the Commodity Derivatives Act Article 74

44

FIEA Article 156-11-2 and CDA Article 181

24

Clearing Participants or their customers.
Key Consideration 4:
An FMI should have rules, procedures, and contracts that are enforceable in all relevant
jurisdictions. There should be a high degree of certainty that actions taken by the FMI
under such rules and procedures will not be voided, reversed, or subject to stays.
Enforceability of JSCC’s Rules, Procedures, and Contracts
JSCC’s Rules, Procedures, and Contracts are written to ensure they have contractual force inall relevant jurisdictions. (See Key Consideration 1 of this Principle for further details.)
The FIEA and the CDA45 stipulates that in the event of a Clearing Participant default, a CCP’s
rules shall prevail over general bankruptcy proceedings for the settlement of cleared trades
between the defaulting Clearing Participant and the CCP, allowing JSCC’s rules to limit the impactof the insolvency of a Clearing Participant on JSCC’s Clearing Businesses.
In the event of the commencement of bankruptcy proceedings in a foreign jurisdiction against
a Clearing Participant, the effect of such bankruptcy proceedings extend to Japan only upon aJapanese Court’s order of recognition of such proceedings, as specified in the “Act on Recognitionof and Assistance for Foreign Insolvency Proceedings.” Such proceedings shall apply to theproperties of a defaulting Clearing Participant only upon the issuance of an assistance order by aJapanese court. Unless a Japanese court issues such an order, bankruptcy proceedings in aforeign jurisdiction do not directly apply to Japan and will not put collateral posted to JSCC by adefaulting Clearing Participant at risk, even in the event of the default of a Clearing Participant
incorporated outside of Japan.
Degree of Certainty for JSCC’s Rules and Procedures
JSCC has confirmed that there are no issues with Japanese law being the governing law of
JSCC’s Clearing Businesses or the effectiveness of English law with respect to the terms of CDS
contracts.
JSCC’s Business Rules are subject to approval as required under the FIEA and the CDA46. In
this process, the Business Rules are examined to ensure they conform to laws and regulations
and are sufficient for conducting Clearing Services appropriately and smoothly. To date, there has
been no instance of any regulatory action taken against any of JSCC’s activities in Japan orabroad.
Key Consideration 5:
An FMI conducting business in multiple jurisdictions should identify and mitigate the risks
arising from any potential conflict of laws across jurisdictions.
JSCC continuously identifies and analyzes possible conflict-of-law issues based on the latest
information from Clearing Participants, law firms, and regulatory bodies, including the JFSA, theMinistry of Agriculture, Forestry and Fisheries and the Ministry of Economy, Trade and Industry.
Some of JSCC’s Clearing Participants are established in EU countries. Due to this, JSCC has
obtained the recognition as Third Country CCP under European Market Infrastructure R egulation

45

FIEA Article 156-11-2 and CDA Article 181

46

FIEA Articles 156-3 and 156-12 and CDA Articles 168 and 182

25

from ESMA, enabling JSCC to provide services to Clearing Participants and trading venues
established in the EU47.
In Australia, JSCC received designation as a Prescribed Facility under Corporations
Amendment (Central Clearing and Single‑Sided Reporting) Regulation 2015 (Select Legislative
Instrument No.157, 2015) 48, 49.
Some Affiliates of Clearing Participants that clear their CDS or IRS trades in JSCC are
categorized as U.S. Persons under the CFTC guidelines 50 . Therefore, to allow these trading
entities to access JSCC’s swap Clearing Services, JSCC has obtained an order of exemption
from registration as a Derivatives Clearing Organization under the Commodity Exchange Act,
from the CFTC.51
Some of the Clearing Participants that clear IRS through JSCC are incorporated in Hong Kong.
Therefore, JSCC has obtained authorization from the SFC of Hong Kong, to provide AutomatedTrading Services, and the designation as central counterparty that can be used for the observanceof mandatory clearing obligations, under the SFO52.
Some of the Clearing Participants that clear IRS in JSCC are incorporated in Switzerland.
Therefore, JSCC has been recognized as Foreign Central Counterparty under the Financial
Market Infrastructure Act from FINMA to offer IRS Clearing Services to those trading entities53.
Some of JSCC’s Clearing Participants are incorporated in the U.K. Due to this, JSCC made asubmission to the Bank of England with respect to the recognition as a Third Country CCP under
the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations
2018, in order to provide services to Clearing Participants and trading facilities established in the
U.K. Subsequently, JSCC has obtained temporary recognition for the provision of services in the
U.K. as a Third Country CCP54.
In Canada, JSCC received from OSC an interim order exempting JSCC from the requirement

47

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000055katt/JSCC-press-release_TC-CCP_en1.pdf” for details.

48

Corporations Regulations 2001(Statutory Rules No.193, 2001).

49

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000054catt/JSCC-press-release_Prescribed-CCP_en1.pdf” for details.

50

U.S. Person defined in the “Interpretive Guidance and Policy Statement regarding Compliance with Certain Swap
Regulations (78 Fed.Reg.45292 (July 26, 2013)) IV. A.4.” published by the CFTC. See CFTC Guidelines on“http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2013-17958a.pdf” for details.

51

See JSCC’s press releases on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000053qatt/JSCC-press-release_CFTC-Exemption_en1.pdf” and“https://www.jpx.co.jp/jscc/en/information/press_releases/i1h00a0000000yef-att/JSCC-press-release_CFTCAmended_Exemption_en.pdf” for details.

52

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/n5ks8e000000051watt/JSCC_HK_ATSCCP_e.pdf” for details.

53

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/i1h00a0000002w0datt/JSCC-press-release_FINMA-recognized_foreign_CCP_en.pdf” for details.

54

See Bank of England Website on “https://www.bankofengland.co.uk/eu-withdrawal/-/media/boe/files/financialstability/financial-market-infrastructure-supervision/list-of-third-country-ccps.pdfhttps://www.bankofengland.co.uk//media/boe/files/financial-stability/financial-market-infrastructure-supervision/interim-list-of-third-country-ccp” fordetails.

26

to be recognized as a Clearing Agency under the Securities Act of Ontario. JSCC also received
an interim exemptive relief from OSC and AMF with respect to the substituted compliance with
the National Instrument setting forth OTC derivatives’ customer clearing and customer protection
by JSCC’s compliance with the relevant Japanese regulations 55.
In order to provide trading participants established in the U.S. with direct access to trading
systems for Listed Derivatives, OSE and TOCOM received registration from the CFTC as an
FBOT under the U.S. Commodities and Exchange Act56. In the registration of OSE and TOCOM
with the CFTC, JSCC is designated as a CCP for the clearing of trades executed at OSE andTOCOM.

55

See JSCC’s press release on “https://www.jpx.co.jp/jscc/en/information/press_releases/20231013.html" for details.

56

See CFTC websites below:(CFTC Press Release: OSE’s FBOT Registration)
https://www.cftc.gov/PressRoom/PressReleases/7772-18(CFTC Press Release: TOCOM’s FBOT Registration)
https://www.cftc.gov/PressRoom/PressReleases/7105-15(CFTC List of Registered FBOT)
https://sirt.cftc.gov/sirt/sirt.aspx?Topic=ForeignBoardsofTrade27

Principle 2: Governance
An FMI should have governance arrangements that are clear and transparent, promote thesafety and efficiency of the FMI, and support the stability of the broader financial system,other relevant public interest considerations, and the objectives of relevant stakeholders.
Key Consideration 1:
An FMI should have objectives that place a high priority on the safety and efficiency of the
FMI and explicitly support financial stability and other relevant public interest
considerations.
Under the FIEA and the JFSA’s “Comprehensive Guidelines for Supervision of Financial
Market Infrastructures -Clearing Organizations, Fund Clearing Organizations, Book-entry
Transfer Institutions, and Trade Repositories-” and CDA and the “Basic Guidelines on Supervisionof Commodity Clearing Organizations”, a CCP is required to contribute to the stability of thefinancial system and market system through the precise execution of its clearing operations underproper risk management. JSCC’s clearing operations are subject to the supervision of the JFSA,
the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Economy, Trade and Industry.
Toward that purpose, JSCC, in its role as an FMI, provides the following as its Corporate
Philosophy:“JSCC, with a solid risk-management framework, aims to contribute to sustainable
development of the markets by improving the efficiency, serviceability and safety of themarkets as post-trade processing infrastructure.”57
JSCC’s officers and employees are required to conduct operations based on this Corporate
Philosophy.
JSCC lays out business policies in its “Medium-Term Business Plan,” which is created basedon its Corporate Philosophy, and uses those policies to formulate detailed business plans. JSCC’s
Board of Directors reviews the achievement of the business plans semi-annually and analyzes
whether they achieve results that are consistent with JSCC’s Corporate Philosophy.
Key Consideration 2:
An FMI should have documented governance arrangements that provide clear and directlines of responsibility and accountability. These arrangements should be disclosed toowners, relevant authorities, participants, and, at a more general level, the public.
JSCC is established as a joint-stock company, under the Companies Act of Japan, andoperates as a CCP majority owned by JPX, the holding company of TSE, OSE, TOCOM, JPX
Market Innovation & Research and Japan Exchange Regulation, as shown below.

57

https://www.jpx.co.jp/jscc/en/company/philosophy.html

28

Principle 2 (Governance) Key Consideration 2 IV-1: Shareholder Composition
JPX(Holding company)

100%
TSE
(Cash
Products)

100%

100%

100%

100%

OSE
(Listed
Derivatives)

TOCOM(Commodity)

JPX
Innovation &Research

JPX
Regulation

A Share(Cash and Listed
Derivative Products)[Stake]
JPX: 100%

Established
July 2002

B Share(CDS)[Stake]
JPX: 100%

C Share(IRS)[Stake]
JPX: 60.4%
18 mem.: 2.2% eachCommenced
July 2011

Commenced
Oct 2012

84.65%JSCC

D Share(OTC JGB)[Stake]
JPX: 52.9%
22 mem.: 1.9% each
1 mem.: 1.7%
2 mem.: 0.9% each
1 mem.: 0.2%

Merged with JGBCC
Oct 2013(merged with JCCH July 2020)

The corporate governance of JPX, which is JSCC’s controlling shareholder, is detailed below.
Its fundamental approach seeks to fulfill JPX’s social mission, as core infrastructure of Japanesemarkets. This is consistent with JSCC’s governance that realizes the aim of an FMI, as detailed
in its Corporate Philosophy.
JPX’s Basic View to Corporate Governance<Corporate philosophy and social mission>
JPX group operates markets that are a public asset and fulfills its social mission by pursuing
the sustainable development of its markets.
<Market operations>
JPX group operates the markets with the view that garnering support for and fostering
confidence in the markets it establishes is in the common interest of all investors and market
users, and maintaining and enhancing the support and confidence will build the foundations forsustainable development of its markets.
<Enhanced corporate value>
In order for JPX to pursue sustainable development of its markets, it must continue toaccommodate the diverse needs of shareholders and other stakeholders, thereby enhancing
corporate value over the medium to long term.
<Effective corporate governance>
JPX strives to constantly improve its corporate governance system to further facilitate29effective and proper systems, so as to support the sustainable development of its markets. 58
JSCC is subject to the supervision of the JFSA and the Ministry of Agriculture, Forestry and
Fisheries and the Ministry of Economy, Trade and Industry in accordance with the FIEA and CDA.
JSCC’s Articles of Incorporation, which provide for its fundamental governance arrangements,
satisfy the detailed governance requirements for a CCP as provided in the FIEA, CDA, the“Cabinet Office Ordinance on Financial Instruments Clearing Organization, etc.,” the “Ordinancefor Enforcement of the Commodity Derivatives Act,” the “Comprehensive Guidelines forSupervision of Financial Market Infrastructures,” the “Basic Guidelines on Supervision ofCommodity Clearing Organization,” and other laws and regulations.
Governance Arrangements
All of JSCC’s clearing activities take place within four Clearing Business units: (1) Cash
Products and Listed Derivatives, (2) CDS, (3) IRS, and (4) OTC JGB. Each Clearing Businessmaintains its own capital and share class, with business decisions made according to resolutions
by the general shareholders meeting and class-shareholders meeting.
JSCC’s Board of Directors is composed of two full-time directors (the President and CEO andone director) as well as fivesix part-time directors. The Board of Directors makes decisions on
JSCC’s business activities according to its resolutions, nominates executive officers to executesuch activities, and supervises the propriety of officers’ performance of duties.
Directors that represent the opinions of Clearing Participants are nominated to the Board of
Directors. The Articles of Incorporation include provisions to the effect that it will respect theopinions of advisory committees in order to establish proper governance.
Through a resolution of the Board of Directors, the executive officers (officers in charge of
JSCC’s business execution) are appointed, and the Board of Executive Officers, the purpose ofwhich is to discuss the matters to be submitted to the Board of Directors, is formed by all of theexecutive officers.
JSCC has a Chief Risk Officer (“CRO”) who is independent from each clearing business unit,
and is the officer in charge of risk management. The CRO reports, and provides recommendations,to the Board of Directors, and the Risk Oversight Committee. The Risk Oversight Committee isan internal forum for the discussion and information-sharing of risk management issues, and thestatus of implementation of the risk management system, as well as the Risk Appetite Statement,
the identification of material risks, and any required countermeasures. The Risk OversightCommittee is composed of the President & CEO, executive officers supervising each business
unit, division heads, CRO and other Risk Management Office staff, and auditors.
JSCC possesses a board of statutory auditors, composed of three highly independent auditors
nominated at the general shareholders meeting. The Companies Act sets forth the Statutory
Auditors’ authority to investigate company business and assets, to request a meeting of the Boardof Directors, to report on the improper conduct of a director, and the obligation and responsibility
to report results of audits to shareholders, in order to ensure the lawfulness of director’s activities.
The names and roles of the advisory committees for each of JSCC’s Clearing Businesses are
as follows:
Risk Committee
In cases where JSCC intends to make decisions on any matter considered necessary in58

JPX’s basic concept for corporate governance can be found at the below link:
https://www.jpx.co.jp/english/corporate/about-jpx/co-governance/index.html

30

the performance of its responsibilities related to risks of the Clearing Businesses, JSCC
shall seek advice from the Risk Committee. The committee is composed of members thatare external directors of JSCC, Clearing Participants, their customers and other persons
with excellent knowledge and experience in the matter of consultation.
Disciplinary Measures Assessment Committee
In cases where JSCC exercises its authority under the Business Rules of each Clearing
Business to take necessary measures against Clearing Participants, JSCC shall seek
advice from the Disciplinary Measures Assessment Committee. The committee
possesses the necessary knowledge and experience regarding relevant laws, accounting
standards, and the market and is composed of members that are independent from JSCC.
Listed Products Management Committee
This committee serves to provide an understanding of Clearing Participants’ demands
related to the Cash Products and Listed Derivatives Clearing Business, ensure JSCC’s
rules and operations reflect the opinions of Clearing Participants from an operational
perspective, and discuss rules and operational matters in response to inquiries from theBoard of Directors. Committee members are selected from Clearing Participants, taking
into consideration member diversification including the type and scale of their business.
CDS Management Committee
IRS Management Committee
OTC JGB Management Committee
These committees deliberate on matters for consultation concerning the operation ofeach Clearing Business set forth in the Business Rules and subordinate rules for theirrespective Clearing Businesses, in response to inquiries from the Board of Directors. The
committees are composed of Clearing Participants (IRS Management Committee and
JGB OTC Management Committee also include shareholders).
JSCC Determination Committee
This committee determines matters for the CDS Clearing business, including mattersconcerning Credit Events and Succession Event. Committee members are selected from
Clearing Participants.
CDS Default Management Committee
IRS Default Management Committee
OTC JGB Default Management Committee
These committees offer advice on matters such as hedging when the default of a Clearing
Participant is determined and bidding during default auctions. Members of thesecommittees are selected from Clearing Participants.
Responsibility for operations rests with the related executive officer or CRO. The names androles of each division are as follows:
Risk Management Department
The Risk Management Department, supervised by the CRO, is responsible for thecomprehensive risk management operation under the Risk Appetite Framework
Management Policy, and the planning and drafting of Clearing Participant rules, as wellas matters related to clearing/settlement rules and the examination/monitoring of Clearing
Participants.
General Administration
In addition to acting as the secretariat for the general shareholders meeting and the Boardof Directors, Corporate Planning also handles general affairs, accounting, and humanresources.

31Clearing Planning Department
Strategic Planning is responsible for formulating management and business plans andmanaging their execution, in addition to general management matters and the planning,strategy, and supervision of IT-related matters, and the management and coordination ofsystem-related projects.
Listed Products Clearing Service
This clearing service is responsible for planning and drafting of clearing/settlement rules
and frameworks, and settlement control of products subject to clearing for Listed Products.
OTC Derivatives Clearing Service
This clearing service is responsible for planning and drafting of clearing/settlement rules
and frameworks, and settlement control of products subject to clearing for OTC
derivatives (CDS and IRS).
JGB Clearing Service
This clearing service is responsible for planning and drafting of clearing/settlement rules
and frameworks, and settlement control of products subject to clearing for OTC JGBs.
Internal Audit Office
The Internal Audit Office is responsible for conducting audits to confirm the proper
execution of business and reports its audit results to the President & CEO and the Boardof Statutory Auditors.
Auditor’s Office
The Auditor’s Office supports the duties of the Statutory Auditors. It is independent fromthe Directors, and works to facilitate a smooth execution of the audit by the Statutory
Auditors.
In addition, in preparation for a scenario where JSCC’s facilities in Tokyo are unavailable due
to a wide-area natural disaster, JSCC also has personnel located in Osaka, to build the necessary
structures for BCP.

32

Principle 2 (Governance) Key Consideration 2 IV-2: Company Organization

General Meeting of
Shareholders

Board of Directors

Auditors/Board ofAuditors

Auditor’s Office

Advisory Committees

President & CEO[Listed Products Clearing Business]- Listed Products Management
Committee[CDS Clearing Business]- CDS Management Committee- CDS Default Management Committee- JSCC Determination Committee

Internal Audit Office

Board of Executives
Risk OversightCommittee

Managing Director

CRO

Risk
Management
Department[Common to All Clearing Businesses]- Risk Committee- Disciplinary Measures Assessment
Committee

GeneralAdministration

Clearing
Planning[IRS Clearing Business]- IRS Management Committee- IRS Default Management Committee[OTC JGB Clearing Business]- OTC JGB Management Committee- OTC JGB Default Management
Committee

ListedProducts
Clearing

OTC
Derivatives
Clearing

JGB
Clearing

Disclosure
JSCC published its Governance Guidelines, containing, among other things, the roles andresponsibilities of the Board of Directors59. Moreover, JSCC publishes the composition of JSCC’s
shareholders, its Board of Directors and Auditors, and an overview of its advisory committees on
its corporate website.
Key Consideration 3:
The roles and responsibilities of an FMI’s board of directors (or equivalent) should beclearly specified, and there should be documented procedures for its function, including
procedures to identify, address, and manage member conflicts of interest. The board
should review both its overall performance and the performance of its individual board
members regularly.
Roles and Responsibilities of the Board of Directors
JSCC’s Board of Directors oversees all of JSCC’s business activities and is accountable to its
shareholders. The main duties and authority of the Board of Directors and the procedures for the
Board meetings are prescribed in the Companies Act, JSCC’s Articles of Incorporation and Rules

59

Available at: “https://www.jpx.co.jp/jscc/en/risk/cimhll00000005q9-att/GG_E.pdf”

33

of Board of Directors.
The main duties of the Board of Directors include approval of the following: High-level policies, strategies, and objectives of JSCC, including the medium-term businessplan; Annual budgets and investment proposals; Internal control framework to secure the adequacy of internal procedures, risk management,
financial reporting, and compliance; and Appointment and dismissal of the President & CEO.
Managing Conflicts of Interest
The Companies Act 60 provides for managing conflicts of interest between the Board of
Directors and individual directors by requiring the disclosure of material facts to and approval fromthe Board in cases where a director seeks to engage in transactions competing against JSCC’s
business, or which would result in a conflict of interest.
Auditors are obligated by the Companies Act61 to report to the Board of Directors, without delay,illegal actions, violations of laws, regulations, or the Articles of Incorporation, or significantly
inappropriate facts in relation to the duties of directors, as well as report the results of theirinvestigations to the general shareholders meeting. As such, auditors investigate transactions
involving conflicts of interest when preparing audit reports annually.
Furthermore, both the Companies Act 62 and JSCC’s Rules of Board of Directors containprovisions prohibiting a director with a special interest in a subject matter from voting on suchmatter.
Measures to Facilitate the Functioning of the Board of Directors
JSCC holds a Board of Statutory Auditors 63 , which serves the same function as an audit
committee. The duties of the Board of Statutory Auditors are defined in the Companies Act, andinclude duties such as preparing audit reports, appointing and removing full-time statutory
auditors, deciding audit policy, deciding the method to investigate the status of business andassets of the company, and other matters related to the execution of the auditor’s duties64.
Review of Performance of Board of Directors
Shareholders are able to monitor the performance of the Board of Directors via the business
report submitted to the general shareholders meeting. The report contains information onachievement of management policies and business plans, defined in the medium-term
management plan and financial results.
For the performance of individual directors, records of each director’s participation in board

60

Companies Act Articles 356 and 365

61

Companies Act Article 381, Paragraph 1 and Article 384

62Companies Act Article 369, Paragraph 2

63

Companies Act Article 2, Item 10

64Companies Act Article 390, Paragraph 2

34

meetings and other meetings, including remarks in such meetings, are used as reference during
future nomination processes.
JSCC provides the Board of Directors with an opportunity, once per year, to discuss how they
themselves can function more effectively, and the Board of Directors also performs an appraisalof the performance of the Board of Directors and each individual director.
Key Consideration 4:
The board should contain suitable members with the appropriate skills and incentives tofulfill its multiple roles. This typically requires the inclusion of non-executive board
member(s).
Board Member’s Skills
The FIEA and CDA 65 requires that a Financial Instruments Clearing Organizations’ andCommodity Clearing Organizations’ personnel be composed of individuals that “have sufficientknowledge and experience for conducting Financial Instruments Obligation Assumption Service
appropriately and certainly and have sufficient social credibility,” and nominations to the Board of
Directors are made in accordance with such requirements.
Pursuant to the specific nominating criteria established by the Board of Directors, JSCC
appoints board members who have a broad range of relevant financial markets industry
experience, qualifications, and industry knowledge. In the nomination process during the generalshareholders meeting, the background of candidates is present, and their skills are confirmed.
The backgrounds of board members are publicized via JSCC’s website.
Board Member Incentives
Board member compensation has been set with suitable standards to retain and motivate
individuals with appropriate abilities and incentives, to secure long-term interests.
Additionally, the compensation of each director is determined annually by the Compensation
Committee, based on the performance of each individual, within the total aggregate amount ofboard member compensation decided on in the general shareholders meeting.
Key Consideration 5:
The roles and responsibilities of management should be clearly specified. An FMI’s
management should have the appropriate experience, a mix of skills, and the integrity
necessary to discharge their responsibilities for the operation and risk management of the
FMI.
Roles and Responsibilities of Management
JSCC’s senior management is comprised of the President & CEO and 3 executive officers. In
accordance with resolutions of the Board of Directors, the senior management executes JSCC’s
business plans and oversees daily operations.
The duties of the senior management are set out in JSCC’s internal rules and include: Making key decisions on the management and operations of JSCC;

65

FIEA Article 156-4, Paragraph 1 and CDA Article 169, Paragraph 1

35

 Managing JSCC expenses and investments;
 Executing and managing JSCC’s business within the framework of the board-approved
Medium-Term business plan; and Making decisions on matters to be submitted to the Board of Directors in relation to JSCC’s
policies, strategy, and financial objectives.
The senior management report on JSCC’s operations to the Board of Directors on a quarterly
basis and present a business report and financial results to shareholders annually, following
approval by the Board of Directors. Shareholders are thereby able to evaluate the performanceand accomplishments of senior management in light of JSCC’s role as a CCP and are required
to appoint candidates.
Experience, Skills, and Integrity
JSCC has confirmed that its senior management meet the qualifications required by theCompanies Act, FIEA and CDA. JSCC’s senior management have diverse experience acrossexchange operation, clearing, risk management, and information technology.
Profiles of the members of JSCC’s Board of Directors are available on JSCC’s website.
The Board of Directors have the authority to seek a general shareholders meeting resolution
to initiate the dismissal of any director failing to fulfill their duties or otherwise bringing JSCC into
disrepute, pursuant to procedures specified in the Companies Act.
Key Consideration 6:
The board should establish a clear, documented risk-management framework that
includes the FMI’s risk-tolerance policy, assigns responsibilities and accountability for risk
decisions, and addresses decision making in crises and emergencies. Governancearrangements should ensure that the risk-management and internal control functions havesufficient authority, independence, resources, and access to the board.
Risk Management Framework
JSCC’s Board of Directors identifies the risks JSCC is exposed to and has established the
Risk Appetite Framework Management Policy as part of its risk management framework, toarticulate JSCC’s risk appetite (risk tolerance). JSCC has published, on its website, its Risk
Appetite Statement, as part of the Risk Appetite Framework Management Policy and is developedin light of requests from, and the expectations of, Clearing Participants, their customers,
regulatory authorities, the officers and employees of JSCC, and other stakeholders 66. JSCC has
a Risk Management Policy which details JSCC’s approach to handling the risks identified under
the Risk Appetite Framework Management Policy. JSCC receives regular reports on the state ofcompliance with the Risk Management Policy and can take appropriate measures as necessary.
See Principle 3 (Framework for the Comprehensive Management of Risks) for further details.
JSCC’s Board of Directors also receives a report at least once a year on the results of a reviewof the risk appetite, and can take appropriate measures in response, as necessary.
In addition, the Board of Directors will also receive a report following a serious risk event, suchas a Clearing Participant default or critical system failure, to take action as necessary.

66

Available at: “https://www.jpx.co.jp/jscc/en/risk/appetite.htmlhttps://www.jpx.co.jp/jscc/en/risk/i1h00a0000001bhhatt/RAS_E.pdf”

36Within JSCC, the comprehensive risk management division is responsible for confirming eachdivision’s compliance with the Risk Management Policy, while the Internal Audit Office is
responsible for conducting audits to confirm the proper execution of business by each department,
including the Risk Management Division. The auditing of each Clearing Business division isconducted properly with cooperation between both the Risk Management Division and theInternal Auditing Office.
Key Consideration 7:
The board should ensure that the FMI’s design, rules, overall strategy, and major decisions
reflect appropriately the legitimate interests of its direct and indirect participants and otherrelevant stakeholders. Major decisions should be clearly disclosed to relevant
stakeholders and, where there is a broad market impact, the public.
Identification and Consideration of Stakeholder Interests
JSCC makes its business decisions with consideration given to the interests of stakeholders
such as Clearing Participants and their customers.
As stated in Key Consideration 2 of this Principle, the Listed Products Management Committee,
CDS Management Committee, IRS Management Committee, and JGB OTC Management
Committee all include Clearing Participants (IRS Management Committee and JGB OTCManagement Committee also include shareholders) as members. The Board of Directors makes
inquiries to these advisory committees when deciding upon significant changes to operations or
the Business Rules (including clearing fee structure)67. Opinions are also collected from a wide
range by soliciting public comments on new rules and significant rule changes in advance.
JSCC also consults the relevant Default Management Committees, which are composed ofClearing Participants, on hedging measures and default auctions in the event of a Clearing
Participant default in the CDS, IRS, or OTC JGB Clearing Businesses.
Disclosure
JSCC publicizes major decisions by the Board of Directors on its website, including the
Medium-Term Business Plan, significant rule revisions, and candidates for the Board of Directors.

67

To consider fee reduction of cash products clearing, JSCC consulted with Cash Product Clearing Participants at the
Listed Products Management Committee meeting and revised the fee structure from Oct. 1, 2021.

37

Principle 3: Framework for the Comprehensive Management of Risks
An FMI should have a sound risk-management framework for comprehensively managing
legal, credit, liquidity, operational, and other risks.
Key Consideration 1:
An FMI should have risk-management policies, procedures, and systems that enable it toidentify, measure, monitor, and manage the range of risks that arise in or are borne by the
FMI. Risk-management frameworks should be subject to periodic review.
Risks that arise in or are borne by JSCC
JSCC is exposed to various risks, such as credit risk, liquidity risk, operational risk (including
general operational risk, IT system risk and business continuity risk), settlement risk, custody risk,
investment risk, concentration risk, legal risk, business risk, risk concerning anti-social forces, andother risks (including risks concerning business management and compliance).
Risk Governance
JSCC’s Corporate Philosophy clarifies the importance of risk management and forms thefoundation of JSCC’s risk governance, as follows:“JSCC, with a solid risk-management framework, aims to contribute to sustainable
development of the markets by improving the efficiency, serviceability and safety of the markets
as post-trade processing infrastructure.”68
Under its Corporate Philosophy, JSCC’s management policy is (i) expand the scope of trades
eligible for Clearing to cover wider marketReinforcement of Basic Functions as CCP, and (ii) offer
top global level Clearing Service, and (iii) offer related post-trade servicesOffering Clearing
Services Responsive To New Needs.
Under its Corporate Philosophy and management policy, JSCC has established its Risk
Appetite Framework Management Policy as a framework for the business management tosystematically manage various risks, under which JSCC stipulates a Risk Appetite Statement
concerning each risk, to clarify its attitude towards the risk management, and has defined the Risk
Management Policy to deal with them. JSCC has published the Risk Appetite Statement on its
website69.
The Risk Management Policy clarifies the purpose, policies, and management of the risk
management framework, including sound risk governance, stringent participant eligibility
requirements, a robust margin framework, Clearing Fund and Loss Compensation Scheme,
liquidity risk management, default management, and business continuity plan.
Under the Risk Management Policy, JSCC has rules and policies for handling the specified
risks. These consist primarily of the following: In order to handle Clearing Participant credit risk, JSCC has defined a risk management
system, including Clearing Participant rules, margin rules, a Clearing Fund and Loss

68

https://www.jpx.co.jp/jscc/en/company/philosophy.html

69

Available at: “https://www.jpx.co.jp/jscc/en/risk/appetite.htmlhttps://www.jpx.co.jp/jscc/en/risk/i1h00a0000001bhhatt/RAS_E.pdf”

38Compensation Scheme, and default management procedures in its Business Rules andsubordinate rules;
 In order to handle operational risk, JSCC has defined a “Business Continuity Basic Plan
(BCP Basic Plan)” and its related documents ((hereinafter collectively referred to as “BCP
Basic Plan”) to minimize the impact of interruptions to operations and lay out business
continuity measures in case of the realization of various risk factors. Additionally, JSCC has
defined (a) an “Information Security Basic Policies” and “Information Security
Countermeasure Standards” providing for access control and information protection, (b)“Rules for Management of Outsourcing” which provide for vendor selection processes andcontinuous monitoring and control of outsourced activities, and (c) the “System Risk
Management Policy” and “System Risk Management Rules” which provide for the policy
and procedures for addressing risks arising from IT system use;
 In order to handle settlement and custody risks, JSCC has defined the “Policies for
Designation of Japanese Yen Fund Settlement Banks,” “Policies for Designation of Foreign
Currency Fund Settlement Banks” and “Policies for Designation of Custodians of Posted
Collateral,” which provide for criteria and procedures for designating banks as Fund
Settlement Banks and/or collateral custodians; and In order to handle investment risk, JSCC has defined the “Fund Management HandlingRules” and “Policies for Management of Posted Collateral,”70 which provide for the scopeand methods of such management.
Comprehensive Risk Management Framework
JSCC has established a comprehensive risk management framework to supervise andmanage risks and ensure that responsibilities and accountabilities are clearly defined. Specifically,
JSCC’s Board of Directors defines the aforementioned Corporate Philosophy, Management Policy,
and Risk Appetite Framework Management Policy and, for the business operations covered by
the Risk Appetite Framework, defines and executes the comprehensive risk management
operation comprised of the establishment of a Risk Appetite, the validation of suitability and the
management based on the Risk Appetite, as follows.
 Management under the Risk Appetite is comprised of the verification of compliance with
the Risk Management Policy, the validation of various risk management frameworks, suchas margin frameworks, and the preventive management related to material risks.
 For the management of status of compliance with the Risk Management Policy, the Risk
Management Policy has been established to details the relevant policies to respond tovarious risks, and each division responsible for the relevant risk will act according to the
Risk Management Policy and report the status of compliance to the Risk Management
Division.
 The Risk Management Division will compile and evaluate the reports received fromdivisions responsible for the management of each risk. The CRO shall report the status ofcompliance with the Risk Management Policy monthly, quarterly, and annually to the Risk
Oversight Committee and offer proposals as necessary. Additionally, the CRO shall report
the status of compliance with the Risk Management Policy to the Board of Directors
quarterly and annually, in principle, and offer proposals as necessary.
The Risk Committee, comprised of external members with risk management knowledge, isconsulted on the comprehensive risk management operation.
Regular Revision of the Risk Appetite, Risk Management Policy and Risk Management System

70

https://www.jpx.co.jp/jscc/en/company/fundmanagementpolicy.html

39

JSCC’s Board of Directors will perform an overall review of the Risk Appetite, Risk
Management Policy and Risk Management System at least once a year, and conduct theappropriate revisions in consideration of the risks to which JSCC is exposed. During this review,
the Board of Directors will consider new clearing services, the market environment, positions ofClearing Participants, changes in the Japanese and overseas regulatory environment, and otherfactors. The Board of Directors’ review and revision process will be overseen by the Risk
Management Division.
Key Consideration 2:
An FMI should provide incentives to participants and, where relevant, their customers tomanage and contain the risks they pose to the FMI.
JSCC provides all Clearing Participants with detailed information on their positions, collateralrequirements and settlement amounts, allowing Clearing Participants to reconcile and manage
their market, credit, and liquidity risks. Specifically, the following measures allow Clearing
Participants to calculate and manage their own risks: Whenever a transaction is executed, the exchange disseminates the execution information,
or a drop-copy, in real-time to Trading Participants and Clearing Participants;
 For Listed Derivatives, JSCC adopted a VaR methodology (HS-VaR (Historical Simulation(Expected Shortfall)))71, and specifies the use of SPAN® margin methodology, which is
widely used globally, in its rules, and distributes a daily risk parameter file (“RPF”), formargin calculation.
 Ffor Cash Products, JSCC has adopted a historical simulation (VaR) margin methodology.
The calculation method is specified in JSCC’s rules and made public, the required margin
amounts are disseminated to Clearing Participants and margin simulation tools are madeavailable for use by Clearing Participants;
 For CDS and IRS, JSCC disseminates trade information whenever a transaction is cleared.
Historical simulation (expected shortfall) is used for margin calculation, and themethodology is specified in JSCC’s rules and made public. JSCC disseminates therequired margin amounts to Clearing Participants and also provides margin simulation
tools;
 For OTC JGBs, whenever a transaction is cleared, JSCC disseminates the related
information to Clearing Participants. For margin, a delta method is used, and the calculation
methodology for which is specified in JSCC’s rules and made public. JSCC disseminates
the required margin amounts to Clearing Participants, and provides margin simulation tools
as well; and For the Clearing Fund, JSCC specifies the calculation methodologies in its rules, which are
publicly available, and disseminates the required amounts to Clearing Participants.
 From viewpoint of appropriate disclosure to Clearing Participants, JSCC distributes amonthly “Risk Profile Report” for each Clearing Business, which contains key information
related to risk management, including the status of collateral deposited by Clearing
Participants and the status of the adequacy of loss compensation financial resources.
JSCC has established a framework for requiring additional margin, or the reduction of positions,when risks become excessive, for each of its Clearing Businesses. Clearing Participants are
incentivized to pro-actively manage position risk in order to control their margin requirements. See
Principle 6 (Margin) for further details.

71

Alternative Simulation Method (AS-VaR) for Nikkei 225 Dividend Index Futures and Listed Commodity Derivatives (otherthan Electricity Futures and LNG Futures)

40

JSCC gives Clearing Participants incentive to properly manage their positions with JSCC byrequiring prefunded, or unfunded, mutualized loss compensation resources in accordance witheach participant’s risk exposure, for each Clearing Business. See Principle 13 (Participant-Default
Rules and Procedures) for further details.
JSCC also ensures that Clearing Participants maintain the soundness and appropriateness of
their business execution framework through a continuous monitoring process. When an issue
arises, JSCC maintains the ability to suspend the clearing services of a Clearing Participant, after
consultation with the Disciplinary Measures Assessment Committee. See Principle 18 (Accessand Participation Requirements) for further details.
In addition to this, JSCC consults the advisory committees of each Clearing Business andsolicits public comments when designing the risk management framework, thus offering
opportunities for Clearing Participants and their customers to have effective management andcontrols for their risks. See Principle 2 (Governance) for further details.
Key Consideration 3:
An FMI should regularly review the material risks it bears from and poses to other entities(such as other FMIs, settlement banks, liquidity providers, and service providers) as aresult of interdependencies and develop appropriate risk-management tools to addressthese risks.
Management of Interdependencies
JSCC monitors the risks of entities with which it has interdependencies and takes preventative
measures to reduce risk.
The primary entities with which JSCC has interdependencies are Fund Settlement Banks,
custodians, banks and JPX providing Liquidity Supply Facilities to JSCC, and the CSD. JSCC
manages the settlement risk, custody risk, and liquidity risk arising from such interdependencies
with these entities in accordance with the Risk Management Policy.
Specifically, JSCC monitors financial conditions of these banks, custodians and CSD to assess
their credit risk and appropriately manages business processes with each. JSCC has also definedmeasures in the BCP Basic Plan for cases where business of such entities is disrupted by system
malfunctions or other factors. In this way, JSCC manages the aforementioned risks with such
entities. The status of risk management is reviewed on a monthly basis in a report on compliancewith the Risk Management Policy, while risk management methods are reviewed annually or asnecessary in the course of validation of the Risk Management Policy.
Key Consideration 4:
An FMI should identify scenarios that may potentially prevent it from being able to provide
its critical operations and services as a going concern and assess the effectiveness of afull range of options for recovery or orderly wind-down. An FMI should prepare appropriate
plans for its recovery or orderly wind-down based on the results of that assessment.
Where applicable, an FMI should also provide relevant authorities with the informationneeded for purposes of resolution planning.
JSCC’s Risk Management Policy defines the risk management objective as “Establish robust
and comprehensive risk management frameworks, ensure steady provision of the Clearing
Businesses, and prevent a loss of JSCC’s capital.” The Risk Management Policy also provides
for measures against various risks which would disrupt the provision of vital JSCC services as agoing concern. Specifically, this assumes the realization of various risks to which JSCC is
exposed, mentioned in Key Consideration 1 of this Principle, as scenarios in which JSCC isunable to provide its services, such as JSCC’s resources being unable to cover the loss resulting41

from a Clearing Participant’s default, JSCC being unable to finance funds necessary forsettlement, or continuous loss due to reduced revenues or increased costs for long periods.
JSCC is required to have measures in place to ensure the appropriate operation of its Clearing
Businesses, by the FIEA and CDA72. For risks posed by a Clearing Participant’s default, JSCC
has prepared a Loss Compensation Scheme that makes it possible to comprehensively cover thelosses resulting from the default within its default management framework, and has arrangements
for liquidity appropriate to the nature of the products it clears. These measures allow JSCC toavoid risk scenarios which would prevent the provision of its Clearing Businesses and services.
While there are appropriate measures in place to guard against business and other risks basedon the Risk Management Policy, JSCC also has plans in place to revise business plans andreduce costs as necessary should such risks be realized. See Principle 15 (Business Risk) for
further details.
JSCC has implemented a “Recovery Plan under the PFMI” setting forth information andprocedures necessary for recovery so that it may continuously provide its critical services as acore market infrastructure for the Japanese markets, even if JSCC and the wider financial markets
are under extreme stress.
In the unlikely case where JSCC finds it difficult to provide its Clearing Businesses andservices, it would cooperate with regulators and related parties to resolve the situation.

72

FIEA Article 156-10 and CDA Article 178

42

Management of Credit Risk and Liquidity Risk
Principle 4: Credit Risk
An FMI should effectively measure, monitor, and manage its credit exposure toparticipants and those arising from its payment, clearing, and settlement processes. An
FMI should maintain sufficient financial resources to cover its credit exposure to eachparticipant fully with a high degree of confidence. In addition, a CCP that is involved in
activities with a more-complex risk profile or that is systemically important in multiple
jurisdictions should maintain additional financial resources sufficient to cover a wide
range of potential stress scenarios that should include, but not be limited to, the default of
the two largest participants and their affiliates that would potentially cause the largest
aggregate credit exposures to the CCP in extreme but plausible market conditions. Allother CCPs should maintain additional financial resources sufficient to cover a wide rangeof potential stress scenarios that should include, but not be limited to, the default of theparticipant and its affiliates that would potentially cause the largest aggregate credit
exposures to the CCP in extreme but plausible market conditions.
Key Consideration 1:
An FMI should establish a robust framework to manage its credit exposures to its
participants and the credit risks arising from its payment, clearing, and settlement
processes. Credit exposure may arise from current exposures, potential future exposures,or both.
Credit Risk Borne by JSCC
JSCC bears the credit risk of its Clearing Participants. Additionally, JSCC also bears credit riskof Fund Settlement Banks and custodians. JSCC has established a robust risk management
framework to handle these credit risks as described below73.
Framework to Manage Clearing Participant Credit Risk
JSCC has in place a robust risk management framework to manage the credit risk of Clearing
Participants.
 JSCC only admits entities that possess a sound management structure and financial basis
and an appropriate business execution structure, and are under supervision of thecompetent authorities or are considered appropriate in light of the operation of JSCC’s
commodity clearing services. JSCC requires Clearing Participants to continue to satisfy
these criteria. This ensures that Clearing Participants have sufficient financial resources tofulfil their obligations to JSCC.
 In principle, JSCC requires Clearing Participants to deposit variation margin to cover current
exposure and initial margin to cover potential future exposure. JSCC may also require
Clearing Participants to deposit additional margin when necessary. See Principle 6(Margin) for further details.
 JSCC actively monitors the credit exposure of Clearing Participants, at least once a day,and can take risk mitigating actions, such as requesting additional margin or position
reduction, as necessary. JSCC also has a structure in place allowing JSCC to suspend

73

In the settlement of ETF creation and redemption, upon a default of an ETF Special Clearing Participant, theassumption of obligations shall become invalid retroactively upon the time of the application for clearing, and JSCC
provides no settlement guarantee. Therefore, JSCC accepts neither collateral nor clearing funds from ETF Clearing
Participants, and JSCC bears no credit risk from ETF Special Clearing Participants.

43

clearing for a Clearing Participant holding excessive positions under the Listed Derivatives,
CDS, IRS, and OTC JGB clearing businesses. See Principle 6 (Margin), Key Consideration
4 for a structure that allows JSCC to suspend clearing of Listed Derivatives.
 In order to cover risks which cannot be covered by variation/initial margin resulting fromtimes of market stress, JSCC requires Clearing Participants to contribute to a Clearing Fund.
In addition, JSCC contributes a certain amount of its stockholder’s equity to the financial
resources for default loss, and an appropriate part of these resources are committed aheadof the Clearing Fund contributions of Clearing Participants. The loss compensation
resources, including those mentioned above, are used to meet any losses resulting from a
Clearing Participant’s default, where the losses exceed the defaulting Clearing Participant’s
own resources. See Principle 13 (Participant-Default Rules and Procedures) for further
details.
 JSCC clears Cash Products and government bonds, which are exposed to principal risk.
However, this principal risk is eliminated via the use of DVP settlement. See Principle 12(Exchange-of-Value Settlement Systems) for further details.
JSCC confirms the effectiveness of its risk management model (referring to the risk
management system and risk evaluation method) by conducting an overall review at least oncea year. During this review, JSCC takes into account new clearing services, the market
environment, Clearing Participant positions, Japanese and overseas regulatory developments,and other related factors.
Framework to Manage Credit Risks of Fund Settlement Banks and Custodians
In order to manage the credit risk of Fund Settlement Banks and custodians, JSCC performs
continuous monitoring against the selection criteria, which include: being supervised by thefinancial regulator of Japan or their home country; possessing a framework to properly carry out
operations for JSCC; and having stable financial standing.
Key Consideration 2:
An FMI should identify sources of credit risk, routinely measure and monitor credit
exposures, and use appropriate risk-management tools to control these risks.
Credit Risks from Clearing ParticipantsCredit risk from Clearing Participants arises from the possibility of one or more of themdefaulting. In such case, JSCC faces credit exposure arising from price movements in thepositions it has cleared for the defaulting Clearing Participant.
This credit exposure consists of both current and potential future exposure.
 JSCC measures current exposure by marking-to-market every outstanding position to thelatest market price, and measures potential future exposure based on analysis of historicalprice movements and/or volatility index derived from actual option premiums in the market,
at least once a day for all clearing services. See Principle 6 for further details.
 JSCC measures credit exposures under extreme but plausible stressed market conditions
when measuring potential future exposure. See Key Consideration 5 of this Principle forfurther details of the stress testing methodologies employed for each of JSCC’s Clearing
Businesses.
JSCC uses the following tools to manage its credit exposures:
 Daily deposit of variation margin, initial margin, and regular/event driven intra-day margin.
See Principle 6 (Margin) for further details;

44 Pro-active monitoring of changes in Clearing Participant credit exposures due toposition/price fluctuations at least once a day for all products;
 Requiring addition margin or position reduction as necessary based on the above
monitoring; and In order to reduce the principal risk of Cash Products and JGBs, Cash Products use net/net
DVP (Model 3 in CPSS’s “Delivery Versus Payment in Securities Settlement
Systems”(1992)), while OTC JGBs and JGB Futures use gross/gross DVP provided by
BOJ (Model 1 in CPSS’s “Delivery Versus Payment in Securities Settlement
Systems”(1992)).
Credit Risk from Fund Settlement Banks and Custodians
Credit risk from Fund Settlement Banks and custodians arises from the possibility of a default
by such an entity. In such case, there is the risk that JSCC would not be able to conduct fundsettlement with Clearing Participants or withdraw deposits held by custodians. These deposits
could include Clearing Participant margin and Clearing Fund deposits and JSCC’s proprietary
assets.
JSCC designates the Bank of Japan (“BOJ”) (Japan’s Central Bank), as well as banks thatsatisfy its “Policies for Designation of Japanese Yen Fund Settlement Banks” and “Policies for
Designation of Foreign Currency Fund Settlement Banks”, as Fund Settlement Banks. Also, JSCC
designates CSDs subject to PFMI, as well as the BOJ and custodians that satisfies its “Policies
for Designation of Custodians of Posted Collateral”, as custodians for collateral. JSCC monitors
the Fund Settlement Banks’ and custodians’ compliance with these guidelines on a regular basis.
Moreover, Japanese yen settlement funds in Fund Settlement Bank accounts and Japanese yen
cash collateral, including Clearing Participant margin and Clearing Fund deposits held incustodian accounts, are maintained within the BOJ accounts or banking accounts covered by theJapanese Deposit Insurance System, which protects these funds against the default of the Fund
Settlement Bank or custodian. Some deposited funds are trusted under a trust scheme. The trust
assets are legally protected from the risk of the trustee’s default under Japanese law. However,
JSCC is allowed to invest cash collateral held in trust through the ordinary account of the trustbank, in accordance with JSCC’s Investment Policy. Only the banks satisfying the predetermined
criteria can be JSCC’s counterparty to the said investment of cash collateral, so that credit risks
associated with investments can be minimized as much as possible. See Principle 16 (Custodyand Investment Risks), Key Consideration 4 for details of JSCC’s fund investment policies.
In order to diversify its exposures as much as possible, JSCC uses multiple banks and the
BOJ to conduct fund settlement and act as custodians for cash collateral. See Principle 9 (Money
Settlements) and Principle 16 (Custody and Investment Risks) for further details.
Key Consideration 3:
A payment system or SSS should cover its current and, where they exist, potential future
exposures to each participant fully with a high degree of confidence using collateral andother equivalent financial resources (see Principle 5 on collateral). In the case of a DNS
payment system or DNS SSS in which there is no settlement guarantee but where its
participants face credit exposures arising from its payment, clearing, and settlement
processes, such an FMI should maintain, at a minimum, sufficient resources to cover the
exposures of the two participants and their affiliates that would create the largest
aggregate credit exposure in the system.
This consideration is not applicable to JSCC, as JSCC has no payment system or SSS function.

45

Key Consideration 4:
A CCP should cover its current and potential future exposures to each participant fully
with a high degree of confidence using margin and other prefunded financial resources(see Principle 5 on collateral and Principle 6 on margin). In addition, a CCP that is involvedin activities with a more-complex risk profile or that is systemically important in multiple
jurisdictions should maintain additional financial resources to cover a wide range ofpotential stress scenarios that should include, but not be limited to, the default of the twoparticipants and their affiliates that would potentially cause the largest aggregate credit
exposure for the CCP in extreme but plausible market conditions. All other CCPs should
maintain additional financial resources sufficient to cover a wide range of potential stressscenarios that should include, but not be limited to, the default of the participant and its
affiliates that would potentially cause the largest aggregate credit exposure for the CCP in
extreme but plausible market conditions. In all cases, a CCP should document its
supporting rationale for, and should have appropriate governance arrangements relating
to, the amount of total financial resources it maintains.
Coverage of Current and Potential Future Exposures
Each of JSCC’s Clearing Businesses covers current exposures and potential future exposures,
including times of stress, to each Clearing Participant by securing additional financial resources,
including variation margin, initial margin to a high confidence level, and Clearing Fund resources.
(1) Variation Margin
For Listed Derivatives74 75, CDS, IRS, and OTC JGB, open positions are marked-to-market
using the most recent price at least once a day, following which variation margin76 is exchanged
with Clearing Participants in Japanese yen, with variation margin for foreign currency
denominated IRS being exchanged in the respective currency 77 . This process ensures thatcurrent exposure is covered in a timely manner. For Cash Product transactions, current exposure
is covered by initial margin.
(2) Initial Margin
Initial margin is calculated for each Clearing Business using a method appropriate for thatbusiness, with a confidence level of at least 99% for all clearing services.
 For Cash Product transactions, current exposure and potential future exposure are bothcovered by initial margin. Initial margin for Cash Product transactions is calculated using
the loss equivalent arising in association with the mark-to-market of the open positions,74

Current exposure is covered by initial margin for options contracts.

75

For Listed Derivatives contracts executed on non-business days on which OSE and/or TOCOM are open for trading(“Holiday Trading”), JSCC charges a Margin requirement add-on before the holiday, to avoid an accumulation of
exposures by the Clearing Participants who filed notifications of their participation in the Holiday Trading to JSCC(“Holiday Clearing Participants”). See Principle 6 (Margin) for further details on margin related to Holiday Trading.

76

The term of “variation margin” includes Mark-To-Market Margin to be paid or received according to daily mark-tomarket for listed derivatives.
In the IRS Clearing Business, a Clearing Participant, Affiliate or non-Affiliated customer can select payment andreceipt of mark-to-market difference according to daily fund settlement in lieu of payment and receipt of variation
margin (Variation-Margin-as-Settlement). The term of “variation margin” includes this mark-to-market difference.

77

JSCC has suspended the clearing of foreign currency denominated IRS since April 1, 2020.

46

obtained by using the most recent price, and expected loss from open positions obtainedby using historical simulation (VaR) method.
 The initial margin for Listed Derivatives is calculated using VaR method (HS-VaR or ASVaR)SPAN®.
 For CDS and IRS transactions, historical simulations (expected shortfall) are used.
 For OTC JGB, initial margin is calculated, according to the nature of the product, to coverprice fluctuation risk, settlement failure risk (including variation margin and interest
payments), repo rate fluctuation risk.
JSCC has additional margin rules to respond to liquidity risk, concentration, and credit risk,
according to the nature of each Clearing Business. See Principle 6 (Margin) for further details on
initial margin structure.
Initial margin must be deposited in cash, or in the form of highly liquid securities (securities inlieu of cash), such as JGBs, or warehouse receipts. Non-Japanese yen cash, securities depositedin lieu of cash and warehouse receipts are marked-to-market on a daily basis, and subject toconservative haircuts to reflect potential market risks of the asset. Initial margin deposits are heldin either JSCC’s account at the relevant custodians, or trusted in a Japanese domestic trust bank,and are fully accessible when required. See Principle 5 (Collateral) for further details on JSCC’s
collateral policies.
(3) Margin Sufficiency and Validation
The variation margin mentioned above is the same amount as the current exposure and isthus ensures coverage of the current exposure on at least a daily basis. Initial margin, which
covers potential future exposure, is backtested on a daily basis to evaluate its sufficiency. See
Principle 6 (Margin) for further details.
(4) Clearing Fund
JSCC requires each Clearing Participant to contribute to a Clearing Fund which covers
potential future exposure in the case of the default of multiple Clearing Participants in extreme
but plausible market conditions, for each Clearing Business.
For Cash Products, Listed Financial Derivatives, CDS, IRS, and OTC JGB, default
expectations are set to the 2 largest Clearing Participants (including any other Clearing Participantthat is a Related Company78 of the Clearing Participant), while default expectations are set to the
1 largest Clearing Participant and 5 Clearing Participants with the lowest net worth (including anyother Clearing Participant that is a Related Company of the Clearing Participant) for Listed
Commodity Derivatives79.
The required amount for the Clearing Fund of each Clearing Business is revised on a monthly
basis for Cash Products transactions, and a daily basis for Listed Derivatives, CDS, IRS, andOTC JGB, in accordance with the risk amount of the relevant business.
For Listed Derivatives, CDS, IRS and OTC JGB, it has been observed that when risk istrending higher, fluctuations in the required amount for Clearing Fund are reduced if the required
amount of Clearing Fund is revised on a daily basis, when compared to revisions at longer

78

Same scope as “Affiliate” defined in PFMI (Note 39), which includes parent (oya-gaisha), subsidiaries (ko-gaisha)
and associates (kanren-gaisha) of a Clearing Participant, as well as any subsidiaries (ko-gaisha) and associates(kanren-gaisha) of a Clearing Participant’s parent (oya-gaisha).

79

For Petroleum Futures Contracts, default expectations are set to the 2 largest Clearing Participants (including anyother Clearing Participant that is a Related Company of the Clearing Participant).

47

intervals. Moreover, for Cash Products, Listed Derivatives, CDS and OTC JGB, wide fluctuationsof the required amount for Clearing Fund are reduced by calculating the required amount, basedon a risk amount over a certain lookback period.
Other Additional Financial Resources
JSCC has other financial resources, such as its own loss bearing resources and additional
contributions from Clearing Participants for each Clearing Business in addition to the Clearing
Fund. For Cash Products and Listed Derivatives, these additional financial resources include loss
sharing by the market operator. See Principle 13 (Participant-Default Rules and Procedures) for
further details on loss compensation resources and the default waterfall.
Evaluation of Loss Compensation Resource Sufficiency
JSCC conducts daily stress testing and backtesting for Clearing Participant positions for eachof its Clearing Businesses, in order to confirm the sufficiency of the pre-funded loss compensation
financial resources, and the total loss compensation resources comprised of the prefundedresources plus additional contributions from Clearing Participants. See Key Consideration 5 ofthis Principle for further details on stress testing.
Governance Arrangements
The calculation and deposit methods for additional financial resources, including margin and
the Clearing Fund, are clearly provided for in the Business Rules, and subordinate rules, of each
Clearing Business. To ensure sufficiency of the loss compensation resources, the Risk
Management Policy provides for stress testing, and the preparation of measures to respond to
any insufficiencies. Daily stress testing is performed to monitor the sufficiency of the loss
compensation resources, with monthly reviews performed by the Risk Oversight Committee, andby the Board of Directors on a quarterly basis. See Principle 2 (Governance) for further details on
JSCC’s governance.
Key Consideration 5:
A CCP should determine the amount and regularly test the sufficiency of its total financial
resources available in the event of a default or multiple defaults in extreme but plausible
market conditions through rigorous stress testing. A CCP should have clear procedures
to report the results of its stress tests to appropriate decision makers at the CCP and touse these results to evaluate the adequacy of and adjust its total financial resources.
Stress tests should be performed daily using standard and predetermined parameters andassumptions. On at least a monthly basis, a CCP should perform a comprehensive andthorough analysis of stress testing scenarios, models, and underlying parameters andassumptions used to ensure they are appropriate for determining the CCP’s required levelof default protection in light of current and evolving market conditions. A CCP should
perform this analysis of stress testing more frequently when the products cleared or
markets served display high volatility, become less liquid, or when the size orconcentration of positions held by a CCP’s participants increases significantly. A full
validation of a CCP’s risk-management model should be performed at least annually.
Stress Testing
JSCC conducts stress testing at least daily to determine whether pre-funded loss
compensation financial resources, including margin, clearing fund, and JSCC’s contribution, aresufficient to cover potential losses, as well as whether the total loss compensation resources
comprised of the aforementioned pre-funded resources plus additional contributions from
Clearing Participants are sufficient to cover potential losses, for each of its Clearing Businesses.
JSCC’s stress testing framework considers the largest historical movements in a range of48

stress events and extreme but plausible hypothetical scenarios. See Key Consideration 6 of thisPrinciple for further details on the stress testing scenarios used by each of JSCC’s Clearing
Businesses.
The results of daily stress testing are reported to the CRO, CEO and other full-time directors,
and the related division head. Additionally, stress testing results are reported as a part of thestatus report of compliance with the Risk Management Policy as it pertains to credit risk to the
Risk Oversight Committee on a monthly basis and the Board of Directors on a quarterly andannual basis. The results are also reported monthly to Clearing Participants in the “Risk Profile
Report” and annually to the advisory committees, whose members include Clearing Participantsof each Clearing Business. If a problem with the sufficiency of the loss compensation resources
is identified during stress testing, JSCC would maintain the sufficiency of the pre-funded loss
compensation resources by recalculating the size of Clearing Funds, or by making an additional
Initial Margin Call. JSCC would also consider taking other appropriate actions, including reviewing
and/or revising the necessary financial resources.
Review and Validation
In accordance with the Risk Management Policy, JSCC validates the suitability of the scenarios,
models, and parameters used in stress testing of loss compensation resources on at least amonthly basis. JSCC’s stress scenarios reflect recent market prices, volatility fluctuations, andpositions. For market liquidity fluctuations, rules for securing resources are prepared according tonecessity for each clearing service and parameters are revised based on prevailing market
conditions. JSCC also conducts daily reverse stress testing to identify excessively extreme
scenarios where the loss compensation financial resources would become insufficient.
In accordance with the Risk Management Policy, JSCC’s Risk Management Division validates
the overall risk management model at least annually, making recommendations regarding
revisions to the relevant Clearing Business division, as necessary. The reporting line of the Risk
Management Division is independent from the Clearing Business divisions, reporting directly to
the CRO. Thus, ensuring the validation process conducted by the Risk Management Division is
independent from the Clearing Business divisions. The validation process verifies theeffectiveness of the margin/Clearing Fund model and specifications according to the prevailingmarket environment, and makes recommendations regarding revisions, as necessary. The resultsof the validations are reported to the Board of Directors and the advisory committees of each
Clearing Business.
Key Consideration 6:
In conducting stress testing, a CCP should consider the effect of a wide range of relevant
stress scenarios in terms of both defaulters’ positions and possible price changes inliquidation periods. Scenarios should include relevant peak historic price volatilities,
shifts in other market factors such as price determinants and yield curves, multiple
defaults over various time horizons, simultaneous pressures in funding and asset
markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but
plausible market conditions.
When conducting stress testing, JSCC considers a range of conservative scenarios that are
extreme, but plausible. These scenarios are suitably set in accordance with the nature of eachproduct, taking into account relevant historical market data.
For stress scenarios used in stress testing, to confirm sufficiency of loss compensation
financial resources, JSCC uses both historical scenarios and hypothetical scenarios.
JSCC uses a range of historical scenarios taking into account the stress events that caused
the largest historical fluctuations in each market relevant to the eligible products for clearing, overthe previous 30-year period, such as Black Monday (1987), the Asian Financial Crisis (1997-1998),

49the bankruptcy of LTCM (1998), the September 11 attacks in the U.S. (2001), the Financial Crisis(the Lehman collapse) (2008), the Great East Japan Earthquake (2011), the Swiss Franc Shock(2015), and the COVID-19 pandemic (2020).
In addition, JSCC employs hypothetical (forward-looking) scenarios that are generated bymodels, based on the relationship between price movements and volatility fluctuations, the “fattail” feature of price movement distributions, the autocorrelation of volatility fluctuations, thesimultaneous distribution of price fluctuations of many products, and principal component analysis
related to interest rate term structure changes, according to the features of each product eligible
for clearing.
Holding periods are defined for each clearing service in the Business Rules and subordinate
rules, as the period required for position liquidation under stressed market conditions.
For the default assumptions, defaults of the largest 2 Clearing Participants (including any other
Clearing Participant that is a Related Company of the defaulter) has been adopted for Cash
Products, Listed Financial Derivatives, CDS, IRS and OTC JGB clearing, and the largest Clearing
Participant, plus the 5 Clearing Participants with the lowest net worth (including any other Clearing
Participant that is a Related Company of the defaulter), has been adopted for Listed Commodity
Derivatives80.
The Listed Derivatives, CDS, IRS, and OTC JGB Clearing Businesses have a tear-up
framework of Clearing Participant positions, should losses exceed the loss compensation
resources. In consideration of the large potential impact of implementing the tear-up framework,
the assumption for these Clearing Businesses (except for the “Listed Commodity Derivatives
other than Petroleum Futures” Clearing Business), incorporates a greater number of defaults thanthat used in the Clearing Fund calculation, for the evaluation of the sufficiency of the total loss
compensation financial resources (including additional contribution from Clearing Participants).
Key Consideration 7:
An FMI should establish explicit rules and procedures that address fully any credit losses
it may face as a result of any individual or combined default among its participants withrespect to any of their obligations to the FMI. These rules and procedures should address
how potentially uncovered credit losses would be allocated, including the repayment of
any funds an FMI may borrow from liquidity providers. These rules and procedures should
also indicate the FMI’s process to replenish any financial resources that the FMI may
employ during a stress event, so that the FMI can continue to operate in a safe and soundmanner.
Allocation of Credit Losses
JSCC’s Business Rules clearly define the composition, calculation method, order of utilizationof loss compensation resources, and the process for assessment for additional funds from
Clearing Participants.
Losses which cannot be covered by a defaulting Clearing Participant’s own funds would becovered by other financial resources, including the Clearing Fund of other Clearing Participants
and JSCC’s own resources. See Principle 13 (Participant-Default Rules and Procedures) for
further details.

80

For Petroleum Futures Contracts, default expectations are set to the 2 largest Clearing Participants (including anyother Clearing Participant that is a Related Company of the Clearing Participant).

50Replenishment of Financial Resources
In cases where the Clearing Fund of non-defaulting Clearing Participants is used for Cash
Products and Listed Derivatives, JSCC requires that the non-defaulting Clearing Participants
replenish the original amount on the following business day.
In the case of Listed Derivatives, CDS, IRS, and OTC JGB, JSCC requires that the nondefaulting Clearing Participants replenish the recalculated Clearing Fund amount on the business
day following the 30th day after the default. In cases where another default occurs during thisperiod, this would be extended to, for Listed Derivatives, the time when JSCC acknowledges thecompletion of the default settlement, and for CDS, IRS and OTC JGB, the 30th day after thesecond default, and so forth for successive defaults (“Capped Period”). By this arrangement, theprocyclical impact on the non-defaulting Clearing Participants, due to the replenishment of therequired amount of Clearing Fund, is reduced.
To cover credit risk during the Capped Period, JSCC calculates the required Clearing Fund foreach non-defaulting Clearing Participant on a daily basis. If the required Clearing Fund exceeds
the required Clearing Fund for the day immediately preceding the first default, JSCC would callfor deposit of the amount equal to such excess from the non-defaulting Clearing Participant(“Default Contingent Margin”). The Default Contingent Margin is a defaulter-pay type collateral to
be used as financial resources to cover losses arising from the potential default of the Clearing
Participant that deposited the Default Contingent Margin.
JSCC contributes a certain amount as loss compensation financial resources to each Clearing
Business. In the unlikely event that some of these contributions are consumed, they would be
subject to replenishment.
The measures required for the replenishment of these financial resources are stipulated in therules for each Clearing Business and the Recovery Plan.

51

Principle 5: Collateral
An FMI that requires collateral to manage its or its participant’s credit exposure should
accept collateral with low credit, liquidity, and market risks. An FMI should also set andenforce appropriately conservative haircuts and concentration limits.
Key Consideration 1:
An FMI should generally limit the assets it (routinely) accepts as collateral to those withlow credit, liquidity, and market risks.
Eligible Collateral
JSCC has a basic policy of only accepting collateral with low risk in relation to credit, liquidity,
and market. The scope of eligible collateral for each Clearing Business is defined based on thisbasic policy.
JSCC accepts the following collateral from its Clearing Participants for Initial Margin and
Clearing Fund deposits.
Principle 5 (Collateral) Key Consideration 1 IV-3: Eligible Collateral

Eligible Collateral

Cash
Products

ListedDerivatives

CDS

IRS

OTC JGBCash (JPY)

✔

✔

✔

✔

✔

Cash (USD)

✔

✔

－

－

－

Japanese Government Bonds (*1)

✔

✔

✔

✔

✔

Bonds guaranteed by the Japanese
Government (referring to Japanese
yen denominated bonds stipulated
in Article 2-11 of the Enforcement
Ordinance of the FIEA) (*2)

✔

✔

－

－

－

Foreign Government Bonds(U.S. Treasury Bonds/Notes/Bills)

✔

✔

✔

✔

－

Foreign Government Bonds(UK, Germany, France)

✔

✔

－

－

－

Stocks (*3)

✔

✔

－

－

－

Municipal Bonds (*2)

✔

✔

－

－

－

Special Bonds(excluding bonds guaranteed by
the Japanese Government) (*2, 4)

✔

✔

－

－

－

Corporate Bonds(excluding bonds with stockacquisition rights andExchangeable Corporate Bonds)(*2, 4)

✔

✔

－

－

－

Yen-denominated bonds issued byforeign juridical persons(excluding Yen-denominated bonds
stipulated in Article 2-11 of the

✔

✔

－

－

－

52

Enforcement Ordinance of the
FIEA, Convertible Bonds, andExchangeable Corporate Bonds)(SAMURAI bonds) (*2, 4)Beneficiary securities of public andcorporate bond investment trusts

－

✔(*6)

－

－

－

Convertible Bonds (*5)

－

✔(*6)

－

－

－

Exchangeable Corporate Bonds
(*5)

－

✔(*6)

－

－

－

Beneficiary securities of investment
trust (excluding beneficiary
securities of public and corporatebond investment trusts) listed on afinancial instruments exchange

✔

✔

－

－

－

Beneficiary securities of investment
trust (excluding beneficiary
securities of public and corporatebond investment trusts) not listed
on a financial instruments
exchange

－

✔(*6)

－

－

－

Investment securities

✔

✔

－

－

－

Warehouse Receipts (thosecertifying the storage of goods
deliverable for the JSCC’s
settlement by delivery)

－

✔(*7)

－

－

－

(*1) Including Climate Transition Interest-bearing Government Bonds. Inflation-Indexed JGBs are
eligible collateral for the Cash Products and Listed Derivatives Clearing Business, as well as for the
OTC JGB Clearing Business.
(*2) Limited to those with respect to which an underwriting contract is executed by a Financial
Instruments Business Operator in connection with their issuance.
(*3) Including stocks, preferred equity securities, foreign stock depository receipt, beneficiary securities
of foreign investment trusts, foreign investment securities, beneficiary securities of beneficiary
securities issuing trusts and beneficiary securities of foreign beneficiary securities issuing trusts,
and limited to those listed on a financial instrument exchange in Japan.
(*4) Limited to those deemed appropriate by JSCC taking the issuing company’s creditworthiness andother circumstances into account (e.g., all ratings obtained from Eligible Rating Agencies are A orabove, etc.)(*5) Limited to those listed on a financial instruments exchange in Japan.
(*6) Limited to Initial Margin for customers (excluding Affiliates) of a Clearing Participant.
(*7) Limited to Initial Margin for customers (excluding Affiliates) of a Clearing Participant. However, for
the Initial Margin for OSE Listed Derivatives, warehouse receipts related to Precious Metals may
be deposited as Clearing Participant’s Proprietary Initial Margin and Affiliate’s Initial Margin

JSCC confirms that collateral is eligible at the time it is deposited by Clearing Participants. As
such, it is not possible for Clearing Participants to post ineligible collateral.
For Listed Commodity Derivatives traded on TOCOM and ODEX, Clearing Participants may
be permitted a temporary deferral of deposit of customer Margin (other than Affiliate’s Margin)
through a notification of LG Contract.

53

Wrong-Way Risk
JSCC guards against specific wrong-way risk by not accepting securities issued by a Clearing
Participant or its group affiliates as collateral.
Key Consideration 2:
An FMI should establish prudent valuation practices and develop haircuts that are
regularly tested and take into account stressed market conditions.
Collateral Valuation
JSCC values collateral deposited by Clearing Participants, on a daily basis, using market
prices and haircut ratios specified in the rules. JSCC maintains the right to change a valuation
price at its discretion in cases such as considerable market fluctuations, as set forth in its rules.81
Collateral Haircuts
For bonds, conservative haircuts are adopted by ensuring that haircuts are sufficient to cover
99% of price movements under stressed market conditions, derived from the largest historical 4day price movement over the past 10 years. In addition, for foreign government bonds, JSCC
takes into account foreign exchange risk.
For equities, collateral is valued at 70% in accordance with the application of the haircut. The
suitability of this haircut is verified to ensure it covers 99% of the largest historical 4-day pricemovements over the past 10 years.
For cash (USD), JSCC applies a collateral haircut that is sufficient to cover 99% of the 4-day
movements in the foreign exchange rate over the past 10 years.
For warehouse receipts, collateral is valued at 70% in accordance with the application of thehaircut. The suitability of this haircut is verified to ensure it covers 99% of the largest historical 4day price movements over the past 10 years.
JSCC conducts daily backtesting to validate the appropriateness of the collateral haircuts.
JSCC updates collateral haircuts quarterly to reflect the latest market environment. JSCC is able
to change haircuts applicable to securities deposited in lieu of cash and warehouse receipts onan ad-hoc basis.
Key Consideration 3:
In order to reduce the need for procyclical adjustments, an FMI should establish stable
and conservative haircuts that are calibrated to include periods of stressed market
conditions, to the extent practicable and prudent.
JSCC has established conservative collateral haircuts that are calibrated to cover extreme
price movements observed during periods of stressed market conditions and regularly validated.
Therefore, JSCC considers the necessity for adjusting on procyclicality is kept to a minimum. See

81

Business Rules for the securities and similar contracts clearing business Article 15-2, Paragraph 5, Article 52,
Paragraph 4, and Article 70, Paragraph 6
Business Rules on Business of Assuming Commodity Transaction Debts Article 68, Paragraph 6
CDS Clearing Business Rules Article 7
IRS Clearing Business Rules Article 7
OTC JGB Clearing Business Rules Article 70-8, Paragraph 2

54

Key Consideration 2 of this Principle for details on the establishment and calibration of haircuts.
Key Consideration 4:
An FMI should avoid concentrated holdings of certain assets where this would
significantly impair the ability to liquidate such assets quickly without significant adverse
price effects.
Concentration Limits
JSCC imposes limits to prevent undue concentration from certain collateral assets in order toprotect against adverse price movements affecting its collateral holdings. For example, equity
collateral (for Cash Products and Listed Derivatives Clearing) is capped at 5%82 of the issued andoutstanding shares of the issuer, for each Clearing Participant. In addition, restrictions are
imposed on each Clearing Participant to ensure that no more than 20% of the sum total of therequired amounts of Clearing Fund and Initial Margin for Cash Products and house and affiliate
Initial Margin for Listed Derivatives is covered by certain bond collateral83 other than JGBs, andwarehouse receipt collateral.
Key Consideration 5:
An FMI that accepts cross-border collateral should mitigate the risks associated with its
use and ensure that the collateral can be used in a timely manner.
The only cross-border collateral accepted for JSCC’s Clearing Businesses are US dollar cash,
US Treasuries, and the government bonds of UK, Germany and France, which have high market
demand, high liquidity, and can be easily converted into Japanese yen.
For the Listed Derivatives Clearing Business, US Treasuries and the government bonds of UK,
Germany and France are held at an overseas CSD (Euroclear Bank SA / NV) in JSCC’s name.
Smoother collateral transfer between JSCC and Clearing Participants would become possible byexecuting tri-party agreement among JSCC, the relevant Clearing Participant and CSD, if the
Clearing Participant so desires. For both accounts, JSCC is recognized as the holder of suchcollateral. As such, JSCC is able to issue instructions regarding the liquidation of deposited foreign
government bonds as necessary. US dollar cash is deposited with the Fund Settlement Bank
satisfying the “Foreign Fund Settlement Banks Designation Guidelines” prescribed by JSCC at
the proprietary account in the name of JSCC, and an instruction can be given, and liquidation canbe processed, as necessary.
Additionally, US Treasuries deposited for the IRS and CDS Clearing Businesses are put into
trust and held at a Japanese trust bank, with JSCC holding the authority under the Business Rules
to issue instructions for the liquidation of them, if required.
Key Consideration 6:
An FMI should use a collateral management system that is well-designed and operationally
flexible.

82

Equity collateral posted for the purposes listed below is capped at 2% of the issued and outstanding shares:- clearing fund;- Initial Margin for Cash Products;- Initial Margin for Listed Derivatives on proprietary and Affiliate’s book.

83

Municipal bonds, special bonds, corporate bonds, and JPY-denominated foreign bonds.

55Collateral Management System Design
JSCC’s collateral management system provides functionality for collateral eligibility checking,deposit and withdrawal processing, balance management, haircut management, and mark-tomarket valuation.
By accessing the collateral management system, Clearing Participants are able to process thedeposit and withdrawal of collateral and re-allocation of collateral deposited with JSCC.
Clearing Participants are able to access a collateral management system which provides realtime collateral information, such as types of eligible collateral assets, deposit balance and market
price.
The collateral management systems used for each Clearing Business allow the deposit andwithdrawal of collateral at any time during the operational hours specified in JSCC’s Business
Rules and operational procedures. It can restrict the deposit of ineligible collateral.
The collateral management system evaluates collateral daily and sets the scope for eligible
assets by acquiring market data each day from external source (listed exchanges for equities, theJapan Securities Dealers Association (“JSDA”) for JGB OTC trades, and key information
vendors84) and applying haircuts. Revisions to haircuts can be implemented in a timely manner
via overnight batch processing.
In relation to re-using collateral, JGB collateral for initial margin deposited by Clearing
Participants in relation to the OTC JGB Clearing Business may be re-hypothecated with the BOJ
for seamless operation of JGB DVP settlement.
As most of the primary operations in the collateral management system, including deposit,
withdrawal, and valuation are conducted via STP, operations in times of market stress (a highvolume of collateral-related transactions), no additional resources are required to ensure
seamless operations.

84

The JSDA publishes daily market prices for OTC JGB trades based on quotes submitted by financial institutions.

56

Principle 6: Margin
A CCP should cover its credit exposures to its participants for all products through aneffective margin system that is risk-based and regularly reviewed.
Key Consideration 1:
A CCP should have a margin system that establishes margin levels commensurate withthe risks and particular attributes of each product, portfolio, and market it serves.
Margin Framework
JSCC clears the following products and uses different margin frameworks for each, dependingon the nature of each product: Listed Cash Products
 Listed Derivatives (Futures and Options)
 CDS
 IRS
 OTC JGBJSCC requires variation margin and initial margin to be deposited by all Clearing Participants,
according to the nature of the products in each Clearing Business. For derivatives transactions,
JSCC also requires the deposit of variation margin and initial margin from customers. Variation
margin and initial margin, which cover current exposure and potential future exposure underregular market conditions, are to provide coverage for the depositor’s own potential losses, andthe required amount of each is determined according to positions and market fluctuations.
Additionally, market liquidity is a factor when determining the required amount of margin forsome products, and JSCC has implemented a counterparty credit risk margin add-on, or
additional deposit framework, with the methodology varying for each clearing business:
 For Cash Products, the margin add-on is based on each Clearing Participant’s net worth(or net assets);
 For Listed Derivatives, JSCC timely requires the deposit of additional initial margin from
Clearing Participants that hold excessive positions; and For CDS, IRS, and OTC JGB, JSCC has in place a margin add-on framework that is basedon each Clearing Participant’s regulatory capital ratio, net worth (or net assets), rating, etc.,
as well as a margin add-on framework for Clearing Participants holding excessive positions.
Details of the margin calculation methodologies are set forth in JSCC’s Business Rules andtheir subordinate rules for each Clearing Business. See Principle 6, Key Considerations 3 and 4.
Provision of Information to Clearing Participants
For Cash Products, Listed Derivatives, CDS, IRS, and OTC JGB, JSCC prescribes in its rules,
and publishes, the margin requirement calculation methodology, distributes margin requirement
information, and provides a margin simulation system.
For Listed Derivatives, JSCC prescribes in its rules that the margin requirement is calculatedusing a VaR methodthe margin calculation method that uses the SPAN® methodology. Clearing
Participants can output the VaR margin calculation result, by importing the parameter files for the
VaR margin calculation provided by JSCC and the position file prepared by the user, into the VaR
Margin Calculation Softwarecalculate their required margin using RPF provided by JSCC. In

57

addition, JSCC has made available a simulation environment enabling users to check the VaR
margin simulation result on a web browser for any selected position for the latest business day.byusing the RPF provided by JSCC, Clearing Participants can perform margin simulations.(The RPF
includes issues and parameters that will be applicable from the next business day, for the purposeof margin simulation.)

Clearing Participants may perform “what-if” margin simulations for their entire cleared portfolio,
plus additional theoretical trades.
Deposit and Withdrawal of Margin
JSCC calculates the required amount of variation margin and initial margin at least once daily
at the close of business each day using the most recent market prices for each product, withdeposits and payments occurring on either the date of calculation or the following business day.
Clearing Participants are required to deposit margin twice a day for Listed Derivatives and IRS,
and three times a day for OTC JGB. Moreover, for all Clearing Businesses, Clearing Participants
are required to deposit additional margin on an event driven basis, in the event of a large pricefluctuation. This margin framework ensures margin requirements are calculated based on recent
market prices.
Additionally, when accepting new IRS transactions from Clearing Participants, JSCC requires
the posting of collateral that would be required to cover the entire portfolio, including both the newtransaction (if a new transaction is a part of a Package Trade85, then all new transactions under
the relevant Package Trade) and cleared transactions, before clearing the new transaction. New
trades which fail to fulfill this requirement are rejected. However, even in the case where a
Clearing Participant’s deposited collateral is insufficient to cover the margin required to clear a
trade for the Clearing Participant or their Customer, JSCC could clear the trade if certain
conditions86 are met, to prevent the rejection of a clearing request in certain cases. For example,
if a temporary difficulty in depositing collateral by reason of funding arrangement. To reduce thechance of JSCC rejecting a clearing request, due to a customer’s collateral shortfall, Clearing
Participants are allowed to pre-fund collateral (Customer Buffer) that can be used to resolve
customers’ collateral shortfalls.
When customers’ deposit of initial margin with a Clearing Participant is operationally difficult,for instance when transactions by customers in a different time zone are expected, and there isprior agreement between the Clearing Participant and the customer, JSCC permits customers todeposit initial margin with a Clearing Participant by the business day following that on which theClearing Participant deposited initial margin for such customer transactions with JSCC.87
Key Consideration 2:

85

JSCC’s “Package Trade” functionality allows Clearing Participants to apply for clearing multiple Eligible IRS
Transactions in bulk (Article 2. (4)-2 of Handling Procedures of Interest Rate Swap Business Rules).

86

JSCC could clear a trade even if the required amount of collateral has not been deposited, only if all of the following
conditions are met:
- Notional Amount of the trade submitted for clearing is less than the amount prescribed by JSCC;- Shortfall in the relevant Clearing Participant’s margin required to clear is JPY1bil or less;- Intraday Margin call or Initial Margin call based on Cleared Contracts as of 19:00 has been resolved; and- The relevant Clearing Participant is not in breach of the criteria concerning raising required Initial Margin amountunder “GUIDELINES CONCERNING CREDIT STANDING OF CLEARING PARTICIPANTS, ETC. IN IRS
CLEARING BUSINESS”.

87

IRS Clearing Business Rules Chapter 6
CDS Clearing Business Rules Chapter 658

A CCP should have a reliable source of timely price data for its margin system. A CCP
should also have procedures and sound valuation models for addressing circumstancesin which pricing data are not readily available or reliable.
JSCC uses reliable price data in its margin calculations. JSCC’s primary sources of priceinformation are as follows, all of which use prices that reflect market conditions in a timely manner.
 Listed products: JSCC calculates margin using trade prices on the relevant exchanges, orprevailing market prices, such as final quotes or theoretical prices.
 CDS: Price quotes are provided by Clearing Participants. JSCC establishes prices basedon the average of the quotes, having excluded the outliers. JSCC subjects Clearing
Participants who submit outliers to the payment of additional Clearing Fees or mandatory
trade execution based on the submitted quote in order to maintain the quality of submitted
prices.
 IRS: JSCC generates yield curves based on the quotes obtained from broker/dealer
screens, JSCC’s actual cleared trades, and information vendor’s composite data. The
combined dataset is then cleaned and used for margin calculations.
 OTC JGB: Prices are acquired by JSCC from the JSDA, which publicizes prevailing market
prices of OTC JGBs based on quotes submitted by market participants, which are financial
institutions participating in OTC JGB transactions.
For products which only rely on quotes, JSCC has procedures in place to ensure the accuracyof the price data, including averaging quotes with outliers excluded and applying penalties, suchas additional Clearing Fees, to Clearing Participants that submit outliers.
Additionally, when handling new products that rely on quotes, prior to launch, JSCC confirmsthat Clearing Participants are able to submit reliable quotes.
Should it not be possible to acquire the latest market prices, the latest available price will be
used for margin calculations. Overall validation of the margin model is conducted at least once a
year by the Risk Management Division, independent from each Clearing Business. See Principle
6, Key Consideration 7 for details of model validation.
Key Consideration 3:
A CCP should adopt initial margin models and parameters that are risk-based and generatemargin requirements sufficient to cover its potential future exposure to participants in theinterval between the last margin collection and the close out of positions following aparticipant default. Initial margin should meet an established single-tailed confidence levelof at least 99 percent with respect to the estimated distribution of future exposure. For a
CCP that calculates margin at the portfolio level, this requirement applies to eachportfolio’s distribution of future exposure. For a CCP that calculates margin at moregranular levels, such as at the subportfolio level or by product, the requirement must be
met for the corresponding distributions of future exposure. The model should (a) use aconservative estimate of the time horizons for the effective hedging or close out of theparticular types of products cleared by the CCP (including in stressed market conditions),(b) have an appropriate method for measuring credit exposure that accounts for relevant
product risk factors and portfolio effects across products, and (c) to the extent practicableand prudent, limit the need for destabilising, procyclical changes.
Margin Model
JSCC sets initial margin to cover at least potential future exposure under regular market
conditions, primarily using the positions and market fluctuations for each product to determine
required amounts. As such, JSCC’s model seeks to cover regular price movements at a59

confidence level of 99%, or more for some products. The relevant holding period for each product,as prescribed in the Business Rules and their subordinate rules, is the period required to complete
the liquidation of a defaulter’s positions.
Additionally, JSCC may impose a Liquidity Charge, which takes account of market liquidity andposition concentration according to the nature of each product.
JSCC has implemented a framework to prevent procyclical changes in required initial margin
amounts, by including stress scenarios in some of the margin calculations and setting a
conservative floor for the required margin amount. The approach used may vary according to thenature of each product. However, when amending a margin model, JSCC ensures that aframework that mitigates procyclicality is applied.

60

Principle 6 (Margin) Key Consideration 3 IV-4: Overview of Initial Margin Calculation Method

Model
Type

Calculation
MethodReference
PeriodHolding
PeriodConfidence
Level

Parameter /Scenario
UpdateFrequency

Cash
Products

VaR

Historical
Simulation

250 Days

1 Day

99%

Daily

ListedDerivatives

Expected
Shortfall(*1)SPAN®

Historical
SimulationP
arameter
Method1,250 Days
+ Stress
Periods(*21)

2 Days(*32)

99%

DailyWeekly
(*5)

CDS

Expected
Shortfall

Historical
Simulation

750 Days +StressPeriods

5 Days

99.5%

Daily

IRS

Expected
Shortfall

Historical
Simulation

1,250 Days
+ Stress
Periods

5 Days
(*43)

99.5%

Daily

POMA

Delta
Method1,2500Days +
StressPeriods

3 Days99%

DailyWeekly

OTC JGB(*1) VaR for Nikkei 225 Dividend Index Futures and Listed Commodity Derivatives (other than Platts
Dubai Crude Oil Futures, CME Group Petroleum Index Futures, Electricity Futures and LNG
Futures).
(*21) 250 business days fFor Listed Commodity Derivatives (other than1,250 days for Platts Dubai Crude
Oil Futures, CME Group Petroleum Index Futures, Electricity Futures, and LNG Futures), just 250
business days. Also, these derivatives and JGB groups take into account (Stress Periods are nottaken into account).
(*32) 1 business day for Listed Commodity Derivatives other than Electricity Futures(2 business days for
CME Group Petroleum Index Futures and LNG Futures).
(*43) 7 business days for Clients.
(*5) Weekly for Nikkei 225 Dividend Index Futures and Listed Commodity Derivatives (other than Electricity
Futures and LNG Futures).

Margin Calculation Method(1) Listed Products: Cash Products
JSCC calculates the required initial margin amount for Cash Products by using themethodology outlined in 1) below, and when the aggregate risk amount of a Clearing Participant
is considered excessive, JSCC will increase the required initial margin amount using themethodology outlined in 2) below.
1) Required Initial Margin
JSCC calculates the daily required initial margin amount for Cash Products based on thefollowing:61

 Mark-to-market value of each open position evaluated using the latest price; Separate
payment/deposit of variation margin is not conducted for Cash Products, with an equivalentamount included in the initial margin calculations.
 Expected losses from open positions obtained by using a historical simulation (VaR)
methodology based on the price fluctuation of unsettled open positions; Under the historicalsimulation (VaR) methodology JSCC employs for calibrating expected losses from open
positions, the daily price movement is obtained, for each issue, by using scenarios
generated during a predetermined period in the past, and the expected loss is set as thevalue to cover a certain confidence level. The parameters used for the calculation are a
250-days reference period, 99% confidence level, and a 1-day holding period.
2) Initial Margin Requirement Add-ons
JSCC has a rule in place to increase the required initial margin amount for Clearing
Participants in accordance with risks associated with each Clearing Participant’s open positions.
If the expected loss upon a Clearing Participant’s default under stressed market conditions
exceeds the pre-funded financial resources deposited by a Clearing Participant, then JSCC will
increase the required initial margin amount for the Clearing Participant to cover such uncovered loss in advance.
(2) Listed Products: Listed Derivatives
JSCC calculates the required initial margin amount for Listed Derivatives by using themethodology outlined in 1) below, and when the aggregate risk amount of a Clearing Participant
is considered excessive, JSCC will increase the required initial margin amount according to themethodology outlined in 2) below.
1) Initial Margin Requirement
JSCC determines tThe required amount of initial margin is obtained using a VaR
methodology to calculate the amount of collateral required to cover the risk of expected lossfor
Listed Derivatives88 by applying the net option value to the amount calculated using Chicago
Mercantile Exchange’s (“CME”) SPAN® methodology.
For Listed Financial Derivatives (other than Nikkei 225 Dividend Index Futures), andElectricity Futures and LNG Futures, an HS-VaR method has been adopted, wherein the
expected profit and loss is obtained by using a scenario of historical daily risk factors (thesettlement prices for futures, and the underlying asset price and implied volatility for options).
The amount required to cover a certain level of the expected profit and loss is the required
amount of initial margin. Parameters used in the calculation include a reference period of 1,250
days, a confidence level of the average of the worst 2.5% exceeding 97.5% (Expected Shortfall,coverage ratio similar to 99% VaR), and a holding period of 2 days. Additionally, JSCC has
methodologies in place (Volatility Scaling methodology based in Exponentially Weighted
Moving Average method) to revise the historical scenarios, based on the latest volatility
environment. In addition to the data from the reference period, data from the significant
historical stress scenarios (since 2008) are also used. This is to prevent sudden changes inrequired initial margin when stress events are added to, or removed from, the reference period.
Groups are created within a portfolio subject to HS-VaR, as necessary, to prevent the required
amount of initial margin becoming too small, by imposing offset restrictions between groups.
For Nikkei 225 Dividend Index Futures and Listed Commodity Derivatives (other than88

In principle, JSCC uses the SPAN® methodology for Initial Margin, but it employs a unique calculation method for
add-on charges in the Initial Margin Requirement Add-on Charge Scheme.

62Electricity Futures and LNG Futures), an AS-VaR methodology has been adopted, where 30
scenarios (holding period of 1day) comprised of a combination of “fluctuation range” (generated
from historical data and set as a parameter) and “direction of fluctuation” are used to obtain the
profit and loss. From the profit and losses generated, the largest loss is adopted as the expected
loss amount. Between the instruments with risk correlations, the risk offsets effect on the entire
portfolio is reflected in the risk amount per contract by applying a certain risk amount credit forthe overlapping short/long.SPAN® methodology calculates the risk arising from a portfolio of
futures and options on the Clearing Participant’s house account and each client’s accountaccording to a sensitivity analysis, with consideration given to the nonlinear risk of option
contracts. SPAN® margin calculation requires the definition of a Price Scan Range and a
Volatility Scan Range, as well as a range of other parameters, including Intra-Commodity andInter-Commodity correlations.

1)

In order to reflect recent price fluctuations in a timely manner, JSCC employs a parameter
determination method factoring in a Volatility Index calculated from the option premium (2-day
holding period, 99% confidence level), for the Price Scan Range which represents price movement
related to the Product Groups including Nikkei 225 futures and option89. When VI on the date ofcalculation is greater than the average VI for past 5 business days, the average VI for past 5
business days are used, unless such value is smaller than the average VI for past 250 or 1,250
business days, in which case the VI average for past 250 or 1,250 business days whichever isgreater is used. Thereby, whilst promptly reflecting the recent price fluctuations, it also prevents asteep rise or fall in the required initial margin amount.
For other Product Groups, JSCC employs a parameter determination method referencing historicalprice movements (2-day (or 1-day for Listed Commodity Derivatives other than CME Group
Petroleum Index Futures and LNG Futures) holding period, 99% confidence level). Reference
Period is past 54 weeks or past 5 years, and the greater of the values that cover at least 99% of
the price fluctuation ratio (or price fluctuation range for Electricity Futures) of the underlying assets
on all trading days during the respective period is used. When calculating the past 54 weeks’ value,in order to promptly reflect a current trend in price volatility, the methodology of adjusting thehistorical price movement scenarios based of the latest price movement trend (Volatility Scaling
Methodology based on Exponentially Weighted Moving Average method) is used. For the ProductGroup covering Futures/Options on JGBs and their derivative products90, the Reference Period is
the past 5 years plus multiple additional days of historical stress events to which Volatility Scaling
Methodology, based on Exponentially Weighted Moving Average method, is applied. Currently,
for Listed Commodity Derivatives, the Reference Period is generally the past 4 or 54 weeks (forPlatts Dubai Crude Oil Futures, CME Group Petroleum Index Futures, Electricity Futures, and
LNG Futures, the past 5 years plus multiple additional days of historical stress events, to which
Volatility Scaling Methodology based on Exponentially Weighted Moving Average method isapplied, and the greater of the values that covers at least 99% of the price fluctuation ratio, on all
trading days and for all contract months during the respective period is used (for Electricity Futures,the value that covers at least 99% of the price fluctuation range related to the contract month forthe same “month” regardless of the “year” for the past 5 years, plus multiple additional days ofhistorical stress events). Thereby, whilst promptly reflecting the recent price fluctuations, it also
prevents a steep rise or fall in the required initial margin amount.
For the Volatility Scan Range, which represents volatility fluctuations, JSCC uses a parameter
determination method referencing past volatility fluctuations (2-day (or 1-day for Listed Commodity

89

Nikkei Stock Average Group and Dow Jones Industrial Average Group, and TOPIX Group, JPX-Nikkei Index 400
group, TOPIXCore30 Group and RN Prime Index Group, out of the Product Groups under the SPAN® Margin
calculation.
See the list of SPAN Codes to apply to OSE products on the following link for the details of Product Groups:
https://www.jpx.co.jp/jscc/en/cash/futures/marginsystem/cimhll0000000g3l-att/cimhll0000001at9.pdf

90

10-Year JGB Futures Group, 5-Year JGB Futures Group and 20-Year JGB Futures Group, out of the Product Groups
under the SPAN® Margin calculation,

63

Derivatives) holding period, 99% confidence level). Reference Period is the past 4 weeks, 54
weeks, or 5 years, and the greatest of the values that covers at least 99% of the base volatility
fluctuation range for all trading days during the respective period is used. Currently, for Listed
Commodity Derivatives, the Reference Period is the past 4 or 54 weeks, and the greater of thevalues that covers at least 99% of the base volatility fluctuation range for all trading days during
the respective period is used.
2) Initial Margin Requirement Add-ons
Upon default of a Clearing Participant holding extremely large positions relative to other
Clearing Participants, more time would be required for liquidation. In this scenario, the normal
initial margin requirement may not be sufficient to cover any resulting losses. Therefore, JSCC
charges an initial margin requirement add-on to any Clearing Participant, or client, holding large
positions. Specifically, JSCC analyzes the house and client positions held by each Clearing
Participant to decide if the add-on needs to be charged, according to liquidity and concentration
criteria. When it is judged that the add-on is required, then the larger of the excess loss amounts
calculated according to these criteria, is applied as the add-on charge.
Additionally, for JGB Futures contracts, in order to cover credit risk from the final positionsof a Clearing Participant in the settlement by physical delivery and payment, JSCC separately
requires a deposit of initial margin from Clearing Participants during the period from the last
trading day of each contract month, to the day before the date of the settlement by physicaldelivery and payment. JSCC calculates this required initial margin amount as the sum total of
the expected loss for each issue, based on the price movement of each JGB issue subject tothe physical delivery and payment (120-day reference period, 99% confidence level). Upon asettlement by delivery in the commodity market, JSCC will increase the house and/or customer
margin requirements for Clearing Participants according to the price fluctuation risk associatedwith the physical delivery. The rate used for the calculation of such margin amount is revised
periodically based on certain factors, such as the historical cash products price fluctuation ratio.
3) Preliminary Margin Add-on related to Holiday Trading
JSCC clears Listed Derivatives contracts executed on non-business days on which OSE
and/or TOCOM are open for trading for the Holiday Clearing Participant. While trades executed
through Holiday Trading are treated as the trades as of the next business day at OSE andTOCOM, and cleared by JSCC, JSCC charges Margin requirement add-on before the holiday,
to avoid an accumulation of exposures by Holiday Clearing Participants due to Holiday Trading.
(3) CDS
JSCC calculates initial margin for CDS transactions by applying a variety of additional charges
in reflection of the nature of CDS transactions to the Initial Margin Base Amount obtained via
historical simulation (expected shortfall) methodology. These include a charge to cover the risk of
the reference entity experiencing a credit event.
1) Initial Margin Base AmountThe Initial Margin Base Amount is calculated according to a historical simulation (expectedshortfall) methodology, in order to cover the risk from price fluctuations. Specifically, it is set tocover a certain level of NPV fluctuation determined using daily prices during a certain historicalperiod for the CDS positions on the date of calculation. Calculation parameters include areference period of 750 days, a confidence level of the average of the worst 1%, and a holding
period of 5 days. In addition to data during the reference period, a stress scenario is included
with double the regular holding period (10 days) for the largest historical fluctuation. These
considerations take into account the tendency for CDS to experience sudden price fluctuations.

642) Short Charge and Bid/Ask Charge
The Short Charge is calculated to cover “jump-to-default” risk. Specifically, JSCC calculates
net positions for each reference entity and obtains the Short Charge by multiplying the notionalamount of the largest net short position by 0.48.
The Bid/Ask Charge is calculated to cover liquidity risk arising when liquidating positions
following a Clearing Participant default. Specifically, JSCC calculates net positions for eachissue and obtains the Bid/Ask Charge by multiplying the sensitivity of the net position by thebid/ask spread which JSCC sets based on the prevailing market condition.
3) Credit Event Margin and Single Name Margin
Credit Event Margin is added to initial margin to cover the risk arising from a reference entity
which has experienced a credit event. Specifically, JSCC calculates the net short positions oftrades referencing such reference entity, and obtains Credit Event Margin by multiplying the net
positions by a ratio, applicable to the reference entity, which is prescribed by JSCC in
consideration of market conditions.
Single Name Margin is added to initial margin to cover the risk of a Single Name CDS
separating from the reference entity of an Index CDS due to a restructuring credit event.
Specifically, JSCC calculates net positions of transactions referencing such reference entity.
For net short positions, JSCC obtains the Single Name Margin by multiplying the net position
by a ratio, applicable to the reference entity, which is prescribed by JSCC dependent on market
conditions. For net long positions, JSCC obtains the Single Name Margin by taking the present
value of future cash flows for trades referencing the reference entity.
JSCC also applies a concentration charge to cover the risk of certain Clearing Participants
with concentrated CDS positions. Specifically, JSCC increases the required initial margin ofClearing Participants which hold positions in excess of a level set based on market size. Thismeasure acts to discourage Clearing Participants from taking excessive positions relative tothe market size.
(4) IRS
JSCC calculates the required amount of initial margin for IRS transactions using historicalsimulation (expected shortfall) methodology, and adding the amount determined in considerationof the liquidity risk of IRS transactions.
1) Initial Margin
The required amount of initial margin is calculated using historical simulation (expectedshortfall) methodology to cover risks from interest rate fluctuations. Specifically, it is set to covera certain amount of an NPV fluctuation calculated using a daily yield curve fluctuation scenario
for a given historical period.
Parameters used in the calculation include a reference period of 1,250 days, a confidence
level of the average of the worst 1%, and a holding period of 5 days (7 days for clienttransactions). In addition to the data from the reference period, data from the significant
historical interest rate fluctuations are also used as stress scenarios. This is to prevent suddenchanges in required initial margin when stress events are applied to or removed from theinterest rate fluctuations during the reference period.
Additionally, JSCC has methodologies in place (Volatility Scaling methodology based inExponentially Weighted Moving Average method) to revise the historical interest rate fluctuation
scenarios, based on the latest interest rate environment in order to reflect current interest rateenvironment promptly.

65

JSCC provides a cross margining service, enabling the risk offset between JPYdenominated IRS, and JGB Futures, and interest rate futures, to Clearing Participants, Affiliates
and non-Affiliated customers of the IRS Clearing Business, for whom the Notification of Using
Cross Margining has been submitted to JSCC (“Cross Margining User”). JSCC calculates therequired initial margin for them by using the same historical simulation (expected shortfall)
methodology as the IRS Clearing Business.
Assuming prior agreement with its client, a Clearing Participant may use a framework thatallows it to increase the relevant client’s initial margin requirement at a fixed rate (Client
Additional Margin). JSCC will increase the relevant client’s initial margin requirement uponrequest of the Clearing Participant91.
2) Liquidity Charge
Liquidity Charge is calculated to cover market liquidity risk arising from the liquidation of a
defaulting Clearing Participant’s positions. The Liquidity Charge is calculated by multiplying a
position sensitivity (PV01) by a bid/ask spread derived from a market survey of Clearing
Participants, and then reflecting a correlation coefficient based on past interest rate fluctuations
between tenor buckets.
3) Holiday Margin
The settlement of variation margin and other cash settlements for foreign currency
denominated IRS is difficult on a non-business day in the home jurisdiction of the relevant
currency. However, the latest market movements in the relevant currency need to be properly
captured in JSCC’s risk management framework. Therefore, JSCC adjusts the Clearing
Participant’s required initial margin by an amount equivalent to the variation margin and othercash settlements, in the relevant currency92.
When a market in the home jurisdiction of the relevant currency is open on a JSCC nonbusiness day, JSCC increases the required initial margin for the relevant Clearing Participanton the day immediately preceding JSCC’s non-business day, in order to cover expected interest
rate and foreign exchange market risk.
(5) OTC JGBJSCC requires initial margin for OTC JGBs to cover the risk of price fluctuations calculatedusing the delta method, with a variety of additional charges to take account of the specific natureof OTC JGBs. For OTC JGB, JSCC calculates the required initial margin amount three times aday (7:00, 11:00 and 14:00 (JST))
1) Initial Margin
For OTC JGBs, initial margin is referred to as POMA (Post Offset Margin Amount). POMA
is calculated using a delta method and based on historical price fluctuations during a given
period, taking into account the correlations between issues. Parameters used in calculations
include a reference period of 251, or 501, or 1,25193 days, a confidence level of 99%, and a91

By using the Client Additional Margin framework, a Clearing Participant’s initial margin related to the client will be
increased. When the total risk amount exceeding collateral for the top 2 Clearing Participants decreases due to theClearing Participant’s utilization of the Client Additional Margin framework, the relevant Clearing Participant’s clearing
fund requirement would be reduced.

92

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

93

The highest result from both one of the reference periods (i.e. 250 continuous days plus one day in the stress66

holding period of 3 days. Additionally, in order to reflect changes in positions due to intraday
DVP settlement, Adjusted POMA is calculated according to the same method at the completionof intraday settlement.
In order to reflect large historical fluctuations in the market and positions, Average POMA iscalculated by averaging a certain ratio of the top POMA for a given historical period. Thoughcorrelations between issues are used in POMA calculations, a minimum amount is set as acertain ratio of the risk before offsetting to prevent excessive offsetting. The greatest of POMA,
Adjusted POMA, and the minimum amount is used to determine the initial margin required tocover actual market price fluctuations for the first calculation, the greatest of the Adjusted POMA
and the minimum amount is used for the second calculation, and the greatest of the Adjusted
POMA, Average POMA, and the minimum amount is used for the third calculation.
2) Other Charges
Charges added to initial margin include (a) initial margin to cover FOS (Fund Only
Settlement) failure risk, (b) initial margin to cover repo rate fluctuation risk, and (c) market
impact charge.
Initial margin to cover FOS failure risk is calculated to cover the loss arising from failure ofFund Only Settlement, including the variation margin, due to the default of a Clearing Participant.
For OTC JGB Transactions, other than Subsequent Collateral Allocation Repo Transactions, it
is calculated by averaging a certain ratio of the top settlement amounts during a certain
historical period. For Subsequent Collateral Allocation Repo Transactions, it is the amountequivalent to the fund settlement amounts at each clearing time of 7:00, 11:00 and 14:00 (JST).
Initial margin to cover repo rate fluctuation risk is calculated to cover the repo cost arisingfrom executing repo transactions in the liquidation of the positions of a Clearing Participant
which has defaulted. It is calculated by multiplying the repo trade amount needed to reconstruct
the OTC JGB positions by the repo rate spread expected by JSCC. While the risk amount isdetermined after offsetting the delivery/receipt of positions, a certain percentage of the risk
amount before offsetting is used as a floor to avoid excessive offsets. As with the initial margin
calculation, the greatest of the risk amount and the minimum amount are used for the first
calculation, the greatest of the risk amount and the minimum amount is used for the second
calculation, and the greatest of the risk amount, the average of a certain ratio of the top risk
amounts for a given historical period, and the minimum amount is used for the third calculation.
The market impact charge is calculated to cover the market liquidity risk arising from theliquidation of a defaulted Clearing Participant’s positions. Specifically, a bid/ask spread isdetermined based on a market survey of Clearing Participants for each JGB type, maturity, andterms to maturity. The relevant bid/ask spread is then multiplied by the position’s interest ratesensitivity.
Key Consideration 4:
A CCP should mark participant positions to market and collect margin at least daily to limit
the build-up of current exposures. A CCP should have the authority and operational
capacity to make intraday margin calls and payments, both scheduled and unscheduled,
to participants.
JSCC has adopted variation margin frameworks which aim to reduce current exposure foreach of its Clearing Businesses. Variation margin is paid/received once per day. When calculating
variation margin, positions are marked-to-market using the most recent market prices, and theperiod, or 500 continuous days plus that one day, or 1,250 continuous days plus one day) is used.

67

difference between the prior valuation and the latest mark-to-market is paid/received. For theHoliday Trading of Listed Derivatives, JSCC charges a Margin requirement add-on before theholiday, to avoid an accumulation of exposures by Holiday Clearing Participants. Furthermore,
JSCC also has a framework in place under which, in case of consecutive holidays, JSCC
calculates the risk amounts from the expected Margin requirement and Variation Margin basedon the latest market price, and could suspend clearing during the consecutive holidays for a
Holiday Clearing Participant holding risk amounts exceeding its posted collateral. By thesemeasures, accumulation of current exposure is prevented with respect to Holiday Clearing
Participants even on a Holiday Trading day. See Principle 6, Key Consideration 3 for the
preliminary Margin add-on related to Holiday Trading.
For Listed Derivatives, JSCC recalculates margin requirements during the morning by using
the most recent market prices, and may issue intraday margin calls if required, to cover any
intraday shortfall on the same day. Additionally, a framework is in place to handle large pricefluctuations, where additional intraday (afternoon) calculations are made using the most recent
market prices, and JSCC may issue intraday margin calls, if required, to cover any intraday
shortfall on the same day. For more proactive action against any Clearing Participant holding
excessive positions, JSCC recalculates margin requirements using the latest market prices on areal-time basis, and can call for the same-day deposit of any shortfall from any Clearing
Participant that exceeds the criteria JSCC sets for each Clearing Participant between 9:00 and
13:00 (JST)94.
For IRS, JSCC recalculates the margin requirements at noon based on the most recent
positions of each Clearing Participant, and may issue intraday margin calls, if required, to cover
any intraday shortfall on the same day. Moreover, a framework is also in place to handle large
price fluctuations, under which additional margin calculations are made, and JSCC may issue
additional intraday margin calls, if required.
For Cash Products, OTC JGB and CDS, a framework is in place to handle large pricefluctuations, where additional intraday margin calculations are made using the most recent market
prices, and JSCC may issue intraday margin calls, if required, to cover any intraday shortfall on
the same day. For intraday margin calculations, the most recent market prices during the day areused for Cash Products and CDS, but for OTC JGB, as intraday market prices are difficult toacquire, JSCC applies a predetermined ratio to the required margin calculation based on positions
at the previous day’s close of business.
Key Consideration 5:
In calculating margin requirements, a CCP may allow offsets or reductions in required
margin across products that it clears or between products that it and another CCP clear, if
the risk of one product is significantly and reliably correlated with the risk of the otherproduct. Where two or more CCPs are authorised to offer cross-margining, they must haveappropriate safeguards and harmonized overall risk-management systems.
Portfolio margining
JSCC calculates the required amount of initial margin for each type of transaction for each
proprietary and customer account of Clearing Participants based on the portfolio of positions
belonging to each account.
For Cash Products, JSCC calculates initial margin by applying a historical simulation (VaR)

94

If a Clearing Participant’s risk amount is considered excessive, JSCC could suspend some or all of the Clearing
Participant’s Listed Derivatives clearing.

68

methodology, to take account of correlations between the price movements of different issues.
When calculating initial margin fFor Listed Derivatives (futures/options), under the VaR method,
JSCC calculates initial margin in light of historical price fluctuation correlations between
instruments under HS-VaR, and calculates initial margin by applying risk amount credits byidentifying the product groups with the large risk correlation under AS-VaR. uses the SPAN®
methodology. Within that, JSCC allows margin offsetting for positions in the same product but
different contract months based on price fluctuation correlations, as well as margin offsetting
between products with high correlation. On the offset of margin between products with highcorrelation, JSCC confirms not only the existence of the high level of correlation of products, butalso on the high level of overlapping of underlying assets, except for those products with low
offsetting effect.
For CDS transactions, JSCC calculates initial margin by applying a historical simulation(expected shortfall) methodology, to take account of price fluctuation correlation for positions indifferent reference entities and different terms to maturity.
For IRS transactions, JSCC calculates initial margin by applying a historical simulation(expected shortfall) methodology, to take account of interest rate fluctuation correlation for
positions in different rate types and tenors. JSCC has introduced a cross margining mechanism
for initial margin, which enables risk offset between JPY-denominated IRS, and JGB Futures andinterest rate futures. For a Cross Margining User, the required initial margin is calculated, for both
JPY-denominated IRS, and JGB Futures and interest rate futures, by using the same historicalsimulation (expected shortfall) methodology as the IRS Clearing Business.
For OTC JGBs, JSCC calculates margin using offset ratios based on price fluctuation
correlation for positions in issues with different terms to maturity.
Cross-margining
JSCC does not offer cross-margining arrangements with any other CCPs.
Among eligible products for JSCC’s clearing, JSCC conducts cross margining across multiple
types of products. As both products exhibit similar risk characteristics (i.e., interest rate risk),
JSCC provides an optional cross margining service to Clearing Participants and their customers
that enables the offsetting of initial margin between JPY-denominated IRS, and JGB Futures andinterest rate futures.
Robustness of Margin Model
JSCC conducts daily backtesting to verify the robustness of its margin model.
Parameters used to calculate required margin are regularly revised, with additional revisions
made for times of market stress.
Additionally, correlation parameters used in margin calculations for Listed Derivatives andOTC JGBs are reviewed on a weekly basis. JSCC also updates historical data on pricefluctuations for margin calculation of Cash Product transactions, CDS and IRS transactions using
a historical simulation method, on a daily basis. As such, correlated fluctuations are reflected in
margin calculations in a timely manner.
Key Consideration 6:
A CCP should analyse and monitor its model performance and overall margin coverage byconducting rigorous daily backtesting – and at least monthly, and more-frequent whereappropriate, sensitivity analysis. A CCP should regularly conduct an assessment of thetheoretical and empirical properties of its margin model for all products it clears. In

69conducting sensitivity analysis of the model’s coverage, a CCP should take into accounta wide range of parameters and assumptions that reflect possible market conditions,
including the most-volatile periods that have been experienced by the markets it serves
and extreme changes in the correlations between prices.
Backtesting
JSCC performs backtesting, comparing the margin requirement for each account and theactual losses arising from positions in the account (i.e., the losses based on actual market
fluctuations on and after the base date) on a daily basis, to confirm that the target confidence
level prescribed in the Risk Management Policy is achieved. Additionally, JSCC performs
backtesting, comparing the margin requirement for each account and the hypothetical loss which
may arise from positions in the account (loss amount on an assumption that the position on thebase date existed on or before the base date), and using statistical analysis.
If the target confidence level has not been achieved, JSCC will analyze the cause, andexamine appropriate measures, such as revisions to the margin model or parameters, as needed.
JSCC reports backtesting results to the Risk Oversight Committee on a monthly basis, to theBoard of Directors on a quarterly basis, and to Clearing Participants via the advisory committees
of each Clearing Business on an annual basis.
Key Consideration 7: A CCP should regularly review and validate its margin system.
The Risk Management Division, which is independent from Clearing Business divisions,reviews and validates its overall margining models at least annually. Within these reviews, JSCC
evaluates the policies and calculation methods of the risk management framework, including
margining, and validates their sufficiency and propriety based on backtesting and stress testing
results. JSCC adds or revises margin models, as necessary, when launching a new clearing
service. The addition or revision of any margin models is subject to validation by the Risk
Management Division.
The results of the overall review and validation of the margin model are presented annually to
the Board of Directors and to Clearing Participants via the advisory committees of each Clearing
Business.

70Principle 7: Liquidity Risk
An FMI should effectively measure, monitor, and manage its liquidity risk. An FMI should
maintain sufficient liquid resources in all relevant currencies to effect same-day and,
where appropriate, intraday and multiday settlement of payment obligations with a highdegree of confidence under a wide range of potential stress scenarios that should include,
but not be limited to, the default of the participant and its affiliates that would generate thelargest aggregate liquidity obligation for the FMI in extreme but plausible market
conditions.
Key Consideration 1:
An FMI should have a robust framework to manage its liquidity risks from its participants,
settlement banks, nostro agents, custodian banks, liquidity providers, and other entities.
The primary potential source of liquidity risk is the default of a Clearing Participant. When a
Clearing Participant defaults, JSCC will first use cash deposited as collateral by the defaulting
Clearing Participant and cash withheld from payments to the defaulting Clearing Participant toperform fund settlement. In preparation for cases where these funds are insufficient, in addition
to its proprietary assets and yen-denominated Liquidity Supply Facilities from its parent company,
JPX, JSCC has secured yen-denominated and foreign currency denominated Liquidity Supply
Facilities from multiple commercial banks that have been designated as Fund Settlement Banks.
Each of JSCC’s Fund Settlement Banks is also a Clearing Participant, and thus plays multiple
roles in relation to JSCC. However, in order to ensure the supply of liquidity even in the case of aFund Settlement Bank’s default, JSCC has secured Liquidity Supply Facilities from multiple Fund
Settlement Banks.
In addition to this, because a large amount of liquidity is expected to be required if an OTCJGB Clearing Participant defaults, due to the large settlement amount associated with thesettlement of notional amount, JSCC has established a framework to procure liquidity via JGB
repo transactions with Clearing Participants and other financial institutions.
Furthermore, for Cash Products and Listed Derivatives, JSCC has a framework in place thatallows for the temporary use of the Japanese yen cash95 portion of the clearing fund depositedby non-defaulting Clearing Participants, following settlement failure by a Clearing Participant.
Key Consideration 2:
An FMI should have effective operational and analytical tools to identify, measure, andmonitor its settlement and funding flows on an ongoing and timely basis, including its useof intraday liquidity.
In the fund settlement for each of its Clearing Businesses, JSCC has established a framework
whereby payments from JSCC are made to receiving Clearing Participants after funds arereceived by JSCC from paying Clearing Participants. As such, there is no need to procure intraday
liquidity for fund settlement, except in the event of a paying Clearing Participant default 96 .

95

Limited to the amount of the clearing fund of which deposit in Japanese yen cash is required.

96

In the OTC JGB Clearing Business, JSCC receives JGBs from the delivering Clearing Participant in exchange for thepayment of the settlement funds, and then delivers JGBs to the receiving Clearing Participant in exchange for thepayment of the settlement funds, via DVP settlement at the Bank of Japan. When receiving JGBs from a delivering
Clearing Participant, JSCC applies the funds secured by JGBs to be received to the settlement funds, via BOJ’s JGB
settlement using simultaneous processing of DVP and collateralization.

71

Therefore, JSCC continuously monitors the status of payments from paying Clearing Participants.
Additionally, JSCC regularly receives information on Clearing Participant cash flow. If, forexample, the expected amount of funds needed for daily fund settlement by a Clearing Participant
exceeds either that Clearing Participant’s fund settlement capability or the largest historical levelsof fund settlement, JSCC will contact that Clearing Participant to discuss the situation.
Key Consideration 3:
A payment system or SSS, including one employing a DNS mechanism, should maintainsufficient liquid resources in all relevant currencies to effect same-day settlement, andwhere appropriate intraday or multiday settlement, of payment obligations with a highdegree of confidence under a wide range of potential stress scenarios that should include,
but not be limited to, the default of the participant and its affiliates that would generate thelargest aggregate payment obligation in extreme but plausible market conditions.
This consideration is not applicable to JSCC, as JSCC does not provide any payment system
or SSS functionality.
Key Consideration 4:
A CCP should maintain sufficient liquid resources in all relevant currencies to settle
securities-related payments, make required variation margin payments, and meet otherpayment obligations on time with a high degree of confidence under a wide range ofpotential stress scenarios that should include, but not be limited to, the default of theparticipant and its affiliates that would generate the largest aggregate payment obligation
to the CCP in extreme but plausible market conditions. In addition, a CCP that is involvedin activities with a more-complex risk profile or that is systemically important in multiple
jurisdictions should consider maintaining additional liquidity resources sufficient to covera wider range of potential stress scenarios that should include, but not be limited to, thedefault of the two participants and their affiliates that would generate the largest aggregate
payment obligation to the CCP in extreme, but plausible market conditions.
JSCC has secured Liquidity Supply Facilities from multiple Fund Settlement Banks, forJapanese yen and each applicable currency other than Japanese yen designated as thesettlement currency for foreign currency denominated IRS, and from its parent, JPX, for Japaneseyen, to ensure fund settlement 97.
For Listed Products (Cash Products and Listed Derivatives), JSCC has a framework in placethat allows for the temporary use of the Japanese yen cash 98 portion of the clearing funddeposited by a non-defaulting Clearing Participants, following settlement failure by a Clearing
Participant.
JSCC conducts daily stress tests for liquidity resources in theall settlement currency (JPY)ies
to confirm the sufficiency of its liquidity resources.
JSCC has established a framework for procuring liquidity via repo transactions with Clearing
Participants or non-Participant financial institutions for OTC JGBs and is not dependent on
Liquidity Supply Facilities. As such, the stress testing of the sufficiency of Liquidity Supply
Facilities applies for all products, except OTC JGBs.

97

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

98

Limited to the amount of the clearing fund of which deposit in Japanese yen cash is required.

72

In respect of the above-mentioned liquid resources, JSCC conducts cross-product liquidity
stress testing across all Clearing Businesses, except OTC JGB, and conducts stand-alone
liquidity stress testing for the OTC JGB Clearing Business. See Key Consideration 9 of thisPrinciple for liquidity stress testing for OTC JGBs.
For the cross-product stress testing (excluding OTC JGB), for each stress scenario JSCC
calculates the highest aggregate (cross-product) daily liquidity requirement, from the date of theassume default, up to the completion of the position liquidation. The stressed liquidity requirement
is calculated based on extreme but plausible price fluctuations, such as the largest observed
historical price fluctuations and the historical changes in price correlations during stressed market
periods. JSCC performs multilateral analysis, not only based on historical data, but also throughthe stress risk amount calculation, based on hypothetical forward-looking scenarios, and reverse
stress testing.
The number of simultaneous defaults used in the calculation of stressed liquidity requirementis 2 Clearing Participants (including any other Clearing Participant that is an Affiliate of a defaulting
Clearing Participant) for all Clearing Businesses.
Key Consideration 5:
For the purpose of meeting its minimum liquid resource requirement, an FMI’s qualifying
liquid resources in each currency include cash at the central bank of issue and at
creditworthy commercial banks, committed lines of credit, committed foreign exchange
swaps, and committed repos, as well as highly marketable collateral held in custody andinvestments that are readily available and convertible into cash with prearranged andhighly reliable funding arrangements, even in extreme but plausible market conditions. If
an FMI has access to routine credit at the central bank of issue, the FMI may count suchaccess as part of the minimum requirement to the extent it has collateral that is eligible forpledging to (or for conducting other appropriate forms of transaction with) the relevant
central bank. All such resources should be available when needed.
JSCC has prepared the following qualifying liquid resources to meet its liquidity needs:
 Cash deposited by a defaulting Clearing Participant as margin or Clearing Fund; Liquidity Supply Facilities;
 JSCC’s proprietary assets; and Japanese yen cash deposited by non-defaulting Clearing Participants for Cash Products
and Listed Derivatives.
In addition to the above, JSCC has established a liquidity framework via JGB repo transactions
with Clearing Participants and other financial institutions, for OTC JGBs.
JSCC is able to use cash collateral deposited as margin and Clearing Fund by a defaulting
Clearing Participant on the day when it becomes necessary.
Liquidity Supply Facilities are provided by commercial banks which have been designated as
Fund Settlement Banks and JSCC’s parent company, JPX. Pursuant to agreements with each
Fund Settlement Bank and JPX, funds should be made available on the date of application, if theapplication is made prior to a pre-agreed cut-off time. For the OTC JGB Clearing Business, repo
transactions of JGB securities, which is a highly liquid market, are utilized to access same-day
funding.
Outlines of these qualifying liquid resources and use priority are specified in the Recovery Plan.
When the need arises for JSCC to procure liquidity in times of stress, JSCC expects that it isable to procure the required amount using these qualifying liquid resources, in accordance with73

the Recovery Plan.
Key Consideration 6:
An FMI may supplement its qualifying liquid resources with other forms of liquid
resources. If the FMI does so, then these liquid resources should be in the form of assetsthat are likely to be saleable or acceptable as collateral for lines of credit, swaps, or repos
on an ad hoc basis following a default, even if this cannot be reliably prearranged or
guaranteed in extreme market conditions. Even if an FMI does not have access to routine
central bank credit, it should still take account of what collateral is typically accepted by
the relevant central bank, as such assets may be more likely to be liquid in stressed
circumstances. An FMI should not assume the availability of emergency central bankcredit as part of its liquidity plan.
As in Key Consideration 5 of this Principle, JSCC expects that it is able to procure the required
amount of liquidity using qualifying liquid resources. When necessary, JSCC is also able tosupplementarily use liquid resources secured by JSCC besides its own assets set aside as
qualifying liquid resources.
Key Consideration 7:
An FMI should obtain a high degree of confidence, through rigorous due diligence, thateach provider of its minimum required qualifying liquid resources, whether a participantof the FMI or an external party, has sufficient information to understand and to manage its
associated liquidity risks, and that it has the capacity to perform as required under its
commitment. Where relevant to assessing a liquidity provider’s performance reliability
with respect to a particular currency, a liquidity provider’s potential access to credit fromthe central bank of issue may be taken into account. An FMI should regularly test its
procedures for accessing its liquid resources at a liquidity provider.
Liquid Resources
JSCC’s major qualifying liquid resources are composed of cash deposited as margin or
Clearing Fund by a defaulting Clearing Participant, Liquidity Supply Facilities and JSCC’s
proprietary assets. Additionally, JSCC has established a liquidity framework via JGB repo
transactions with Clearing Participants and other financial institutions for OTC JGBs. Furthermore,
for Cash Products and Listed Derivatives, JSCC has a framework in place that allows for the
temporary use of the Japanese yen cash 99 portion of the clearing fund deposited by nondefaulting Clearing Participants, following settlement failure by a Clearing Participant.
Reliability of Liquidity Providers
JSCC diversifies its liquidity sources by receiving Liquidity Supply Facilities from 6 Fund
Settlement Banks for Japanese yen. The concentration status of liquidity provider resources ismonitored on a monthly basis. Moreover, to further diversify its liquidity suppliers, JSCC has
obtained a yen-denominated Liquidity Supply Facilities from its parent company, JPX.
JSCC considers the Liquidity Supply Facilities from each Fund Settlement Bank and JPX aresufficient for performing its commitment in proportion to the Fund Settlement Bank’s and JPX’sbalance sheet. During the 2008 Financial Crisis, JSCC was able to access Liquidity Supply
Facilities without issue.
All of the Japanese yen Fund Settlement Banks operate under the supervision of the JFSA

99

Limited to the amount of the clearing fund of which deposit in Japanese yen cash is required.

74

and are currently eligible counterparties in a BOJ's fund provision operation. All of the Fund
Settlement Banks which are the liquidity supply providers for other currencies operate under thesupervision of the JFSA or financial regulators in the countries of their establishment. Moreover,
JPX, which is JPY-denominated liquidity supplier, is subject to financial requirements under the
FIEA as a Financial Instruments Exchange Holding Company, and operates under the supervisionof the JFSA. JSCC continuously monitors the financial soundness of these banks by receiving
regular reports on their financial status.
JSCC has established a liquidity framework via JGB repo transactions with Clearing
Participants and other financial institutions for OTC JGBs. This framework assumes that, when
procuring liquidity from the market is difficult, Clearing Participants will access the supplementary
lending of the BOJ, which uses JGBs as collateral, ensuring its effectiveness.
For Cash Products and Listed Derivatives, if it is difficult to facilitate the settlement by utilisingfunding from the Liquidity Supply Facilities and JSCC’s own funds, JSCC may temporarily use
the Japanese yen cash portion of the clearing fund deposited by non-defaulting Clearing
Participants. To ensure effectiveness of this framework, JSCC requires that Clearing Participants
deposit a predetermined portion of the clearing fund requirement in Japanese yen cash.
JSCC confirms the effectiveness of its access to the liquid resources of liquidity providers indefault settlement fire drills that are conducted at least annually.
Key Consideration 8:
An FMI with access to central bank accounts, payment services, or securities services
should use these services, where practical, to enhance its management of liquidity risk.
JSCC utilizes an account at the BOJ for the settlement of funds for each of its Clearing
Businesses, to the extent possible. Specifically, all Japanese Yen fund settlements for the CDS,
IRS, and OTC JGB Clearing Businesses are conducted through a BOJ account.
For the IRS Clearing Business, funds to be settled in other currencies, in relation to foreign
currency denominated IRS, are settled through accounts of commercial banks100.
For the Cash Products and Listed Derivatives Clearing Business, because of the diverse
composition of Clearing Participants, accounts at both the BOJ and commercial banks are used,based on each Clearing Participant’s needs.

100

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

75

Key Consideration 9:
An FMI should determine the amount and regularly test the sufficiency of its liquid
resources through rigorous stress testing. An FMI should have clear procedures to report
the results of its stress tests to appropriate decision makers at the FMI and to use theseresults to evaluate the adequacy of and adjust its liquidity risk-management framework. In
conducting stress testing, an FMI should consider a wide range of relevant scenarios.
Scenarios should include relevant peak historic price volatilities, shifts in other market
factors such as price determinants and yield curves, multiple defaults over various time
horizons, simultaneous pressure in funding and asset markets, and a spectrum of forwardlooking stress scenarios in a variety of extreme but plausible market conditions. Scenarios
should also take into account the design and operation of the FMI, include all entities thatmight pose material liquidity risks to the FMI (such as settlement banks, nostro agents,
custodian banks, liquidity providers, and linked FMIs), and where appropriate, cover a
multiday period. In all cases, an FMI should document its supporting rationale for, andshould have appropriate governance arrangements relating to, the amount and form of
total liquid resources it maintains.
Stress Testing of Liquidity
JSCC conducts stress testing for liquidity resources in Japanese Yen that is a settlement
currency for all Clearing Businesses, as well as other settlement currencies related to foreign
currency denominated IRS101, at least once a day, to verify that Liquidity Supply Facilities and
JSCC’s proprietary assets are sufficient for potential liquidity needs.
JSCC’s stress testing framework includes a range of scenarios including the largest historicalprice fluctuations and extreme but plausible hypothetical scenarios.
The results of daily stress tests are reported to the CRO, the President and CEO and otherexecutive directors, and the heads of related divisions. Additionally, as part of compliance with
the Risk Management Policy in relation to liquidity risk, reports are made to the Risk OversightCommittee on a monthly basis, and to the Board of Directors on a quarterly and annual basis. If
a problem with Liquidity Supply Facilities is identified as a result of stress testing, JSCC will
examine a necessary measure, including revisions to the framework.
The liquidity framework via JGB repo transactions for OTC JGBs utilizes Clearing Participants
and is based upon an assumption that, when procuring liquidity from the market is difficult,
Clearing Participants will access the supplementary lending of the BOJ. As haircuts are applied
to JGBs when Clearing Participants access the supplementary lending of the BOJ, Clearing
Participants may also select repo transactions with JSCC with haircuts applied. At such times,
because Clearing Participant initial margin covers the equivalent haircut, JSCC confirms daily thatit can cover equivalent haircuts with initial margin deposits, under stressed market conditions,even in the case where all Clearing Participants select repo transactions with haircuts applied.
Additionally, JSCC confirms, on a daily basis, that the amount of initial margin is sufficient to cover
the potential increase in liquidity requirement resulting from market fluctuations, due to theClearing Participant’s default, under the stressed market conditions.
The results of this confirmation are reported via the same framework as the stress tests of
Liquidity Supply Facilities, above.
Stress Sscenarios
JSCC conducts stress tests according to various extreme but plausible scenarios. The

101

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

76

scenarios are conservative, and reference related historical market data.
For stress scenarios used to confirm the sufficiency of the liquid resources, JSCC uses
historical scenarios as a base, and establishes other appropriate scenarios based on the natureof the products involved.
JSCC uses a range of historical scenarios taking into account the stress events that caused
the largest fluctuations in each market relevant to the eligible products for clearing, over theprevious 30-year period, such as Black Monday (1987), the Asian Financial Crisis (1997-1998),
the bankruptcy of LTCM (1998), the September 11 attacks in the U.S. (2001), the Financial Crisis(the Lehman collapse) (2008), the Great East Japan Earthquake (2011), the Swiss Franc Shock(2015), and the COVID-19 pandemic (2020).
In addition, JSCC employs forward-looking cross-product scenarios by taking into accountcorrelations between products under stress conditions, according to the features of each producteligible for clearing.
Moreover, in the stress testing to confirm sufficiency of the liquidity resources, JSCC uses
cross-product scenarios where forward-looking hypothetical stress scenarios are defined in lightof the correlations between products.
JSCC assumes the default of the largest 2 Clearing Participants (including any other Clearing
Participant that is a Related Company of the defaulting Clearing Participant) for each of its
Clearing Businesses.
Review and Validation of Stress Scenarios
In accordance with the Risk Management Policy, JSCC validates the scenarios, models, andparameters used in stress testing of Liquidity Supply Facilities, at least monthly. JSCC ensuresthat stress scenarios reflect the most recent market prices and positions. Moreover, JSCC
undertakes daily reverse stress testing to identify extreme scenarios where the liquidity resources
would be insufficient.
In accordance with the Risk Management Policy, JSCC’s Risk Management division validates
the overall risk management model, including Liquidity Supply Facilities, on at least an annual
basis, and makes recommendations regarding revisions to be considered. The results of thesevalidations are reported to the Board of Directors, pursuant to the Risk Management Policy.

77

Key Consideration 10:
An FMI should establish explicit rules and procedures that enable the FMI to effect sameday and, where appropriate, intraday and multiday settlement of payment obligations ontime following any individual or combined default among its participants. These rules andprocedures should address unforeseen and potentially uncovered liquidity shortfalls andshould aim to avoid unwinding, revoking, or delaying the same-day settlement of payment
obligations. These rules and procedures should also indicate the FMI’s process toreplenish any liquidity resources it may employ during a stress event so that it cancontinue to operate in a safe and sound manner.
JSCC has comprehensive rules 102 concerning a change of settlement cut-off times anddeferment of settlement. Under these rules, however, settlement cut-off times cannot be changed,
nor can settlement be deferred, even in the default of one or more Clearing Participant. JSCC
assumes that settlement will be conducted according to the times prescribed in its rules. This is
supported by sufficient and timely access to Liquid Supply Facilities and liquidity via JGB repo
transactions.

102

Business Rules for the securities and similar contracts clearing business Article 80
Business Rules on Business of Assuming Commodity Transaction Debts Article 84
CDS Clearing Business Rules Article 113
IRS Clearing Business Rules Article 113
OTC JGB Clearing Business Rules Article 9178

Settlement
Principle 8: Settlement Finality
An FMI should provide clear and certain final settlement, at a minimum by the end of thevalue date. Where necessary or preferable, an FMI should provide final settlement intraday
or in real time.
Key Consideration 1:
An FMI’s rules and procedures should clearly define the point at which settlement is final.
Point of Settlement Finality
JSCC conducts settlement via securities settlement and fund settlement, as well as settlement
by delivery under the physical-settlement commodity futures.
For securities settlement and fund settlement, the point of settlement finality is when thetransfer has been made from the Clearing Participant’s account with a CSD or Fund Settlement
Bank. For fund settlement in a currency other than Japanese yen, the point of settlement finality
is when either the intrabank transfer has been made from the Clearing Participant’s account at
the Fund Settlement Bank, or the credit to JSCC’s account is made in the settlement process
between different Fund Settlement Banks.
For the settlement by delivery under the physical-settlement commodity futures, the settlement
is considered to be completed between JSCC and the Clearing Participant upon delivery by thedelivering Clearing Participant or receipt by the receiving Clearing Participant, of the good delivery
material, and is considered final; provided, that when the market operator approves the settlement
by delivery via ADP (Alternative Delivery Procedure), the settlement shall be deemed to havecompeted upon such approval.
Fulfillment of Obligations pertaining to Settlement
Settlement methods between JSCC and Clearing Participants are specified in JSCC’s
Business Rules, and obligations are fulfilled at the point where settlement has been conductedaccording to the Business Rules.
Legal Certainty of Finality
JSCC specifies the method and timing of JSCC’s settlements in its Operational Procedures.
The Operational Procedures prescribe procedures to be observed by Clearing Participants basedon JSCC’s Business Rules, and which are legally binding on Clearing Participants. This ensuresthe legal certainty for settlement finality.
Key Consideration 2:
An FMI should complete final settlement no later than the end of the value date, andpreferably intraday or in real time, to reduce settlement risk. An LVPS or SSS should
consider adopting RTGS or multiple-batch processing during the settlement day.
The processes and operations of each of JSCC’s Clearing Businesses are designed to provide
for final settlement no later than the end of the value date or on the day the receipt/payment isdue by specifying the settlement date and settlement cut-off time therein.
JSCC has never experienced an incident where the final settlement is deferred past the79scheduled settlement date.
Settlement is made on a real-time basis during the day. The settlement is final when JSCC’s
payment instructions have been carried out in a Clearing Participant’s Fund Settlement Bank or
CSD, or when the delivery by the delivering Clearing Participant or the receipt by the receiving
Clearing Participant of the qualified delivery goods is performed. Clearing Participants can confirm
fulfillment of final settlement via JSCC’s clearing system or a CSD’s system as necessary.
Key Consideration 3:
An FMI should clearly define the point after which unsettled payments, transfer
instructions, or other obligations may not be revoked by a participant.
JSCC has Operational Procedures in place for each Clearing Business. The Operational
Procedures prescribe operational procedures for Clearing Participants based on JSCC’s
Business Rules, and the point when transfer instructions become irrevocable.
Settlement instructions to JSCC may not be revoked after completion.
Provisions and authority regarding revocation of transfer instructions prior to the completion ofa transfer are prescribed in the rules and procedures of each CSD.

80

Principle 9: Money Settlements
An FMI should conduct its money settlements in central bank money where practical andavailable. If central bank money is not used, an FMI should minimise and strictly control
the credit and liquidity risk arising from the use of commercial bank money.
Key Consideration 1:
An FMI should conduct its money settlements in central bank money, where practical andavailable, to avoid credit and liquidity risks.
For Cash Products and Listed Derivatives, CDS and OTC JGB Clearing Businesses, JSCC
only uses Japanese Yen for settlement. For IRS Clearing Business, in addition to Japanese yen,
JSCC uses currencies for the settlement of foreign currency denominated IRS103.
For each of its Clearing Businesses, JSCC uses an account with the BOJ, the central bank,whenever possible. Specifically, all JPY settlements for the CDS, IRS, and OTC JGB Clearing
Businesses are conducted through a BOJ account.
For the IRS Clearing Business, fund settlement in non-JPY currencies are performed throughan account of a commercial bank. JSCC designated two commercial banks as Fund Settlement
Banks for fund settlements in foreign currencies, and Clearing Participants may select to perform
fund settlement through an account at either of those Fund Settlement Banks.
For the Cash Products and Listed Derivatives Clearing Business, due to the diversity ofClearing Participants, settlement is possible through either a BOJ account or an account at oneof six commercial banks designated by JSCC as Fund Settlement Banks for fund settlement inJapanese yen, based on the choice of each Clearing Participant.
For Japanese yen fund settlement, JSCC holds a settlement account in its own name at thesix aforementioned Fund Settlement Banks and BOJ. Settlement between each Clearing
Participant and JSCC is conducted via book-entry transfer between the accounts of the Clearing
Participant and JSCC, at the bank designated by the Clearing Participant. This book-entry transfer
is conducted between accounts at the same bank, either with BOJ or any of the Fund Settlement
Banks, and is not performed between different banks.
For settlement in currencies other than Japanese yen, JSCC holds a settlement account in the
two above-mentioned Fund Settlement Banks, and fund settlement between a Clearing
Participant and JSCC is conducted via account transfer between the Clearing Participant’s
account and JSCC’s account, at the bank selected by the Clearing Participant.
Key Consideration 2:
If central bank money is not used, an FMI should conduct its money settlements using asettlement asset with little or no credit or liquidity risk.
JSCC only designates commercial banks which satisfy its “Policies for Designation ofJapanese Yen Fund Settlement Banks” and “Policies for Designation of Foreign Currency Fund
Settlement Banks” as Fund Settlement Banks. Fund Settlement Banks approved by JSCC are
those with a presence in Japan, with sufficient capitalization and high credit. Furthermore, all Fund
Settlement Banks are subject to supervision by the JFSA and monitoring by BOJ, or supervision

103

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

81

by financial regulators at the countries of their establishment.
Key Consideration 3:
If an FMI settles in commercial bank money, it should monitor, manage, and limit its credit
and liquidity risks arising from the commercial settlement banks. In particular, an FMI
should establish and monitor adherence to strict criteria for its settlement banks that takeaccount of, among other things, their regulation and supervision, creditworthiness,
capitalisation, access to liquidity, and operational reliability. An FMI should also monitor
and manage the concentration of credit and liquidity exposures to its commercial
settlement banks.
In order to eliminate settlement risk arising from credit risk, accompanying the use ofcommercial bank money, to the extent possible, JSCC designates Fund Settlement Banks
according to the “Policies for Designation of Japanese Yen Fund Settlement Banks” and “Policies
for Designation of Foreign Currency Fund Settlement Banks”, as mentioned in Key Consideration
2 of this Principle, selecting commercial banks with sufficient capitalization and high credit.
Within the “Policies for Designation of Japanese Yen Fund Settlement Banks” and “Policies
for Designation of Foreign Currency Fund Settlement Banks,” JSCC requires banks to be subject
to the supervision of a regulator, maintain stable business operations and profitability, and havesufficient capitalization and high credit above a predetermined level.
JSCC confirms the soundness of Fund Settlement Bank finances by receiving regular reports
from each commercial bank designated as a Fund Settlement Bank on their financial conditions
and confirming their daily settlement operations run smoothly. In this way, JSCC continuously
monitors the banks’ compliance with the “Policies for Designation of Japanese Yen Fund
Settlement Banks” and “Policies for Designation of Foreign Currency Fund Settlement Banks.”
Furthermore, by designating the BOJ and six Fund Settlement Banks for Japanese yen and
two Fund Settlement Banks for currencies other than Japanese yen, JSCC has distributed therisk of being unable to conduct settlement operations due to a Fund Settlement Bank’s bankruptcy.
JSCC also monitors the status of concentration of settlement across the Fund Settlement Banks
on a monthly basis.
All accounts held by JSCC at Fund Settlement Banks are covered by the Japanese Deposit
Insurance System, thereby limiting credit risk arising from the commercial banks.
Key Consideration 4:
If an FMI conducts money settlements on its own books, it should minimise and strictly
control its credit and liquidity risks.
JSCC conducts all money settlements through Fund Settlement Banks and BOJ. No money
settlement is conducted on its own books.
Key Consideration 5:
An FMI’s legal agreements with any settlement banks should state clearly when transferson the books of individual settlement banks are expected to occur, that transfers are to be
final when effected, and that funds received should be transferable as soon as possible,
at a minimum by the end of the day and ideally intraday, in order to enable the FMI and its
participants to manage credit and liquidity risks.
Central Bank Money Settlement
For settlement at the central bank, BOJ’s “Rules on Current Deposit Account” Article 5,82

Paragraph 3 states that “instruction of fund transfer shall be irrevocable.” Therefore, suchtransfers are final upon completion of the transfer process in the BOJ Financial Network System(“BOJ-NET”).
Commercial Bank Money Settlement
For settlement using Fund Settlement Banks, transfers between JSCC and Clearing
Participants are conducted by wire-transfer. The agreements between JSCC and Fund Settlement
Banks specify the time at which funds shall be transferred to the relevant JSCC account forJapanese yen fund settlement. For fund settlement in foreign currencies, Clearing Participants
are required to send fund transfer instructions to the Fund Settlement Bank in time so the transfer
instructions will arrive by the remittance instruction receipt cutoff time designated by JSCC.
This is the established approach for fund settlement in the Japanese financial market, which
JSCC views as a safe and robust settlement system.
Settlement is considered to be final and irrevocable once the funds are credited to thereceiver’s bank account. JSCC understands that these arrangements are supported by Japaneselaws and regulations.

83Principle 10: Physical Deliveries
An FMI should clearly state its obligations with respect to the delivery of physicalinstruments or commodities and should identify, monitor, and manage the risks
associated with such physical deliveries.

Key Consideration 1:
An FMI’s rules should clearly state its obligations with respect to the delivery of physicalinstruments or commodities.
JSCC conducts most of the securities settlement via the book-entry transfer system of theCSD. Physical deliveries between JSCC and Clearing Participants are performed for the cash
trading of Investment Securities issued by the BOJ and the physical-settlement of certain Listed
Commodity futures contracts.
JSCC’s Business Rules for the securities and similar contracts clearing business 104 prescribethat Investment Securities issued by the BOJ are to be physically delivered between a Clearing
Participant and JSCC and specify the settlement cut-off time for such to fulfill delivery
obligations.105
For the physical delivery and receipt of commodities between Clearing Participants and JSCC,
the delivery methods and the settlement cutoff times are prescribed in JSCC’s Business Rules
for the securities and similar contracts clearing business and the Business Rules on Business ofAssuming Commodity Transaction Debts and subordinate rules.106
JSCC’s Business Rules and subordinate rules are publicly available through its website.
In addition to the Business Rules, JSCC provides Clearing Participants with the “Operational
Procedures for Non-DVP Settlement” and the “Operational Procedures for Settlement by Delivery
related to Commodity Futures Contracts”, which prescribe detailed operational procedures related
to physical delivery. This facilitates Clearing Participants to conduct operations with a fullunderstanding of the physical delivery process.
Key Consideration 2:
An FMI should identify, monitor, and manage the risks and costs associated with thestorage and delivery of physical instruments or commodities.
Storage/Delivery Risk related to Physical Instruments
JSCC views (1) principal risk, (2) risk of theft/destruction, and (3) forgery risk to be the primaryrisks associated with storage/delivery of physical securities (securities certificates and warehousereceipts). Measures for these risks are outlined below.

104

Clearing business for cash products, and listed derivatives listed on OSE.

105

Business Rules for the securities and similar contracts clearing business Articles 47, 48, and 56

106

Business Rules for the securities and similar contracts clearing business Chapter 5, Section 7-2, Subsection 3 andBusiness Rules on Business of Assuming Commodity Transaction Debts Article 60

84

Measures for Principal Risk
The aforementioned “Operational Procedures for Non-DVP Settlement” and the “Operational
Procedures for Settlement by Delivery related to Commodity Futures Contracts” prescribe thatreceiving participants must pay settlement funds to JSCC prior to receiving securities from JSCC,
and that delivering participants must deliver securities to JSCC before receiving payment from
JSCC. Through this process, JSCC eliminates the principal risk associated with physical delivery.
Risk of Theft/Destruction
JSCC delivers the securities certificates received from the delivering participant to thereceiving participant on the same day, or the next day for some commodities. In the case of adelivery on the next day, such securities certificates are held by a custodian, such as a bank. As
such, the period that JSCC holds the securities certificates is extremely short and the risk oftheft/destruction is limited. When holding such securities certificates, JSCC stores them in alocked fireproof safe located on JSCC’s premises to reduce the risk of theft and destruction.
Forgery Risk
In order to reduce the risk of forgeries, JSCC confirms the authenticity of the certificates at thetime of transfer and records the serial number of transferred certificates to enable tracking.
For settlement related to the physical delivery of commodities (not related to the delivery of
securities certificates), the settlement between JSCC and Clearing Participants shall be deemed
to have been completed upon the delivery and receipt between the receiving Clearing Participant
and the delivering Clearing Participant. If the Clearing Participant that has become a party to thedelivery fails to perform the delivery or receipt by the deadline, the settlement shall be completed
through a payment of cash by the relevant Clearing Participant to JSCC, and JSCC’s payment ofsuch cash to the counterparty to the relevant delivery.
To secure the performance of the settlement by delivery, JSCC will increase the Margin
requirement for house and customer of a Clearing Participant according to the price fluctuation
risk associated with the delivery.

85

CSDs and Exchange-of-Value Settlement Systems
Principle 11: Central Securities Depositories
A CSD should have appropriate rules and procedures to help ensure the integrity of
securities issues and minimise and manage the risk associated with the safekeeping andtransfer of securities. A CSD should maintain securities in an immobilized or
dematerialized form for their transfer by book entry.
Because JSCC is not a central securities depository, this principle does not apply.

86Principle 12: Exchange-of-Value Settlement Systems
If an FMI settles transactions that involve the settlement of two linked obligations (forexample, securities or foreign exchange transaction), it should eliminate principal risk byconditioning the final settlement of one obligation upon the final settlement of the other.
Key Consideration 1:
An FMI that is an exchange-of-value settlement system should eliminate principal risk by
ensuring that the final settlement of one obligation occurs if and only if the final settlementof the linked obligation also occurs, regardless of whether the FMI settles on a gross or
net basis and when finality occurs.
Use of DVP Settlement
JSCC uses a DVP settlement framework which links the delivery of securities with payment
for the settlement of securities (excluding Investment Securities issued by the BOJ), listed JGBs,
and OTC JGBs, between JSCC and Clearing Participants. This framework eliminates principal
risk associated with the settlement of cash securities.
(1) DVP Settlement of Securities (Net-Net)
JSCC uses Net-Net DVP settlement for securities (Model 3 in CPSS’s “Delivery Versus
Payment in Securities Settlement System”). Under this scheme, the value of securities JSCC
delivers to a Clearing Participant is limited to the value of funds and securities received by JSCC
from such Clearing Participant. This prevents JSCC from fulfilling obligations to the Clearing
Participant in excess of that which the Clearing Participant fulfills toward JSCC, thereby
eliminating the principal risk of a Clearing Participant default.
Transfer of funds and securities according to this scheme is conducted between the accounts
of a Clearing Participant and JSCC, with such transfers being final at the point they are executed.
(Please see Principle 8 (Settlement Finality).) Additionally, when delivery of securities to a
Clearing Participant is withheld, such securities are held within JSCC’s account until delivery inorder to protect them from third-party claims, such as the creditors of the Clearing Participant.
(2) DVP Settlement of JGBs (Gross-Gross)
For settlement of listed JGBs and OTC JGBs, JSCC uses the Gross-Gross (Model 1 in CPSS’s“Delivery Versus Payment in Securities Settlement System” (1992)) DVP settlement (RTGS(Real-Time Gross Settlement)) provided by BOJ, in its role as the CSD for JGBs, as a BOJ
participant. Under this scheme, settlement of cash and securities between a Clearing Participant
and JSCC is fulfilled simultaneously on a gross basis and is final at the time of transfer. (Please
see Principle 8 (Settlement Finality).)87

Default Procedures
Principle 13: Participant-Default Rules and Procedures
An FMI should have effective and clearly defined rules and procedures to manage aparticipant default. These rules and procedures should be designed to ensure that the FMI
can take timely action to contain losses and liquidity pressures and continue to meet its
obligations.
Key Consideration 1:
An FMI should have default rules and procedures that enable the FMI to continue to meetits obligations in the event of a participant default and that address the replenishment of
resources following default.
Clearing Participant Default
JSCC’s rules set out the details of the default management procedures, including the events
constituting a default, the sequencing of the process and obligations of parties involved. JSCC
will declare that a Clearing Participant is in default if such participant is, or is likely to be, unable
to perform its obligations, according to the determination of JSCC’s senior management. If a
default is declared, JSCC can take actions to contain losses by halting clearing of newtransactions from the defaulter and liquidating the defaulter’s positions.
JSCC’s methods for disposing of positions vary according to the nature of the product for each
Clearing Business. Specifically, offsetting transactions in the market and an auction involving nondefaulting Clearing Participants (when necessary) is used for Listed Products, and an auction
involving non-defaulting Clearing Participants is used for CDS, IRS, and OTC JGBs, for which
JSCC prescribes specific methods in its rules and operational procedures 107. In addition, for Listed
Products, CDS and IRS, hedge transactions can be promptly executed for the defaulter’s portfolio
to minimise the risk of losses prior to the disposal of the defaulter’s positions. Hedge transactions
for CDS and IRS are executed based on the advice of the related Clearing Business’s advisorycommittee (CDS Default Management Committee, IRS Default Management Committee). If a
defaulting Clearing Participant holds positions in foreign currency denominated IRS, the default
management process, including hedge transactions, will be conducted for each currency108.
When disposing of positions, customer positions and collateral related to Listed Derivatives,
CDS, and IRS transactions are able to be transferred to non-defaulting Clearing Participants.
JSCC does not receive deposits of customer collateral for listed Cash Products. Moreover, for
OTC JGBs, currently no Clearing Participant has a non-Affiliated customer. JSCC uses its loss
compensation financial resources according to its rules to cover losses arising in the default
process.
Even when a Clearing Participant default occurs, JSCC will fulfill settlement according to theregular schedule. In order to fulfill settlement in this manner, JSCC maintains Liquidity Supply
Facilities for procuring necessary liquidity. For Cash Products and Listed Derivatives, JSCC has
a framework in place that allows for the temporary use of the Japanese yen cash portion of theclearing fund deposited by non-defaulting Clearing Participants, to facilitate fund settlement.

107

Upon a default of an ETF Special Clearing Participant, unperformed obligations related to ETF creation/redemption
shall become invalid retroactively upon the time of the application for clearing. JSCC will return the listed securities
and/or cash received from the Clearing Participants that are the original counterparties to the defaulter.

108

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

88

Additionally, JSCC has established a framework for liquidity via JGB repo transactions with
Clearing Participants for OTC JGBs. See Principle 7 (Liquidity Risk) for further details.
Composition of Loss Compensation Financial Resources
JSCC has established a loss compensation framework for each Clearing Business, as outlined
in below chart. This prevents losses from a single Clearing Business impacting the others.

Principle 13 Key Consideration 1 IV-5: Loss Compensation by Financial Resources

89

90

(*1) JPY 7 billion of the total JPY 9.1 billion is funded by OSE to compensate for losses excluding
Energy Futures (for a limited period since June 2023).
(*21) The amount of the Settlement Guarantee Reserve to be borne by JSCC and thereplenishment of any amount used is stipulated in the rules for each Clearing Business.
(*32) For OTC JGB, Contributions to compensate for losses from the Clearing Fund and Special
Clearing Charge of non-defaulting Clearing Participants are allocated separately according to
the classification of either trust bank Clearing Participants’ trades for trust or non-trust trades.
Allocation of contribution to trades for trust will be determined based on the ratio of underlying
transactions for trust to the entire position of the defaulting Clearing Participant. See (3) OTC
JGB Loss Compensation for details.

Below is an overview of the loss compensation financial resources for each Clearing Business.
(1) Listed Products Loss Compensation
For the Cash Products and Listed Derivatives Clearing Business, losses resulting from a
Clearing Participant default will be covered in the following order:
1) The defaulting Clearing Participant’s margin, Clearing Fund, and other collateral depositedfor its proprietary book (including collateral deposited for other Clearing Businesses, if any
remains)*See Principle 6 (Margin) for margin and Principle 4 (Credit Risk) for Clearing Fund.

2) Contribution from the relevant market operator• The market operators of the listed products which JSCC clears (exchange/PTS)
contributes funds to cover losses arising from such products according to an agreementwith JSCC109.
3) Contribution from JSCC
• JSCC contributes a certain amount of its stockholder’s equity as financial resources forloss compensation. Upon consumption of JSCC’s contribution, it would be subject toreplenishment. Required actions for replenishment are specified in the Recovery Plan.
• Should the replenishment of capital be difficult, JSCC has an arrangement in place forrequired financing with JPX, its parent company.
4) Clearing Fund contributions from non-defaulting Clearing Participants• Non-defaulting Clearing Participants Clearing Fund contributions are consumed on a
pro rata basis according to the risk amount of each participant.
• When an auction is held to dispose of a defaulting Clearing Participant’s positions, theclearing fund of the Clearing Participant that wins the default auction would be used
after the clearing fund of other Clearing Participants.
• If a loss consumes all or part of the Clearing Fund contributions from a non-defaulting
Clearing Participant, such contribution shall be replenished by the business day
following such consumption for Cash Products Clearing Business, and after the Capped
Period ends, for the Listed Derivatives Clearing Business. To address credit risk during

109

When JSCC deems that a Holiday Clearing Participant caused a settlement failure with respect to its Holiday
Trading, the “Holiday Trading Reserve” (a contribution of the operator of the Holiday Trading market at which such
Holiday Clearing Participant participated in the trading), would be used to cover the loss arising from that settlement
failure before this reserve.

91the Capped Period, JSCC calculates the required clearing fund amount for each nondefaulting Clearing Participant every day, and if the required Clearing Fund amount forany day exceeds the required Clearing Fund amount immediately before the first default,
JSCC will request a deposit of the default contingent margin in the amount equal to suchexcess from the non-defaulting Clearing Participant. The default contingent margin is a“defaulter pay” type collateral to be used as loss compensation financial resources upondefault of the Clearing Participant that deposited it during the Capped Period.
5) Additional contribution from non-defaulting Clearing Participants• In the Cash Products Clearing Business, if the loss resulting from a Clearing Participant
default exceeds the sum of all the preceding financial resources, the non-defaulting
Clearing Participants are required to cover any remaining losses by an additional
contribution called a “Special Clearing Charge.” The Special Clearing Charge is borneby each Clearing Participant holding the Cash Products Clearing Qualification on a pro
rata basis, based on their relevant clearing fund requirements.
• In the Listed Derivatives Clearing Business, if the loss resulting from a Clearing
Participant default exceeds the sum of all the loss compensation financial resources
described above, the non-defaulting Clearing Participants are required to cover any
remaining losses by an additional contribution called a “First Special Clearing Charge.”
The required amount of the First Special Clearing Charge is calculated separately foreach Clearing Qualification, and contributed by the Clearing Participants holding suchqualification on a pro rata basis, based on the required Clearing Fund amount
immediately before the first default in the Capped Period. The First Special Clearing
Charge is capped at three times of the required Clearing Fund amount immediately
before the first default during the Capped Period.
6) Variation Margin Gains Haircutting• In the Listed Derivatives Clearing Business, if the loss resulting from a Clearing
Participant default exceeds the sum of all other loss compensation financial resources,
the non-defaulting Clearing Participants are required to cover any remaining losses byan additional contribution, called a “Second Special Clearing Charge”. The required
amount of the Second Special Clearing Charge is calculated separately for each
Clearing Qualification, and contributed by the non-defaulting Clearing Participants
holding such qualification, whose total Variation Margin are in the money from thedefault date (VM receiver), according to the accumulated gains of their Variation Marginequivalent (receivables). The Second Special Clearing Charge is capped at the amountof such gains.
In the Listed Derivatives Clearing Service, if there is a possibility that the loss compensation
financial resources up to the Second Special Clearing Charge are insufficient to cover the loss,
Clearing Participants, JSCC and the market operators involved shall have a consultation on the
countermeasures for the settlement of the loss.
When an agreement cannot be reached through consultation, JSCC shall decide thatnecessary portion of the default auction was unsuccessful, and effect early termination (Partial
Tear-up) of the defaulted contracts that remain un-liquidated.
(2) CDS/IRS Loss Compensation
For the CDS and IRS Clearing Businesses, losses resulting from a Clearing Participant default
in each Clearing Business will be covered in the following order:
1) The defaulting Clearing Participant’s house margin, and Clearing Fund (including collateraldeposited for other Clearing Businesses, if any remains)*See Principle 6 (Margin) for margin and Principle 4 (Credit Risk) for Clearing Fund.

922) Contribution from JSCC
• For each of the IRS and CDS Clearing Businesses, JSCC contributes a certain amountof its stockholder’s equity as financial resources for loss compensation. JSCC
contributes funds in this second tier, and the third tier (below). Upon consumption of
JSCC’s contribution, it would be subject to replenishment. Required actions for
replenishment are specified in the Recovery Plan.
• Should the replenishment of its capital for the IRS or CDS Clearing Businesses bedifficult, JSCC has an arrangement in place for required financing with JPX, its parent
company.
3) Clearing Fund contributions from non-defaulting Clearing Participants and an additional
contribution from JSCC
• Clearing Fund contributions from non-defaulting Clearing Participants and JSCC’s
additional contribution are consumed on a pro rata basis.
• Clearing Fund contributions from non-defaulting Clearing Participants are consumed
according to the risk amount of each participant.
• The Clearing Fund contributions from non-defaulting Clearing Participants are capped
at a certain level. For further defaults occurring during the Capped Period, suchcontributions are capped at the required Clearing Fund amount immediately preceding
the initial default.
• The amount of Clearing Fund contribution from non-defaulting Clearing Participants
consumed is determined according to the quality of participation in the auction for
disposing of the defaulter’s positions. The Clearing Fund contributions of Clearing
Participants with a lower level of auction participation will be consumed first, and theClearing Fund contributions of the bid winning Clearing Participant will be consumed
after the entire Clearing Fund contribution from all other Clearing Participants are
consumed.
• If a loss consumes all or part of the Clearing Fund contributions from the non-defaulting
Clearing Participants, then contributions shall be replenished following the end of the
Capped Period. To cover credit risk during the Capped Period, JSCC calculates therequired Clearing Fund for each non-defaulting Clearing Participant on a daily basis. If
the required Clearing Fund exceeds the required Clearing Fund for the day immediately
preceding the first default, JSCC will call for the additional amount as Default Contingent
Margin. The Default Contingent Margin is a defaulter-pay type collateral to be used as
financial resources to cover losses arising from the potential default of the Clearing
Participant that deposited the Default Contingent Margin.
4) Additional contribution from non-defaulting Clearing Participants• If the loss resulting from a Clearing Participant default exceeds the sum of all thepreceding financial resources, an additional contribution called a “Special Clearing
Charge” is required from the non-defaulting Clearing Participants. The Special Clearing
Charge for defaults occurring during a Capped Period is capped at the required amountof Clearing Fund immediately preceding the first default. Therefore, the procyclicalimpact on Clearing Participants resulting from the additional contribution would be
reduced.
• The Special Clearing Charge shall be applied according to quality of participation theauction for disposing of the defaulter’s positions. The charge will be first applied toClearing Participants with lower level of auction participation.
5) Variation Margin Haircutting93• If the loss resulting from a Clearing Participant default exceeds the sum of all thepreceding financial resources, all non-defaulting Clearing Participants with positive
variation margin (variation margin receiver) from the default date are required tocompensate the loss through Variation Margin Haircutting, to a maximum of the relevant
variation margin amount.
If there is a possibility that the loss compensation financial resources up to the Variation MarginHaircutting are insufficient to cover the loss, Clearing Participants and JSCC shall have aconsultation on the countermeasures for the settlement of the loss.
When an agreement cannot be reached through consultation, all Cleared Contracts shallterminate involuntarily (Tear-Up).
If a defaulting Clearing Participant holds positions in foreign currency denominated IRS, theloss compensation financial resources are allocated for each currency 110 . The allocated loss
compensation financial resources are applied in the order mentioned above, for each currency.
If there is any surplus in the loss compensation financial resources allocated to each currency,
the surplus will be re-allocated to other currencies.
If a defaulting Clearing Participant is using cross margining, the gain/loss from cross margined
JGB Futures and interest rate futures are covered by the loss compensation financial resources
under the IRS Clearing Business. However, if a loss remains after the application of the loss
compensation financial resources up to Tier 4, any remaining loss shall be allocated to IRS andJGB Futures according to the final loss from the position in JPY-denominated IRS and the positionin cross margined JGB Futures and interest rate futures. After such allocation, any loss related to
JPY-denominated IRS will be covered by Tier 5, with losses related to the position in JGB Futuresand interest rate futures being covered according to the Listed Products Loss Compensation,
described in (1) above.
(3) OTC JGB Loss Compensation
For the OTC JGB Clearing Business, losses resulting from a Clearing Participant default will
be covered by loss compensation financial resources in the following order:
1) The defaulting Clearing Participant’s margin, and Clearing Fund (including collateraldeposited for other Clearing Businesses, if any remains)*See Principle 6 (Margin) for margin and Principle 4 (Credit Risk) for Clearing Fund.

2) Contribution from JSCC
• JSCC contributes a certain amount of its stockholder’s equity as financial resources forloss compensation. JSCC contributes funds in this second tier, and the third and fifthtiers (below). Upon consumption of JSCC’s contribution, it would be subject to thereplenishment. Required actions for replenishment are specified in the Recovery Plan.
• Should the replenishment of its capital for the OTC JGB Clearing Business be difficult,
JSCC has an arrangement in place for required financing with JPX, its parent company.
3) Clearing Fund contributions from non-defaulting Clearing Participants and an additional
contribution from JSCC
• The losses allocated to non-defaulting Clearing Participants and JSCC will be pro-rated
based on their proportion of the total level of combined resources in this tier.

110

JSCC has suspended clearing of foreign currency denominated IRS since April 1, 2020.

94• The Clearing Fund contributions of non-defaulting Clearing Participants will be allocatedaccording to losses (“Trust Losses”) based on transactions (“Trust Transactions”)
pertaining to trusts where the Clearing Participant is the trust bank, and other losses(“Non-Trust Losses”). The allotment of Trust Losses will be made based on the ratio ofthe defaulter’s positions made up by Trust Transactions on an underlying transaction
basis. The remaining losses after the allocation of Trust Losses shall be the Non-Trust
Losses. The Trust Losses and Non-Trust Losses will be allocated to non-defaulting
Clearing Participants according to the following method:➢ Trust Losses shall be allocated to each relevant non-defaulting Clearing
Participant pro-rata, based on their ratio of underlying transactions with thedefaulting Clearing Participant.
➢ Non-Trust Losses shall be allocated to each relevant non-defaulting Clearing
Participant pro-rata, based on their Clearing Fund contribution.
• The amount of loss borne by non-defaulting Clearing Participants’ Clearing Fundcontributions under this third tier is capped. Specifically, for defaults during the Capped
Period, the cap shall be the required amount of Clearing Fund immediately preceding
the first default. However, the amount of loss allocated to the Clearing Fundcontributions related to Trust Losses under the third tier is capped at the amountallocated to each Trust Bank according to the underlying transactions. If any Clearing
Fund contribution in respect of Trust Losses under this third tier remains unused, nondefaulting Clearing Participants holding Trust Transactions are required to contributethe unused amount in the fifth tier (below).
• The amount of Clearing Fund contribution from non-defaulting Clearing Participants
consumed is determined according to the quality of participation in the auction for
disposing of the defaulter’s positions. The Clearing Fund contributions of Clearing
Participants with a lower level of auction participation will be consumed first, and theClearing Fund contributions of the bid winning Clearing Participant will be consumed
after the entire Clearing Fund contribution from all other Clearing Participants are
consumed.
• If a loss consumes all or part of the Clearing Fund contributions from the non-defaulting
Clearing Participants, then contributions shall be replenished following the end of the
Capped Period. To cover credit risk during the Capped Period, JSCC calculates therequired Clearing Fund for each non-defaulting Clearing Participant on a daily basis. If
the required Clearing Fund exceeds the required Clearing Fund for the day immediately
preceding the first default, JSCC will call for the additional amount as Default Contingent
Margin. The Default Contingent Margin is a defaulter-pay type collateral to be used as
financial resources to cover losses arising from the default of the Clearing Participantthat deposited that Default Contingent Margin.
4) Additional contribution from non-defaulting Clearing Participants• In cases where the losses allocated as Trust Losses and Non-Trust Losses exceed thecompensation resources of non-defaulting Clearing Participants in the third tier (above),
JSCC will charge an additional contribution called a “Special Clearing Charge” to therelevant non-defaulting Clearing Participants, to cover any remaining losses. The“Special Clearing Charge” will be allocated pro-rata to each non-defaulting Clearing
Participant, according to the following method to cover any remaining losses after
consumption of the third tier financial resources (above):➢ The “Special Clearing Charge” for Trust Losses shall be allocated to eachrelevant non-defaulting Clearing Participant based on their ratio of underlying
transactions with the defaulting Clearing Participant.
➢ The “Special Clearing Charge” for non-Trust Losses shall be allocated to eachrelevant non-defaulting Clearing Participant based on their required amount of95

Clearing Fund. Contributions from each non-defaulting Clearing Participant will
be capped at their clearing fund requirement immediately preceding the first
default during the Capped Period. Therefore, the procyclical impact on Clearing
Participants resulting from the additional contribution would be reduced.
• If, in respect of Trust Losses, the “Special Clearing Charge” contribution under this fourthtier is less than the required Clearing Fund, further contributions of “Special Clearing
Charge” up to the difference of the required Clearing Fund and the amount used in thisfourth tier will be required in the sixth tier (below).
5) Clearing Fund contributions from non-defaulting Clearing Participants with Trust
Transactions and an additional contribution from JSCC
• The losses borne by the Clearing Fund contribution of non-defaulting Clearing
Participants with Trust Transactions and the contribution of JSCC will be pro-rated
based on their proportion of the total level of combined resources in this tier.
• The losses borne by the Clearing Fund contribution of non-defaulting Clearing
Participants with Trust Transactions shall be allocated pro-rata, based on the ratio of
each Clearing Participant’s remaining Clearing Fund contribution after use in the third
tier (above).
• The sum total of the losses borne by the Clearing Fund contribution of non-defaulting
Clearing Participants with Trust Transactions under the third tier (above) and this fifthtier is capped. For defaults during the Capped Period, the cap shall be the required
amount of Clearing Fund immediately preceding the first default.
• The amount of Clearing Fund contribution from non-defaulting Clearing Participants with
Trust Transactions consumed is determined according to the quality of participation in
the auction for disposing of the defaulter’s positions. The Clearing Fund contributions ofClearing Participants with a lower level of auction participation will be consumed first,
and the Clearing Fund contributions of the bid winning Clearing Participant will be
consumed after the entire Clearing Fund contribution from all other Clearing Participants
are consumed.
6) Additional contribution from non-defaulting Clearing Participants with Trust Transactions• In cases where the losses resulting from the Clearing Participants default exceed thecompensation resources up to the fifth tier (above), JSCC will charge an additional
contribution called a “Special Clearing Charge” to non-defaulting Clearing Participants
with Trust Transactions.
• The “Special Clearing Charge” shall be allocated to non-defaulting Clearing Participants
with Trust Transactions pro-rata, based on their ratio of “Special Clearing Charge”
remaining after use under the fourth tier (above). In such cases, the sum total of the“Special Clearing Charge” under the fourth tier (above) and this sixth tier allocated toeach non-defaulting Clearing Participant shall be capped at the required amount ofClearing Fund immediately preceding the first default during the Capped Period.
Therefore, the procyclical impact on Clearing Participants resulting from the additional
contribution would be reduced.
7) Additional Loss Recovery• If the loss resulting from a Clearing Participant default exceeds the sum of all thepreceding financial resources, all non-defaulting Clearing Participants with positive
variation margin (variation margin receiver) from the default date are required toadditionally compensate the loss, to a maximum of the relevant positive variation margin
amount.
If there is a possibility that the loss compensation financial resources up to the “Additional Loss96

Recovery” are insufficient to cover the loss, Clearing Participants and JSCC shall have aconsultation on the countermeasures for the settlement of the loss.
When an agreement cannot be reached through consultation, there will be a close-out nettingof all unsettled positions (Tear-Up).
Key Consideration 2:
An FMI should be well prepared to implement its default rules and procedures, including
any appropriate discretionary procedures provided for in its rules.
JSCC provides for default procedures in its rules and manuals. These rules and manuals
specify procedures including determination of default, liquidation of the defaulting Clearing
Participant’s positions, loss compensation resources, and measures for such procedures.
These procedures also provide for information sharing related to the default, including
communications with regulators, notices to Clearing Participants, and public announcement of
information. The procedures also specify the role and responsibility of each of JSCC’s divisions
and involvement of officers.
Additionally, for the CDS, IRS, and OTC JGB Clearing Businesses, JSCC has established aframework requiring the participation of non-defaulting Clearing Participants in the liquidation of
the defaulting Clearing Participant’s positions. Roles and responsibilities of non-defaulting
Clearing Participants in default procedures are set out in JSCC’s rules.
In order to ensure the effectiveness of default procedures, JSCC conducts fire-drills at least
once a year. Based on the results, JSCC will revise rules and manuals as necessary. Some of
JSCC’s Clearing Businesses require Clearing Participant involvement in default procedures,
including fire drills, where JSCC provides the results as feedback.
Key Consideration 3:
An FMI should publicly disclose key aspects of its default rules and procedures.
JSCC’s default procedures are provided for in the rules for each of JSCC’s Clearing
Businesses. These rules are available on JSCC’s website.
When a Clearing Participant defaults, JSCC discloses important information pertaining to thedefault procedures including the halt of clearing for the defaulting Clearing Participant, position
liquidation method, handling of customer positions, and results of allocation of any losses arisingfrom the Clearing Participant’s default.
Key Consideration 4:
An FMI should involve its participants and other stakeholders in the testing and review of
the FMI’s default procedures, including any close-out procedures. Such testing and review
should be conducted at least annually or following material changes to the rules andprocedures to ensure that they are practical and effective.
In order to ensure the effectiveness of default procedures, JSCC conducts fire-drills for each
Clearing Business at least once a year. All related parties, including Clearing Participants,
participate in these fire-drills. Based on the results, JSCC will revise rules and manuals asnecessary.
Additionally, JSCC will revise rules and manuals related to default when there have beensignificant revisions to business operations. The results of fire-drills are reported to the Risk
Oversight Committee and the Board of Directors.

97

Principle 14: Segregation and Portability
A CCP should have rules and procedures that enable the segregation and portability ofpositions of a participant’s customers and the collateral provided to the CCP with respect
to those positions.
Key Consideration 1:
A CCP should, at a minimum, have segregation and portability arrangements that
effectively protect a participant’s customers’ positions and related collateral from thedefault or insolvency of that participant. If the CCP additionally offers protection of suchcustomer positions and collateral against the concurrent default of the participant and afellow customer, the CCP should take steps to ensure that such protection is effective.
Segregated Management of Customer Positions and Margin
For each Clearing Business, JSCC has adopted differing segregation arrangements forcustomer protection.
For CDS and IRS transactions, JSCC segregates Clearing Participant’s proprietary
positions/margin and the positions/margin of each Customer. Specifically, the positions/margin ofeach customer is segregated in individual customer accounts with JSCC at all times, regardlessof whether or not the customer is an Affiliate of the Clearing Participant. JSCC has establishedthis framework to protect margin related to the positions of each customer from the default or
insolvency of a Clearing Participant.
For Listed Derivatives, JSCC manages Clearing Participants’ proprietary position/margin andcustomer positions/margin separately. JSCC manages customer’s position/margin either on agross basis in an omnibus account, or separately in individual customer accounts, as elected byeach Clearing Participant.
When a Clearing Participant elects management in an omnibus client account, thepositions/margin of multiple customers are managed under the relevant omnibus account at the
JSCC, but the positions/margin of each customer are separately managed by the Clearing
Participant. In such cases, the Clearing Participant reports the position details of each customer
to JSCC, on a daily basis, and JSCC calculates the margin requirement for each customer basedon this information. When a Clearing Participant elects for management in an individual client
account, the positions/margin for each individual client is managed separately in each individual
client account at JSCC.
For both omnibus client accounts and individual client accounts, a Clearing Participant may
elect the management method at JSCC for each customer of a customer (“Indirect Customer”).
If the customers of a Clearing Participant include an Affiliate of the Clearing Participant, then the
Clearing Participant is required to segregate at JSCC, the positions/margin of the Affiliate fromthe positions/margin of non-Affiliated customers.
In addition, for Listed Derivatives, JSCC has the authority to request that Clearing Participants
submit the positions/margin information of individual customers if required 111 . Through theseframeworks, JSCC protects customer positions and related margin from the default or insolvencyof a Clearing Participant. See the following “Transfer of Positions/Margin” section for further

111

Rules on Margins, etc. for Futures and Option Contracts Article 26
Rules on Margins for Business of Assuming Commodity Transaction Debts Article 3498

details.
For the OTC JGB Clearing Business, Clearing Participant’s proprietary positions/margin, andthe positions/margin of each customer, are managed on a gross basis. The positions/margin ofeach customer are segregated in individual customer accounts at JSCC, at all times, regardlessof whether or not the customer is an Affiliate of the Clearing Participant. In terms of customer
protection arrangements, the FIEA requires each Clearing Participant to conduct the segregatedmanagement of customer securities and cash.
For Cash Products, JSCC would conduct netting for all of a defaulting Clearing Participant’stransactions. JSCC only receives collateral deposits from Clearing Participants, but not from
customers. In such cases, the FIEA requires each Clearing Participant to conduct the segregatedmanagement of customer securities and cash. Also, the protection of a customers’ securities andcash related to open positions is achieved under alternative schemes in Japan. Specifically, theJapan Investor Protection Fund, established according to the FIEA, provides a customer
protection scheme for small-scale customers of the Financial Instruments Business Operators(kinnyushohin-torihiki-gyosha). In addition, JASDEC DVP Clearing Corporation provides DVP
Settlement Services for NETDs (non-exchange transaction deliveries) for large-scale(professional) customers. These schemes provide a means of eliminating principal risk.
Transfer of Positions/Margin
JSCC has adopted position transfer arrangements for customer protection, in accordance with
the nature of the products it clears.
For clearing of Listed Derivatives, CDS, and IRS, when a Clearing Participant defaults,
customers may transfer their own positions and margin to another Clearing Participant without
the consent of the defaulting Clearing Participant. In such case, agreement is necessary from theClearing Participant receiving the transfer of positions/margin.
For Listed Derivatives, the Clearing Participant receiving the transfer is required to express its
consent to the exchange and to follow the exchange’s prescribed procedures, after which JSCC
conducts the transfer based on the exchange’s decision 112 . For CDS and IRS, the customer
applies to JSCC via the Clearing Participant receiving the transfer, after which JSCC will confirm
that the required amount of margin pertaining to the transferring positions has been deposited bysuch Clearing Participant. After this confirmation, JSCC transfers the positions and margin of therelevant customer113.
For Listed Derivatives, CDS, and IRS clearing businesses, the transferee Clearing Participants
may determine whether they accept a transfer of positions and margin based on an agreementwith the transferring customer. When customer positions are not transferred to another Clearing
Participant upon a Clearing Participant’s default, the customer may claim against JSCC for the
return of its initial margin remaining after any deduction of the amount of outstanding obligations
related to the cleared contracts that the customer owes to the Clearing Participant.
For IRS, Customers (Affiliates and Clients) have the right to claim payment from JSCC as to112

OSE Rules on Margin and Transfer of Unsettled Contracts Pertaining to Futures/Options Contract Chapter 3,
Section 3
Rules on Margins, etc. for Futures and Option Contracts Articles 28 and 30
TOCOM Market Rules Article 90
Rules on Margin for Business of Assuming Commodity Transaction Debts Articles 41 and 43

113

In addition to the position transfer framework upon Clearing Participant default, for CDS and IRS, a customer isallowed to transfer its positions to a Clearing Participant, or another customer. As part of the transfer, the relevant
customer positions at the transferring Clearing Participant will be cancelled.

99

the “profit equivalent” which they should have received on and after the default determination date,when they choose not to transfer their positions to another Clearing Participant following a
Clearing Participant default.
There are no customer positions/margins for transfer in relation to the Cash Products.
For OTC JGBs, currently no Clearing Participant has a non-Affiliated customer.
Protection from Fellow Customer Risk
JSCC has adopted arrangements to protect customers from the risk of default by anothercustomer using the same Clearing Participant (“Fellow Customer Risk”), according to the natureof the products it clears.
For Listed Derivatives, when a Clearing Participant elects to manage customer margin throughan individual client account, each customer’s margin is managed in separate accounts opened at
JSCC114. Where a Clearing Participant further elects to manage individual client accounts for
Indirect Customers, the margin for each Indirect Customer is managed in separate accounts
opened at JSCC. However, if a Clearing Participant elects to manage customer margin throughan omnibus account, the margin for multiple customers is managed on a gross basis. In eachcase, the right of a customer to request return of its own margin is specified in JSCC’s Business
Rules115. These arrangements eliminate Fellow Customer Risk.
Japanese laws and regulations, JSCC’s Business Rules, and the subordinate rules 116 require
Clearing Participants to deposit customer margin with JSCC on a gross basis as an agent for theircustomers. This means that Clearing Participants are unable to offset the positions of eachcustomer with those of other customers when depositing margin.
In order to facilitate the smooth transfer of customer positions/margin or return of customer
margin at the time of a Clearing Participant’s default, Clearing Participants are obligated by
JSCC’s rules to promptly provide details regarding customer positions/margin deposited with
JSCC in response to JSCC’s request (including in times of market stress) 117. JSCC regularly
conducts reviews to ensure Clearing Participants are able to comply with this requirement.
For the CDS, IRS, and OTC JGB Clearing Businesses, customer margin is individuallysegregated in accounts for each customer118 at JSCC, on a gross basis. Clearing Participants

114

Business Rules for the securities and similar contracts clearing business Articles 46-3 and 46-4
Business Rules on Business of Assuming Commodity Transaction Debts Articles 53 and 54

115

Article 24 of the Rules on Margins, etc. for Futures and Option Contracts and Article 31 of the Rules on Margins for
Business of Assuming Commodity Transaction Debts specify that each customer has a right to claim refund of initial
margin (referred to as “Margin” in the Business Rules concerning listed derivatives) deposited with JSCC through a
Clearing Participant, which is acting as an agent. The amount of initial margin which each customer has a right toclaim refund for is specified as the amount of initial margin deposited with JSCC less the unfulfilled obligations
pertaining to the cleared contracts owed by the customer to the Clearing Participant. This means that the margineach customer deposits with JSCC will not be used to compensate the losses of other customers.

116

FIEA Article 43-2
Rules on Margins, etc. for Futures and Option Contracts Article 24
CDA Article 210
Rules on Margins for Business of Assuming Commodity Transaction Debts Article 31

117

Rules on Margins, etc. for Futures and Option Contracts Article 26
Rules on Margins for Business of Assuming Commodity Transaction Debts Article 34

118

CDS Clearing Business Rules Article 59
IRS Clearing Business Rules Article 59
OTC JGB Clearing Business Rules Article 39

100

must deposit the full amount of customer margin with JSCC. JSCC has no rule that allows for the
netting of positions recorded in a customer account, with those in the account of another customer
using the same Clearing Participant, upon default of a customer.
Legal Basis for Customer Protection
Japanese law stipulates that in the event of a Clearing Participant default, JSCC’s rules shallbe applied in preference to general Japanese Bankruptcy Act, for the management of outstanding
positions, between the defaulting Clearing Participant and JSCC 119.
Therefore, JSCC has the legal powers to liquidate the proprietary positions of a defaulting
Clearing Participant and to transfer or liquidate the customer positions of a defaulting Clearing
Participant, as stipulated in JSCC’s rules.
In the event of the commencement of insolvency proceedings in a foreign jurisdiction against
a Clearing Participant, the effect of such insolvency proceedings extend to Japan only upon aJapanese court’s order of recognition of such proceedings, based on the provisions of the “Act on
Recognition of and Assistance for Foreign Insolvency Proceedings.”
Such proceedings in a foreign jurisdiction shall only apply to the properties of a defaulting
Clearing Participant upon the issuance of an assistance order by a Japanese court. As this order
will be issued if the relevant proceedings should not be a major obstacle for the bankruptcy
proceedings in Japan, such proceedings in a foreign jurisdiction are expected to be similar to
those of Japan.
Key Consideration 2:
A CCP should employ an account structure that enables it readily to identify positions ofa participant’s customers and to segregate related collateral. A CCP should maintaincustomer positions and collateral in individual customer accounts or in omnibus customer
accounts.
Please see Key Consideration 1 of this Principle for how customer positions/margin aresegregated from those of Clearing Participants.
JSCC requires the deposit of margin based on customer positions for CDS, IRS, and Listed
Derivatives transactions. For CDS and IRS transactions, customers are required to deposit theamount required for initial margin and variation margin. For Listed Derivatives, they are required
to deposit the amount required for initial margin.
JSCC manages customer positions for OTC JGBs, CDS, and IRS transactions in individual
accounts, and those for Listed Derivatives in an omnibus account, or an individual client account,as elected by the Clearing Participant. Customer margin is required to be deposited via Clearing
Participants acting as agents to JSCC on a gross basis.
As in Key Consideration 1 of this Principle, customer margin is protected from Fellow Customer
Risk by segregated management as required by the FIEA, CDA, JSCC’s Business Rules, andsubordinate rules.

119

FIEA Article 156-11-2 and CDA Article 181

101

Key Consideration 3:
A CCP should structure its portability arrangements in a way that makes it highly likelythat the positions and collateral of a defaulting participant’s customers will be transferred
to one or more other participants.
As in the preceding Key Consideration 1, JSCC allows for the transfer of customer
positions/margin. In addition to such procedures being stipulated in JSCC’s Business Rules andtheir subordinate rules, the process is publicly disclosed when a Clearing Participant defaults.
Furthermore, the effectiveness of JSCC’s transfer arrangements was demonstrated during the2008 Lehman Brothers Crisis.
Key Consideration 4:
A CCP should disclose its rules, policies, and procedures relating to the segregation andportability of a participant’s customers’ positions and related collateral. In particular, the
CCP should disclose whether customer collateral is protected on an individual or omnibus
basis. In addition, a CCP should disclose any constraints, such as legal or operational
constraints, that may impair its ability to segregate or port a participant’s customers’
positions and related collateral.
The details of the segregated management and position/margin transfer arrangements foreach of JSCC’s Clearing Businesses are specified in its Business Rules, their subordinate rules
and related rules (for Listed Derivatives, including the exchange’s rules). These rules are publicly
available on JSCC’s and the exchange’s websites. Customer margin is protected from the risk ofa Clearing Participant default and Fellow Customer Risk (See Key Considerations 2 through 3 ofthis Principle).
Japanese law stipulates that in the event of a Clearing Participant default, JSCC’s rules shallbe applied in preference to general Japanese Bankruptcy Act, for the management of outstanding
positions, between the defaulting Clearing Participant and JSCC. As such, JSCC views the risk,
cost and uncertainty related to segregated management and position/margin transfer
arrangements to be extremely limited.

102

Business Risk Management and Operation Risk Management
Principle 15: General Business Risk
An FMI should identify, monitor, and manage its general business risk and hold sufficientliquid net assets funded by equity to cover potential general business losses so that it cancontinue operations and services as a going concern if those losses materialize. Further,liquid net assets should at all times be sufficient to ensure a recovery or orderly winddown of critical operations and services.
Key Consideration 1:
An FMI should have robust management and control systems to identify, monitor, andmanage general business risks, including losses from poor execution of businessstrategy, negative cash flows, or unexpected and excessively large operating expenses.
General business risks at JSCC are the risks and potential losses that may arise from JSCC’s
administration and operation and that are not related to the default of a Clearing Participant, nor
are separately covered under credit or liquidity risk management framework.
These risks could result in losses from poor execution of business strategy, operational risk(including IT system risk and other operational risk), investment risk, negative cash flows, or
unexpected and excessively large operating expenses.
In addition to continuously confirming the execution of business plans and financial conditions,
JSCC monitors operational risk (including IT system risk) and investment risk on a monthly basis
within the comprehensive risk management operation outlined in Principle 3 (Framework for theComprehensive Management of Risks).
Key Consideration 2:
An FMI should hold liquid net assets funded by equity (such as common stock, disclosed
reserves, or other retained earnings) so that it can continue operations and services as agoing concern if it incurs general business losses. The amount of liquid net assets fundedby equity an FMI should hold should be determined by its general business risk profile andthe length of time required to achieve a recovery of orderly wind-down, as appropriate, of
its critical operations and services if such action is taken.
JSCC holds sufficient liquid net assets funded by equity to continue operations and service
provision even if it incurs general business losses.
JSCC considers that the above liquid net assets funded by equity must be sufficient to covera minimum of six months of operating expenses, to cover JSCC’s operational risk (including IT
system risk) and investment risk.
JSCC monitors the sufficiency of the above liquid net assets on a monthly basis within thecomprehensive risk management operation outlined in Principle 3 (Framework for theComprehensive Management of Risks).
JSCC’s Settlement Guarantee Reserve will never be used for any loss recovery other thanthose arising from Participant default, including any loss arising from business risks. [SeePrinciple 13 (Participant-Default Rules and Procedures), Key Consideration 1 for loss
compensation financial resources for Participant default settlement]

103

Key Consideration 3:
An FMI should maintain a viable recovery or orderly wind-down plan and should holdsufficient liquid net assets funded by equity equal to at least six months of current
operating expenses. These assets are in addition to resources held to cover participant
defaults or other risks covered under the financial resources principles. However, equity
held under international risk-based capital standards can be included where relevant andappropriate to avoid duplicate capital requirements.
For continuous provision of its critical services, as a core market infrastructure, even under an
extreme stress risk event arising, JSCC has in place a Recovery Plan that sets out informationand procedures required to realize recovery.
To realize the recovery according to the Recovery Plan, as mentioned above, JSCC holds
sufficient liquid net assets funded by equity to cover operating expenses for 6 months. These
liquid assets are managed separately from the resources used when a Clearing Participant
defaults. Therefore, even in the event of JSCC’s recovery or orderly wind-down, Clearing
Participants would have sufficient time to address the transition in their operations. In the
Recovery Plan, JSCC details the measures that would be taken to address a situation, during a
6-month period, of losing revenues due to an unexpected event, including system failure or
inappropriate operations. For example, where recovery of its own capital is difficult, JSCC has anarrangement in place for the required financing with JPX, its parent company.
Key Consideration 4:
Assets held to cover general business risk should be of high quality and sufficiently liquid
in order to allow the FMI to meet its current and projected operating expenses under arange of scenarios, including in adverse market conditions.
JSCC’s liquid net assets funded by equity are held in the form of Japanese Yen cash (petty
cash and bank deposits), JGBs, municipal bonds and government guaranteed bonds (all shortterm), and other investments recognized as safe and liquid. These are of high quality and highly
liquid, even in stressed market conditions. For bank deposits, the settlement accounts held by
JSCC are entirely covered by the Japanese Deposit Insurance System, and are held at banks
designated based on criteria specified by JSCC. (See Principle 16 (Custody and Investment
Risks) for further details.)
Key Consideration 5:
An FMI should maintain a viable plan for raising additional equity should its equity fallclose to or below the amount needed. This plan should be approved by the board of
directors and updated regularly.
JSCC’s Capital Recovery Plan prescribes the means for securing liquid net assets funded byequity, in an amount equivalent to 6 months of operating expenses (“Minimum Secured Amount”).
If JSCC were to experience a significant decline in liquid assets to the Minimum Secured
Amount, or in another event that requires caution, JSCC has a range of options available,
including: Negotiation with vendors to which JSCC outsources operation and services, for the
postponement of payments and/or the discounting of outsourcing fees;
 Fundamental revision of expenses, including personnel expenses;
 Revision of Clearing Fees; and Revision of JSCC’s Business Plan.

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If it is, or is likely to be, extremely difficult for JSCC to secure liquid assets in an amount equal
to meet the Minimum Secured Amount, or another event that triggers activation of its capitalraising plan occurs, JSCC has the following options available:
 Execution of pre-arranged financing with the parent company;
 Discussions with stakeholders, such as the parent company and other shareholders,regarding a capital increase; and Reassessment and restructuring of JSCC’s businesses and operations.
JSCC reviews the Capital Recovery Plan at least once a year, conducting revisions asnecessary. When conducting revisions, any significant revisions must be approved by the Boardof Directors.

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Principle 16: Custody and Investment Risks
An FMI should safeguard its own and its participants’ assets and minimise the risk of loss
on and delay in access to these assets. An FMI’s investments should be in instrumentswith minimal credit, market, and liquidity risks.

Key Consideration 1:
An FMI should hold its own and its participants’ assets at supervised and regulated entities
that have robust accounting practices, safekeeping procedures, and internal controls thatfully protect these assets.
Custodian for JSCC’s Assets
The scope of eligible investment products for JSCC’s own assets is limited to bank deposit,
JGBs, municipal bonds and government guaranteed bonds, and other instruments recognized ashaving sufficient safety and liquidity, in accordance with JSCC’s “Fund Management HandlingRules.”
Bank deposits are held at banks designated based on criteria specified by JSCC. See Principle
4 (Credit Risk) for further details.
JGBs, municipal bonds and government guaranteed bonds are held in the customer accountsof the financial institutions from which JSCC purchased them. Even in the event of the default ofsuch financial institutions, the customer account assets are protected by the “Act on Book-Entry
Transfer of Company Bonds, Shares, etc.”
Custody for Clearing Participant and Customer Assets
Custody of the collateral of Clearing Participants and their customers is limited to CSDs thatare subject to the PFMI, and the central bank, as well as custodians that satisfy the criteria
specified in JSCC’s “Policies for Designation of Custodians of Posted Collateral.”Management of Custodian Risk
Commercial banks holding JSCC’s own assets are limited to those which satisfy JSCC’scriteria. Banks holding assets of Clearing Participants and their customers posted as collateral
are limited to CSDs, subject to the PFMI, and the central bank, as well as custodians that satisfy
the “Policies for Designation of Custodians of Posted Collateral.”
The relevant criteria and guidelines require custodians, other than CSDs and the central bank,to be subject to regulatory supervision, have stable business processing capability, stableprofitability, and a certain level of financial strength and credit.
JSCC regularly monitors all custodians from an operational risk perspective, and all custodiansother than the central bank from a financial standing perspective.
Key Consideration 2:
An FMI should have prompt access to its assets and the assets provided by participants,
when required.
Access to JSCC’s Own Assets
JSCC holds its own assets in accounts under its own name, thus allowing for prompt access106

to such assets when necessary.
Access to Clearing Participant and Customer Deposited Assets
Collateral deposited by Clearing Participants and customers is held in accounts or custodial
facility for the purpose of collateral custody under JSCC’s name, thus allowing for JSCC’s prompt
access to such assets when necessary.
US Treasuries, deposited for the IRS Clearing Business and the CDS Clearing Business, areheld in JSCC’s account with a custodian located in the U.S., and foreign government bonds (USTreasuries and government bonds of UK, Germany, and France), deposited for the Listed
Derivatives Clearing Business, are held in JSCC’s account with an overseas CSD (Euroclear
Bank SA/NV), and can be accessed promptly.
Legal Basis
Japanese law provides a sound legal basis for the rights of an account holder to access its
assets.
The legal basis for access to the overseas CSD (Euroclear Bank SA/NV) that is the custodian
for US Treasuries and the government bonds of the UK, Germany, and France, has been
confirmed in the course of the due diligence conducted on these entities as a part of the contract
execution process.
The FIEA and CDA state that, in the event of a Clearing Participant default, with a prescription
in a CCP’s Business Rules, a defaulting Clearing Participant’s collateral can be applied to thefulfillment of obligations with the CCP in preference to general bankruptcy proceedings, ensuring
JSCC’s stable access to collateral. (See Principle 1 (Legal Basis) for the handling of cross-bordercollateral.)
Key Consideration 3:
An FMI should evaluate and understand its exposures to its custodian banks, taking into
account the full scope of its relationships with each.
With a view to eliminating credit risk of custodians where collateral is deposited for Clearing
Participants and their customers to the extent possible, as described in Key Consideration 1 ofthis Principle, custodians are limited to CSDs that are subject to the PFMI, the central bank, andcommercial banks satisfying the criteria set forth in the “Policies for Designation of Custodians of
Posted Collateral.” In the “Policies for Designation of Custodians of Posted Collateral,” JSCC
requires custodians to have stable profitability, a certain level of financial strength and credit, andstable operational processing capabilities.
JSCC continuously monitors that custodians satisfy the “Policies for Designation of Custodiansof Posted Collateral” by regularly receiving reports on the financial conditions of custodians andconfirming the smooth execution of daily custody operations.
Additionally, JSCC has designated multiple banks as custodians of cash collateral. JSCC
monitors the concentration status on a monthly basis.

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Key Consideration 4:
An FMI’s investment strategy should be consistent with its overall risk-management
strategy and fully disclosed to its participants, and investments should be secured by, or
be claims on, high-quality obligors. These investments should allow for quick liquidation
with little, if any, adverse price effect.
JSCC’s basic investment policy is stipulated in the Risk Management Policy. The scope of
eligible products is restricted to ensure funds are invested only in the highly stable and liquid
products. Specifics are specified in the “Fund Management Handling Rules” and “Policies forManagement of Posted Collateral.”In accordance with these policies, JSCC limits the scope of eligible products for investment ofcollateral to ordinary deposits, lending to bank accounts of Trust Banks, and secured call loans
on JGBs, and limits the scope of eligible products for investment of its own assets to bank deposits,
JGBs, municipal bonds and government guaranteed bonds, and other instruments recognized ashaving sufficient safety and liquidity. Only banks satisfying certain criteria are used as banks
accepting ordinary deposit, term deposit, or lending to bank accounts of Trust Banks. Thereby
credit risk related to asset management is mitigated, to the extent possible120.
These policies are publicly available on JSCC’s website121.
For the CDS and IRS Clearing Businesses, JSCC has a framework in place wherein JSCC
invests collateral posted by Clearing Participants and Customers, and allocates any investment
profits or losses to each Clearing Participant/Customer according to the amount of their invested
collateral.122

120

There are no JSCC rules expressly setting forth any allocation of losses arising from any cause other than a
Clearing Participant default, such as an investment loss, to the loss compensation financial resources related toClearing Participant default for each Clearing Business. See Principle 13, Key Consideration 1 IV-5 Loss
Compensation by Financial Resources for the loss compensation financial resources for Participant’s default
settlement.

121

See JSCC’s Fund Management Policy in “https://www.jpx.co.jp/jscc/en/company/fundmanagementpolicy.html” fordetails.

122

There are no other JSCC rules expressly setting forth any allocation of losses to Clearing Participants/Customers
arising from causes other than a Participant default.

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Principle 17: Operational Risk
An FMI should identify the plausible sources of operational risk, both internal and external,
and mitigate their impact through the use of appropriate systems, policies, procedures,and controls. Systems should be designed to ensure a high degree of security andoperational reliability and should have adequate, scalable capacity. Business continuity
management should aim for timely recovery of operations and fulfilment of the FMI’s
obligations, including in the event of a wide-scale or major disruption.
Key Consideration 1:
An FMI should establish a robust operational risk-management framework withappropriate systems, policies, procedures, and controls to identify, monitor, and manage
operational risks.
JSCC’s Risk Management Policy establishes a framework for internal controls to identify,
monitor, and manage all operational risks across JSCC’s Clearing Businesses. See Principle 3(Framework for the Comprehensive Management of Risks) for further details.
Identification and Management of Operational Risk
JSCC’s Risk Management Policy identifies the following risks and prescribes processes tomanage them: General Operation Risk: operational mistakes, insufficient human resources, outsourcing
risks System Risk: computer system failure, system malfunctions, improper usage of computers
In addition to these risks, the Risk Management Policy provides for basic policies for business
continuity and related management methods in order to restore and continue operations as soon
as possible in the event of a terrorist attack or large-scale natural disaster.
JSCC manages operational risk within the comprehensive risk management operation.
Specifically, reports are given to the Risk Oversight Committee on a monthly basis, regarding
compliance with the Risk Management Policy related to General Operational Risk, System Risk,
and the business continuity framework. Additionally, JSCC reports the same information to theBoard of Directors on a quarterly basis. At least once a year, JSCC reviews the Risk Management
Policy, including a review of the management policy for operational risk. See Principle 3(Framework for the Comprehensive Management of Risks).
General Operation Risk Management
JSCC’s Risk Management Policy stipulates basic policies for managing General Operation
Risk. These include: Securing sufficient capacity for operations; Establishing an internal control framework to prevent operational errors; Establishing information security measures; and Managing outsourcing arrangements.
Based on the basic policies, JSCC stipulates the details of these within the following rules:
 Information Security Basic Policies; Information Security Countermeasure Standards; and109 Outsourcing Management Rules.
As part of its internal control framework to prevent operational errors, when establishing
operational flows, JSCC uses Enterprise Risk Management (ERM) methods to identify potential
risks and devises measures to prevent and control them in advance. The risks arising from eachbusiness are identified via the ERM framework on a regular and company-wide basis, andappropriate measures are planned to prevent their occurrence, based on frequency and severity.
Through this process, when changing rules or launching a new clearing service, JSCC enables
stable and continuous operations which do not rely on specific staff, by accumulating theknowledge among operational staff and outsourced personnel.
Additionally, each of JSCC’s Clearing Businesses verify their manuals/checklists at least oncea year, and conduct revisions as necessary when launching a new clearing service and changing
rules.
In the event operational errors occur for one of the Clearing Businesses, JSCC will investigate
the cause and devise measures to prevent reoccurrence which are reported to the Risk OversightCommittee, depending on significance and impact. Through this process, JSCC continuously
controls General Operation Risks.
System Risk Management
JSCC’s Risk Management Policy stipulates the basic policies for managing System Risk.
These include: Secure sufficient system processing capacity; Conduct system development based on an appropriate plan with sufficient testing; Prepare a contingency plan for the occurrence of system failures and cyber security
incidents;
 Establish information security measures; and Manage outsourcing arrangements.
Based on the basic policies, JSCC stipulates the details of these in the: System Risk Management Policy;
 System Risk Management Rules;
 Information Security Basic Policies; Information Security Countermeasures Standards;
 Outsourcing Management Rules; and Manual for Handling Incidents Suspected of Cyberterrorism.
JSCC outsources primary system processes for its Clearing Businesses. JSCC evaluates theassociated risks according to the “Outsourcing Management Rules” and “Outsourcing Selection
Criteria.”
Should an unexpected event occur, such as a system failure, JSCC will investigate the cause
and devise measures to prevent reoccurrence which are to be reported to the Risk Management
Committee, depending on significance and impact. In addition to this, JSCC reports system
capacity and processing capabilities, system development status, and outsourcing management
status to the Risk Oversight Committee. Through this process, JSCC continuously controls
System Risk.

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Potential Single Points of Failure
Within the system development process for its Clearing Businesses, JSCC identifies single
points of failure in advance, and incorporates redundant configurations. Additionally, JSCC
verifies whether failovers occur as expected in system testing. As such, JSCC does not view there
to be any potential single points of failure in its IT systems operating Clearing Businesses.
Business Continuity Plan
JSCC’s Risk Management Policy stipulates the basic policies and management methods
related to the business continuity framework. These include: Preparing redundancy within IT systems;
 Securing a back-up data center and back-up office; Preparing a Business Continuity Plan; and Aiming to restore business operations within 2 hours.
Based on the basic policies, JSCC stipulates the details of these in the BCP Basic Plan.
Furthermore, the two-hour target for restoring business operations is in line with the business
continuity target set by the Securities Market BCP Forum, which is a conference for the Japanese
securities industry.
In the event a risk occurs which threatens JSCC’s business continuity, JSCC will takemeasures based on the BCP Basic Plan to prevent and control factors which harm business
continuity.
JSCC has equipped its systems with redundancy and established a back-up data center andback-up office, the effectiveness of which it regularly verifies. The specific verification framework
includes synchronization between primary and back-up centers, regular data center switching
drills, maintenance of back-up office equipment and facilities, executing operations from the backup office, updating manuals based on the “Business Continuity Basic Plan (BCP Basic Plan)” andstaff BCP education.
JSCC reports the progress of the above to the Risk Oversight Committee. Through thisprocess, JSCC confirms the effectiveness of its BCP.
Framework to Secure Necessary Personnel and Personnel Compliance
JSCC continuously strives to secure human resources with the ability to execute its Clearing
Businesses and perform risk management.
Specifically, to reduce the risk of losing key personnel, JSCC employs individuals with thenecessary operational and risk management knowledge for each Clearing Business, andcultivates employee knowledge and capabilities via education and training.
JSCC’s Risk Management Policy stipulates the basic policies for managing compliance risk.
These include establishing a compliance framework based on a compliance program including acode of conduct, and keeping staff informed of the program’s details. Based on these basic
policies, JSCC stipulates the Code of Conduct setting forth common standards for officers andemployees, the arrangement concerning management of internal information and the Compliance
Program, for which it continuously conducts employee education and training. JSCC reports risk
management conditions related to compliance to the Risk Oversight Committee as necessary.
Through this process, JSCC prevents misconduct.

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Key Consideration 2:
An FMI’s board of directors should clearly define the roles and responsibilities foraddressing operational risk and should endorse the FMI’s operational risk-management
framework. Systems, operational policies, procedures, and controls should be reviewed,
audited, and tested periodically and after significant changes.
JSCC’s Board of Directors has final responsibility in relation to JSCC’s operational risk
management. Through the comprehensive risk management operation, JSCC manages
operational risk. The Risk Management Policy, which provides for basic risk management policies,
is validated at least once a year. The process and the results of this validation are reported to theBoard of Directors. See Principle 2 (Governance) for more details on the roles of JSCC senior
management and the Board of Directors.
JSCC’s Board of Directors receives reports regarding compliance with the Risk Management
Policy for operational risk on a quarterly basis. JSCC provides the Operational Procedures torealize smooth clearing operations with Clearing Participants. Additionally, JSCC provides System
Connection Specifications to realize stable system operations with Clearing Participants. These
Operational Procedures and System Specifications clarify operational details and deadlines toavoid misunderstanding with Clearing Participants, and facilitate operational risk management.
When changing operational procedures and implementing new products, these documents arerevised as necessary and system testing is performed with Clearing Participants in advance, thus
allowing for verification and evaluation.
Furthermore, for replacement of critical systems, or similar large development projects, JSCC
will seek evaluation by external experts, when necessary.
Key Consideration 3:
An FMI should have clearly defined operational reliability objectives and should havepolicies in place that are designed to achieve those objectives.
JSCC’s Risk Management Policies clearly define their objective to “establish robust andcomprehensive risk management frameworks, ensure steady provision of the Clearing
Businesses, and prevent a loss of JSCC’s capital.”
To achieve this objective, JSCC regularly confirms that all critical systems have sufficient
processing capacity for current levels of utilization and forecasted future requirements. Capacity
targets and actual performance data are presented in the monthly Risk Oversight Committee, andthe sufficiency of system capacity and processing capabilities is confirmed.
Key Consideration 4:
An FMI should ensure that it has scalable capacity adequate to handle increasing stressvolumes and to achieve its service-level objectives.
JSCC has put in place the following measures to ensure its systems have sufficient processing
capabilities:
 All critical systems are required to have sufficient processing capacity to handle a steep
increase in processing volume; and A warning threshold is implemented into monitoring procedures, which triggers if utilization
exceeds certain threshold set according to the features of each system. This is to ensurethat measures can be implemented to increase the system capacity well in advance of therequired time frame.

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Key Consideration 5:
An FMI should have comprehensive physical and information security policies that
address all potential vulnerabilities and threats.
Physical Security
The primary data center which houses JSCC’s clearing system satisfies all the requirements
of “The Center for Financial Industry Information Systems: Security Guidelines on Computer
Systems for Banking and Related Financial Institutions,” which is the standard for Japanesefinancial market safety, and has received ISMS certification.
For continuous certification, ISMS conduct ongoing reviews and examination for certification
renewal, once a year and once each three years, respectively. Risk mitigation measures are taken
if necessary, as a result of such review.
In addition, JSCC has established the “Information Security Basic Policies” and “Information
Security Countermeasure Standards” as internal rules, under which measures against physicalvulnerability and threats have been implemented.
Information Security
JSCC’s “Information Security Basic Policies” provides basic policies and a management
framework for appropriately handling information assets. In the “Information Security
Countermeasure Standards,” which is based on the “Information Security Basic Policies,” JSCC
stipulates matters to be handled from the viewpoint of information security in relation to its
information and information systems. These include management of connections to external
networks, anti-virus measures, and the establishment of system access procedures.
When establishing the “Information Security Basic Policies” and “Information Security
Countermeasure Standards,” JSCC consulted with experts on industry standards.
The Division responsible for JSCC’s information security confirms compliance conditions withthe “Information Security Basic Policies” and “Information Security Countermeasure Standards”
on an annual basis. If it is determined that the current criteria are not appropriate, as a result of
this check, due to a change in industry standards, advancement of technology, or other reasons,the criteria shall be revised and updated.
Additionally, JSCC has confirmed that the outsourcee for the clearing system has stipulated
technology security objectives for JSCC’s clearing system, and satisfies the certification criteriaof ISO27001/ISMS.
Key Consideration 6:
An FMI should have a business continuity plan that addresses events posing asignificant risk of disrupting operations, including events that could cause a wide-scale or
major disruption. The plan should incorporate the use of a secondary site and should bedesigned to ensure that critical information technology (IT) systems can resume
operations within two hours following disruptive events. The plan should be designed toenable the FMI to complete settlement by the end of the day of the disruption, even in caseof extreme circumstances. The FMI should regularly test these arrangements.
Objectives of BCP Basic Plan
The purpose of JSCC’s BCP Basic Plan is to restore and resume JSCC’s business operations,following a terrorist attack or natural disaster.

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Design of BCP Basic Plan
JSCC’s BCP Basic Plan stipulates that even if an event which causes entire or partial operationinterruption occurs (risk event), measures shall be taken to enable prompt recovery andresumption of material business operations, and the detailed measures thereof. These include
employment of secure system redundancy, establishment of back-up data centers, and back-up
offices.
JSCC’s BCP Basic Plan is designed to enable full recovery of its business operations within 2hours of the occurrence of a terrorist attack, natural disaster, or other risk events. It also sets forthcommunication flow with internal and external critical stakeholders and regulators.
Secondary Site
JSCC maintains a secondary site in addition to its primary site. Clearing systems are locatedat both sites and are equipped with the same level of processing capacity.
The secondary site is maintained as an active site, which allows for swift switchover from theprimary site. Full-time system operations personnel are assigned to the secondary site.
JSCC’s primary and secondary sites are geographically separated with different power andcommunications infrastructure. JSCC sees an extremely low probability of both sites
simultaneously being affected by a disaster. A full detailed analysis of the risk profile wasconducted at the time the secondary site was selected.123
Data synchronization between JSCC’s primary and secondary centers runs on a semi-realtime basis (1-minute intervals). Therefore, JSCC considers that the possibility of data loss isextremely low.
In the unlikely event of data loss in the clearing system, JSCC would be able to recover lost
data by employing processes such as data acquisition from, and reconciliation with, other market
operators and financial institutions.
Review and Testing
In order to verify the adequacy and effectiveness of JSCC’s BCP Basic Plan, JSCC conducts
BCP fire-drills at least once a year. These fire-drills include data synchronization to the back-up
data center, regular data center switchover tests, back-up office maintenance, running operations
from the back-up center, updating manuals based on the “Business Continuity Plan (BCP BasicPlan),” and staff BCP education.
JSCC participates, alongside other FMIs, such as the BOJ and JASDEC, in an industry-wide
BCP exercise organized by the JSDA and Japanese Bankers Association, or BCP exercise
organized by another FMI, at least once per year.
These exercises assume a wide-area disaster and involve a broad scope of institutions.
Based on the results and opinions/recommendations arising from these exercises, JSCC will
amend the BCP Basic Plan as necessary.
JSCC makes reports regarding the matters above to the Risk Oversight Committee. Through123

JSCC maintains a full clearing system at a backup data center located in the Kansai area to prepare for risks of anatural disaster affecting a wide area.

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this process, JSCC continually confirms the effectiveness of its business continuity framework.
Key Consideration 7:
An FMI should identify, monitor, and manage the risks that key participants, other FMIs,
and service and utility providers might pose to its operations. In addition, an FMI should
identify, monitor, and manage the risks its operations might pose to other FMIs.
Risks to JSCC’s Operations from outside entities
Within JSCC’s “Business Continuity Plan (BCP Basic Plan)” and “Guidelines for Handling upon
System Failure,” JSCC provides contingency plans for cases of a system failure on the side ofother FMIs, market operators, or Clearing Participants with which JSCC has connection. The
effectiveness of these plans is confirmed through the BCP exercise process detailed above.
JSCC identifies risks related to system development and operations on the side of outsourcees
and regularly confirms the status of response measures, in addition to confirming the satisfactionof reliability and contingency criteria by regularly holding switchover drills with such outsourcees.
Risks that JSCC may pose to other FMI
Should JSCC experience an operational risk event, JSCC has formulated arrangements withother FMIs to deal with such situations in the BCP Basic Plan. This ensures that an operationalrisk event at JSCC does not have a systemic impact on other FMI.

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Principle 18: Access and Participation Requirements
An FMI should have objective, risk-based, and publicly disclosed criteria for participation,
which permit fair and open access.
Key Consideration 1:
An FMI should allow for fair and open access to its services, including by direct and, where
relevant, indirect participants and other FMIs, based on reasonable risk-relatedparticipation requirements.
JSCC has established criteria for the acquisition and maintenance of Clearing Qualification foreach of JSCC’s Clearing Businesses 124. Each Clearing Business’s criteria are rationally alignedwith the risks and nature of that business, do not impose excessive restrictions on entities
eligibility for participation, and ensures open access to those applying for Clearing Qualification.
JSCC has established no limitations on the attributes of Clearing Participant customers and does
not charge fees that operate to overly limit participation.
Participation criteria broadly cover the following requirements:
 Management Structure; Financial Requirements125; and Business Structure.
The participation criteria are stipulated in the Business Rules of each Clearing Business andhave been approved by the JFSA or the Ministry of Agriculture, Forestry and Fisheries / theMinistry of Economy, Trade and Industry. This approval is based on the FIEA’s and CDA’s
prohibition of discriminatory treatment, and affirms the open access which the criteria provide 126.
The participation criteria are publicly available.
Key Consideration 2:
An FMI’s participation requirements should be justified in terms of the safety and efficiencyof the FMI and the markets it serves, be tailored to and commensurate with the FMI’s
specific risks, and publicly disclosed. Subject to maintaining acceptable risk control
standards, an FMI should endeavor to set requirements that have the least restrictive
impact on access that circumstances permit.
JSCC has established participation criteria that are rationally aligned with the relevant risks,
the nature of each Clearing Business, and the attributes of Clearing Participants. JSCC considers

124

Business Rules for the securities and similar contracts clearing business Chapter 2
Business Rules on Business of Assuming Commodity Transaction Debts Chapter 2
CDS Clearing Business Rules Chapter 2
IRS Clearing Business Rules Chapter 2
OTC JGB Clearing Business Rules Chapter 2

125

There is no financial requirement for the ETF Special Clearing Qualification (i.e., the Clearing Qualification to makean asset management company a Clearing Participant under the clearing service related to the settlement of ETF
creation and redemption). When an ETF Special Clearing Participant is unable to perform an ETF
creation/redemption, the unperformed obligations related to such creation/redemption shall become invalid
retroactively upon the time of the application for clearing. So, JSCC bears no credit risk from ETF Special Clearing
Participants.

126

FIEA Article 156-9
CDA Article 177

116the criteria to feature minimum and sufficient requirements for maintaining the stability andefficiency of its Clearing Businesses.
Participation in the Cash Products and Listed Derivatives Clearing Business or OTC JGB
Clearing Business is divided into Principal and Agency. The participation criteria for Agency
Clearing Participants, which are able to provide clearing access to other entities, are stricter thanthose for Principal Clearing Participants. When Clearing Participants for the IRS Clearing
Business provide clearing services to non-Affiliate customers, JSCC requires the maintenance ofa structure for properly managing customer risk and preventing improper infringement of customer
interests. Entities eligible to be JSCC Clearing Participants include Financial Instrument Business
Operators, Commodity Futures Trading Firms, banks, or insurance companies. JSCC hasestablished eligibility criteria based on indicators of financial soundness appropriate for these
entities.
The participation criteria are publicly available, and can be accessed by all current andpotential Clearing Participants. The participation criteria are amended as needed according tochanges in the regulatory environment and general market conditions.
Key Consideration 3:
An FMI should monitor compliance with its participation requirements on an ongoing basisand have clearly defined and publicly disclosed procedures for facilitating the suspension
and orderly exit of a participant that breaches, or no longer meets, the participation
requirements.
Monitoring Participant Compliance
JSCC continuously monitors Clearing Participants for ongoing compliance with theparticipation criteria for each of JSCC’s Clearing Businesses.
(1) Monitoring Compliance with Financial Criteria
JSCC receives reports on Clearing Participant finances monthly, quarterly, semi-annually, andannually to monitor the soundness of Clearing Participant finances. Additionally, JSCC monitors
daily news for information on Clearing Participant finances, as well as credit ratings, market
information (stock prices, CDS/bond spreads).
(2) Monitoring Compliance with Management/Business Structure Criteria
JSCC requires Clearing Participants to submit a report when there is a change in executive
officer or major shareholder in order to monitor the soundness of their management. JSCC also
monitors daily news for information on Clearing Participant management, and business structure,such as office transfers or reductions in operations. JSCC also conducts monitoring of daily
clearing operations, including payments, securities deliveries, and whether collateral is depositedon time.
Measures against Clearing Participants
When JSCC determines that a Clearing Participant does not satisfy participation criteria or has
violated JSCC rules, JSCC will take disciplinary measures against the Clearing Participant
according to the methods prescribed in the Business Rules of each Clearing Business 127.

127

Business Rules for the securities and similar contracts clearing business Chapter 2, Section 5
Business Rules on Business of Assuming Commodity Transaction Debts Chapter 2, Section 5

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Before determining the measures, JSCC will consult the Disciplinary Measures Assessment
Committee regarding the appropriateness of the measures. The Disciplinary Measures
Assessment Committee is composed of multiple experts, including lawyers and academics, andis independent from JSCC. The Disciplinary Measures Assessment Committee Rules stipulates
that a committee member having any special interest in an agenda item is not allowed toparticipate in the relevant deliberation.
These measures include issuing instructions on business structure or position improvement,
the suspension of all or part of its clearing services and revocation of Clearing Qualification for
the relevant Clearing Participant. Prior to these measures, JSCC may request the submission ofmaterials or conduct an on-site examination to gain a better understanding of the Clearing
Participant’s finances, management, and business structure, if JSCC deems such a request
necessary to ensure the stable operations of the Clearing Business. In order to promote
improvement at the Clearing Participant, JSCC may recommend appropriate measures based on
its rules.
In cases where a Clearing Participant withdraws from the Clearing Business due to revocationof qualifications, such Clearing Participant is required to dissolve its positions and fulfill its
obligations before its qualifications are revoked. As such, JSCC ensures the withdrawal of aClearing Participant is conducted in an orderly manner.
If JSCC suspends clearing for a Clearing Participant or revokes a Clearing Participant’s
Clearing Qualification, it will notify all relevant stakeholders, including other Clearing Participants
and market operators, and make a public announcement.

CDS Clearing Business Rules Chapter 2, Section 4
IRS Clearing Business Rules Chapter 2, Section 6
OTC JGB Clearing Business Rules Chapter 2, Section 4

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Principle 19: Tiered Participation Arrangements
An FMI should identify, monitor, and manage the material risks to the FMI arising fromtiered participation arrangements.
Key Consideration 1:
An FMI should ensure that its rules, procedures, and agreements allow it to gather basic
information about indirect participation in order to identify, monitor, and manage any
material risks to the FMI arising from such tiered participation arrangements.
Clearing Participants are direct participants of JSCC with access to JSCC’s Clearing
Businesses.
Entities that are not Clearing Participants may access JSCC’s clearing services through a
Clearing Participant, as a customer of such Clearing Participant, in accordance with a contract
with such Clearing Participant (“Indirect Participant”). The scope of Indirect Participants may varyby Clearing Business, and includes brokers, banks, asset managers, pension funds, hedge funds,
non-financial corporate entities, and individuals.
For each of JSCC’s Clearing Businesses, the following Indirect Participants are accepted:
 Cash Products and Listed Derivatives Clearing Business: Customers (including Indirect
Customers) of Clearing Participants, Trading Participants of Exchanges (non-JSCC
Clearing Participants) and customers (including Indirect Customers) of Trading
Participants128
 CDS Clearing Business: Affiliates of Clearing Participant
 IRS Clearing Business: Customers of Clearing Participant129
 OTC JGB Clearing Business: Affiliates of Clearing Participant(1) Rules/Agreements for Gathering Indirect Participant Information
JSCC’s Business Rules, subordinate rules, and Clearing Brokerage Agreements authorize it
to gather information on the nature of Indirect Participants via Clearing Participants.
The rules for JSCC’s Cash Products and Listed Derivatives Clearing Business state that, when
JSCC requests, a Clearing Participant must provide information relating to the position of Indirect
Participants, allowing JSCC to maintain an understanding of each Indirect Participant’s
positions130. For the Listed Derivatives, the Clearing Participants are allowed, under the rules, toelect for the management of each Customer, or Indirect Customer, in individual client accounts.
In this case, JSCC has full disclosure of the positions of the Customers and Indirect Customers131.
128

Customers of the Cash Products and Listed Derivatives Clearing Business include both Affiliates of Clearing
Participants and non-Affiliates.

129

Customers of the IRS Clearing Business include both Affiliates of Clearing Participants and non-Affiliates.

130

Business Rules for the securities and similar contracts clearing business Article 40
Contract for Commissioning Clearance Article 16
Rules on Margins, etc. for Futures and Options Contracts Article 26
Business Rules on Business of Assuming Commodity Transaction Debts Article 44
Contract for Commissioning Clearance Article 21
Rules on Margins for Business of Assuming Commodity Transaction Debts Article 34

131

Business Rules for the securities and similar contract clearing business Articles 46-3 and 46-4

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When a Clearing Participant elects for the management of its Customers using an omnibus client
account, the Clearing Participant is required to report the position details to JSCC, for eachcustomer or Indirect Customer, on a daily basis, according to the customer position management
style. In both cases, if a client’s positions are considered to be excessive, JSCC may request that
the Clearing Participant report additional information relating to the position, such as the margin
requirement related to the position, the margin deposit status concerning that position, and theClearing Participant’s status of management of the relevant customer or Indirect Customer. If,
despite JSCC’s request, the Clearing Participant fails to submit this additional information, JSCC
may increase the Initial Margin requirement for the relevant Clearing Participant, or issue an
instruction to reduce the position132. Thereby, JSCC has effective knowledge of the positions ofeach Indirect Participant.
The Business Rules and subordinate rules for JSCC’s CDS, IRS, and OTC JGB Clearing
Businesses provide that separate accounts should be maintained for each Indirect Participant at
JSCC. This allows JSCC to maintain an understanding of each Indirect Participant’s positions 133.
(2) Risks to JSCC arising from Tiered Participation
Please see Key Consideration 3 of this Principle for the risks to JSCC arising from tiered
participation arrangements and the management of such.
Key Consideration 2:
An FMI should identify material dependencies between direct and Indirect Participants thatmight affect the FMI.
By monitoring the position risk of Clearing Participants, JSCC is able to identify dependencies
between Clearing Participants and Indirect Participants. Specifically, in order to avoid acustomer’s default having a significant impact on such customer’s Clearing Participant, JSCC will,
as necessary, request information from a Clearing Participant regarding the positions of individual
Indirect Participants and their risk management, and confirm whether there are any issues incomparison to the financial strength of such Clearing Participant.
Key Consideration 3:
An FMI should identify Indirect Participants responsible for a significant proportion oftransactions processed by the FMI and Indirect Participants whose transaction volumes
or values are large relative to the capacity of the direct participants through which they
access the FMI in order to manage the risks arising from these transactions.
Clearing Participants are responsible for their related Indirect Participants’ financial obligations
to JSCC, even when such Indirect Participants do not fulfill such obligations. As such, JSCC
monitors whether Clearing Participants have excessive exposure to Indirect Participants incomparison to their financial strength at least once a day for all products, and more frequently forcertain products.
Additionally, under the Business Rules and subordinate rules, JSCC may acquire additional

Business Rules on Business of Assuming Commodity Transaction Debts Articles 53 and 54
132

Business Rules for the securities and similar contracts clearing business Article 21-2.
Business Rules on Business of Assuming Commodity Transaction Debts Article 22133

CDS Clearing Business Rules Article 59
IRS Clearing Business Rules Article 59
OTC JGB Clearing Business Rules Article 39120

information from Clearing Participants on each Indirect Participant as necessary, allowing it tomaintain an understanding of detailed position information and risk management of Indirect
Participants, and identify Indirect Participants which may have a significant impact on Clearing
Participant risk management. Through these measures JSCC conducts its risk management.
Based on this monitoring, JSCC may take additional risk reduction measures, such as
requiring additional collateral or a reduction of positions.
Key Consideration 4:
An FMI should regularly review risks arising from tiered participation arrangements andshould take mitigating action when appropriate.
When determining to take the risk reduction measures mentioned in Key Consideration 3 ofthis Principle, JSCC consults with the Disciplinary Measures Assessment Committee to ensure
the objective propriety of such measures. The Disciplinary Measures Assessment Committee iscomposed of multiple members, including lawyers, academics, and other experts, and maintains
independence from JSCC.

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Principle 20: FMI Links
An FMI that establishes a link with one or more FMIs should identify, monitor, and manage
link-related risks.
Key Consideration 1:
Before entering into a link arrangement and on an ongoing basis once the link isestablished, an FMI should identify, monitor, and manage all potential sources of risk
arising from the link arrangement. Link arrangements should be designed such that each
FMI is able to observe the other principles in this report.
JSCC conducts an assessment of potential risks prior to establishing a proposed linkarrangement, including those related to trading and clearing. In this assessment, JSCC examines
the potential risks relating to legal, credit, liquidity, regulatory, and operational areas that may havean impact on JSCC.
Currently, JSCC only has FMI links with the following entities:
 JASDEC, as custodian of securities settlement and collateral in municipal and corporate
bonds, listed stocks, ETF, REIT, CB and non-exchange traded investment trusts.
 BOJ, as a Fund Settlement Bank for money settlement and a custodian of JGB settlement
and collateral.
 Euroclear Bank SA / NV as custodian for foreign government bonds (US Treasuries,
government bonds of UK, Germany and France)
 DTCC Data Repository (U.S.) LLC, as a trade repository of trade information under CFTC
Regulations for the IRS and CDS Clearing Businesses and a trade repository of trade
information under OSC regulations and AMF regulations for the IRS Clearing Business.
 Hong Kong Trade Repository (“HKTR”), an OTC derivatives trade repository operated by
the Hong Kong Monetary Authority, as an organization to which trade information shall bereported under the SFO for the IRS Clearing Business.
 DTCC Data Repository (Japan) K.K., as a trade repository of trade information under the
Financial Instruments and Exchange Act for the IRS and CDS Clearing Businesses.
These links are established by JSCC’s participation in the systems of each FMI. Each FMI issubject to the PFMI, and therefore any potential sources of risk (such as legal, credit, liquidity,
custody, and operational risk) are expected to be properly managed.
Key Consideration 2:
A link should have a well-founded legal basis, in all relevant jurisdictions, that supports its
design and provides adequate protection to the FMIs involved in the link.
All links currently maintained by JSCC are with Japanese FMIs, except for Euroclear Bank SA/ NV, DTCC Data Repository (U.S.) LLC and HKTR, and are implemented under Japanese law.
Links with Euroclear Bank SA / NV are implemented under the laws of the United Kingdom andBelgium. Links with DTCC Data Repository (U.S.) LLC are implemented under the laws of theUnited States. Links with HKTR are implemented under the laws of Hong Kong.
Euroclear Bank SA / NV is an overseas CSD subject to the PFMI, and its legal basis forprovision of appropriate protection to FMI was confirmed as part of the due diligence conductedin the course of the contract execution.
DTCC Data Repository (U.S.) LLC is registered as a Swap Data Repository (“SDR”) under122

CFTC Regulations and is also authorized as a trade repository service provider by the regulatory
authorities of the provinces of Canada, and thus is confirmed to have a well-founded legal basis
providing appropriate protection to FMIs.
HKTR is an OTC derivatives trade repository operated by the Hong Kong Monetary Authority
under the Exchange Fund Ordinance, and is confirmed to have a well-founded legal basis
providing appropriate protection on FMIs.
Key Consideration 3:
Linked CSDs should measure, monitor, and manage the credit and liquidity risks arisingfrom each other. Any credit extensions between CSDs should be covered fully with highquality collateral and be subject to limits.
This consideration is not applicable as JSCC is not a CSD.
Key Consideration 4:
Provisional transfers of securities between linked CSDs should be prohibited or, at aminimum, the retransfer of provisionally transferred securities should be prohibited prior
to the transfer becoming final.
This consideration is not applicable as JSCC is not a CSD.
Key Consideration 5:
An investor CSD should only establish a link with an issuer CSD if the arrangement
provides a high level of protection for the rights of the investor CSD’s participants.
This consideration is not applicable as JSCC is not a CSD.
Key Consideration 6:
An investor CSD that uses an intermediary to operate a link with an issuer CSD shouldmeasure, monitor, and manage the additional risks (including custody, credit, legal, andoperational risks) arising from the use of the intermediary.
This consideration is not applicable as JSCC is not a CSD.
Key Consideration 7:
Before entering into a link with another CCP, a CCP should identify and manage thepotential spill-over effects from the default of the linked CCP. If a link has three or more
CCPs, each CCP should identify, assess, and manage the risk of the collective linkarrangement.
This consideration is not applicable as JSCC has not established a link with another CCP.
Key Consideration 8:
Each CCP in a CCP link arrangement should be able to cover, at least on a daily basis, its
current and potential future exposures to the linked CCP and its participants, if any, fully
with a high degree of confidence without reducing the CCP’s ability to fulfil its obligations
to its own participants at any time.
This consideration is not applicable as JSCC has not established a link with another CCP.

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Key Consideration 9:
A TR should carefully assess the additional operational risks related to its links to ensure
the scalability and reliability of IT and related resources.
This consideration is not applicable as JSCC is not a TR.

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Efficiency
Principle 21: Efficiency and Effectiveness
An FMI should be efficient and effective in meeting the requirements of its participants andthe markets it serves.
Key Consideration 1:
An FMI should be designed to meet the needs of its participants and the markets it serves,in particular, with regard to choice of a clearing and settlement arrangement; operating
structure; scope of products clearing, settled, order recorded; and use of technology andprocedures.
JSCC has formal processes involving Clearing Participants to ensure its development of
products and services is in-line with market needs. JSCC has established advisory committees
for each Clearing Business for this purpose, specifically the Listed Products Management
Committee, CDS Management Committee, IRS Management Committee, and OTC JGBManagement Committee. These committees are composed of the members, including those from
Clearing Participants, and are consulted with regarding major clearing/settlement frameworks,
operational processing frameworks, and clearing service development, before such matters are
decided upon by the Board of Directors.
For the CDS, IRS, and OTC JGB Clearing Businesses, in order to accurately reflect Clearing
Participant opinions, JSCC has established subordinate committees for those mentioned above.
These include committees for risk management, operational, and legal areas.
Additionally, JSCC receives feedback related to rules/procedure revisions ofclearing/settlement frameworks, operational processing frameworks, and clearing service
development via public comments and informal discussions with Clearing Participants andcustomers. These arrangements aim to ensure a broad range of opinions are considered in theprocess of establishing a properly functioning market between a diverse range of Clearing
Participants and customers.
Key Consideration 2:
An FMI should have clearly defined goals and objectives that are measurable andachievable, such as in the areas of minimum services levels, risk-management
expectations, and business priorities.
JSCC provides in its Corporate Philosophy:“JSCC, with a solid risk-management framework, aims to contribute to sustainable
development of the markets by improving the efficiency, serviceability and safety of themarkets as post-trade processing infrastructure.”
JSCC has defined 2 basic policies to achieve its Corporate Philosophy, namely“Reinforcement of Basic Functions as CCP,” “Offering Clearing Services Responsive to New
Needs.”134
In order to achieve its objectives, JSCC establishes a medium-term management plan torealize specific policies based on the surrounding environment, and reports the progress on a134

https://www.jpx.co.jp/jscc/en/company/philosophy.html

125quarterly-basis to senior management and on at least an annual-basis to the Board of Directors,
thereby ensuring it is measurable and attainable.
JSCC has established a comprehensive risk management framework in order to achieve the“with solid risk-management framework” in its Corporate Philosophy, under which JSCC identifies,
monitors, and manages the risks it faces.
Within the comprehensive risk management, for system risk management, JSCC has set
targets for system processing capacity and time required for system processing. JSCC also
manages the level of financial resources it should hold.
Key Consideration 3:
An FMI should have established mechanisms for the regular review of its efficiency andeffectiveness.
As above, JSCC has established a framework for confirming the progress of the medium-term
management plan and a framework for business management to systematically manage various
risks. Within the regular review of these frameworks, JSCC conducts reviews of measures whichhave been implemented from the perspective of systems, operations, and costs.

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Principle 22: Communications Procedures and Standards
An FMI should use, or at a minimum accommodate, relevant internationally accepted
communication procedures and standards in order to facilitate efficient payment, clearing,
settlement, and recording.
Key Consideration 1:
An FMI should use, or at a minimum accommodate, internationally accepted
communication procedures and standards.
JSCC uses widely accepted communication procedures and standards for communications
with Clearing Participants, Fund Settlement Banks, and linked FMIs. JSCC uses the following
procedures and standards for external communications.
Procedures/Standards for Communication with Clearing Participants(1) Clearing Business concerning Cash Products and Listed Derivatives
JSCC provides dedicated terminals to Clearing Participants for everyday clearing operations.
Additionally, Clearing Participants are able to use an API provided by JSCC to directly access
JSCC’s clearing system. JSCC also provides connection specifications for the JSCC clearing
system to Clearing Participants that request them.
(2) CDS/IRS Clearing Businesses
JSCC provides trade data and other services via various portal sites, FTP (File Transfer
Protocol), MQ messaging, and FpML (Financial Products Markup Language) format.
For the CDS Clearing Business, JSCC processes applications for clearing from Clearing
Participants via the Trade Information Warehouse provided by DTCC Deriv/SERV LLC.
For the IRS Clearing Business, JSCC processes applications for clearing from Clearing
Participants through MarkitWire, provided by MarkitSERV Limited, the electronic trading platforms
provided by Bloomberg Tradebook Japan Limited, and (i.e., VCON (Voice Confirmation) provided
by Bloomberg Finance L.Pfunction or ETP (Electronic Trading Platform) function, provided byBloomberg Tradebook Japan Limited, QUICK-Confirmation provided by QUICK Corp. and Clear
Markets Japan ETP (Electronic Trading Platform) provided by Clearing Markets Japan, Inc.) andelectronic trade affirmation platforms designated by JSCC.
(3) OTC JGB Clearing Business
OTC JGB Clearing Business Communications between JSCC and Clearing Participants are
conducted over TCP/IP (Transmission Control Protocol/Internet Protocol) using the PreSettlement Matching System provided by JASDEC, with processing based on ISO20022
messaging.
Procedures/Standards for Communication with Fund Settlement Banks
JSCC uses BOJ-NET for its JPY-settlement at the central bank.
Additionally, for the transfer of Japanese Yen collateral for the Clearing Business concerning
Cash Products and Listed Derivatives through commercial banks, JSCC processes the transfer
of funds through the firm banking system based on Japanese Bankers Association procedures.
JSCC processes payment/receipt of funds in non-JPY currencies, for the settlement under the127

IRS Clearing Business, through commercial banks using the SWIFT financial messaging service.
Procedures/Standards for Communication with CSD(1) Connection with BOJ (CSD for JGBs)
For book-entry transfer/DVP settlement of JGBs at BOJ, JSCC conducts operational
procedures based on system connection specifications using ISO20022XML message, provided
by BOJ.
(2) Connection with JASDEC (CSD for stocks)
For book-entry transfer/DVP settlement of stocks at JASDEC, JSCC conducts operational
procedures via access to JASDEC’s network system, using ISO20022 XML messaging as theconnection specifications.

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Transparency
Principle 23: Disclosure of Rules, Key Procedures, and Market Data
An FMI should have clear and comprehensive rules and procedures and should provide
sufficient information to enable participants to have an accurate understanding of therisks, fees, and other material costs they incur by participating in the FMI. All relevant rules
and key procedures should be public disclosed.
Key Consideration 1:
An FMI should adopt clear and comprehensive rules and procedures that are fully
disclosed to participants. Relevant rules and key procedures should also be publicly
disclosed.
Business Rules
The Business Rules and subordinate rules for each of JSCC’s Clearing Businesses are fully
disclosed on JSCC’s website, in Japanese and English. The Business Rules comprehensively
provide details under normal conditions of the responsibilities of Clearing Participants, Clearing
Participant default procedures, responses to system failures, and emergency measures during
natural disasters. Additionally, JSCC has established contingency plans which specify responses,
procedures, and arrangements for each product eligible for clearing during times of emergency.
All of these are disclosed on JSCC’s website.
In cases where JSCC must add a revision to the Business Rules or subordinate rules, JSCC
consults the advisory committee of the relevant Clearing Business regarding the details of therevision in advance, excluding insignificant revisions. See Principle 2 (Governance) for details on
the advisory committees.
In cases where a revision to the Business Rules or subordinate rules would impact investors,
JSCC compiles an outline of the proposed revision and submits it for public comment. This
process allows Clearing Participants and investors to understand the aim of the revision and its
impact.
General Information
JSCC’s website is publicly accessible and provides the following information related to clearing
and settlement:
 JSCC’s background, company overview, and corporate philosophy;
 Governance;
 Risk Appetite Statement; Clearing Participant criteria and list of Clearing Participants;
 Clearing business framework; Details on eligible collateral, custody and investment status; Margin, Clearing Fund, and loss compensation framework; Participant default procedures; Statistical Information; and Clearing fees.

129

Key Consideration 2:
An FMI should disclose clear descriptions of the system’s design and operations, as wellas the FMI’s and participant’s rights and obligations, so that participants can assess therisks they would incur by participating in the FMI.
Descriptions of JSCC’s Clearing Business framework, including the claims and obligations
between JSCC and Clearing Participants and operational procedures, are stipulated in theBusiness Rules and subordinate rules for each Clearing Business. JSCC’s Business Rules andsubordinate rules are publicly available via its website.
The details which compose the core of JSCC’s Clearing Business framework are stipulated
in the Business Rules and subordinate rules. When revising these rules, as in Key Consideration
1 of this Principle, JSCC provides the details of the revisions to interested parties via consultation
with Clearing Business advisory committees and a public comment process.
Additionally, the Business Rules and subordinate rules stipulate the scope of matters that
JSCC is able to determine at its discretion in the course of its Clearing Business operations.
JSCC provides a wide range of information to Clearing Participants, to enable Clearing
Participants to evaluate the risks and costs pertaining to participation in JSCC, including thefollowing: Eligible products for clearing and details of the requirements for clearing; Eligible collateral and applicable haircuts;
 Management of Clearing Participant default and measures to be taken for it, including
available financial resources; and Loss Compensation Scheme (Risk Waterfall) for each Clearing Business.
This information is included in JSCC’s Business Rules and subordinate rules, which are public
documents. JSCC also provides the “Operational Procedures,” which stipulate details for theoperations of each Clearing Business, to Clearing Participants.
Key Consideration 3:
An FMI should provide all necessary and appropriate documentation and training tofacilitate participants’ understanding of the FMI’s rules and procedures and the risks they
face from participating in the FMI.
JSCC holds explanatory sessions for new Clearing Participants, to facilitate theirunderstanding of the clearing framework and procedures before granting Clearing Qualifications.
JSCC makes efforts to familiarize Clearing Participants with JSCC’s rules and procedures in
explanatory sessions on Clearing Businesses when required, such as when revising rules orintroducing new products.
For the CDS, IRS, and OTC JGB Clearing Businesses, JSCC holds regular default
management fire-drills, to familiarize Clearing Participants with the Clearing Participant default
management procedures, which would apply to non-defaulting Clearing Participants.
To promote disclosure to its Clearing Participants, JSCC distributes a “Risk Profile Report”
which contains key information related to risk management, including the status of collateraldeposited by Clearing Participants and the status of the adequacy of loss compensation financial
resources.
Clearing Participants’ ongoing compliance with JSCC’s rules and procedures demonstrates

130their understanding, and confirms that the rules and procedures are clear and comprehensive.
JSCC’s Business Rules provide for issuing improvement orders when JSCC recognizes adeficiency in a Clearing Participant’s business execution structure. Through this, JSCC is capableof issuing corrective measures to the Clearing Participant demonstrating a deficiency inunderstanding of JSCC’s rules and procedures and the risks pertaining to participation.
Key Consideration 4:
An FMI should publicly disclose its fees at the level of individual services it offers as wellas its policies on any available discounts. The FMI should provide clear descriptions ofpriced services for comparability purposes.
JSCC publicly discloses the clearing fee structure on its website. Rules relating to fees,
including details of fee rates for each product and the details of discounts, are set forth in the rules
for each of JSCC’s Clearing Businesses.
In cases of revisions to the clearing fee structure, JSCC will consult with advisory committees,such as the Listed Products Management Committee, the CDS Management Committee, the IRS
Management Committee, and the OTC JGB Management Committee, which are composed ofthe members including those from Clearing Participants, and conduct consultation procedures,
including public disclosure of an outline of the revisions and publication of details of rule revisions
on JSCC’s website135.
JSCC provides information on its system design, technology, and communication
specifications to existing Clearing Participants and firms seeking to become Clearing Participants,
thereby enabling such parties to estimate the costs related to participation.
Key Consideration 5:
An FMI should complete regularly and disclose publicly responses to the CPSS-IOSCO
disclosure framework for financial market infrastructures. An FMI also should, at aminimum, disclose basic data on transaction volumes and values.
This document is JSCC’s disclosure pursuant to the CPSS-IOSCO “Principles for Financial
Market Infrastructures: Disclosure Framework and Assessment Methodology.” JSCC will update
this disclosure document if there are any significant changes, or at a minimum every two years.
JSCC also publishes on its website, quantitative information pursuant to the “Publicquantitative disclosure standards for central counterparties” published by CPMI-IOSCO.
Additionally, JSCC discloses statistical information for each of its Clearing Businesses inEnglish and Japanese on its website. This information includes the following: Cleared volume and value for Listed Products;
 Cleared value and trade counts for CDS; Cleared value and trade counts for IRS; and Cleared volume, value and trade counts for OTC JGB.
JSCC discloses a wide range of other information in English and Japanese on its website.

135

To consider fee reduction of cash products clearing, JSCC consulted with Cash Product Clearing Participants at the
Listed Products Management Committee meeting, and revised the fee structure from Oct. 1, 2021.

131

This information includes the following: Eligible products for Clearing; Clearing Participant qualification criteria;
 Existing Clearing Participants;
 Information about JSCC’s clearing and settlement operations; and Outline of overall risk management system (including margin framework).

132

Principle 24: Disclosure of Market Data by Trade Repositories
A TR should provide timely and accurate data to relevant authorities and the public in linewith their respective needs.
Because JSCC does not provide functions as a TR, this principle does not apply.

133

V. List of Publicly Available Information
JSCC Business Rules
https://www.jpx.co.jp/jscc/en/rule.html
JSCC Management and Financial Information
https://www.jpx.co.jp/jscc/en/company/management-financial-information-2.html
JSCC Company Profile
https://www.jpx.co.jp/jscc/en/company/profile.html
JSCC Clearing Qualification Criteria and List of Clearing Participants
https://www.jpx.co.jp/jscc/en/participant.html
JSCC Statistics- Listed Products
https://www.jpx.co.jp/jscc/en/listed_products.html- Japanese Government Bonds
https://www.jpx.co.jp/jscc/en/jgbcc.html- Credit Default Swaps
https://www.jpx.co.jp/jscc/en/credit_default_swap.html- Interest Rate Swaps
https://www.jpx.co.jp/jscc/en/interest_rate_swap.html
JSCC Clearing Fees
- Listed Products (Cash Products)
https://www.jpx.co.jp/jscc/en/cash/cash/fee.html- Listed Products (Listed Derivatives)
https://www.jpx.co.jp/jscc/en/cash/futures/fee/derivativesfee.html- Japanese Government Bonds
https://www.jpx.co.jp/jscc/en/cash/jgbcc/fee.html- Credit Default Swaps
https://www.jpx.co.jp/jscc/en/cash/cds/fee.html- Interest Rate Swaps
https://www.jpx.co.jp/jscc/en/cash/irs/fee.html
JSCC Clearing & Settlement
https://www.jpx.co.jp/jscc/en/cash.html
Japan Exchange Group (JPX)Tokyo Stock Exchange, Inc. (TSE)
Osaka Exchange, Inc. (OSE)Tokyo Commodity Exchange, Inc. (TOCOM)
https://www.jpx.co.jp/english/

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Osaka Dojima Exchange, Inc. (ODEX)
https://www.odex.co.jp/english/index.html
Financial Instruments and Exchange Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4405
https://www.fsa.go.jp/common/law/fie01.pdf
Cabinet Office Ordinance on Financial Instruments Clearing Organization, etc.
https://www.japaneselawtranslation.go.jp/en/laws/view/3449http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=2486&vm=04&re=02&new=1
Comprehensive Guidelines for Supervision of Financial Market Infrastructures
https://www.fsa.go.jp/common/law/202206.pdfhttps://www.fsa.go.jp/common/law/201802.pdf https://www.fsa.go.jp/en/news/2014/20140327-1/01.pdf
Commodity Derivatives Act (CDA)
https://www.japaneselawtranslation.go.jp/en/laws/view/4290http://www.japaneselawtranslat
ion.go.jp/law/detail/?ft=2&re=01&dn=1&yo=%E5%95%86%E5%93%81%E5%85%88%E7%89%A9&x=50&y=11&ia=03&ja=04&ph=&ky=&page=1
Ordinance for Enforcement of the Commodity Derivatives Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4291http://www.japaneselawtranslat
ion.go.jp/law/detail/?ft=2&re=01&dn=1&yo=%E5%95%86%E5%93%81%E5%85%88%E7%89%A9&x=50&y=11&ia=03&ja=04&ph=&ky=&page=3
Basic Guidelines on Supervision of Commodity Clearing Organizations (Japanese)
https://www.maff.go.jp/j/shokusan/syoutori/dealing/attach/pdf/hourei6.pdfhttps://www.maff.go.jp/j/shokusan/syoutori/dealing/pdf/shishin_261126.pdf
Companies Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4481
https://www.japaneselawtranslation.go.jp/en/laws/view/4482http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=2035&vm=04&re=02
Civil Codehttps://www.japaneselawtranslation.go.jp/en/laws/view/4314
https://www.japaneselawtranslation.go.jp/en/laws/view/4275
http://www.moj.go.jp/content/000056024.pdf
Act of Recognition of and Assistance for Foreign Insolvency Proceedings
https://www.japaneselawtranslation.go.jp/en/laws/view/3780http://www.japaneselawtranslat
ion.go.jp/law/detail_main?vm=&id=1935
Deposit Insurance Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4391http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=956&vm=04&re=02&new=1
Trust Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4453http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=1936&vm=04&re=02135

Banking Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4498http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=2196&vm=04&re=01&new=1
Act on Book-Entry Transfer of Company Bonds, Shares, etc.
https://www.japaneselawtranslation.go.jp/en/laws/view/4436http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=2451&vm=04&re=02&new=1
Bank of Japan
https://www.boj.or.jp/en/index.htm/
Bank of Japan Act
https://www.japaneselawtranslation.go.jp/en/laws/view/3788http://www.japaneselawtranslat
ion.go.jp/law/detail/?id=92&vm=02&re=01
The Bank of Japan Policy on Oversight of Financial Market Infrastructures
https://www.boj.or.jp/en/paym/outline/pay_os/data/rel130312a.pdfhttps://www.boj.or.jp/en/announcements/release_2013/data/rel130312a.pdf
Rules on Current Deposit Account (Japanese)
https://www.boj.or.jp/paym/torihiki/touyo08.htm/
Japan Securities Depository Center, Inc.
https://www.jasdec.com/en/
Japan Securities Dealers Association
https://www.jsda.or.jp/en/
The Center for Financial Industry Information Systems (FISC)
https://www.fisc.or.jp/english/
Principles for Financial Market Infrastructures
https://www.bis.org/cpmi/publ/d101a.pdf
Principles for Financial Market Infrastructures: Disclosure Framework andAssessment Methodology
https://www.bis.org/cpmi/publ/d106.pdf
Implementation monitoring of PFMIs: Level 2 assessment report for central
counterparties and trade repositories - Japan
https://www.bis.org/cpmi/publ/d127.htm
European Market Infrastructure Regulation (EMIR)
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012R0648
The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit)
Regulations 2018https://www.legislation.gov.uk/uksi/2018/1184/contents/made136

Markets in Financial Instruments Directive
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0065
Markets in financial instruments regulation
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014R0600
Commodity Exchange Act
https://www.law.cornell.edu/uscode/text/7/chapter-1
CFTC Regulation
https://www.ecfr.gov/current/title-17/chapter-Ihttp://www.ecfr.gov/cgi-bin/textidx?sid=7c421620fdc60314ab8fd9de494af74e&c=ecfr&tpl=/ecfrbrowse/Title17/17tab_02.tp
lAustralian Corporations Amendment (Central Clearing and Single-Sided Reporting)
Regulation 2015 -F2015L01411
https://www.comlaw.gov.au/Details/F2015L01411
Australian Corporations Regulations 2001-F2017C00162
https://www.legislation.gov.au/Details/F2017C00162
Securities and Futures Ordinancehttps://www.elegislation.gov.hk/hk/cap571https://www.elegislation.gov.hk/index/chapternumber?QS_CAP_NO=571&p0=1&TYPE=1&TYPE=2&TYPE=3&LANGUAGE=E#tag571
Exchange Fund Ordinancehttps://www.elegislation.gov.hk/hk/cap66
https://www.elegislation.gov.hk/index/chapternumber?QS_CAP_NO=66&p0=1&TYPE=1&T
YPE=2&TYPE=3&LANGUAGE=E#tag66
Financial Markets Infrastructure Act
https://www.fedlex.admin.ch/eli/cc/2015/853/enhttps://www.admin.ch/opc/en/classifiedcompilation/20141779/201708010000/958.1.pdf
Securities Act R.S.O. 1990, CHAPTER S.5
https://www.ontario.ca/laws/statute/90s05/v21
National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer
Collateral and Positions
https://www.osc.ca/en/securities-law/instruments-rules-policies/9/94-102/national-instrument-94102-derivatives-customer-clearing-and-protection-customer-collateral-and

137

VI. Glossary
AMF

Autorité des Marchés Financiers

API
BCP
BOJ
CB
CCO
CCP
CDA
CDS
CFTC
CPSS
CRO
CSD
DVP
EMIR
ESMA
ETF
ETP
FBOT
FINMA
FIEA
FISC
FMI
FOS
HKTR

Application Programming Interface
Business Continuity Plan
Bank of Japan
Convertible Bonds
Chief Compliance Officer
Central Counterparty
Commodity Derivatives Act
Credit Default Swap
The U.S. Commodity Futures Trading Commission
The Committee on Payment and Settlement Systems
Chief Risk Officer
Central Securities Depositary
Delivery Versus Payment
European Market Infrastructure Regulation
European Securities Market Authority
Exchange Traded FundElectronic Trading Platform
Foreign Board of Trade
Swiss Financial Market Supervisory Authority
Financial Instruments and Exchange Act
The Center for Financial Industry Information Systems
Financial Markets Infrastructure
Fund Only Settlement
The Over-the-counter Derivatives Trade Repository of the HKMAHKMAHong Kong Monetary Authority

IOSCO
ISMS
JFSA
JGB
JGBCC
JCCH
JPX
JPX Market
Innovation &Research
JPY
JSCC
LIBOR
MiFID
MiFIR
MTF

The International Organization of Securities Commissions
Information Security Management System
Japan Financial Services Agency
Japanese Government BondJapanese Government Bond Clearing Corporation
Japan Commodity Clearing House Co., Ltd.
Japan Exchange Group, Inc.
JPY Market Innovation & Research, Inc.
Japanese Yen
Japan Securities Clearing Corporation
London Interbank Offered Rate
Markets in Financial Instruments Directive
Markets in financial instruments regulation
Multilateral Trading Facility

138

ODEX
OSC
OIS
OSE
OTC
OTF
PFMI
POMA

Osaka Dojima Exchange, Inc.
Ontario Securities Commission
Overnight Index Swap
Osaka Exchange, Inc.
Over the Counter
Organised Trading Facility
Principles for Financial Market Infrastructure
Post Offset Margin Amount

PTS

Proprietary Trading System

REIT
RPF
RTGS
SDR
SEF
SFC
SFO
SSS
STP
SWIFT
TCCCP
TCP
TOCOM
TONA
TR
TSE
VaR

Real Estate Investment Trust
Risk Parameter File
Real-Time Gross Settlement
Swap Data Repository
Swap Execution Facility
Securities and Futures Commission
Securities and Futures Ordinance
Securities Settlement System
Straight Through Processing
Society for Worldwide Interbank Financial Telecommunication
Third Country CCP
Transmission Control Protocol
Tokyo Commodity Exchange, Inc.
Tokyo Overnight Average rate
Trade Repository
Tokyo Stock Exchange, Inc.
Value-at-Risk

139