Rules on Default Settlement Regarding
Clearing Participants in Relation to IRS Clearing Business
Original Document Title : 金利スワップ取引清算業務に関する清算参加者の破綻処理に関する規則

Note : JSCC hereby certifies that to the best of its knowledge, the foregoing is a fair andaccurate English translation of a document originally written in Japanese. In the event of
any inconsistency between the original Japanese document and this reference English-translation, the original Japanese document will prevail.

Table of Contents
Chapter 1 General Provisions (Articles 1 - 8) .................................................................................. 2
Chapter 2 Default Auction (Articles 9 - 14) ...................................................................................... 13
Chapter 3 Consultation (Articles 15 - 17) ......................................................................................... 18
Chapter 3-2

Allocation of Initial Margin Deposited by Defaulting Clearing Participant (Articles

17-2 – 17-3) ....................................................................................................................................... 21
Chapter 4 Sharing of Losses by Other Clearing Participants (Articles 18 – 22) .............................. 22
Chapter 5 Special Clearing Charge Collateral (Articles 23 – 27) ...................................................... 32
Chapter 5-2 Adjustment of Resources for Loss Recovery between Currencies after Determinationof Final Loss (Article 27-2) ................................................................................................................ 39
Chapter 6 Distribution of Collected Amount (Articles 28 - 32) ....................................................... 42

1

Chapter 1

General Provisions (Articles 1 - 8)

Article 1. Purpose
The purpose of these Rules on Default Settlement Regarding Clearing Participants in
Relation to IRS Clearing Business (these “Default Settlement Rules”) is to set forth thematters necessary for the Default Auction and the procedures for settlement of, andtreatment of losses from, the Defaulting Clearing Participant’s Cleared Contracts uponoccurrence of a Default of a Clearing Participant under the IRS Clearing Business Rules(“Business Rules”) established by Japan Securities Clearing Corporation (“JSCC”).
Article 2. Definitions
Unless otherwise set forth in these Default Settlement Rules, the terms used in these
Default Settlement Rules shall have the same meaning as used in the Business Rules. In
addition, the following terms shall have the meanings defined below:(1) “Default Auction Date” means the date of a Default Auction to be determined by
JSCC at each occurrence taking account of an advice of the IRS Default
Management Committee.
(2) “Successful Bidder” means the Clearing Participant who won a bid on the Auction
Transactions at the Default Auction.
(3) “Successful Bid Amount” means the amount payable by JSCC to the Successful
Bidder upon the execution of the Auction Transactions pursuant to Article 14.2. Ifsuch amount is negative, the Successful Bidder shall pay the amount equal to theabsolute value of such amount to JSCC upon the execution of the Auction
Transactions.
Article 3. First Tier IRS Settlement Guarantee Reserve
1

JSCC will set aside 2 billion JPY as the First Tier IRS Settlement Guarantee

Reserve.

2

2

In the case where all or part of the First Tier IRS Settlement Guarantee Reserve isused entirely or in part in accordance with the Business Rules, etc., JSCC will set aside thesame amount as the portion so used as First Tier IRS Settlement Guarantee Reserve ateach occasion. The sum total of the reserve under the provisions of this Paragraph shall not
be more than 2 billion JPY.
Article 4. Second Tier IRS Settlement Guarantee Reserve
1

JSCC will set aside 2 billion JPY as the Second Tier IRS Settlement Guarantee

Reserve.
2

In the case where all or part of the Second Tier IRS Settlement Guarantee

Reserve is used entirely or in part in accordance with the Business Rules, etc., JSCC will
set aside the same amount as the portion so used as Second Tier IRS Settlement
Guarantee Reserve at each occasion. The sum total of the reserve under the provisions of
this Paragraph shall not be more than 2 billion JPY.
Article 5. Principle of Settling Default Separately
Unless otherwise set forth in the Rules, where Defaults are determined with respect tomultiple Clearing Participants, each of the following matters shall be performed andhandled separately for each Defaulting Clearing Participant and for each currency type of
the Defaulting Clearing Participant’s Cleared Contracts:-

Calculation of the Early Termination Charge;-

Position Transfer set forth in Article 94.1 of the Business Rules;-

Hedge Transactions and Cross Margining Liquidation Transactions;-Default Auction;-

Another Default Auction or consultation held in accordance with Article 95-2 of theBusiness Rules and agreement reached in accordance with Article 96.2 of theBusiness Rules or Compulsory Termination of all Cleared Contracts if an agreement
is not reached;-Calculation and payment of the Special Clearing Charge payable by each Clearing
Participant to JSCC;

3-

Calculation of the Special Clearing Charge Collateral to be deposited by each
Clearing Participant with JSCC;-

Calculation and recovery of the Excess Default Loss (including the amounts usedfrom the First Tier IRS Settlement Guarantee Reserve, the Second Tier IRS
Settlement Guarantee Reserve, and/or the IRS Clearing Fund for the loss recovery);-

Adjustments to JSCC’s claims against the Defaulting Clearing Participant;-

Other matters related to the determination of a Default; and-Application of the provisions of the Rules to the above.

Article 6. Early Termination Charge Regarding Defaulting Clearing Participant’s Cleared
Contracts
1

The Early Termination Charge by each currency of the Defaulting Clearing

Participant’s Cleared Contracts that becomes due between JSCC and the Defaulting
Clearing Participant upon the Compulsory Termination of the Defaulting Clearing
Participant’s Cleared Contracts in accordance with Article 91 of the Business Rules shall be
the amount obtained in the following manner (or Japanese yen equivalent of that amountconverted using the quotes of foreign exchange rate prescribed by JSCC in a public notice,for the Early Termination Charge that becomes due upon the Compulsory Termination of
the Foreign Currency Cleared Contracts):(1) Upon execution of Auction Transactions put up for the Default Auction between
JSCC and the Successful Bidder:
If JSCC is to pay the net of the amounts set forth in a. and b. below, the Early
Termination Charge payable by the Defaulting Clearing Participant to JSCC in
respect of the Defaulting Clearing Participant’s Cleared Contracts shall be theamount payable by JSCC. If JSCC is to receive such an amount, the Early
Termination Charge payable by JSCC to the Defaulting Participant for the
Defaulting Clearing Participant’s Cleared Contracts shall be the amountreceivable by JSCC.
a.

The Successful Bid Amount settled between JSCC and the Successful
Bidder Clearing Participant upon the execution of the Auction
4

Transactions (The Successful Bid Amount minus the net Mark-to-Market
Difference (amount deducting the gross receipts from the gross paymentsof Mark-to-Market Difference) related to the relevant Defaulting Clearing
Participant’s Cleared Contracts which have been paid to JSCC by such
Defaulting Clearing Participant, when such Cleared Contracts are Cleared
Contracts (Settlement Type)); andb.

The Fixed Amounts, Floating Amounts and other Cash (excluding
Variation Margin) that should have been settled between JSCC and theDefaulting Clearing Participant had the Defaulting Clearing Participant’s
Cleared Contracts not been subject to the Compulsory Termination, andthe Fixed Amounts, the Floating Amounts and other Cash (excluding
Variation Margin and Mark-to-Market Difference) settled between JSCC
and the Clearing Participants in connection with the Hedge Transactions
and the Cross Margining Liquidation Transactions during the period fromthe Default Determination Date to the Default Auction Date.

(2) Where the Default Auction is held but the Auction Transactions are not executed
because an agreement is reached or failed through the consultation held inaccordance with Article 96.1 of the Business Rules:
If JSCC is to pay the net of the amounts set forth in a. and b. below, that amountshall be the total amount of the Early Termination Charge payable by the
Defaulting Clearing Participant to JSCC in respect of the Defaulting Clearing
Participant’s Cleared Contracts. If JSCC is to receive that net amount, the amountequal to the absolute value of that amount shall be the total amount of the Early
Termination Charge payable by JSCC to the Defaulting Clearing Participant for
the Defaulting Clearing Participant’s Cleared Contracts.
a.

The Successful Bid Amount that would otherwise have been settled
between JSCC and the Clearing Participant who would have been the
successful bidder had the Auction Transactions been executed (The
Successful Bid Amount minus the net Mark-to-Market Difference (amountdeducting the gross receipts from the gross payments of Mark-to-Market
5Difference) related to the relevant Defaulting Clearing Participant’s
Cleared Contracts which have been paid to JSCC by such Defaulting
Clearing Participant, when such Cleared Contracts are Cleared Contracts(Settlement Type)); andb.

The Fixed Amounts, Floating Amounts and other Cash (excluding
Variation Margin and Mark-to-Market Difference) that should have been
settled between JSCC and the Defaulting Clearing Participant had theDefaulting Clearing Participant’s Cleared Contracts not been subject to
the Compulsory Termination, and the Fixed Amounts, the Floating
Amounts and other Cash (excluding Variation Margin) settled between
JSCC and the Clearing Participants in connection with the Hedge
Transactions and the Cross Margining Liquidation Transactions during theperiod from the Default Determination Date to the Default Auction Date.

Article 7. Hedge Transactions
1

A counterparty to a Hedge Transaction which JSCC may execute in accordancewith Article 93 of the Business Rules shall be a Clearing Participant not in Default.
2

Each Hedge Transaction shall be an Eligible IRS Transaction.

3

Upon execution of a Hedge Transaction, if parties agree to the payment of upfront

fee, JSCC and the counterparty thereto shall settle the upfront fee so agreed on the next
JSCC Business Day following the date of execution of the Hedge Transaction, or if theHedge Transaction is denominated in a currency other than Japanese yen, on the next
Foreign Currency Home Business Day related to relevant currency.
4

In addition to Paragraphs 1, 2 and 3 of this Article, JSCC will determine thecounterparty to, and the terms and conditions of, each Hedge Transaction and othermatters necessary for the Hedge Transactions on a case-by-case basis taking account ofan advice of the IRS Default Management Committee.

65

Where a Hedge Transaction comes into effect between a Clearing Participant and

JSCC, and such Hedge Transaction is executed for a Customer, the Hedge Transaction
shall be regarded as a Customer’s Cleared Contract of Cleared Contract (Collateral Type)executed through the Clearing Brokerage by the Clearing Participant as a Clearing Broker,
and the legal relationship between the Clearing Participant and the Customer in respect of
the Hedge Transaction shall be regarded as a Clearing Brokerage Contract which is a
Cleared Contract (Collateral Type) on the Hedge Transaction that is regarded as a
Customer’s Cleared Contract which is a Cleared Contract (Collateral Type) in accordancewith this Paragraph.
Article 7-2.
1

Cross Margining Liquidation Transaction

When JSCC executes a Cross Margining Liquidation Transaction pursuant to theprovisions of Article 93-2.2 of the Business Rules, it shall do so with a Clearing Participant
other than the Defaulting Clearing Participant as its counterparty.
2

JSCC shall execute the Cross Margining Liquidation Transaction with the party

which has become a counterparty to the offsetting sale or offsetting purchase of the Cross
Margined JGB Futures Cleared Contract or the Cross Margined Interest Rate Futures
Cleared Contracts or which has accepted a brokerage for such counterparty, unless JSCC
considers it difficult to do so taking account of the advice of the IRS Default Management
Committee, the market conditions of IRS Transactions and other factors.
3

The Cross Margining Liquidation Transaction shall be an Eligible IRS Transaction.

4

Upon execution of the Cross Margining Liquidation Transaction, if parties agree tothe payment of upfront fee, JSCC and the counterparty to the Cross Margining Liquidation
Transaction shall settle the upfront fee so agreed on the next JSCC Business Day following
the date of execution of the Cross Margining Liquidation Transaction.

Simultaneously withthe execution of the Cross Margining Liquidation Transaction, the upfront fee related to the
IRS Transaction to be executed pursuant to the provisions of Article 93-2.4 of the Business
Rules shall be similarly settled between JSCC and the relevant Clearing Participant.

7

5

In addition to the matters prescribed in Paragraphs 1 to 4, any matter that

becomes necessary in connection with the execution of the Cross Margining Liquidation
Transaction, including a counterparty to, and the method of determination of the tradeterms of, Cross Margining Liquidation Transactions, shall be set by JSCC taking account of
the advice of IRS Default Management Committee.
6

If a Cross Margining Liquidation Transaction is executed between JSCC and a

Clearing Participant for its Customer, such Cross Margining Liquidation Transaction shallbe deemed as the Customer’s Cleared Contract which is a Cleared Contract (CollateralType) concluded by the Clearing Brokerage for the Customer and the legal relationshipbetween the Clearing Participant and the Customer in relation to such Cross Margining
Liquidation Transaction shall be deemed as the Clearing Brokerage Contract (CollateralType) related to the Cross Margining Liquidation Transaction deemed as such Customer’s
Cleared Contract which is a Cleared Contract (Collateral Type) pursuant to the provisions of
this Paragraph.
Article 8. Position Transfer of Customer’s Cleared Contracts
1

The period to be specified in Subordinate Rules under Article 94.1 of the Business

Rules shall be the period from the Default Determination Date to 2:00 p.m. on the second
JSCC Business Day following the Default Determination Date.
2

Notwithstanding the provisions of Paragraph 1, where the Customer who desires a

Position Transfer and the Clearing Broker have put in place the structures set forth in Article
26-2.3 of the Handling Procedures of Interest Rate Swap Business Rules, JSCC may
permit an extension of the period set forth in Paragraph 1, up to six JSCC Business Days
after the Default Determination Date taking account of the advice of the IRS Default
Management Committee, the status of the IRS Transactions, loss which JSCC has incurred,and other factors.

If this applies, the decision on permitting extension shall be made by

JSCC on each JSCC Business Day.
3

The Customer to be specified in Subordinate Rules under Article 94.1 of theBusiness Rules shall be-

Customers who are not in the same Corporate Group as the Clearing Broker, and8-Customers in the same Corporate Group as the Clearing Broker who desire totransfer the claims and obligations related to the Customer’s Cleared Contracts andClearing Brokerage Contracts in the event of determination of a Default with respect to theClearing Broker and so notified to JSCC prior to the determination of the Default.
4

The terms and conditions to be prescribed in the Subordinate Rules set forth in

Article 94.1.(1) and (2) of the Business Rules shall be prescribed by JSCC in a notification
or a public notice.
5

The Position Transfer Fee, accrued liabilities, Variation Margin and Mark-to-Market

Difference as set forth in Article 94.5 of the Business Rules shall be determined and settled,
by each currency of the Defaulting Clearing Participant’s Cleared Contracts, as follows:(1) The Position Transfer Fee in the amount equal to net Variation Margin by eachcurrency of the Defaulting Clearing Participant’s Cleared Contracts deposited
with the Defaulting Clearing Participant by the Clearing Customer up until the
Default Determination Date with respect to the Customer’s Cleared Contracts(the Customers Cleared Contracts set forth in Article 94.5 of the Business Rules;
hereinafter the same applies) (the net Mark-to-Market Difference (amountdeducting the gross receipts from the gross payments of Mark-to-Market
Difference ) by each currency of the Defaulting Clearing Participant’s Cleared
Contracts paid to the Defaulting Clearing Participant by the Clearing Customer
up until the Default Determination Date with respect to the Customer’s Cleared
Contract when such Customer’s Cleared Contracts are Cleared Contracts(Settlement Type)) shall be settled, by each currency, among JSCC, theSuccessor Clearing Broker and the Customer. In this case, if net Variation
Margin is positive, then the Position Transfer Fee shall be paid by JSCC to theSuccessor Clearing Broker and by the Successor Clearing Broker to theCustomer, and if negative, it shall be paid by the Customer to the Successor
Clearing Broker and by the Successor Clearing Broker to JSCC.
(2)

The accrued liabilities by each currency of the Defaulting Clearing Participant’s
Cleared Contracts shall be the total of the Fixed Amounts, Floating Amounts and9upfront fee for the relevant currency type that would have been paid and/or
received during the period from the Default Determination Date (or the next JSCC
Business Day or next Foreign Currency Home Business Day following the Default
Determination Date, if the Default Determination Date was the Payment Date andthe settlement of the Fixed Amounts, Floating Amounts and upfront fee have been
completed on such date) to the Position Transfer Date had the Customer’s
Cleared Contracts remain effective as of the Default Determination Date.
(3) The amounts of Variation Margin and Mark-to-Market Difference by each currencyof the Defaulting Clearing Participant’s Cleared Contracts shall be such amounts
that would have been paid and/or received during the period from the Default
Determination Date to the Position Transfer Date had the Customer’s Cleared
Contracts come into effect in accordance with Article 94.6.(2) of the Business
Rules as new Cleared Contracts on the Default Determination Date.
6

Notwithstanding the provisions of Article 94.5 of the Business Rules, the Fixed

Amount, Floating Amount and upfront fee for the Customer’s Cleared Contracts whose
Notional Amount and settlement currency are denominated in a currency other thanJapanese yen to be settled on the Position Transfer Date shall be settled by the time anddate set forth in Article 85-4.3 of the Business Rules.

7

JSCC, the Successor Clearing Broker and the Customer shall settle the net

amount, by each currency of the Defaulting Clearing Participant’s Cleared Contracts, of the
Position Transfer Fee, accrued liabilities, Variation Margin and Mark-to-Market Difference,calculated by each currency of the Defaulting Clearing Participant’s Cleared Contracts,
excluding those deposited with or paid to JSCC pursuant to the provisions of Article 94.5 of
the Business Rules, on the Position Transfer Date pursuant to the provisions of Article 94.6of the Business Rules.
8

The Early Termination Charge by each currency arising from the Customer's

Cleared Contracts set forth in Article 94.6.(6) of the Business Rules shall be equal to the
net Variation Margin by each currency deposited with the Defaulting Clearing Participant by
10

JSCC on or prior to the Default Determination Date in respect of the Customer’s Cleared
Contracts. The Early Termination Charge shall be paid separately by each currency by the
Defaulting Clearing Participant to JSCC if net Variation Margin is positive and by JSCC tothe Defaulting Clearing Participant if negative. In this case, Variation Margin to be settled byeach currency between JSCC and the Defaulting Clearing Participant with regard to theCustomer’s Cleared Contracts shall be applied to the satisfaction of the obligations withregard to the Early Termination Charge as a matter of course without the actual return ofVariation Margin or the actual payment and/or receipt of the Early Termination Charge.
Article 8-2.

Position Transfer of Customer’s Cleared Contracts upon Default of Cross

Margining Accepting Party
1

The period to be specified in Subordinate Rules under Article 94-2.1 of theBusiness Rules (referred to in Article 8-3 as “Cross Margining Position Transfer Request
Period”) shall be the period from the date on which the claims and obligations come into
existence pursuant to the provisions of Article 84-5.1 of the Business Rules to 1:00 p.m. on
the second JSCC Business Day following such date.
2

Notwithstanding the provisions of Paragraph 1, where the Customer who desires a

Position Transfer and the Clearing Broker have put in place the structures set forth in Article
26-2.3 of the Handling Procedures of Interest Rate Swap Business Rules, and the Cross
Margining User who desires a JGB Futures Position Transfer (and the JGB Futures
Non-Clearing Participant, when the JGB Futures Contracts or the Interest Rate Futures of
the Cross Margining User are traded through a brokerage of the JGB Futures Non-Clearing
Participant) and the JGB Futures Clearing Participant have put in place the structures set
forth in Article 26-3.2 of the Handling Procedures of Interest Rate Swap Business Rules,
JSCC may permit an extension of the period set forth in Paragraph 1, up to six JSCC
Business Days after the date on which the claims and obligations come into existence
pursuant to the provisions of Article 84-5.1 of the Business Rules taking account of theadvice of the IRS Default Management Committee, the status of the IRS Transactions, JGB
Futures Contracts and Interest Rate Futures Contracts, loss which JSCC may incur, andother factors. If this applies, the decision on permitting extension shall be made by JSCC
on each JSCC Business Day.

11

3

The provisions of Articles 8.3 to 8.8 shall apply mutatis mutandis for Position

Transfer of the Customer’s Cleared Contracts set forth in the provisions of Article 94-2 ofthe Business Rules, except that the reference to “Article 94.1 of the Business Rules” in
Article 8.3 shall be deemed to have been replaced with “Article 94-2.1 of the Business
Rules,” the reference to “Article 94.1.(1) and (2) of the Business Rules” in Article 8.4 shallbe deemed to have been replaced with “Article 94-2.1.(1) and (2),” the references to “Article
94.5 of the Business Rules” and “Article 94.6.(2) of the Business Rules” in Article 8.5 shallbe deemed to have been replaced with “Article 94.5 of the Business Rules to apply
according to the provisions of Article 94-2.2 of the Business Rules” and “Article 94.6(2) of
the Business Rules to apply according to the provisions of Article 94-2.2 of the Business
Rules,” respectively, the reference to “Article 94.5 of the Business Rules” in Article 8.6 shallbe deemed to have been replaced with “Article 94.5 of the Business Rules to apply
according to the provisions of Article 94-2.2 of the Business Rules,” the references to“Article 94.6 of the Business Rules” and “Article 94.5 of the Business Rules” in Article 8.7
shall be deemed to have been replaced with “Article 94.6 of the Business Rules to apply
according to the provisions of Article 94-2.2 of the Business Rules” and “Article 94.5 of theBusiness Rules to apply according to Article 94-2.2 of the Business Rules,” respectively,
and the reference to “Article 94.6.(6) of the Business Rules” in Article 8.8 shall be deemed
to have been replaced with the reference to “Article 94.6.(6) of the Business Rules to apply
according to the provisions of Article 94-2.2 of the Business Rules.”Article 8-3 Listed Futures Position Transfer of Claims and Obligations related to JGB
Futures Cleared Contracts and the like and Claims and Obligations related to Interest Rate
Futures Cleared Contracts and the like upon Default of Cross Margining Accepting Party
1

The period to be specified in Subordinate Rules under Article 94-3.1 of theBusiness Rules shall be the same period as the Cross Margining Position Transfer Request
Period.
2

The terms and conditions to be prescribed under Article 94-3.1.(1) and (2) shall beprescribed by JSCC in a notification or public notice.
3

As to the Cross Margining MtM Difference set forth in Article 94-3.5.(4) of theBusiness Rules, if the aggregate amount of the Cross Margining MtM Difference paid by
12

the Cross Margining Accepting Party to JSCC pursuant to the provisions of Article 77-2 ofthe Business Rules during the period from the date on which the claims and obligations
come into existence pursuant to the provisions of Article 84-5.1 of the Business Rules to thedate on which the Listed Futures Position Transfer is effected is positive, JSCC shall pay
the amount equivalent to such Cross Margining MtM Difference to the Cross Margining
Accepting Party and, if negative, the Cross Margining Accepting Party shall pay the amountequivalent to such Cross Margining MtM Difference to JSCC.

Chapter 2 Default Auction (Articles 9 - 14)
Article 9. Default Auction Participation Requirement
1

Clearing Participants other than the Defaulting Clearing Participant(s) and Clearing

Participants that are Specified Successor Financial Institutions shall be required toparticipate in the Default Auction with respect to the Defaulting Clearing Participant’s
Cleared Contracts in the same currency as the Cleared Contract to which they have been aparty during the past 90 day period ending on the Default Determination Date in relation to
the relevant Defaulting Clearing Participant (or, the past 30 day period if the Clearing
Participant falls on Item (1) below), provided that in respect of Default Auction related to theDefaulting Clearing Participant’s Cleared Contracts whose Notional Amount and settlement
currency are denominated in Japanese yen, all Clearing Participants other than the
Defaulting Clearing Participant(s) and Clearing Participants that are Specified Successor
Financial Institutions shall be required to participate in the Default Auction, unless:(1) It has requested the renunciation of its IRS Clearing Qualification pursuant to Article
22.1 of the Business Rules; and(2) All the Cleared Contracts to which such Clearing Participant is a party have beencancelled.
2

The IRS Clearing Fund deposited with JSCC by a Clearing Participant, who meetsthe criteria set forth in Paragraph 1 and is exempted from participation in a Default Auction,
shall be used as the IRS Clearing Fund set forth in Article 103.2.(2).a. of the Business
Rules, and such Clearing Participant shall pay the Third Tier Special Clearing Charge as
13

the Clearing Participant captured in Article 21.1.(1).a. hereof in the order set forth in Article
21.1.(1).
3Each Clearing Participant participating in the Default Auction (“Default Auction

Participant”) shall make a bid at the Default Auction by offering an appropriate andreasonable bid price.
4

If a Clearing Participant outsources participation in the Default Auction as set forthin Article 9.1.(3).b. of the Business Rules, that outsourcing shall constitute the fulfilment of
the requirement under Paragraph 1 of this Article.
Article 10. Basic Matters regarding Default Auction
1

JSCC will hold the Default Auction taking account of an advice of the IRS Default

Management Committee and in the following procedures:(1) Auction Transactions shall be a portfolio, by each currency, of the IRS
Transactions equivalent to the Defaulting Clearing Participant’s Cleared Contracts(excluding those corresponding to the Customer’s Cleared Contracts transferredto Successor Clearing Broker(s) pursuant to the provisions of Article 94 of theBusiness Rules before a Default Auction) and IRS Transactions withcorresponding positions to the Hedge Transactions and the Cross Margining
Liquidation Transactions (excluding the JSCC’s Transaction Side) whose terms
and conditions are identical to those of the Hedge Transactions and the Cross
Margining Liquidation Transactions. Notwithstanding the above, JSCC may havemultiple portfolios of Auction Transactions taking account of the advice of the IRS
Default Management Committee, the size of the Defaulting Clearing Participant’s
Cleared Contracts, the Hedge Transactions and the Cross Margining Liquidation
Transactions, the conditions of Clearing Participants, the Interest Rate Swap
market conditions and other factors.
(2) Each Default Auction Participant shall bid in the Default Auction by bidding; apositive bid price would be an amount payable by JSCC to the Default Auction
Participant and the absolute value of a negative bid price would be an amount14

payable by the Default Auction Participant to JSCC, if that Default Auction
Participant were to win the auction within the auction period prescribed in Article
11.1 hereof.
2

Where the provisions to Paragraph 1.(1) of this Article applies, the method ofdetermining the successful bid price and the Successful Bidder, the method of bidding andother matters connected with the Default Auction shall be determined by JSCC on acase-by-case basis taking account of an advice of the IRS Default Management Committee,
regardless of any other provisions of these Default Settlement Rules.
3

Where JSCC decides on the method of determining the successful bid price andthe Successful Bidder, the method of bidding and any other matters connected to theDefault Auction in accordance with Paragraph 2 of this Article, JSCC will notify the Default
Auction Participants to such effect before holding the Default Auction.
Article 11. Holding Default Auction
1

The auction period, conditions of the Default Auction and other necessary mattersin holding the Default Auction shall be determined by JSCC on a case-by-case basis taking
account of the advice of the IRS Default Management Committee.
2

At the Default Auction, the lowest bid price shall be the successful bid price andthe Default Auction Participant having offered such bid price shall be the Successful Bidder.
3

If multiple Default Auction Participants offer the lowest bid price, the Successful

Bidder shall be determined by lottery.
4

Before the Default Auction, JSCC will notify the Default Auction Participants ofnecessary matters related to the Default Auction.
Article 12. Execution of Auction Transactions
1

JSCC shall determine the successful bid price and the Successful Bidder

immediately following the close of the Default Auction.

15

2Where JSCC fixes the successful bid price and the Successful Bidder of the

Default Auction pursuant to Paragraph 1 of this Article, the Auction Transactions put up forthe Default Auction shall come into effect between JSCC and the Successful Bidder at suchtime.
3

When the successful bid price and the Successful Bidder of the Default Auction

are fixed pursuant to Paragraph 1 of this Article, JSCC will immediately notify each Clearing
Participant required to participate in the relevant Default Auction of the successful bid priceand whether such Clearing Participant is the Successful Bidder or not (“Bid Result”).
4

Notwithstanding the provisions of Paragraphs 1, 2 and 3 of this Article, if, as aresult of determining the successful bid price and the Successful Bidder of the Default
Auction, the sum of the Third Tier Special Clearing Charge and the Fourth Tier Special
Clearing Charge to be contributed by a Clearing Participant other than the Defaulting
Clearing Participant in respect of the relevant Default Auction exceeds the sum of Initial
Margin for Proprietary Cleared Contracts, Default Contingent Margin, Third Tier Special
Clearing Charge Collateral and Fourth Tier Special Clearing Charge Collateral actuallydeposited with JSCC by such Clearing Participant, JSCC will fix the successful bid priceand the Successful Bidder of the Default Auction in a manner as set forth below or hold
another Default Auction or have a consultation:(1) JSCC shall notify Clearing Participants other than Defaulting Clearing Participant of
the tentative Bid Result immediately after the close of the Default Auction.
(2) By the time prescribed by JSCC on each occasion on the Default Auction Date, JSCC
shall advise the amount of Third Tier Special Clearing Charge and the Fourth Tier
Special Clearing Charge contribution by Clearing Participant that would becontributed had the successful bid price and the Successful Bidder of the Default
Auction been fixed and the amount of the Third Tier Special Clearing Charge
Collateral and the Fourth Tier Special Clearing Charge Collateral that need to beposted with JSCC pursuant to the provisions of Article 23.(2) and Article 24.(2).
(3) If all Clearing Participants posted with JSCC the Third Tier Special Clearing Charge
16Collateral and the Fourth Tier Special Clearing Charge Collateral to be posted with
JSCC in full by the time prescribed by JSCC on each occasion on the Default Auction
Date, JSCC shall immediately determine the successful bid price and the Successful
Bidder of the Default Auction.

The provisions of Paragraphs 2 and 3 of this Article

shall apply mutatis mutandis where JSCC fixes the successful bid price and theSuccessful Bidder of the Default Auction pursuant to this paragraph.
(4) Failing to post the Third Tier Special Clearing Charge Collateral and the Fourth Tier
Special Clearing Charge Collateral in full as per Item (3) above, the Default Auction
fails and another Default Auction shall be held at such time and date prescribed by
JSCC on each occasion pursuant to the provisions of Articles 9 through 12.
Article 13. Participation of Clearing Broker in Default Auction
1

A Clearing Broker may participate in a Default Auction on behalf of a Customer. In

this case, the Clearing Broker shall clearly separate its own bid and Customer’s bid.
2

If, in the case of Paragraph 1 of this Article, the Clearing Broker wins the bid for theAuction Transactions, the Auction Transactions shall be executed between JSCC and theClearing Broker on behalf of the Customer.
3

In the case of Paragraph 2 of this Article, the Auction Transactions executed

between JSCC and the Clearing Broker shall be regarded as Customer’s Cleared
Contracts of Cleared Contracts (Collateral Type) executed by the Clearing Broker on behalfof the Customer referred to in Paragraph 2 under Clearing Brokerage and the contractual
relationship between the Clearing Broker and the Customer under the Auction Transactions
shall be regarded as Clearing Brokerage Contracts (Collateral Type) that matches with theAuction Transactions that is regarded as Customer’s Cleared Contracts which are Cleared
Contract (Collateral Type) under this Paragraph.
Article 14. Settlement of Successful Bid Amount upon Execution of Auction Transactions
1

The cash to be prescribed in the Subordinate Rules under Article 99.2 of theBusiness Rules shall be the Successful Bid Amount.

17

2

JSCC and the Clearing Participant shall settle the Successful Bid Amount,

Variation Margin and Mark-to-Market Difference set forth in Article 99.2 of the Business
Rules arising from the Auction Transactions executed between them pursuant to Article 99of the Business Rules and Article 12 of these Default Settlement Rules as follows:(1) The Successful Bid Amount shall equal to the successful bid price of the Auction
Transactions. If the successful bid price is negative, the Successful Bidder shall
pay to JSCC the absolute value of the successful bid price as the Successful Bid
Amount;(2) Variation Margin to be settled at this time shall be Variation Margin to be paid
and/or received on the next JSCC Business Day following the Default Auction
Date, if the Auction Transactions were executed as new Cleared Contracts(Collateral Type) on such day;(3) Mark-to-Market Difference to be settled at this time shall be Mark-to-Market
Difference to be paid and/or received on the next JSCC Business Day following
the Default Auction Date, if the Auction Transactions were executed as new
Cleared Contracts (Settlement Type).
(4) JSCC and the Clearing Participant shall settle the Successful Bid Amount,
Variation Margin and Mark-to-Market Difference referred to in Items (1) to (3)above on a net basis on the next JSCC Business Day following the Default
Auction Date.

Chapter 3 Consultation (Articles 15 - 17)
Article 15. Consultation Method
1

Before determining the successful bid price and the Successful Bidder at theDefault Auction, JSCC will estimate the Excess Default Loss which JSCC may incur upon
the execution of the Auction Transactions for which the Default Auction is held. If theestimate is found to exceed the Resources for Loss Recovery in respect of the currency
type of the Defaulting Clearing Participant’s Cleared Contracts subject to the relevant
18

Default Auction, including Re-Allocated IRS Clearing Fund, Re-Allocated First Tier IRS
Settlement Guarantee Reserve, Re-Allocated Second Tier IRS Settlement Guarantee
Reserve and Re-Allocated Third Tier Special Clearing Charge, if any, JSCC and all
Clearing Participants required to participate in the relevant Default Auction will immediately
hold another Default Auction or have a consultation in accordance with Article 95-2 of theBusiness Rules.
2

Each Clearing Participant shall have its Representative of Committee Member1 at

the IRS Management Committee or the Clearing Participant representative, if the Clearing
Participant is not a member of IRS Management Committee, or other person representing
or acting as its agent participate in the consultation to be held pursuant to Paragraph 1 ofthis Article and, if applicable, reach an agreement with JSCC in accordance with Article 96of the Business Rules.
3Date, time and a method of consultation and other necessary matters pertaining to

the consultation required under Article 96 of the Business Rules shall be determined by
JSCC on a case-by-case basis.
4

JSCC will notify all Clearing Participants in advance of the matters pertaining to theconsultation determined in accordance with Paragraph 3 of this Article.
5

When a consultation is held as set forth in Article 96 of the Business Rules, JSCC

will not fix the successful bid price and the Successful Bidder of the Default Auction,
notwithstanding Article 12, Paragraph 1.
Article 16. Consultation Period
The period to be prescribed in the Subordinate Rules under Article 97.1 of the Business
Rules shall be from the relevant Default Auction Date to the next JSCC Business Day.
However, such period may be extended with unanimous consent of JSCC and all Clearing
Participants required to participate in the relevant Default Auction.
Article 17. Compulsory Termination of All Cleared Contracts
1

Defined in Article 6, Paragraph 1 of IRS Management Committee Rules.
19

1

If the Cleared Contracts set forth in Article 97.1 of the Business Rules terminate inaccordance with Article 97.1 of the Business Rules, JSCC and a Clearing Participant shallsettle the Early Termination Charge based on the Net Present Value of each of the Cleared
Contract as of the date of the termination. The amount of the Early Termination Charge to
be settled shall equal to net Variation Margin to be deposited by JSCC with the Clearing
Participant in respect of the Cleared Contracts so terminated on or prior to the next JSCC
Business Day following the termination date. The Early Termination Charge shall be paidby JSCC to the Clearing Participant if net Variation Margin is positive and by the Clearing
Participant to JSCC if negative. Variation Margin held by either JSCC or the Clearing
Participant in respect of each Cleared Contract shall be applied to the satisfaction of theobligations related to the Early Termination Charge.
2

In respect of each of the terminated Cleared Contracts as mentioned above, the

Early Termination Charge will be settled or Variation Margin deposited for the Clearing
Contract will be returned, depending upon the cases, as follows:(1) If the Early Termination Charge still needs to be paid after the application of
Variation Margin pursuant to Paragraph 1of this Article, the outstanding Early
Termination Charge shall immediately be paid to the other party.
(2) If there is residual Variation Margin after the application pursuant to Paragraph 1,
Variation Margin shall be immediately returned to the other party.
3

In addition to Paragraphs 1 and 2, matters pertaining to the termination of the

Cleared Contracts under Article 97 of the Business Rules and the settlement of claims andobligations arising therefrom shall be determined by JSCC on a case-by-case basis.

Chapter 3-2

Customer Profit Direct Receipt upon Default of Clearing Broker(Article 17-2)

Article 17-2.

Customer Profit Direct Receipt upon Default

20

1

The amount to be specified in the Subordinate Rules set forth in Article 99-2.1 of

the Business Rules shall be the amount of Post-Default Allocated Profit and Loss related to
the Customer to which Paragraph 2 applies.
2

A Customer may exercise, in the manner prescribed by JSCC, its right to request

payment as set forth in Article 99-2.1 of the Business Rules directly against JSCC only
when the Defaulting Clearing Participant owes to pay the Post-Default Allocated Profit andLoss calculated in accordance with the provisions of the Clearing Brokerage Agreement to
the Customer.

Chapter 3-3

Article 17-3.

Allocation of Initial Margin Deposited by Defaulting Clearing
Participant (Articles 17-3 – 17-4)

Conversion of Unsettled Obligations and Other Amounts into Japanese Yen

The conversion of Variation Margin, the interest on Variation Margin, Mark-to-Market
Difference, Adjustment Amount related to Mark-to-Market Difference, the unsettled
obligations and payment obligations related to the Defaulting Clearing Participant’s Cleared
Contracts set forth in Article 101.1.(1).b. to e. and Article 101.1.(2).c. of the Business Rules
shall be conducted by using quotes of foreign exchange rate prescribed by JSCC in a
public notice.
Article 17-4.

Allocation of Initial Margin and the Like by Currency of Defaulting Clearing

Participant’s Cleared Contracts
1

The amount of Initial Margin to be allocated by each currency of the Defaulting

Clearing Participant’s Cleared Contracts set forth in Article 101.1.(2).d. of the Business
Rules shall be the Initial Margin deposited by the Defaulting Clearing Participant prorated
according to the amount equivalent to the Required Initial Margin for each currency type ofthe relevant Defaulting Clearing Participant’s Cleared Contracts as of the JSCC Business
Day immediately preceding the Default Auction. For the purpose of these Rules, theamount equivalent to Required Initial Margin shall be the amount equivalent to the Required
Initial Margin calculated according to the provisions of Articles 29, 29-2, 32 and 64 of theBusiness Rules.

21

2

The provisions of Paragraph 1 shall apply mutatis mutandis to an allocation of IRS

Clearing Fund or Default Contingent Margin, or excess collateral in other Clearing Business,by each currency of the Defaulting Clearing Participant’s Cleared Contracts to be madepursuant to the provisions of Article 101.1.(2).e. and f., whereby the reference to “Initial
Margin” in Paragraph 1 shall be replaced with “IRS Clearing Fund or Default Contingent
Margin” or “excess collateral in other Clearing Business,” as applicable.

Chapter 4 Sharing of Losses by Other Clearing Participants (Articles 18 – 22)
Article 18. Initial Loss-Determination Date
The Initial Loss-Determination Date set forth in Article 102.1 of the Business Rules shall be,depending upon the case, the day as set forth below:(1) If the Auction Transactions put up for the Default Auction is executed between
JSCC and the Successful Bidder in accordance with Article 12.2:
Default Auction Date.
(2) If the agreement under Article 96.2 of the Business Rules is reached:
The date of such agreement, or the date designated in such agreement; or(3) If all Clearing Contracts terminate pursuant to the provisions of Article 97.1 of theBusiness Rules:
The next JSCC Business Day following the date of such termination.
Article 18-2.

Allocation of Initial Margin and Other Amounts of Defaulting Clearing

Participant to Different Currencies
The amount obtained by prorating the resultant value set forth in Article 102-2 of theBusiness Rules shall be such resultant value prorated according to the amount equivalent
to the Required Initial Margin calculated by each currency of the Defaulting Clearing
Participant’s Cleared Contracts as of the JSCC Business Day immediately preceding theDefault Auction Date in respect of the relevant Defaulting Clearing Participant’s Cleared
Contracts, or the first Default Auction Date, if multiple Default Auctions are held in respectof the relevant Defaulting Clearing Participant’s Cleared Contracts.
22Article 19. Items to be Excluded from Excess Default Loss1

The items to be excluded by the Subordinate Rules under Article 103.1 of theBusiness Rules shall be the loss incurred by JSCC upon the termination of all the Cleared
Contracts whose Notional Amount and settlement currency are denominated in a specificcurrency pursuant to Article 97.1 of the Business Rules which is equivalent to the amountset forth in Article 6.1.(2).a.
2

Other losses to be prescribed in the Subordinate Rules under Article 103.1 of theBusiness Rules shall be the loss incurred by JSCC upon the termination of Cleared
Contracts pursuant to Article 97.1 of the Business Rules.

That amount is equivalent to theabsolute value of the sum of the net JSCC receivable of Variation Margin, the Fixed
Amount, the Floating Amount, Mark-to-Market Difference and other Cash to be settled
between JSCC and the Defaulting Clearing Participant in respect of the Defaulting Clearing
Participant’s Cleared Contracts and the net JSCC payable of Variation Margin, the Fixed
Amount, the Floating Amount and other Cash to be settled between JSCC and the Clearing
Participants in relation to the Hedge Transactions and the Cross Margining Liquidation
Transactions, during the period from the next day of the Default Auction Date to the Initial
Loss-Determination Date, when the sum is positive.
3

The amount of the First Tier IRS Settlement Guarantee Reserve allocated by eachcurrency set forth in Article 103.1.(1) of the Business Rules shall be the total amount of theFirst Tier IRS Settlement Guarantee Reserve remaining after the use of funds as set forth in
the Rules, if any, prorated according to the amount equivalent to the Required Initial Margin
calculated for the Defaulting Clearing Participant’s Cleared Contracts by each currency asof the JSCC Business Day immediately preceding the Default Auction Date, or the first
Default Auction Date if multiple Default Auctions are held in respect of the same Defaulting
Clearing Participants Cleared Contracts.
4

The amount to be allocated by JSCC set forth in Article 103.1.(2) of the Business

Rules shall be, according to the type of below-listed Resources for Loss Recovery, theamount obtained in the following manner:(1) Second Tier IRS Settlement Guarantee Reserve:
23

The amount of the Second Tier IRS Settlement Guarantee Reserve prorated
according to the sum, by each currency, of the amount equivalent to theRequired Initial Margin calculated for Cleared Contracts in the relevant
currency of each Clearing Participant other than Defaulting Clearing
Participant for the period of past 30 JSCC Business Days ending on the
Default Determination Date;(2) IRS Clearing Fund deposited by Clearing Participants:
The Second Tier Clearing Participant Cap applicable to each Clearing
Participant prorated according to the average of the amount equivalent to theRequired Initial Margin calculated for Clearing Contracts by each currency forthe relevant Clearing Participant for the period of past 30 JSCC Business
Days ending on the Default Determination Date.
5

The prices to be prescribed in the Subordinate Rules as significantly deviatingfrom the prevailing market price under Article 103.2.(2).b. (and the same provision appliedmutatis mutandis under Article 103.3) of the Business Rules shall be any price if the
Auction Transactions were to be executed at such price as the successful bid price, Excess
Default Loss would exceed the Fixed Resources for Loss Recovery, including theRe-Allocated First Tier IRS Settlement Guarantee Reserve, the Re-Allocated Second Tier
IRS Settlement Guarantee Reserve and the Re-Allocated IRS Clearing Fund set forth in
Articles 102-2 and 103-2 of the Business Rules.
Article 19-2.

Allocation of IRS Settlement Guarantee Reserve and Other Amounts toDifferent Currency
The provisions of Article 18-2 shall apply mutatis mutandis to the allocation of the First Tier
IRS Settlement Guarantee Reserve remaining after the application set forth in Article103-2.1 of the Business Rules and the allocation of the IRS Clearing Fund and the Second
Tier IRS Settlement Guarantee Reserve remaining after the application set forth in Article103-2.2, whereby the reference to “the amount obtained by prorating the resultant value set
forth in Article 102-2 of the Business Rules” shall be replaced with “the amount obtained byprorating the First Tier IRS Settlement Guarantee Reserve remaining after application set
forth in Article 103-2.1” or “the amount obtained by prorating the IRS Clearing Fund and theSecond Tier IRS Settlement Guarantee Reserve remaining after the application set forth in24

Article 103-2.2,” as applicable, and the reference to the “resultant value” shall be replacedwith “such remaining amount.”
Article 20.

Payment Method of Third Tier Special Clearing Charge and Fourth Tier Special

Clearing Charge
Special Clearing Charge Collateral posted with JSCC shall be applied to the payment of theThird Tier Special Clearing Charge and the Fourth Tier Special Clearing Charge.
Article 21. Amount of Third Tier Special Clearing Charge
1

The amount of the Third Tier Special Clearing Charge set forth in Article 105.2 of

the Business Rules shall be determined as follows:(1) Where all or a part of the total amount of the Required IRS Clearing Fund of the
Clearing Participants required to participate in the Default Auction related to therelevant Excess Default Loss as of the JSCC Business Day immediately
preceding the first day of the Default Settlement Period in which the Default
Determination Date occurs, or, if any Clearing Participant has contributed theThird Tier Special Clearing Charge in respect of one or more other Default
determined during the same Default Settlement Period up to the Default Auction
for the relevant Defaulting Clearing Participant, the amount equal to such
Required IRS Clearing Fund minus such contribution (referred to as the “Third
Tier Special Clearing Charge Cap” in this Paragraph), allocated by each currencyof the Defaulting Clearing Participant’s Cleared Contracts pursuant to theprovisions of Paragraph 2, is used to recover the remaining Excess Default Lossin respect of the Defaulting Clearing Participant after the recovery pursuant to
Article 103 of the Business Rules:
The amounts set forth in a. through d. below in the order set forth below:
a. The Third Tier Special Clearing Charge to be contributed by a Participant
Bearing Third Tier Special Clearing Charge who is required but failed toparticipate in either:i)the Default Auction in respect of such Defaulting Clearing Participant;
or
25

ii)

any other Default Auction conducted earlier during the Default
Settlement Period in which the Default Determination Date of the
Defaulting Clearing Participant occurs,

unless the Participant Bearing Third Tier Special Clearing Charge made a
successful bid in any of the earlier Default Auctions during the said Default
Settlement Period and, if there are any, has participated in all subsequent
Default Auctions:
The amount of the Third Tier Special Clearing Charge contribution shall be
determined by prorating the remaining Excess Default Loss according to theThird Tier Special Clearing Charge Cap of each Participant Bearing Third Tier
Special Clearing Charge captured in this Item but limited to the Third Tier
Special Clearing Charge Cap of each Participant Bearing Third Tier Special
Clearing Charge .
b. The Third Tier Special Clearing Charge to be contributed by a Participant
Bearing Third Tier Special Clearing Charge required to participate in the Default
Auction whose bid price at the Default Auction in respect of such Defaulting
Clearing Participant or any other Default Auction conducted earlier during theDefault Settlement Period in which the Default Determination Date in respect of
the relevant Defaulting Clearing Participant occurs and in which the Clearing
Participant is required to participate is a significant deviation from the prevailingmarket price, provided that if a Clearing Participant falling under this b. made a
successful bid on Auction Transactions in any of the above-mentioned earlier
Default Auctions and its bid price at all Default Auctions conducted thereafter
does not significantly deviate from the prevailing market price, or if a Clearing
Participant falls under a. above, such Clearing Participant shall not be subject tothis b. (the Clearing Participant subject to this b. shall be referred to as the“Applicable Clearing Participant” in this b.):
The amount of the Third Tier Special Clearing Charge contribution shall be
determined by prorating the remaining Excess Default Loss after loss recovery
pursuant to a. above according to the Third Tier Special Clearing Charge Cap of26

each Applicable Clearing Participant, but limited to the Third Tier Special
Clearing Charge Cap of each Applicable Clearing Participant.
c. The Third Tier Special Clearing Charge to be contributed by each Participant
Bearing Third Tier Special Clearing Charge not subject to a. or b. above or d.
below:
The amount of the Third Tier Special Clearing Charge contribution shall be
determined by prorating the remaining Excess Default Loss after loss recovery
pursuant to a. and b. above according to the Third Tier Special Clearing Charge
Cap of each Participant Bearing Third Tier Special Clearing Charge captured inthis Item, but limited to the Third Tier Special Clearing Charge Cap of eachParticipant Bearing Third Tier Special Clearing Charge captured in this Item.
d. The Third Tier Special Clearing Charge to be contributed by a Participant
Bearing Third Tier Special Clearing Charge who made a successful bid on
Auction Transactions in the Default Auction in respect of the relevant
Defaulting Clearing Participant, provided that if such Clearing Participant issubject to a. or b. above, or if such Clearing Participant would have been
subject to a. or b. above had it been subject to the Third Tier Clearing Charge
contribution, in respect of the most recent Default Auction for a Default
determined during the relevant Default Determination Period held prior to therelevant Default Auction during the relevant Default Determination Period, theThird Tier Special Clearing Charge of that Clearing Participant shall be
determined according to a. or b. above, as applicable:
The Third Tier Special Clearing Charge contribution shall be determined byprorating Excess Default Loss after loss recovery pursuant to a. through c.
above, but limited to the Third Tier Special Clearing Charge Cap of eachParticipant Bearing Third Tier Special Clearing Charge captured in this Item.
(2) Where all or a part of the total amount of the Re-Allocated Third Tier Special
Clearing Charge of a Clearing Participant required to participate in the Default
Auction related to the relevant Excess Default Loss allocated to the Defaulting
Clearing Participant’s Cleared Contracts pursuant to the provisions of Article27105-2 of the Business Rules is to be used to recover Excess Default Lossremaining after Item (1) above:
The provisions of Item (1) shall apply mutatis mutandis, whereby any reference to“Participant Bearing Third Tier Special Clearing Charge” in Item (1) above shall be
replaced with “Participant Bearing Re-Allocated Third Tier Special Clearing
Charge,” any reference to “Third Tier Special Clearing Charge” in Item (1) above
shall be replaced with “Re-Allocated Third Tier Special Clearing Charge,”“remaining Excess Default Loss after loss recovery” in Item (1) above shall be
replaced with “remaining Excess Default Loss” and any reference to “Third Tier
Special Clearing Charge Cap” shall be replaced with “amount of the Re-AllocatedThird Tier Special Clearing Charge.”(3) Where all or a part of the total amount of the Re-Allocated Third Tier Special
Clearing Charge of a Clearing Participant not required to participate in the Default
Auction related to the relevant Excess Default Loss allocated to the Defaulting
Clearing Participant’s Cleared Contracts pursuant to the provisions of Article105-2 of the Business Rules is to be used to recover Excess Default Lossremaining after Item (1) and (2) above:
In below listed order, the amount specified below:a.

Re-Allocated Third Tier Special Clearing Charge to be contributed by a
Clearing Participant not required to participate and have not participated in
the Default Auction:
The remaining Excess Default Loss prorated according to the Re-AllocatedThird Tier Special Clearing Charge in respect of each Clearing Participant
subject to this Item, but limited to the Re-Allocated Third Tier Special
Clearing Charge in respect of the relevant Clearing Participant.

b.

Re-Allocated Third Tier Special Clearing Charge to be contributed by a
Clearing Participant not required to participate, but participated in the Default
Auction with a price that is a significant deviation from the prevailing market
price:

28

The remaining Excess Default Loss remaining after the application madeunder a. above prorated according to the Re-Allocated Third Tier Special
Clearing Charge in respect of each Clearing Participant subject to this Item,but limited to the Re-Allocated Third Tier Special Clearing Charge in respectof the relevant Clearing Participant.
c.

Re-Allocated Third Tier Special Clearing Charge to be contributed by a
Clearing Participant not required to participate in the Default Auction otherthan those mentioned in a., b. and d.:
The remaining Excess Default Loss remaining after the application madeunder a. to b. above prorated according to the Re-Allocated Third Tier
Special Clearing Charge in respect of each Clearing Participant subject tothis Item, but limited to the Re-Allocated Third Tier Special Clearing Charge
in respect of the relevant Clearing Participant.

d.

Re-Allocated Third Tier Special Clearing Charge to be contributed by the
Clearing Participant not required to participate, but participated in the Default
Auction and won the bid on the Auctioned Transaction:
The amount remaining after the application made under Item a. through c.

2

The amount of the Required IRS Clearing Fund prorated by each currency set

forth in Article 105.2 of the Business Rules shall be the Third Tier Clearing Participant Cap
for each Clearing Participant prorated according to the average of the amount equivalent to
the Required Initial Margin calculated for Cleared Contracts in the relevant currency of each
Clearing Participant for the period of past 30 JSCC Business Days ending on the Default
Determination Date.
3

A price which significantly deviates from the prevailing market price underParagraph 1.(1).b. shall be any price which, if the Auction Transactions were to be
executed with that as the successful bid, the Excess Default Loss would be more than the
Resources for Loss Cover less the Fourth Tier Special Clearing Charge.
29

4Participants Bearing Third Tier Special Clearing Charge that are Specified

Successor Financial Institutions shall pay the Third Tier Special Clearing Charge
contribution as the Participants Bearing Third Tier Special Clearing Charge that fall underParagraph 1.(1).c. according to the order set forth in Paragraph 1.(1).c.
5

The provisions of Article 103.4 of the Business Rules shall apply mutatis mutandis

when the provisions of Paragraph 1 applies to the Clearing Participant who outsources theparticipation in Default Auction pursuant to Article 9.1.(3).b. of the Business Rules.
Article 21-2.

Allocation of Third Tier Special Clearing Charge for Defaulting Clearing

Participant’s Cleared Contracts in Different Currencies
The prorated remaining amount of the Third Tier Special Clearing Charge set forth in Article105-2 of the Business Rules shall be such remaining amount prorated according to theamount equivalent to the Required Initial Margin for Cleared Contracts in each currency asof the JSCC Business Day immediately preceding the Default Auction Date or the first
Default Auction Date, if multiple Default Auctions are to be held, in respect of the relevant
Defaulting Clearing Participant’s Cleared Contracts in each currency.
Article 21-3.

Change of Loss Recovery Resources Proration Method

Only when JSCC deems it appropriate for the purpose of success of the Default Auction
taking account of the advice of the IRS Default Management Committee, notwithstanding
the provisions of Articles 17-4, 18-2, 19.3, 19.4, 19-2, 21.2 and 21-2, JSCC may change themethod of proration of the Defaulting Clearing Participant’s Initial Margin, IRS Clearing
Fund, Default Contingent Margin and excess collateral in other Clearing Business(hereinafter collectively referred to as “Defaulting Clearing Participant’s Collateral”) andResources for Loss Recovery. In this case, any matter that becomes necessary inconnection with the treatment of the Defaulting Clearing Participant’s Collateral andResources for Loss Recovery after change or otherwise related to such amount shall be set
by JSCC on each occasion.
Article 21-4.

Loss to be Excluded from Excess Default Loss to be Recovered by Fourth

Tier Special Clearing Charge
30The loss to be excluded from the Excess Default Loss remaining after recovery under
Article 105 of the Business Rules set forth in Article 106.1 of the Business Rules shall be
the loss of JSCC, in the case where Positions of Cross Margined JGB Futures Cleared
Contracts or Cross Margined Interest Rate Futures Cleared Contracts are recorded on the
Defaulting Clearing Participant’s Clearing Participant Account, obtained by multiplying theExcess Default Loss related to the Defaulting Clearing Participant’s Cleared Contracts inJapanese yen remaining after recovery under Article 105 of the Business Rules by afraction, the denominator of which is the net amount of the Outstanding Obligations related
to the Defaulting Clearing Participant’s Cleared Contracts in Japanese yen set forth in
Article 101.1.(1) of the Business Rules and JSCC’s obligation to pay the Early Termination
Charge related to the Defaulting Clearing Participant’s Cleared Contracts, JSCC’s payables
related to the claims and obligations which come into effect pursuant to the provisions ofArticle 84-5 of the Business Rules, Variation Margin deposited in respect of the Defaulting
Clearing Participant’s Cleared Contracts and Funds delivery of which to the Defaulting
Clearing Participant have been suspended, and the numerator of which is the Outstanding
Obligations of the Defaulting Clearing Participant owed to JSCC in connection with theliquidation related to the claims and obligations which come into effect pursuant to theprovisions of Article 84-5.
Article 22. Amount of Fourth Tier Special Clearing Charge
The Fourth Tier Special Clearing Charge contribution under Article 106.2 of the Business
Rules shall be calculated by type of currency of the Defaulting Clearing Participant’s
Cleared Contracts and determined, depending upon the category into which Participant
Bearing Fourth Tier Special Clearing Charge (as such term defined in Article 106.1) falls, as
follows:(1) Participant Bearing Fourth Tier Special Clearing Charge other than the Participant
who is determined to be in Default after the Default Determination Date in respectof the relevant Defaulting Clearing Participant:
The remaining Excess Default Loss after the recovery pursuant to Articles 103
and 105 of the Business Rules prorated according to each Clearing Participant’s
proportion of the net Cash Settlement Amount paid by JSCC to all Participants
31

Bearing Fourth Tier Special Clearing Charge other than the Participant who isdetermined to be in Default after said Default Determination Date; and(2) Participant Bearing Fourth Tier Special Clearing Charge determined to be in
Default after the Default Determination Date in respect of the relevant Defaulting
Clearing Participant:
The amount of such Participant’s Fourth Tier Special Clearing Charge Collateralon deposit with JSCC.

Chapter 5 Special Clearing Charge Collateral (Articles 23 – 27)
Article 23. Third Tier Special Clearing Charge Collateral Requirement
Upon determination of a Clearing Participant’s Default by JSCC, a non-Defaulting Clearing
Participant is required to post with JSCC the amount set forth in the following Items as theThird Tier Special Clearing Charge Collateral by the date and time set forth in the relevant
Items, provided that the total amount to be posted with JSCC by a Clearing Participant as
the Third Tier Special Clearing Charge Collateral in respect of the same Default Settlement
Period shall not exceed the amount equal to the Required IRS Clearing Fund of the
Clearing Participant as of the JSCC Business Day immediately preceding the first day of
the Default Settlement Period:(1) Where-

The sum of net Cash Settlement Amount receivable by JSCC from theDefaulting Clearing Participant arising from the Defaulting Clearing Participant’s
Cleared Contracts calculated on each JSCC Business Day from the Default
Determination Date (or the next JSCC Business Day following the Default
Determination Date in case the settlement under the Defaulting Clearing
Participant’s Cleared Contract(s) that are due on the Default Determination
Date have been completed as of the Default Determination Date) and net Cash
Settlement Amount payable by JSCC to the Clearing Participants arising fromthe Hedge Transactions deemed to be the Cleared Contracts pursuant to32

Article 93.2 of the Business Rules and the Cross Margining Liquidation
Transactions deemed to be the Cleared Contracts pursuant to Article 93-2.3 ofthe Business Rules calculated on each JSCC Business Day from the Default
Determination Date (or the next JSCC Business Day following the Default
Determination Date in case the settlement under the Defaulting Clearing
Participant’s Cleared Contract(s) that are due on the Default Determination
Date have been completed as of the Default Determination Date) is more than
the total amount of the Fixed Resources for Loss Recovery applicable to thetype of currency of the Defaulting Clearing Participant’s Cleared Contracts plus
the Re-Allocated First Tier IRS Settlement Guarantee Reserve, theRe-Allocated Second Tier IRS Settlement Guarantee Reserve and the IRS
Clearing Fund allocated pursuant to Article 103-2 of the Business Rules, if any,
and-the Third Tier Special Clearing Charge (or if one or more other Default isdetermined during the same Default Settlement Period, the estimated Third Tier
Special Clearing Charge obtained pursuant to the provisions of Article 21 using
the sum of net Cash Settlement Amount payable by JSCC mentioned above as
Excess Default Loss which would have arisen had Default Auction been held atsuch time) to be contributed by such Clearing Participant is more than the sumof Initial Margin in respect of the Proprietary Cleared Contracts and Default
Contingent Margin of such Clearing Participant on deposit with JSCC at suchtime (or if the Third Tier Special Clearing Charge becomes necessary during
the same Default Settlement Period, the amount remaining after deducting theamount of the Third Tier Special Clearing Charge which becomes necessary torecover Excess Default Loss related to the Defaulting Clearing Participant’s
Cleared Contracts in currencies other than the currency of the relevant
Defaulting Clearing Participant’s Cleared Contracts less the amount of the Third
Tier Special Clearing Charge Collateral deposited with JSCC pursuant to Item
(3)):

a. Date and time: 11:00 a.m. on the next JSCC Business Day following the day on
33which such excess occurs
b. Amount to make the Third Tier Special Clearing Charge Collateral on depositwith JSCC equal to the amount of such excess on the day on which suchexcess occurs(2) In the case of Article 12.4, where the Clearing Participant’s Third Tier Special
Clearing Charge contribution that JSCC notified to the Clearing Participant
pursuant to Article 12.4.(2) is more than the sum of Initial Margin in respect of theProprietary Cleared Contracts, Default Contingent Margin and the Third Tier
Special Clearing Charge Collateral of such Clearing Participant on deposit with
JSCC at such time (or if the Third Tier Special Clearing Charge becomes
necessary during the same Default Settlement Period, the amount remaining after
deducting the amount of the Third Tier Special Clearing Charge which becomes
necessary to recover Excess Default Loss related to the Defaulting Clearing
Participant’s Cleared Contracts in currencies other than the currency of therelevant Defaulting Clearing Participant’s Cleared Contracts less the amount of
the Third Tier Special Clearing Charge Collateral deposited with JSCC pursuant
to Item (3)):
a. Date and time: Time prescribed by JSCC at each occasion on the Default
Auction Date on which such notification was madeb. Amount: Amount of such excess(3) In the case of Article 12.4, where the Clearing Participant’s Third Tier Special
Clearing Charge contribution that JSCC notified to the Clearing Participant
pursuant to Article 12.4.(2) is more than the amount of posted Third Tier Special
Clearing Charge Collateral:a. Date and time: 11:00 a.m. on the next JSCC Business Day following theDefault Auction Date on which such notification was madeb. Amount: Amount of such excess34Article 24. Fourth Tier Special Clearing Charge Collateral Requirement
Upon JSCC’s determination of a Clearing Participant’s Default, a non-Defaulting Clearing
Participant is required to post with JSCC the amount set forth in the following Items as the
Fourth Tier Special Clearing Charge Collateral by the date and time set forth below:(1) Where the net Cash Settlement Amount as described in Article 23.(1) is more than
the total amount of the Fixed Resources for Loss Recovery plus the Re-AllocatedFirst Tier IRS Settlement Guarantee Reserve, the Re-Allocated Second Tier IRS
Settlement Guarantee Reserve, the IRS Clearing Fund and the Re-Allocated Third
Tier Special Clearing Charge if any of these are allocated pursuant to Article 103-2
or Article 105-2 of the Business Rules, and if the sum of the estimate of the
Clearing Participant’s Third Tier Special Clearing Charge contribution and the
Fourth Tier Special Clearing Charge contribution obtained pursuant to theprovisions of Articles 21 and 22 using said net Cash Settlement Amount as Excess
Default Loss that would have arisen had the Default Auction been held at such time
is more than the sum of Initial Margin in respect of the Proprietary Cleared
Contracts, Default Contingent Margin, Third Tier Special Clearing Charge
Collateral and Fourth Tier Special Clearing Charge Collateral of such Clearing
Participant on deposit with JSCC at such time (or if the Third Tier Special Clearing
Charge and the Fourth Tier Special Clearing Charge become necessary during thesame Default Settlement Period, the amount remaining after deducting the amountof the Third Tier Special Clearing Charge and the amount of the Fourth Tier Special
Clearing Charge which become necessary to recover Excess Default Loss related
to the Defaulting Clearing Participant’s Cleared Contracts in currencies other thanthe currency of the relevant Defaulting Clearing Participant’s Cleared Contracts
less the amount of the Third Tier Special Clearing Charge Collateral deposited with
JSCC pursuant to Article23.(3) andthe amount of the Fourth Tier Special

Clearing Charge Collateral deposited with JSCC pursuant to Item (3)):
a. Date and time: 11:00 a.m. of the next JSCC Business Day following the day on
which such excess occurs
35

b. Amount to bring the Fourth Tier Special Clearing Charge Collateral posted bythat Clearing Participant up to the amount of such excess on the day on whichsuch excess occurs(2) In the case of Article 12.4, where the total amount of a Clearing Participant’s Third
Tier Special Clearing Charge contribution and Fourth Tier Special Clearing Charge
contribution that JSCC notified to Clearing Participants pursuant to Article 12.4.(2)is more than the sum of Initial Margin arising from Proprietary Cleared Contracts,
Default Contingent Margin, the Third Tier Special Clearing Charge Collateral andthe Fourth Tier Special Clearing Charge Collateral of that Clearing Participant on
deposit with JSCC at such time (or if the Third Tier Special Clearing Charge andthe Fourth Tier Special Clearing Charge becomes necessary during the same
Default Settlement Period, the amount remaining after deducting the amount of theThird Tier Special Clearing Charge and the amount of the Fourth Tier Special
Clearing Charge which becomes necessary to recover Excess Default Loss related
to the Defaulting Clearing Participant’s Cleared Contracts in currencies other thanthe currency of the relevant Defaulting Clearing Participant’s Cleared Contracts
less the amount of the Third Tier Special Clearing Charge Collateral deposited with
JSCC pursuant to Article23.(3) and the amount of the Fourth Tier Special Clearing
Charge Collateral deposited with JSCC pursuant to Item (3)):
a. Date and time: The time prescribed by JSCC at each occasion on the Default
Auction Date on which such notification was madeb. Amount: Amount of such excess(3) In the case of Article 12.4, where the total amount of each Clearing Participant’s
Third Tier Special Clearing Charge contribution and Fourth Tier Special Clearing
Charge contribution that JSCC notified to Clearing Participants pursuant to Article
12.4.(2) is more than the sum of such Clearing Participant’s Third Tier Special
Clearing Charge Collateral and Fourth Tier Special Clearing Charge Collateral on
deposit with JSCC at such time:36

a. Date and time: 11:00 a.m. on the next JSCC Business Day following theDefault Auction Date on which such notification was madeb. Amount: Amount of such excess
Article 25. Application and Return of Special Clearing Charge Collateral
On the next JSCC Business Day following the Initial Loss-Determination Date for a
Defaulting Clearing Participant, JSCC will apply the Third Tier Special Clearing Charge
Collateral posted with JSCC by a Clearing Participant in accordance with Article 23 to thesatisfaction of the obligation related to the Third Tier Special Clearing Charge contribution
to be made by that Clearing Participant and also apply the Fourth Tier Special Clearing
Charge Collateral posted with JSCC by a Clearing Participant in accordance with Article 24
to the satisfaction of the obligation related to the Fourth Tier Special Clearing Charge
contribution to be made by that Clearing Participant. The remaining amount, if any, after
said application shall be returned to the Clearing Participant promptly after the application.
Article 26. Required Amount of Default Contingent Margin
The required amount of Default Contingent Margin of each Clearing Participant set forth in
Article 108 of the Business Rules shall be an amount calculated pursuant to the following
Items on each JSCC Business Day during a Default Settlement Period, except for the last
day of the Default Settlement Period, on which the required amount of Default Contingent
Margin shall be zero.
(1) On each JSCC Business Day during a Default Settlement Period, an amountequivalent to the Required IRS Clearing Fund (“Required IRS Clearing Fund
Equivalent”) shall be calculated according to the Appendix to the Rules on
Required IRS Clearing Fund, “Calculation of Required IRS Clearing Fund”.
(2) The amount obtained pursuant to a. or b. below, depending upon the categories,
shall be used as a basis for calculation of required amount of Default Contingent
Margin (“Default Contingent Margin Calculation Base”):37

a. On the first day of the Default Settlement Period: If the Required IRS Clearing
Fund Equivalent calculated for such day is less than the Required IRS Clearing
Fund on the immediately preceding JSCC Business Day, the Required IRS
Clearing Fund on the immediately preceding JSCC Business Day shall be theDefault Contingent Margin Calculation Base for that day, and if the Required
IRS Clearing Fund Equivalent calculated on such day is equal to or above theRequired IRS Clearing Fund on the immediately preceding JSCC Business Day,
the Required IRS Clearing Fund Equivalent calculated on that day shall be theDefault Contingent Margin Calculation Base for that day.
b. On the second and subsequent days during the Default Settlement Period: If
the Required IRS Clearing Fund Equivalent calculated on such day is less thanthe Default Contingent Margin Calculation Base on the immediately preceding
JSCC Business Day, the Default Contingent Margin Calculation Base on theimmediately preceding JSCC Business Day shall be the Default Contingent
Margin Calculation Base for that day, and if the Required IRS Clearing Fund
Equivalent calculated on such day is equal to or above the Default Contingent
Margin Calculation Base on the immediately preceding JSCC Business Day,
the Required IRS Clearing Fund Equivalent calculated on such day shall be theDefault Contingent Margin Calculation Base for that day.

For this purpose, theDefault Contingent Margin Calculation Base shall be obtained continuously
from the next JSCC Business Day following the first day of the Default
Settlement Period.
(3) The required amount of Default Contingent Margin shall be the Default Contingent
Margin Calculation Base on that day less the Required IRS Clearing Fund on the
JSCC Business Day immediately preceding the first day of the Default Settlement
Period.
2

The notification to Clearing Participants of the required amount of Default

Contingent Margin under Article 108.4 of the Business Rules shall be made via the IRS
Clearing System set forth in Article 2.(2) of the Handling Procedures of Interest Rate Swap
Business Rules.
38Article 27. Payment of Special Clearing Charge upon Determination of Final Loss
1

In accordance with Article 110.1 of the Business Rules, JSCC may use the IRS

Clearing Fund deposited with JSCC by Clearing Participants or request payment of theamount needed from Clearing Participants.
2

Notwithstanding Article 20, a Clearing Participant shall, if it is due to pay theSpecial Clearing Charge to JSCC pursuant to Article 110.1 of the Business Rules, pay theSpecial Clearing Charge to JSCC in the method specified by JSCC on a case-by-casebasis.

Chapter 5-2 Adjustment of Resources for Loss Recovery between Currencies
after Determination of Final Loss (Article 27-2)
Article 27-2.

Adjustment of Resources for Loss Recovery between Currencies after

Determination of Final Loss
The adjustment of Resources for Loss Recovery set forth in Article 110-2 of the Business
Rules shall be made according to the order and in the manner prescribed below, but suchamount shall not exceed the amount of Resources for Loss Recovery actually applied or
used:(1) Distribution to the Clearing Participants who contributed the Fourth Tier Special
Clearing Charge;(2) Distribution to the Clearing Participants who contributed the Re-Allocated Third
Tier Special Clearing Charge;(3) Distribution to the Clearing Participants who contributed the Third Tier Special
Clearing Charge;(4) Reserve for the Second Tier IRS Settlement Guarantee Reserve or relevant IRS
Clearing Fund which are used as the Re-Allocated Second Tier IRS Settlement
Guarantee Reserve or the Re-Allocated IRS Clearing Funds, as applicable;(5) Reserve for the Second Tier IRS Settlement Guarantee Reserve or relevant IRS
Clearing Fund other than above Item (4);39

(6) Reserve for the First Tier IRS Settlement Guarantee Reserve which are used as
the Re-Allocated First Tier IRS Settlement Guarantee Reserve; and(7) Reserve for the First Tier IRS Settlement Guarantee Reserve other than above
Item (6).
2The Defaulting Clearing Participant’s Collateral and the Resources for Loss

Recovery listed below shall be used for the distribution or reserve set forth in Paragraph 1
in the order specified below:(1) Initial Margin and the like of the Defaulting Clearing Participant remaining after thedetermination of final loss, which is the resultant value of the netting andapplication of collateral conducted on the date of determination of the final loss set
forth in Article 101.1.(2) of the Business Rules that is negative;(2) Re-Allocated First Tier IRS Settlement Guarantee Reserve remaining after theapplication made pursuant to Article 103.1.(1)-2 and Article 110.1.(1) of theBusiness Rules;(3) Re-Allocated Second Tier IRS Settlement Guarantee Reserve and IRS Clearing
Fund deposited by Clearing Participants other than the Defaulting Clearing
Participant remaining after the application made pursuant to Article 103.1.(3) and(4) and Article 110.1.(2) of the Business Rules;(4) Re-Allocated Third Tier Special Clearing Charge remaining after the application
made pursuant to Article 21.1.(2) and (3)of these Rules and Article 110.1.(3) of theBusiness Rules.
3

The adjustment of the Resources for Loss Recovery under Paragraphs 1 and 2

shall be made according to the case specified in below Items in the manner specified
below:(1) Where the Defaulting Clearing Participant’s Collateral and the Resources for Loss
Recovery specified below are sufficient to cover the full amount of the distribution
or reserve in below a. to d.:Distribution or reserve in the below-listed amount using the Defaulting Clearing
Participant’s Collateral and the Resources for Loss Recovery specified below:
40

a.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(1): Total amount set forth in Paragraph 1;b.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(1) and (2): Total amount set forth in Paragraph 1.(1) to (5);c.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(1) to (3): Total amount set forth in Paragraph 1.(1) to (3); andd.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2: Amount set forth in Paragraph 1.(1)(2) Other than above Item (1):
According to the order of the Defaulting Clearing Participant’s Collateral andResources for Loss Recovery specified below, distribution or reserve in theamount specified below:a.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(1): Full amount of such Defaulting Clearing Participant’s
Collateral and Resources for Loss Recovery;b.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(2): The total amount set forth in Paragraph 1.(1) to (5) less theamount distributed or reserved under a. above, but limited to the full amount ofsuch Defaulting Clearing Participant’s Collateral and Resources for Loss
Recovery;c.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(3): The total amount set forth in Paragraph 1.(1) to (3) less theamount distributed or reserved under a. and b. above, but limited to the fullamount of such Defaulting Clearing Participant’s Collateral and Resources for
Loss Recovery;d.

Defaulting Clearing Participant’s Collateral and Resources for Loss Recovery
in Paragraph 2.(4): The amount set forth in Paragraph 1.(1) less the amount
distributed or reserved under a. through c. above, but limited to the full amountof such Defaulting Clearing Participant’s Collateral and Resources for Loss
Recovery.

41

4

In addition to the matters prescribed in Paragraphs 1 to 3, any matter that

becomes necessary in connection with the adjustment of Resources for Loss Recovery
shall be set by JSCC in a notification.

Chapter 6 Distribution of Collected Amount (Articles 28 - 32)
Article 28. Clearing Participants Entitled to Collected AmountThe Clearing Participants to be specified in the Subordinate Rules under Article 111.1 of
the Business Rules shall be the following Clearing Participants:(1)

The Clearing Participants who have contributed their shares of Fourth Tier Special

Clearing Charge to JSCC;(2)JGB Futures Clearing Participants who have paid Cross Margining Special

Clearing Charge set forth in Article 79-2 of the Securities and Similar Contracts Business
Rules;(3)

The Clearing Participants who have contributed their shares of Third Tier Special

Clearing Charge to JSCC;(4)The Clearing Participants whose Required IRS Clearing Fund has been usedpursuant to Article 103 or Article 110 of the Business Rules to recover Excess Default Lossor any other loss arising from Default of one or more Clearing Participants, or who paid to
JSCC the amount equal to Required IRS Clearing Fund otherwise used pursuant to Article
27.1; and(5)

The Clearing Participants who have incurred loss from reestablishment of the

Cleared Contracts terminated pursuant to Article 97.1 of the Business Rules.
Article 29. Distribution Procedures
1

When Article 111.1 of the Business Rules applies, JSCC will distribute to theClearing Participants or the JGB Futures Clearing Participants in the below listed order theamount set forth in Article 111.1 remaining after payment of the expenses required for42

collection in proportion of such Clearing Participants’ contribution, up to the amountdescribed in each Item below:(1) To persons listed below: The amount specified below:a.

Clearing Participants in Article 28.(1):Amount equivalent to the Fourth Tier Special Clearing Charge paid to JSCC;b.

JGB Futures Clearing Participants in Article 28.(2):Amount equivalent to the Cross Margining Special Clearing Charge paid to
JSCC;(2) To the Clearing Participants set forth in Article 28.(3): Up to the Third Tier
Special Clearing Charge contribution paid to JSCC;(3) To the Clearing Participants set forth in Article 28.(4): Up to the IRS Clearing Fundused to recover Excess Default Loss or other loss incurred by JSCC as a result of
Default of any Clearing Participant; and(4) To the Clearing Participant set forth in Article 28.(5): Up to the amount of the loss
set forth therein.
2

If JSCC deems it necessary to make sure proper distribution is made underParagraph 1, JSCC may request that the Clearing Participant receiving distribution underParagraph 1.(4) above submit an evidence of loss incurrence entitling it to the distribution
under Paragraph1.(4) and other necessary information.
3

JSCC will determine the amount of loss described in Paragraph 1.(4) taking

account of an advice of the IRS Default Management Committee and by reference to theevidence and information submitted by the Clearing Participants under Paragraph 2 above.
4

JSCC will make distribution to the Clearing Participants promptly after thedetermination of the amount pursuant to Paragraph 1.
Article 30. When No Participant is Entitled to Distribution
43

If no Clearing Participant is entitled to the distribution under Article 111.1 of the Business
Rules, JSCC will apply the remaining amount after payment of expenses for the collection
as follows:(1) JSCC will reserve and accumulate the remaining amount as the Second Tier IRS
Settlement Guarantee Reserve up to the amount set aside by JSCC as theSecond Tier IRS Settlement Guarantee Reserve pursuant to the provisions ofParagraph 2 of Article 4 in respect of the use of the funds related to the relevant
Default Settlement Period, in which case, the reserve and accumulation of theSecond Tier IRS Settlement Guarantee Reserve pursuant to the provisions ofParagraph 2 of Article 4 shall not be deemed to have been performed;(2) JSCC will reserve and accumulate the amount remaining after the accumulation
pursuant to the immediately preceding Item as the Second Tier IRS Settlement
Guarantee Reserve until the balance of the Second Tier IRS Settlement Guarantee
Reserve reaches 2 billion JPY;
(3) JSCC will reserve and accumulate the amount remaining after the accumulation
pursuant to Items (1) and (2) as the First Tier IRS Settlement Guarantee Reserve
up to the amount set aside by JSCC as the First Tier IRS Settlement Guarantee
Reserve pursuant to the provisions of Paragraph 2 of Article 3 in respect of the useof the funds related to the relevant Default Settlement Period, in which case, thereserve and accumulation of the First Tier IRS Settlement Guarantee Reserve
pursuant to the provisions of Paragraph 2 of Article 3 shall not be deemed to havebeen performed;(4)

JSCC will reserve and accumulate the amounts remaining after the accumulation
pursuant to Items (1), (2) and (3) as the First Tier IRS Settlement Guarantee
Reserve.

Supplementary Provision
These Rules shall come into force as of 9 October 2012.
44

Supplementary Provision
These amendments shall come into force as of 24 February 2014.
Supplementary Provision
These amendments shall come into force as of 1 April 2014.
Supplementary Provision
These amendments shall come into force as of 24 September 2015.
Supplementary Provision
These amendments shall come into force as of 19 December 2016.
Supplementary Provision
These amendments shall come into force as of 30 January 2017.
Supplementary Provision
These amendments shall come into force as of 18 June 2018.
Supplementary Provision
These amendments shall come into force as of 1 September 2019.
Supplementary Provisions
1.

These amendments shall come into force as of March 4, 2024.

2.

Notwithstanding the provisions of Paragraph 1, if JSCC considers it inappropriate

to apply amended rules due to an unavoidable reason, such as failure of the systeminstalled by JSCC which is necessary for settlements between JSCC and Clearing
Participants in relation to Cleared Contracts, these amendments shall come into force as ofthe date designated by JSCC which is on or after March 4, 2024.

45