IRS Default Management Committee Rules

IRS Default Management Committee Rules
Original Document Title : 金利スワップ破綻管理委員会規則

Table of ContentsArticle 1. Purpose ............................................................................................................................. 2
Article 2. Definitions ......................................................................................................................... 2
Article 3. Establishment of IRS Default Management Committee ................................................... 2
Article 4. Matters for Consultation .................................................................................................. 2
Article 5. List of Clearing Participants .............................................................................................. 3
Article 6. Appointment of Committee Member .............................................................................. 4
Article 6-2. Special Rules on Committee Members Advising on Default Settlement of Cross
Margining User .................................................................................................................................... 5Article 6-3. Special Rules on Committee Members Advising on Default Settlement of Foreign
Currency Cleared Contracts ................................................................................................................ 5Article 6-4. Nomination of Candidate for Foreign Currency Member ............................................. 6Article 7. Notification of Representative of Committee Member ................................................... 7Article 8. Obligations of Committee Members ................................................................................ 8Article 9. Conduct of Default Settlement Drill ................................................................................. 9
Article 10. Delegation ....................................................................................................................... 91

IRS Default Management Committee Rules

IRS Default Management Committee Rules
Article 1. Purpose
The purpose of these IRS Default Management Committee Rules (these “DMC Rules”) isto set forth the authority, organization, manner of appointment of a committee member
and other matters necessary for administration of the IRS Default ManagementCommittee pursuant to the Interest Rate Swap Clearing Business Rules (“BusinessRules”) established by Japan Securities Clearing Corporation (“JSCC”).
Article 2. Definitions
Unless otherwise set forth in these DMC Rules, the terms used in these DMC Rules shallhave the meanings used in the Business Rules.
Article 3. Establishment of IRS Default Management Committee
1 JSCC shall establish the IRS Default Management Committee (“Committee”) as apermanent advisory committee of the board of directors of JSCC.
2 The Committee consists of not more than five (5) committee members appointed
pursuant to the provisions of Articles 6 to 6-4 hereof.
Article 4. Matters for Consultation
1 The matters prescribed under Article 92.1 of the Business Rules shall be as follows:(1) Matters concerning execution, trade conditions of and counterparties to Hedge
Transactions;(2) Matters concerning holding, conditions, date and time and administration ofDefault Auction; or(3) Matters concerning execution, trade terms of and trade counterparty to offsetting
sale (as set forth in Article 45-2.2 of the Securities and Similar Contracts BusinessRules) or offsetting purchase (as set forth in Article 45-2.2 of the Securities andSimilar Contracts Business Rules) of Cross Margined JGB Futures Cleared2

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Contracts and Cross Margined Interest Rate Futures Cleared Contracts;(4) Matters concerning execution, trade terms of and trade counterparty to Cross
Margining Liquidation Transactions;(5) Any other matters concerning settlement and other treatment of Defaulting
Clearing Participant’s Cleared Contracts, Cross Margined JGB Futures Cleared
Contracts and Cross Margined Interest Rate Futures Cleared Contracts in respectof which JSCC separately seeks advice.
2 JSCC shall take account of the Committee’s or committee member’s advice, if any, as tothe matters listed in Paragraph 1.
Article 5. List of Clearing Participants
1 JSCC shall prepare a list in which all Clearing Participants are listed in random order(“Clearing Participant List”).
For the purpose of Clearing Participant in Article 5 and Article 6, a Clearing Participant
who is a Specified Successor Financial Institution shall be excluded from the definition ofClearing Participant.
2 When the IRS Clearing Qualification of a Clearing Participant is renounced (including therenunciation due to JSCC’s measures to revoke the IRS Clearing Qualification; the same
shall apply in Article 6) or JSCC declares the Default of a Clearing Participant, JSCC
shall remove such Clearing Participant from the Clearing Participant List at the time ofsuch renunciation or declaration of the Default.
3 When a Clearing Participant is appointed as a committee member pursuant to Articles 6
to 6-4, JSCC shall remove such Clearing Participant from the Clearing Participant List.
4 When the number of Clearing Participants remaining on the Clearing Participant List
becomes less than five (5), JSCC shall prepare a new Clearing Participant List in themethod prescribed in Paragraph 1, in which event, the existing Clearing Participant List3IRS Default Management Committee Rules

shall lose its effect at the time when the Clearing Participant listed at the end of such
Clearing Participant List is appointed as a committee member.
Article 6. Appointment of Committee Member
1 JSCC shall designate five (5) Clearing Participants in accordance with the order on theClearing Participant List as committee members, provided that if the number of Clearing
Participants on the then current Clearing Participant List is less than five(5), all Clearing
Participants remaining on the list shall be nominated as committee members, and then
the number of the Clearing Participants to fill the shortage shall be nominated from theClearing Participant List newly prepared pursuant to the provisions of Article 5.4
according to the order on such new Clearing Participant List.
2 If the IRS Clearing Qualification of a committee member is renounced or JSCC declares
the Default of a committee member after its appointment pursuant to Paragraph 1, JSCC
shall cancel the appointment of the relevant committee member simultaneously with such
renunciation or declaration. In this case, JSCC shall appoint a replacement committee
member in accordance with the order on the Clearing Participant List.
3 If JSCC deems that a committee member or a Representative of Committee Member(defined below) is unable to perform his, her or its duties as a committee member in lightof its status of trading in IRS Transactions or other factors, or otherwise there is any
unavoidable reason, JSCC may cancel the appointment of the committee member. In
this case, JSCC shall appoint a replacement committee member in accordance with theorder on the Clearing Participant List.
4 If the number of committee members appointed pursuant to Paragraph 1 of this Article isless than five (5), and after such appointment, JSCC grants an IRS Clearing Qualification
to a new Clearing Participant, such new Clearing Participant shall be appointed, at thetime of such grant of Clearing Qualification, as a committee member to fill a vacancy (ifmultiple Clearing Participants are simultaneously granted Clearing Qualifications, thensuch new Clearing Participants selected in random order shall be appointed ascommittee members so that total number of the committee members is five (5)).

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5 The term of office of committee member shall, unless otherwise designated by JSCC
upon its appointment, expire on the day on which one year has elapsed since the date ofappointment.
Article 6-2.

Special Rules on Committee Members Advising on Default Settlement ofCross Margining User
1 Notwithstanding the provisions of Article 6, where the Clearing Broker acting as an agent
for a Customer who is the Cross Margining User is appointed as a committee member,such committee member shall be removed from a committee member when theCommittee gives an advice on the Cross Margined JGB Futures Cleared Contracts orthe Cross Margined Interest Rate Futures Cleared Contracts on its Customer's book.
In such case, JSCC shall appoint a replacement committee member according to theorder of the Clearing Participant List.
2 When the replacement committee member is appointed pursuant to the provisions ofParagraph 1, JSCC shall place the Clearing Participant removed from a committee
member pursuant to the provisions of Paragraph 1 on the top of the then current
Clearing Participant List.
Article 6-3.

Special Rules on Committee Members Advising on Default Settlement ofForeign Currency Cleared Contracts
1 JSCC shall appoint, in advance, two (2) committee members which have been theparties to Foreign Currency Cleared Contracts during the period of past 30 days endingon the date of their appointment as the committee members to give advice specificallyon the matters listed in Article 4.1.(1), (2) and (5) in connection with the Defaulting
Clearing Participant’s Cleared Contracts which are Foreign Currency Cleared Contracts(“Defaulting Clearing Participant’s Foreign Currency Cleared Contracts”) when Default ofa Clearing Participant which is a party to Foreign Currency Cleared Contracts isdeclared (such committee members are referred to as “Foreign Currency Members”).
2 The Foreign Currency Members set forth in Paragraph 1 shall be appointed according tothe order of the Clearing Participant List effective at the time of the appointment of thethen current five committee members pursuant to the provisions of Article 6.1.

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3 When JSCC considers it difficult for a Foreign Currency Member appointed pursuant to
the provisions of Paragraph 1 or its Representative to perform their duty in light of its
business execution structure related to IRS Transactions in currencies other thanJapanese yen or for other reason, JSCC may withdraw the appointment of suchcommittee member as the Foreign Currency Member. In such case, JSCC will appoint
the replacement Foreign Currency Member pursuant to the provisions of Paragraphs 1
and 2.
4 The provisions of the second sentence of Paragraph 3 shall apply mutatis mutandis
when the Foreign Currency Member is removed from committee member pursuant to
the provisions of Article 6.2 after its appointment as the Foreign Currency Member underParagraph 1.
Article 6-4.

Nomination of Candidate for Foreign Currency Member1 At the time of the appointment of committee members or at the time of the appointmentof the replacement Foreign Currency Member pursuant to Article 6-3.3 (including thecase where such provisions apply mutatis mutandis according to Article 6-3.4), if JSCC
is unable to appoint two Foreign Currency Members, it shall nominate candidates for theForeign Currency Members according to the order on the Clearing Participant List,
including the one newly created pursuant to Article 5.4, so that the total number of theForeign Currency Members will be two. In such case, if JSCC is unable to nominate
required number of candidates for the Foreign Currency Members from the then existing
Clearing Participant List, JSCC shall create a new Clearing Participant List pursuant tothe provisions of Article 5.1 and nominate such candidate so that the total number of theForeign Currency Members will be two.
2 A candidate for a Foreign Currency Member shall be nominated from Clearing
Participants listed on the Clearing Participant List, including the one newly createdpursuant to the second sentence of Paragraph 1 or Article 5.4, which have been a party
to a Foreign Currency Cleared Contract during the period of past 30 days ending on thedate of nomination.

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3 When a Clearing Participant is nominated as a candidate for a Foreign Currency
Member and JSCC declares a Default of a Clearing Participant which is a party to a
Foreign Currency Cleared Contract, JSCC shall appoint such candidate as a committee
member as well as the Foreign Currency Member.

In such case, the Clearing

Participant newly appointed as a committee member shall be deleted from the Clearing
Participant List.
4 When candidates for Foreign Currency Members are appointed as committee members
pursuant to the provisions of Paragraph 3, the existing committee members in the same
number as the number of newly appointed committee members determined in the orderfrom the existing committee member which was listed at the last among existing fivecommittee members in the Clearing Participant List effective at the time of their
appointment shall be removed from the committee members.

The Clearing

Participants cease to be the committee members shall be listed at the top of the thencurrent Clearing Participant List.
5 The term of office and other matters which will become necessary for the Clearing
Participants appointed as committee members pursuant to the provisions of Paragraphs
1 to 4 shall be set by JSCC at each occasion.
Article 7. Notification of Representative of Committee Member
1 A committee member shall designate at least one of the Officers or employees of itself orof other Legal Entity included in the same Corporate Group as that committee member
who has expertise in trading practice of IRS Transactions as a representative or an agent
actually performing duties of the committee member, including such duties as Foreign
Currency Member as applicable, (“Representative of Committee Member”), and submit awritten notification to JSCC of such designation in the form prescribed by JSCC
immediately after the appointment of that committee member.
2 When a committee member changes its Representative of Committee Member, it shallsubmit a written notification to JSCC of a new Representative of Committee Member inthe form prescribed by JSCC.

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Article 8. Obligations of Committee Members
1 Committee members shall, individually or as a Committee, give advice to JSCC on thematters prescribed in Article 4.1 hereof.
2 A committee member or a Representative of Committee Member (including a person
who once was a committee member or Representative of Committee Member) shall keep
confidentiality of secrets that such person becomes aware in the performance of its
duties and may not use for any purposes other than performance of duties as committee
member, or divulge to a third party (including the Legal Entity to which he or she belongs),
any such secrets, except for any of the below listed events or otherwise there is any
justifiable grounds to do so. The “secrets” referred to above shall mean confidential facts
that are not otherwise available to general public and may have significant commercial
impact:(1) When JSCC’s prior written consent is obtained;(2) When its disclosure or provision is required by an order or request from a courts,
competent authority or any other public institution, or a financial instruments
exchange or any other self-regulatory organization, or by laws and regulations;(3) When it is necessary to perform the duties of committee member; or(4) When such information is disclosed or provided to an attorney, certified public
accountant, tax accountant or other professional, or other Legal Entity in the same
Corporate Group as the committee member, to the extent necessary for theperformance of its obligations under these DMC Rules or for the protection orexercise of its rights, provided that a disclosure or provision to any person who is
not under the statutory confidentiality obligation shall be subject to an imposition
on such person of the same confidentiality obligation as set forth in thisParagraph.
3 When JSCC receives the notification of a Representative of Committee Member
pursuant to Article 7, it shall make the Representative of Committee Member submit a8

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written pledge prescribed by JSCC to the effect that it shall comply with the obligations
set forth in Paragraph 2.
Article 9. Conduct of Default Settlement Drill
1 JSCC and the Committee shall jointly conduct a drill for re-establishment of JSCC’sposition which would become necessary upon the termination of Defaulting Clearing
Participant’s Cleared Contracts in the event of JSCC’s declaration of the Default of aClearing Participant (including the measures to be taken to avoid JSCC’s loss which may
arise until the completion of such re-establishment) and for an appropriate and smoothadministration of other matters arising along with the declaration of the Default ( “DefaultSettlement Drill”).
2 All Clearing Participants other than Clearing Participants that are Specified Successor
Financial Institutions shall participate in a Default Settlement Drill and follow theprocedures drawn by JSCC and the Committee on each occasion. In this case, theClearing Participant who outsources the participation in the default settlement
procedures as set forth in Article 9.1.(3).b. of the Business Rules shall have that
outsourcee participate in the Default Settlement Drill.
Article 10. Delegation
Matters necessary for administration of the Committee other than those prescribed inthese DMC Rules shall be prescribed by the Committee on a case-by-case basis.
Supplementary Provisions
1 These DMC Rules shall be enforced from 9 October 2012 (hereinafter referred to as“Date of Enforcement”).
2 JSCC may take necessary procedures and perform any other acts and things in relationto the appointment of committee members and notification of representative of committee
member even before the Date of Enforcement pursuant to the applicable provisions ofthese DMC Rules.

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3 JSCC shall appoint the top five (5) Clearing Participants on the Clearing Participant List
(if less than five (5) Clearing Participants are listed on the Clearing Participant List, all theClearing Participants appearing on the list) promptly after the Date of Enforcement ascommittee members and establish the Committee.
Supplementary Provisions
1 These amendments shall come into force from 9 April 2013 (hereinafter referred to as
the “Date of Enforcement”).
2 Notwithstanding the provisions of Articles 5 and 6, as amended, JSCC will prepare newClearing Participant List as of the Date of Enforcement as prescribed by JSCC andappoint committee members in accordance with the order of such new Clearing
Participant List. The term of office of the committee members so appointed shall be as
determined by JSCC.
3 Notwithstanding the provisions of Article 5, as amended, with respect to the Clearing
Participant List to be prepared in accordance with the immediately preceding paragraph,the event where the Clearing Participant listed the fifth (5th) from the bottom of such list
is appointed as a committee member shall be the event that falls under provisions ofArticle 5, Paragraph 4, as amended.
Supplementary Provisions
Amendment to these DMC Rules shall be enforced from 1 April 2014.
Supplementary Provisions
1 These amendments shall come into force from 24 September 2015 (hereinafter referred
to as the “Date of Enforcement”).
2 Notwithstanding the provisions of Articles 6-3 and 6-4, as amended, JSCC will appoint
Foreign Currency Members and nominate candidates for Foreign Currency Members ina manner prescribed by JSCC in light of the status of clearing of IRS Transactions incurrencies other than Japanese yen.

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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.

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