Principles for Financial Market
Infrastructures Disclosure(August 31, 2023 edition）

Contents
I. Executive Summary..................................................................................................................................................... 3
II. Summary of Changes since the Previous Update.......................................................................................... 4
III. General Background of the FMI .......................................................................................................................... 4
IV. Principle-by-Principle Summary Narrative Disclosure .......................................................................... 10
General Organization ............................................................................................................................................. 10
Principle 1: Legal Basis..................................................................................................................................... 10
Principle 2: Governance ................................................................................................................................... 14
Principle 3: Framework for the Comprehensive Management of Risks ...................................... 20
Management of Credit Risk and Liquidity Risk .......................................................................................... 24
Principle 4: Credit Risk ..................................................................................................................................... 24
Principle 5: Collateral........................................................................................................................................ 32
Principle 6: Margin ............................................................................................................................................. 35
Principle 7: Liquidity Risk............................................................................................................................... 41
Settlement................................................................................................................................................................... 49
Principle 8: Settlement Finality .................................................................................................................... 49
Principle 9: Money Settlements .................................................................................................................... 50
Principle 10: Physical Deliveries .................................................................................................................. 53
CSDs and Exchange -of-Value Settlement Systems .................................................................................... 53
Principle 11: Central Securities Depositories ......................................................................................... 53
Principle 12: Exchange-of-Value Settlement Systems ......................................................................... 53
Default Procedures ................................................................................................................................................. 53
Principle 13: Participant-Default Rules and Procedures ................................................................... 53
Principle 14: Segregation and Portability ................................................................................................ 57
Business Risk Management and Operation Risk Management ............................................................ 61
Principle 15: General Business Risk ........................................................................................................... 61
Principle 16: Custody and Investment Risks........................................................................................... 64
Principle 17: Operational Risk: ..................................................................................................................... 65
Principle 18: Access and Participation Requirements ........................................................................ 73
Principle 19: Tiered Participation Requirements ................................................................................. 76
Principle 20: FMI Links .................................................................................................................................... 79
Efficiency ..................................................................................................................................................................... 81
Principle 21: Efficiency and Effectiveness................................................................................................ 81
Principle 22: Communications Procedures and Standards .............................................................. 83
Transparency ............................................................................................................................................................. 84
Principle23: Disclosure of Rules, Key Procedures, and Market Data ............................................ 84
Principle24: Disclosure of Market Data by Trade Repositions ........................................................ 86
V. List of Publicly Available Information ............................................................................................................. 87
VI. Glossary...................................................................................................................................................................... 90*In the sections of Principle 10, 11, 12 and 24, it is described as “not applicable”, since these principles
do not apply to TFX’s business.

1

Responding institution:
Tokyo Financial Exchange Inc.
Jurisdictions in which the FMI operates:
Japan
Authorities regulating, supervising or overseeing the FMI:
Financial Services Agency of Japan and Bank of JapanThe date of this disclosure:
August 31, 2023
Other means of disclosure:https://www.tfx.co.jp/en/about_tfx/csr/crisis02.html
Contact information:
Tokyo Financial Exchange Inc.
Compliance and Risk Management Office or Clearing and Settlement Department
E-mail: info@tfx.co.jp
TEL: (+81)03-4578-2407 or (+81)03-4578-2404<Disclaimer>・Tokyo Financial Exchange Inc. (“TFX”) has taken every effort to ensure the accuracy of the information
contained in this document.

However, TFX shall accept no responsibility or liability for any loss caused byactions involving the use of this information.
・ This document is to disclose TFX’s compliance with the CPSS-IOSCO “Principle for Financial Market
Infrastructures; Disclosure Framework and Assessment Methodology”.

The copyright of this document isheld by TFX, and no copying, misappropriating, using the document or disclosing to others of the document,
for any purposes other than those contemplated herein, is permitted.
・The official rules of TFX shall take the priority over any and all matters or descriptions contained herein
pertaining to the TFX rules and procedures, if there happens to be any difference between them.
・TFX reserves the right to revise or alter the contents of this document, or withdraw or halt its publication,
without prior notice. The original text of this document has been prepared in the Japanese language and only
the Japanese version will apply to and govern the rights and obligations for all purposes whatsoever hereunder.
The English version of this document has been prepared for the reference purpose only.

2

I. Executive SummaryTokyo Financial Exchange Inc. (“TFX”) is a primary financial instruments exchange and clearing
house in Japan, providing clearing services (i.e., financial instruments obligation assumption
business) for Interest Rate Futures contracts, Exchange FX Daily Futures contracts, Exchange
Equity Index Daily Futures contracts (herein-after called “Daily Futures contracts”) and FXClearing Futures contracts listed on TFX.
TFX is engaged in financial instruments obligation assumption business (herein-after called“Clearing Business”) upon obtaining an approval therefor from the Prime Minister of Japan
under the Financial Instruments and Exchange Act (“FIEA”). TFX is under the supervision of
the Financial Services Agency of Japan (“JFSA”) and is also subject to oversight by the Bank ofJapan (“BOJ”).
The Committee on Payment and Settlement Systems-Board of the International Organization of
Securities Commissions 1 (“CPSS-IOSCO”) published the Principles for Financial Market
Infrastructures (“PFMI”) in April 2012. Based on the PFMI, the JFSA released Comprehensive
Guidelines for Supervision of Financial Market Infrastructures - Clearing Organizations, Fund
Clearing Organizations, Book-entry Transfer Institutions, and Trade Repositories (herein-after
called “JFSA’s Guidelines”) in December 2013.
TFX, given the development in these new international regulations, recognizes importance ofobtaining credibility as a CCP by properly performing its Clearing Business under an appropriate
risk management framework and establishes a robust governance structure and comprehensive
risk management framework conforming to the PFMI and JFSA’s Guidelines.
This document provides details to demonstrate TFX's compliance with the PFMI in accordancewith the Principles for Financial Market Infrastructures: Disclosure Framework and Assessment
Methodology (“DFAM”). Unless otherwise specified, this disclosure is described based on theinformation as of the end of July 2023.

1

Name at the time of the PFMI’s release. On September 1, 2014, the Committee on Payment andSettlement Systems (“CPSS”) was renamed to the Committee on Payments and Market
Infrastructures (“CPMI”).

3

II. Summary of Changes since the Previous Update
TFX published its first disclosure on July 8, 2015 then updated it on August 31, 2017, August 30,
2019 and August 31, 2021. Major changes to be noted in this update from the last disclosure
are as follows:
Item

Summary

Relevant Principles, etc.

Loss compensation

New
loss
compensation
framework
adoptedforInterest Rate Futures contracts.

Principle13: Participant-Default
Rules and Procedures

III. General Background of the FMI
Corporate Profile
TFX is a financial instruments exchange licensed to establish a financial instruments exchange
market and is an approved clearing house2 under the Financial Futures Trading Law enforced
in 1989 and the FIEA enforced in 2007.

TFX was established in April 1989, as a special

corporation named Tokyo International Financial Futures Exchange (“TIFFE”) with the capitalprovided by major domestic and foreign financial institutions and started the trading andClearing Business in June 1989.
In April 2004, TIFFE was reorganized and converted into a limited-liability and stock company
in order to strengthen corporate governance as well as to enhance convenience andtransparency of the market. In September 2007, as the FIEA was enforced, the company namewas changed to the current name, Tokyo Financial Exchange Inc.
TFX launched Interest Rate Futures contracts in 1989, FX Daily Futures contracts in 2005, Equity
Index Daily Futures contracts in 2010, FX Clearing Futures contracts in 2021 and started theClearing Business for those products respectively. In 2020, TFX revised the contract specificationof the equity index daily futures with tenor of maximum 15-month until expiry (i.e. with Reset
Date).
TFX assumes an important clearing/settlement function in Japan’s financial instruments market
and provides clearing services with regard to all products listed on TFX.

2

Article 80 and 156-19, FIEA

4

TFX Clearing Products
Category

Details
Three-month Euroyen futures (Trades are being
suspended in the far-distant terms)
Options on Three-month Euroyen futures (Trades

Interest Rate Futures contracts

are being suspended)
Three-month TONA futures
Options on Three-month TONA futures
Yen Currency Pairs

FX

Daily

Large contracts

Futures

contracts

14 pairs
4 pairs

Non-Yen Currency Pairs
Large contracts

11 pairs
1 pairNikkei 225 Daily Futures contracts with Reset
Date

Daily Futures

DAX® Daily Futures contracts with Reset Datecontracts
Equity

Index

Daily

Futures contracts

FTSE 100 Daily Futures contracts with Reset Date
DJIA Daily Futures contracts with Reset Date
NASDAQ-100 Daily Futures contracts with Reset
DateGold ETF Daily Futures contracts with Reset DateWTI ETF Daily Futures contracts with Reset Date

FX Clearing
Futures
contracts

FX Clearing Futures

Yen Currency Pairs

15 pairs

contracts

Non-Yen Currency Pairs

18 pairs

Following contracts has been added to TFX’s clearing products portfolio: Gold ETF Daily Futurescontracts with Reset Date and WTI ETF Daily Futures contracts with Reset Date (from September
13, 2021 respectively), NASDAQ-100 Daily Futures contracts with Reset Date (from February 28,2022), Three-month TONA futures and Options on Three-month TONA futures (from March 20,2023 respectively). Furthermore, on September 11, 2023 TFX will add Russell 2000 Daily
Futures contracts with Rese Date, Silver ETF Daily Futures contracts with Reset Date andPlatinum ETF Daily Futures contracts with Reset Date to our clearing pool.

TFX Clearing Statistics
Products

URL

Interest Rate Futures contracts
FX Daily Futures contracts

https://www.tfx.co.jp/en/historical/

Equity Index Daily Futures contracts

https://www.tfx.co.jp/t-clearfx/data.php

FX Clearing Futures contracts

5

Clearing Business
When a contract is executed between the Clearing Members, TFX automatically and
immediately replaces it to the contracts between TFX and Clearing Members, by acting as theselling counterparty to the buying Clearing Member and the buying counterparty to the selling
Clearing Member. Thereupon, TFX acquires all the rights and assumes all the obligations of each
Clearing Member relative to the other Clearing Member with respect to the contract, andpay/receive margins and settles the transaction as the counterparty to each Clearing Member.
TFX has been performing such business as the Clearing Business approved under the FIEA.
The obligations of the Clearing Members are assumed by TFX immediately following thetransactions are executed between the Clearing Members. This framework drastically mitigatescounterparty risks which might cause issues in OTC transactions.
Governance Structure
TFX establishes a robust governance structure as a major financial market infrastructure in
Japan. TFX’s Board of Directors is composed of two executive board members (one President
and CEO and one Senior Managing Director) as well as four non-executive board members. The
Board of Directors makes decisions on important matters regarding fundamental management
policy and business activities, and supervises the directors’ performance of duties. TFX is acompany with the Board of Auditors. The Board of Auditors is composed of one Standing
Statutory Auditor and two Outside Statutory Auditors and monitors directors’ performance of
duties and submits an audit report to the shareholders’ meeting in accordance with the Basic
Policy for the Creation of Internal Control System (“Internal Control Policy”).
The Market Operation Committee is composed of directors and officers of major Clearing
Members and academic experts and can render opinions on request for advices from the Boardof Directors on important matters in terms of financial instruments market operation. This
framework enables TFX to reflect opinions and needs from market participants including
Clearing Members. (See, Principle 2 “Governance” for further details.)
Risk Management Framework
TFX’s Board of Directors has established the General Risk Management Policy, which specificallyprescribes, major risks subject to management, the definition of risk management, risk
management framework, and risk management method.
Furthermore, TFX’s Board of Directors has established the Risk Management Committee, Chief
Risk Officer (“CRO”) who supervises risk management affairs and the Risk Management Office
which conducts risk management operation.

6

The Risk Management Office compiles all the reports sent from the departments, each of whichis in charge of the relevant risk management, and further reports to CRO the compiled result
therefrom on a daily basis. CRO then makes a report monthly, quarterly and annually on them to
the Risk Management Committee.
The Risk Management Committee has to deliberate important matters and proposes any agenda
to the Board of Directors pursuant to the Rules of the Risk Management Committee and has tomake quarterly and annual reports to the Board of Directors.
The Board of Directors decides on any important matters about the risk management and has toreview the General Risk Management Policy, at least once a year, for any necessary amendmentsor revisions thereto.

7

Legal Basis
TFX has been licensed as a clearing house under the FIEA and provides the Clearing Business incompliance therewith as well as with the laws related to Clearing Business (e.g., FIEA, the Civil
Code, the Companies Act, Cabinet Office Ordinance on Financial Instruments Clearing
Organizations, etc.).
TFX prescribes its primary business rules in its Clearing Regulations and other major rules inaccordance with the provision of FIEA. These rules have been approved by JFSA. In addition,a written undertaking that every Clearing Member has submitted to TFX provides that the
Clearing Members shall comply with any and all rules of TFX, and that rights and obligations
between and among TFX and the Clearing Members shall be governed and interpreted by thelaws of Japan. These frameworks ensure legal certainty that the TFX rules are surely applicableto the subject matters involving the market participants.
TFX identifies and verifies the possibility of conflict-of-law issues across different jurisdictions.
Since some of Clearing Members are established in European Union (“EU”) countries, TFX has
submitted European Securities and Markets Authority (“ESMA”) an application pursuant toprovisions of the European Market Infrastructure Regulation (“EMIR”). Thus, TFX has been
granted as a Third-Country CCP (“TC-CCP”) which is permitted to provide clearing services for
the Clearing Members and trading institutions established within EU.
Some of TFX’s Clearing Participants are incorporated in the U.K. TFX made a submission to the
Bank of England with respect to the recognition as a Third Country CCP to continue to provide
services, to the Clearing Participants and trading facilities established in the U.K. Subsequently,
TFX has obtained temporary recognition for the provision of services in the U.K. as a Third
Country CCP.
TFX’s System
An entire structure and overview of TFX’s system is illustrated on the following page.
TFX outsources development and operation of its clearing system to outside companies andproperly controls them in accordance with the “Security Guidelines” and the “Policy andprocedures to manage outsourced business operations”.

8An Entire Structure and Overview of TFX’s System

9IV. Principle-by-Principle Summary Narrative Disclosure
General Organization
Principle 1: Legal Basis
An FMI should have a well-founded, clear, transparent, and enforceable legal basis foreach material aspect of its activities in all relevant jurisdictions.
Key Consideration 1:
The legal basis should provide a high degree of certainty for each material aspect of an FMI’s
activities in all relevant jurisdictions.
Material Aspects
The following are material aspects which require legal certainty in TFX’s business as a CCP.
・Arrangements for Clearing Business・Arrangements for settlement finality
・Netting arrangements
・Collateral arrangements
・Arrangements for default procedures
・Arrangements for linkages with other FMIs
TFX does offer neither securities settlement nor Delivery Versus Payment (“DVP”).
Arrangements for Clearing Business
TFX engages in Clearing Business in accordance with the FIEA and any and all other laws related
to Clearing Business (Civil Code, Companies Act, Cabinet Office Ordinance on Financial
Instruments Clearing Organizations, etc.) and under the supervision of regulatory authority(“JFSA”). TFX is compliant with the JFSA’s Guidelines. TFX is also subject to oversight by BOJ.
TFX offers the Clearing Business based on the Clearing Regulations and other associated rules
as stipulated in Article 156-7 of the FIEA. Clearing Members have to comply with the TFX rules
as agreed by each Clearing Member in a written undertaking submitted to TFX.
Thus, TFX has secured legal certainty for arrangements for the Clearing Business.

10Arrangements for Settlement Finality
The TFX rules clearly prescribe the cut-off time for both payment obligations and deposit ofcollateral. Settlements made by the cut-off time are considered to be final at the point in time
where the payment process has completed. (See, Principle 8 “Settlement Finality” for further
details.)
Thus, the Clearing Members can clearly recognize the point at which their obligations are
fulfilled.
Netting Arrangements
The Clearing Regulations have specific provisions related to close-out netting arrangements for
credits and debts between TFX and Clearing Members in the case of a Clearing Member’s default.
The FIEA also provides that such close-out netting arrangements shall prevail over general
insolvency procedures.
Collateral Arrangements
TFX collateral related rules prescribe that the purpose of collecting margin from Clearing
Members and their customers is to secure fulfilment of obligations with regard to their positions
and that TFX shall hold the margin of the Clearing Members’ own proprietary positions and their
non-proprietary positions separately.
In addition, Clearing Members' collateral and customers' collateral are segregated from TFX’s
own assets, in compliance with the requirements of the FIEA.
Arrangements for Default Procedures
The TFX rules prescribe the procedures in the case of a Clearing Member’s default.
The Clearing Regulations prevail over general insolvency procedures because the FIEA 3
provides that, in a case where insolvency proceedings have commenced in respect of a Clearing
Member, the business rules set forth by the relevant Financial Instruments Clearing Organization
shall determine and govern the calculation of the amount of its or the Clearing Member’s claim
arising out of outstanding positions or other means of settlement in relation thereto. Thus, thelegal certainty has duly been secured for arrangements for default procedures.
TFX also views a recovery or orderly wind-down in the event of FMI (CCP)’s default to be amatter requiring a high degree of legal certainty, so that TFX will take appropriate measures,
following the international regulatory development in the future in this respect.
Arrangements for Linkages with Other FMIs
3

Article 156-11-2. 1, FIEA

11

TFX has linkage with BOJ and Japan Securities Depository Center, Inc. (“JASDEC”). (See, Principle
20 “FMI Links” for further details.)

Key Consideration 2:
An FMI should have rules, procedures, and contracts that are clear, understandable, andconsistent with relevant laws and regulations.
The TFX rules, procedures and contracts (including amendments) have been developed basedon the adequate and sufficient legal analysis and, when necessary, upon legal consultation withexternal legal counsel, and their legal conformity with all relevant laws and regulations has beenverified. Additionally, when TFX’s key rules are proposed to be amended, JFSA reviews andapproves the amendment before the implementation, so that the conformity of the TFX ruleswith the applicable laws and rules are double-checked.
Furthermore, in respect of any proposed amendments to the rules that may have a significant
effect on its Clearing Members, TFX hears opinions and comments from Clearing Members, theMarket Operation Committee and the public, through discussions, consultations and publiccomments. By doing so, TFX ensures the clarity of its rules and avoids any misunderstandingsof the concerned parties on the proposed amendments.
To date, no inconsistency has been identified in respect of the TFX rules, procedures or contracts
with the applicable laws and regulations thereto.

Key Consideration 3:
An FMI should be able to articulate the legal basis for its activities to relevant authorities,
participants, and, where relevant, participants’ customers, in a clear and understandable way.
TFX explains to its Clearing Members and relevant authorities about the legal basis of its
business when required or necessary.

Also related rules and explanatory documents are

publicly available on TFX’s website.

12

Key Consideration 4:
An FMI should have rules, procedures, and contracts that are enforceable in all relevant
jurisdictions. There should be a high degree of certainty that actions taken by the FMI undersuch rules and procedures will not be voided, reversed, or subject to stays.
Effectiveness of TFX’s Rules, Procedures, and Contracts
TFX clearly prescribes its basic rules for Clearing Business in the Clearing Regulations, incompliance with the FIEA. A written undertaking that every Clearing Member submits to TFX
sets forth matters, inter alia, as follows:・ Clearing Members must comply with the TFX rules;
・ Rights and obligations between TFX and Clearing Members are wholly governed by thelaws of Japan; and・ All litigation between TFX and Clearing Members shall be subject to the jurisdiction of
the Tokyo District Court in Tokyo, Japan.
The FIEA provides that, in the case of the Clearing Member’s default (herein-after such Clearing
Member individually or collectively called “defaulting Clearing Member(s)”), the TFX rules
prevail over general insolvency procedures as for any legal matters for the rights and obligations
between a defaulting Clearing Member and TFX or other members.
When a Clearing Member is subjected to the insolvency procedures in a foreign jurisdiction theforeign insolvency procedures may have an effect in Japan only on and after the issuance of anorder of recognition for such procedures by the Japanese court pursuant to the “Act on
Recognition of and Assistance for Foreign Insolvency Proceedings.” The foreign insolvency
proceedings may only be enforced on the defaulting Clearing Member’s assets located in Japan
upon the Japanese court’s separate issuance of an order such as an administration order.
Therefore, the insolvency procedures in a foreign jurisdiction commenced with respect to adefaulting Clearing Members has only a very limited effect.
As seen above, the TFX rules, procedures and contracts have a high degree of legal certainty not
being void, reversed or suspended, and actions taken by TFX based on the TFX rules have neverbeen challenged or questioned due to the legal uncertainty of the TFX rules.

Key Consideration 5:
An FMI conducting business in multiple jurisdictions should identify and mitigate the risks
arising from any potential conflict of laws across jurisdictions.

13

TFX identifies and reviews the risks arising from any potential conflict of laws acrossjurisdictions based on the latest information obtained from Clearing Members, law firms, and
JFSA etc.
Since some of Clearing Members are established in European Union (“EU”) countries, TFX has
submitted to ESMA an application based on Article25-1 of the EMIR and are recognized as a
Third Country CCP (“TC-CCP”).
Some of TFX’s Clearing Participants are incorporated in the U.K. TFX made a submission to the
Bank of England with respect to the recognition as a Third Country CCP to continue to provide
services to Clearing Participants and trading facilities established in the U.K. Subsequently, TFX
has obtained temporary recognition for the provision of services in the U.K. as a Third Country
CCP.
TFX conducts its Clearing Business only in Japan and does the business exclusively for products
listed on its market.

TFX accepts only Japanese Yen, as the settlement currency.

Further,eligible securities, etc. deposited as collateral at TFX are limited to Japanese Government Bonds,
stocks listed in Japan and Letter of Guarantee(”LG”)4. Thus, TFX considers that legal risk acrossmultiple jurisdictions is highly limited.
In addition, TFX does not clear any product having a complicated risk profile such as CDS, etc.

Principle 2: Governance
An FMI should have governance arrangements that are clear and transparent, promote
the safety and efficiency of the FMI, and support the stability of the broader financial
system, other relevant public interest considerations, and the objectives of relevant
stakeholders.
Key Consideration 1:
An FMI should have objectives that place a high priority on the safety and efficiency of the FMI
and explicitly support financial stability and other relevant public interest considerations.
The FIEA and the JFSA’s Guidelines require a CCP to have sound and appropriate business
operations in order to serve the objectives of ensuring the stability of financial system in Japanand protecting investors, etc.

In its Corporate Philosophy Statement, TFX specifies thefollowing objectives to serve the public interest:
FSA published notice to designate FX Clearing Futures contracts as Market transactions ofderivatives using a LG as eligible securities, etc. and banks eligible to issue LG are limited to those
designated by TFX among banks satisfying grading requirements set forth by “Cabinet Office Orderon Financial Instruments Exchange, etc. (“qualified LG issuing banks”) and the contents of LG issued
by such qualified LG issuing banks are subject to the Order and TFX rules and regulations.
414

(1) to establish fair, reliable and convenient financial instruments markets as a public
infrastructure and contribute to a sound development of financial and economic system in Japan;and(2) to be an advanced and comprehensive financial exchange that consistently challenges tocreate a new value for market participants and establishes a robust management foundation.
Additionally, TFX formulates a medium-term management plan in accordance with the
Corporate Philosophy Statement and sets forth an annual business plan every fiscal year basedon the medium-term management plan.
Officers and employees of TFX conduct business activities in conformity with the Corporate
Philosophy Statement, the medium-term management plan, the annual business plan and theStandard of Conduct.

Key Consideration 2:
An FMI should have documented governance arrangements that provide clear and direct linesof responsibility and accountability. These arrangements should be disclosed to owners,
relevant authorities, participants, and, at a more general level, the public.
TFX is a limited-liability and stock company established under the Companies Act and a CCP
which is subject to the supervision of JFSA under the FIEA.
TFX prescribes fundamental governance arrangements in the Articles of Incorporation to satisfy
the requirements for a CCP under the FIEA and the JFSA’s Guidelines, etc.
Governance Arrangements
TFX Board of Directors is composed of two executive directors (one President and CEO and one
Senior Managing Director) as well as four non-executive directors.

The Board of Directors

makes decisions on the basic management policy of TFX and on important affairs relating to its
business operations, and supervises directors’ performance of duties.
TFX is a company with the Board of Auditors.

The Board of Auditors is composed of one

Statutory Auditor and two Outside Statutory Auditors.

The Board of Auditors inspects

directors’ performance of duties in accordance with the Internal Control Policy and submits anaudit report to the shareholders’ meeting.
The names and roles of the Committees that TFX sets are as follows:15

(Self-regulatory Committee)
The Self-regulatory Committee makes decisions on self-regulatory operations, based ondelegation from the Board of Directors.5
Committee members are selected from among directors by the resolution of the Board of
Directors. Two of three directors are non-executive directors.
(Discipline Committee)
The Discipline Committee responds to inquiries from the Self-regulatory Committee andprovides an opinion on matters regarding self-regulatory operations.
The Self-regulatory Committee assigns committee members who have a deep insight enough tomake a fair judgment.
(Market Operation Committees)
TFX has the Wholesale Market Operation Committee and the Retail Market Operation Committee.
The Committees respond to inquiries from the Board of Directors and provide opinions onimportant matters concerning the operations of financial instruments market. The Board of
Directors assigns committee members from directors and officers of Clearing Members andexperts capable of making a fair judgment about operations of financial instruments markets.
(Risk Management Committee)
The Risk Management Committee deliberates important matters with regard to risk
management, including but not limited to those related to establishment of the General Risk
Management Policy, and brings and reports the matters to the Board of Directors as required.
The Risk Management Committee is composed of the President and CEO as head of theCommittee, Executive Director, Executive Officers and the heads of relevant departments.
Disclosure of Governance Arrangements
TFX discloses the Articles of Incorporation that prescribe its governance arrangements and theInternal Control Policy on its website. TFX also discloses in its “Company Guide” the structuresof the Board of Directors and the Board of Company Auditors as well as the company outline
including its organisational chart.

It means operations that TFX conducts, as a limited liability and stock-company, to ensure fairness,transparency, and credibility in the markets. In particular, it refers to the operations such as
assessment on Members’ transactions, inspection of Clearing Members and assessment on trading
membership qualifications. The placement of the Self-regulatory Committee and its operations are
subject to the FIEA.
516

Key Consideration 3:
The roles and responsibilities of an FMI’s board of directors (or equivalent) should be clearlyspecified, and there should be documented procedures for its function, including procedures to
identify, address, and manage member conflicts of interest. The board should review both its
overall performance and the performance of its individual board members regularly.
Roles and Responsibilities of the Board of Directors
Roles and responsibilities of the Board of Directors are set forth in the Companies Act, theArticles of Incorporation and the Rules for the Board of Directors.

The Board of Directors not

only determines matters regarding business operations of TFX but also supervises directors’
performance of duties.
The Board of Directors receives reports regarding business activities and determines importantmatters as follows:・ Matters regarding management (the basic management policy, the medium-term
management plan, the annual business plan, etc.)
・Matters regarding the operations of TFX markets (setting-up of or changes in major market
systems, etc.)
・Matters regarding the execution of TFX business ( investment in infrastructure such as system,
important matters regarding risk management, etc.)
・Matters regarding directors and officers (the appointment and removal of the Representative
Director and executive directors, etc.)
・Other Matters (important matters regarding the Internal Control System, etc.)
Managing Conflicts of Interest
In order to prevent a director from harming the interest of TFX for his or her own benefit,
according to the Companies Act, when the director engages in a conflict-of-interest transaction,
the director is required to obtain an approval from the Board of Directors while he or she cannot
exercise his or her voting right at such resolution.
If an Auditor finds that a director engages in a certain misconduct, or is likely to engage in suchconduct, or that there exists any incident in violation of laws and rules or the Articles ofIncorporation or any other extremely unethical or inappropriate conduct, the Auditor will reportthem to the Board of Directors without delay and will further report the results of theinvestigation to a shareholders’ meeting.
The Auditors annually review if there are any transactions involving conflicts of interest, when
preparing an annual audit report.

17

Review of Performance of the Board of Directors
Performance of the Board of Directors is reported to the annual general shareholders’ meetingas a part of the annual business report.
The performance of each director is reviewed and evaluated based on business performance
reports presented by the relevant director to the Board of Directors, and such review andevaluation are taken into consideration by the Nominating and Compensation Committee in
determining the compensation of directors and the nomination of candidates for directors.

Key Consideration 4:
The board should contain suitable members with the appropriate skills and incentives to fulfill
its multiple roles. This typically requires the inclusion of non-executive board member(s).
Board Members
The FIEA requires a CCP to make its human resources composed of persons who “have sufficientknowledge and experience for conducting financial instruments obligation assumption service
appropriately and certainly and have sufficient social credibility.” In light of this requirement,
the TFX Board of Directors nominates candidates for directors who have a wealth of experienceand knowledge with regard to management, finance and law, in reference to the result of
deliberation by the Nominating and Compensation Committee.
Directors are elected by resolution of a shareholder’s meeting.

The Board of Directors is

composed of two executive board members and four non-executive board members.
Board Member Incentives
TFX sets a reasonable standard to determine the compensation for the Board members, enoughto retain their incentives to fulfil their roles.
The Board of Directors determines annually the compensation to the directors based on the
responsibility and performance of each director within the total amount approved by theshareholders’ meeting and also referring to the result of deliberation at the Nominating andCompensation Committee.

Key Consideration 5:
The roles and responsibilities of management should be clearly specified. An FMI’s management
should have the appropriate experience, a mix of skills, and the integrity necessary to discharge
their responsibilities for the operation and risk management of the FMI.

18

Roles and Responsibilities of Management
TFX’s senior management is composed of executive directors responsible for the execution ofbusiness.

Their roles and responsibilities are determined by the Board of Directors as thebusiness assignments to the respective executive directors.
The senior management is responsible for faithfully executing the business that they are in
charge and improving the performance of the TFX business in accordance with the basic
management policy, the medium-term management plan as well as the annual business plans.
The senior management also reports monthly TFX’s financial condition and operational status
to the Board of Directors and annually TFX’s annual business report and financial results to theshareholders upon the Board of Directors’ resolution.
Experience, Competency, and Integrity
TFX Board of Directors nominates candidates for directors who have a wealth of experience andknowledge with regard to management, finance and law.

TFX’s senior management has

sufficient experience, competency and integrity required to accomplish CCP’s operation and risk
management.

Key Consideration 6:
The board should establish a clear, documented risk-management framework that includes the
FMI’s risk-tolerance policy, assigns responsibilities and accountability for risk decisions, andaddresses decision making in crises and emergencies. Governance arrangements should ensurethat the risk-management and internal control functions have sufficient authority,
independence, resources, and access to the board.
Comprehensive Risk Management Framework
TFX Board of Directors determines important matters regarding risk management such as anestablishment of the General Risk Management Policy, an introduction of the Risk Management
Committee and CRO.
The Board of Directors considers appropriate measures, if necessary, when it receives 1) a
periodical report on risk management status and its assessment results and 2) a non-regular
report on an occurrence of critical risk event such as defaults of Clearing Members or asignificant system failure.
The Board of Directors also receives a report at least once a year on the results of validation of
overall risk management framework, and provides necessary instructions to make the risk

19

management system to work sufficiently, including but not limited to an instruction to review
the General Risk Management Policy. (See, Principle 3 “Framework for the Comprehensive
Management of Risks” for further details.)

Key Consideration 7:
The board should ensure that the FMI’s design, rules, overall strategy, and major decisions reflectappropriately the legitimate interests of its direct and indirect participants and other relevant
stakeholders. Major decisions should be clearly disclosed to relevant stakeholders and, where
there is a broad market impact, the public.
Consideration of Stakeholders’ Interests
When TFX makes important decisions on its system design, rules, overall business strategy etc.,
it takes into account the interest of stakeholders such as Clearing Members etc.
TFX sets the Market Operation Committee as an advisory committee pursuant to the Articles ofIncorporation. The Market Operation Committee, which is composed mainly of Clearing
Members, may express an opinion to the Board of Directors in response to their inquiry.
A wide range of opinions are also collected by soliciting public comments before establishing
new framework and making significant rule changes.
Disclosure
TFX releases and discloses its key decisions such as the medium-term business plan, major rule
revisions and others via its website.

Principle 3: Framework for the Comprehensive Management of Risks
An FMI should have a sound risk-management framework for comprehensively
managing legal, credit, liquidity, operational, and other risks.
Key Consideration 1:
An FMI should have risk-management policies, procedures, and systems that enable it toidentify, measure, monitor, and manage the range of risks that arise in or are borne by the
FMI. Risk-management frameworks should be subject to periodic review.
Risks that Arise in or Are Borne by the FMI
TFX specifies the risks which it is mainly exposed to, such as credit risks, liquidity risks, system20

risks, administrative risks, market risks, legal compliance risks, information risks, andreputation risks. TFX has built a framework for the risk management in response to thecharacteristics of each risk.
Systemic risk, business risk, and custody and investment risk which are written in Principle 2 ofPFMI, are also managed as compounded risk of those written above.
Comprehensive Risk Management Framework
TFX Board of Directors has established the General Risk Management Policy.

Major risks

subject to management, the definition of risk management, risk management framework, andrisk management method are specifically provided in this Policy.
TFX has the following basic policies regarding its risk management and these policies arereviewed at least once a year or when appropriate.
・ the General Risk Management Policy・ the Credit Risk Management Policy・ the Liquidity Risk Management Policy・ the System Risk Management Policy・ the Administrative Risk Management Policy
Furthermore, the TFX Board of Directors has established the Risk Management Committee, as
well as CRO who heads risk management, and the Risk Management Office which conducts risk
management operations.
The department responsible for each risk, stated in the General Risk Management Policy,
measures, monitors and manages the assigned risk, and makes reports on the results therefrom
to the Risk Management Office.
The Risk Management Office compiles these reports submitted from each department andmakes a daily report to CRO, who, in turn, makes a report monthly, quarterly and annually to the
Risk Management Committee.
In accordance with the Rules of Risk Management Committee, the Risk Management Committee
from time to time deliberates any necessary matters and proposes any agenda to the Board of
Directors for further deliberation, and makes quarterly and annual reports to the Board of
Directors.
The Board of Directors determines any important matters relating to risk management andverifies the adequacy of risk management framework at least once a year.

21Key Consideration 2:
An FMI should provide incentives to participants and, where relevant, their customers tomanage and contain the risks they pose to the FMI.
Provision of Relevant Information
TFX makes available to the Clearing Members and Trading Members the following information
to enable them to manage and control by themselves the risks that would otherwise be brought
to TFX:・ For Clearing Members, a real-time contract information of a Trading Member(s) who
settles their contracts with the relevant Clearing Member;・ For Clearing Members, updated information about margin requirements and mark-tomarket value of collateral; and・ For Trading Members, a real-time contract information.
TFX uses SPAN® system to calculate margin for Interest Rate Futures contracts and provides a
SPAN® file on the website.
For Daily Futures contracts, Margin Reference Amount is announced on TFX’s official website.
Incentives for Risk Management
As a measure for taking care of a Clearing Member whose risk in Clearing Business becomes
excessive, TFX may adopt various measures for mitigating risks of the Clearing Member such as
those for raising margin requirements for such Clearing Member, or collecting additional
Clearing Deposit for their excessive risk amount, so that the Clearing Member is given sufficientincentives to manage their positions proactively.
TFX holds the Market Operation Committee at which various deliberations are made among thecommittee members and collects public comments, in designing risk management framework,whereby TFX is driving at making the risk management in Clearing Business more effective,reflecting opinions of Clearing Members and their customers to the risk management
framework.

Key Consideration 3:
An FMI should regularly review the material risks it bears from and poses to other entities(such as other FMIs, settlement banks, liquidity providers, and service providers) as a resultof interdependencies and develop appropriate risk-management tools to address these risks.

22

Management of Risks from Interdependencies on Settlement, etc.
TFX has interdependencies with the settlement banks, custodian banks, and liquidity providers.
TFX sets standards for selecting these entities, such as credit rating, periodically monitors
financial information of these companies and manages the settlement risk, custody risk, andliquidity risk arising from such interdependencies with these entities.
Management of Risks from Interdependencies on Systems
TFX identifies risks associated with IT-service providers, public utility companies, and otherrelated parties, as set forth in the “System Risk Management Policy,” and monitors and controls
such risks thereunder.
In outsourcing the operation, development or administration of system, TFX selects contractors
after valuating and considering them in light of the “Security Guidelines” and the “Policy andprocedures to manage outsourced business operations”.

Key Consideration 4:
An FMI should identify scenarios that may potentially prevent it from being able to provide
its critical operations and services as a going concern and assess the effectiveness of a fullrange of options for recovery or orderly wind-down. An FMI should prepare appropriate
plans for its recovery or orderly wind-down based on the results of that assessment. Where
applicable, an FMI should also provide relevant authorities with the information needed for
purposes of resolution planning.
TFX assumes the following risk scenarios that may potentially prevent it from being able toprovide its clearing operations and services as a going concern; 1) a case where losses resulting
from defaults of Clearing Members could not be sufficiently covered with the financial resources;or 2) a case where, due to its business failure, TFX suffered either a substantial decrease in its
profit or an expense increase, which would consequently impair TFX’s net assets.
As for the losses resulting from the Clearing Member’s default, Article 156-10 of the FIEA
provides, “A Financial Instruments Clearing Organization shall stipulate in its business rules thatany and all losses arising out of the financial instruments obligation assumption service due toa default by a Clearing Member shall be borne by such Clearing Member and shall take any othermeasures for securing the appropriate performance of the financial instruments obligation
assumption service.” Accordingly, TFX has stipulated the Loss Compensation Mechanism in
Article 40 through40.2 and Chapter 8-2, Section 2 of the Clearing Regulations to fully cover thelosses resulting from the Clearing Member’s defaults.

23

In cases where TFX`s capital is greatly impaired by its business failure, TFX is prepared to takecountermeasures such as reviewing the business plan and reducing the expenses etc.
TFX will consider developing a recovery and wind-down plan by closely observing the
movement of international regulations.
(See, Principle 15 “Business Risk” for further details.)

Management of Credit Risk and Liquidity Risk
Principle 4: Credit Risk
An FMI should effectively measure, monitor, and manage its credit exposures toparticipants and those arising from its payment, clearing, and settlement processes. An
FMI should maintain sufficient financial resources to cover its credit exposure to eachparticipant fully with a high degree of confidence. In addition, a CCP that is involved in
activities with a more-complex risk profile or that is systemically important in multiple
jurisdictions should maintain additional financial resources sufficient to cover a wide
range of potential stress scenarios that should include, but not be limited to, the defaultof the two participants and their affiliates that would potentially cause the largest
aggregate credit exposure to the CCP in extreme but plausible market conditions. Allother CCPs should maintain additional financial resources sufficient to cover a wide
range of potential stress scenarios that should include, but not be limited to, the defaultof the participant and its affiliates that would potentially cause the largest aggregate
credit exposure to the CCP in extreme but plausible market conditions.

Key Consideration 1:
An FMI should establish a robust framework to manage its credit exposures to its participants
and the credit risks arising from its payment, clearing, and settlement processes. Credit
exposure may arise from current exposures, potential future exposures, or both.
The Framework of Management for Credit Risks Arising from Clearing Members
TFX has set out the “Credit Risk Management Policy” and, in accordance with this policy, hasestablished the following conservative and robust credit risk management framework.
reviews its sufficiency at least once a year:

24

TFX

(1) Screening of Clearing Members
When applying for a clearing membership, a Clearing Member is required to satisfy theeligibility standards, such as financial resources and personnel organisation, as stipulated in
Clearing Regulations 6 .

Furthermore, after a Clearing Member acquired a clearing

membership, a Clearing Member has to keep satisfying the maintenance requirements.
Due to these requirements, the Clearing Members are, in principle, limited to firms that havefinancial strength to fulfill the payment, clearing and settlement obligations owed to TFX.
The Clearing Members must always meet requirements for financial basis, such as net asset
amount and capital adequacy ratios, prescribed as the maintenance requirements forclearing membership, and periodically report their financial conditions to TFX. If a Clearing
Member ceases to satisfy any of the maintenance requirements, it shall report TFX the details
thereof immediately. TFX monitors financial conditions of its Clearing Members based onthese reports7.
(2) Margin System
TFX daily measures and monitors credit risks that arise from the default of Clearing Members,
and requires the Clearing Members to deposit an initial margin for covering potential future
exposures and a variation margin for covering current exposures.

Margin payments are

made between TFX and Clearing Members on a daily basis.
(3) Probable Maximum Loss Calculation and Financial Resources Framework
TFX calculates daily the amount of credit risks associated with possible defaults of the
Clearing Member and its affiliates (herein-after called “Potential Defaulting Member”) thatwould potentially cause the largest aggregate credit exposure under extremely stressedmarket conditions (herein-after called “Probable Maximum Loss” (PML)), and securesfinancial resources to cover such amount (herein-after called “Financial Resources for Loss
Compensation”).
Financial Resources for Loss Compensation are comprised of Exchange Margin and Clearing
Deposit etc. deposited by the Potential Defaulting Member, Default Compensation Reserve of
TFX, and Clearing Deposit deposited by Clearing Members other than the Potential Defaulting
Member (herein-after called “Non-defaulting Clearing Members”). These resources will beapplied to the loss suffered by TFX due to Clearing Members’ defaults8.

Key Consideration 2:
Chapter 2, Clearing Regulations, as for eligibility standards of Clearing Members
Articles 14-4,14-5, Clearing Regulations, and Article 7, Enforcement Regulations for Clearing
Regulations
8 Chapter 8 and Chapter 8-2, Clearing Regulations, as for compensation of loss by assumption of
obligations
6
7

25

An FMI should identify sources of credit risk, routinely measure and monitor credit
exposures, and use appropriate risk-management tools to control these risks.
TFX identifies sources of credit risks, and regularly measures, monitors and control such risks
as follows:
Credit Risks Arising from Clearing Members
TFX is exposed to credit risks arising from the defaults of Clearing Members. Credit risks arecomprised of current and potential future exposures. Both exposures derive from market pricechanges in the prices of open positions of the Clearing Members.
TFX measures current exposures of each product, at least on a daily basis, by revaluating each
Clearing Member’s open positions by daily settlement price (herein-after called “DSP”). Also,
it measures potential future exposures of each Clearing Member’s open positions on intraday
and end-of-day basis by employing extreme but plausible stress scenarios on intraday and endof day basis.
Credit Risks Arising from the Settlement and Custodian Banks
In order to manage credit risks of settlement banks, qualified LG issuing banks9 and entities atwhich TFX holds cash and securities deposited as collateral (herein-after called “the Settlement
and Custodian Banks”), TFX has the “Rules for Risk Management of the Settlement and Custodian
Banks” and monitors these Banks on an ongoing basis.
Credit risks from the Settlement and Custodian Banks may arise in relation to (1) the settlementof funds between TFX and a Clearing Member, (2) deposits made by TFX at the Settlement andCustodian Banks (i.e., funds deposited by Clearing Members and TFX’s own fund) and (3) LG
submitted by qualified LG issuing banks, with respect to FX Clearing Futures contracts.
TFX manages the credit risks arising from the Settlement and Custodian Banks, by limiting themto those with sound financial standings, monitoring their financial conditions and diversifying
the funds to several banks with lower credit risks.

Banks eligible to issue LG are limited to those designated by TFX among banks satisfying grading
requirements set forth by “Cabinet Office Order on Financial Instruments Exchange, etc. (“qualified
LG issuing banks”).
926

Key Consideration 3:
A payment system or SSS should cover its current and, where they exist, potential future
exposures to each participant fully with a high degree of confidence using collateral and otherequivalent financial resources (see Principle 5 on collateral). In the case of a DNS payment
system or DNS SSS in which there is no settlement guarantee but where its participants facecredit exposures arising from its payment, clearing, and settlement processes, such an FMI
should maintain, at a minimum, sufficient resources to cover the exposures of the twoparticipants and their affiliates that would create the largest aggregate credit exposure in thesystem.
This consideration is not applicable to TFX as it does not install an SSS.

Key Consideration 4:
A CCP should cover its current and potential future exposures to each participant fully with ahigh degree of confidence using margin and other prefunded financial resources (seePrinciple 5 on collateral and Principle 6 on margin). In addition, a CCP that is involved in
activities with a more-complex risk profile or that is systemically important in multiple
jurisdictions should maintain additional financial resources to cover a wide range of potential
stress scenarios that should include, but not be limited to, the default of the two participants
and their affiliates that would potentially cause the largest aggregate credit exposure for the
CCP in extreme but plausible market conditions. All other CCPs should maintain additional
financial resources sufficient to cover a wide range of potential stress scenarios that should
include, but not be limited to, the default of the participant and its affiliates that would
potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible
market conditions. In all cases, a CCP should document its supporting rationale for, and shouldhave appropriate governance arrangements relating to, the amount of total financial
resources it maintains.
Credit Risks Arising from Clearing Members and Financial Resources to Cover Them
TFX covers its current and potential future exposures to each Clearing Member with a highdegree of confidence using Exchange Margin. TFX also covers its PML which is calculated on
the assumption of Clearing Members’ defaults with the Financial Resources for Loss
Compensation, such as Exchange Margin, Default Compensation Reserve and Clearing Deposit.
(1) Exchange Margin① Initial Margin

27

TFX applies a different type of margin calculation systems depending on its products andcustomers’ peculiarities.

In any case, the margin calculated by any of the calculation

systems covers potential future exposures with a high degree of confidence. (See, Principle
6 “Margin” for further details.)② Variation Margin
For Interest Rate Futures contracts, open positions are marked-to-market at the close ofeach trading day, and a difference in the value of positions arising from mark-to-market andoption premium are cleared between TFX and the Clearing Member on the next trading day
as valuation margin to cover current exposures.
For Daily Futures contracts, TFX revaluates positions held at the close of each trading day
by DSP and requires Trading Members to maintain the margin larger than the required
margin amount which is a sum of amount equivalent to the revaluation loss, if any, and theinitial margin. With this framework, TFX covers its current and potential future exposures.
For FX Clearing Futures contracts, position at the close of each trading day is daily settled
at DSP. TFX requires Trading Members to maintain the deposit larger than the required
margin amount which is a sum of amount equivalent to net loss (if any) and the initial
margin. In this way, TFX covers its current and potential future exposures.
TFX validates the sufficiency of Exchange Margin by way of daily back testing.
(2) Clearing Deposit
TFX calculates the amount of Financial Resources for Loss Compensation to cover the amountof PML.
TFX calculates the amount of PML under stress scenarios that include the largest historicalprice change during a certain sample period. The amount of PML reduced by (i) the amountof Exchange Margin deposited by the Potential Defaulting Member and (ii) Default
Compensation Reserves of TFX is to be covered by the Clearing Deposits from all Clearing
Members.
The amount of Clearing Deposit to be deposited by each Clearing Member (herein-after called“the Required Amount of Clearing Deposit”) is determined by dividing and allocating the total
amount of Clearing Deposit to each Clearing Member in accordance with the risk amountassigned to each such Clearing Member. The Required Amount of Clearing Deposit of each
Clearing Member is reviewed twice a month as a general rule and is notified to each Clearing
Member. TFX may also request Clearing Members to deposit an ad hoc additional Clearing
Deposit when deemed necessary.
Clearing Members’ Clearing Deposit will be used to cover losses of TFX and if such losses
cannot be covered by the Clearing Deposit, then Clearing Members will be required tocontribute additional Clearing Deposit.

28

In the case that Clearing Deposit is used to cover losses caused by the defaults of Clearing
Members, Non-defaulting Clearing Members shall replenish deficiencies in Clearing Depositby the date TFX designates.
Please refer to Principle 13 Participant-Default Rules and Procedures as for the loss
compensation framework with respect to each Clearing Products.
Governance Arrangements for Financial Resources for Loss Compensation
TFX calculates the amount of PML and the amount of the Financial Resources for Loss
Compensation in accordance with the calculation method prescribed in the Credit Risk
Management Rules. TFX assesses the sufficiency of its financial resources by confirming theamount of the latter is greater than the former (herein-after called “Stress Testing”).

Key Consideration 5:
A CCP should determine the amount and regularly test the sufficiency of its total financial
resources available in the event of a default or multiple defaults in extreme but plausible
market conditions through rigorous stress testing. A CCP should have clear procedures toreport the results of its stress tests to appropriate decision makers at the CCP and to use theseresults to evaluate the adequacy of and adjust its total financial resources. Stress tests shouldbe performed daily using standard and predetermined parameters and assumptions. On atleast a monthly basis, a CCP should perform a comprehensive and thorough analysis of stresstesting scenarios, models, and underlying parameters and assumptions used to ensure they
are appropriate for determining the CCP’s required level of default protection in light ofcurrent and evolving market conditions. A CCP should perform this analysis of stress testing
more frequently when the products cleared or markets served display high volatility, becomeless liquid, or when the size or concentration of positions held by a CCP’s participants
increases significantly. A full validation of a CCP’s risk-management model should be
performed at least annually.

29

Stress Testing
TFX’s stress scenario for the Stress Testing includes the largest historical price change during acertain sample period and market movements based on hypothetical scenarios as “extreme but
plausible market conditions”.
With the Stress Testing, TFX ensures that it maintains sufficient Financial Resources of Loss
Compensation available in the event of a default or multiple defaults under stressed market
conditions. (See, Key Consideration 6 for further details)
TFX regularly tests the sufficiency of its total Financial Resources of Loss Compensation available
against credit exposure on intraday and end-of-day basis. If TFX recognizes that its Financial
Resources of Loss Compensation are not sufficient, TFX will consider necessary actions such as
reviewing and changing the Required Amount of Clearing Deposit temporarily, etc.
Results of Stress Testing are reported daily to the Risk Management Office and CRO.
Status of credit risk management is reported to the Risk Management Committee monthly, andto the Board of Directors quarterly.
Review and Validation on Stress Testing
TFX conducts analysis on its Stress Testing at least monthly, and verifies their validity in
scenarios, models and parameters. The Stress Testing will be reviewed as necessary when it isobserved an increase in market volatility or any change in Members’ financial conditions.
In addition, TFX verifies annually overall validity of credit risk management framework, andreports the results to the Board of Directors.

Key Consideration 6:
In conducting stress testing, a CCP should consider the effect of a wide range of relevant stressscenarios in terms of both defaulters’ positions and possible price changes in liquidation
periods.

Scenarios should include relevant peak historic price volatilities, shifts in othermarket factors such as price determinants and yield curves, multiple defaults over various
time horizons, simultaneous pressures in funding and asset markets, and a spectrum of
forward-looking stress scenarios in a variety of extreme but plausible market conditions.
When conducting Stress Testing, TFX considers a wide range of price change scenarios that are
extreme, but plausible.

These scenarios are conservative ones which include the largest

historical price change during a sample period and forward-looking hypothetical scenarios.

30

For historical scenarios, a sample period includes the time on or prior to launch of a subjected
product.
Stress scenarios during the sample period include Gulf War (1990), the Great Hanshin-Awaji
Earthquake (1995), the Asian Financial Crisis (1997-1998), the insolvency of LTCM (1998), theSeptember 11 attacks in the U.S. (2001), the Lehman Shock (2008), Flash Crash (2010), the Great
East Japan Earthquake (2011), European debt crisis (2011) and UK Referendum to leave the EU(2016).
By including not only the largest historical price change but also hypothetical scenarios, TFX
assumes risks arising from fluctuations that cannot possibly occur under the current market
situation.

Key Consideration 7:
An FMI should establish explicit rules and procedures that address fully any credit losses it
may face as a result of any individual or combined default among its participants with respect
to any of their obligations to the FMI. These rules and procedures should address how
potentially uncovered credit losses would be allocated, including the repayment of any funds
an FMI may borrow from liquidity providers.

These rules and procedures should also

indicate the FMI’s process to replenish any financial resources that the FMI may employ
during a stress event, so that the FMI can continue to operate in a safe and sound manner.
Allocation of Credit Losses
TFX specifies in the Clearing Regulations the priority order of application of Financial Resources
for Loss Compensation and the method of requesting additional Clearing Deposit10.
When the losses arising from defaults of Clearing Members cannot be covered by the collateralsuch as margin, deposited by the defaulting Clearing Members, such losses would be covered byother financial resources, such as Default Compensation Reserve of TFX and Clearing Deposit of
the Non-defaulting Clearing Members.

Chapter 8 and Chapter 8-2, Clearing Regulations, as for compensation of loss by assumption of
obligations
10

31

Replenishment of Financial Resources
In the case that Clearing Deposit is used to cover losses caused by a Clearing Member’s default,
Non-Defaulting Clearing Members will be required to additionally deposit the amountequivalent to deficiencies arising from the above use in accordance with the Clearing Regulations
by the date designated by TFX.

Principle 5: Collateral
An FMI that requires collateral to manage its or its participant’s credit exposure should
accept collateral with low credit, liquidity, and market risks.

An FMI should also set

and enforce appropriately conservative haircuts and concentration limits.
Key Consideration 1:
An FMI should generally limit the assets it (routinely) accepts as collateral to those withlow credit, liquidity, and market risks.
Eligible Collateral
TFX stipulates requirements of eligible collateral in its collateral related rules and accepts only
collateral with low risks in terms of credit, liquidity and market.
Specifically, TFX accepts the following collateral from Clearing Members:(1)

Interest Rate Futures contracts
・Cash (Japanese Yen)
・Eligible securities (Japanese government bonds, share certificates. 11)(2)

Daily Futures contracts
・Cash (Japanese Yen)
・Eligible securities (Japanese government bonds, share certificates), provided that only
cash is acceptable as Exchange Margin with respect to Daily Futures contracts.

(3)

FX Clearing Futures contracts
・Cash (Japanese Yen)

11 Acceptable eligible share certificates are limited only to those of companies listed on financial

instruments exchange markets in Japan.

32

・ Eligible securities, etc. (Japanese government bonds, share certificates and LG 12 ,),provided that LG is only acceptable for the purpose of Exchange Margin. Furthermore,
as eligible securities, etc. for the same purpose, TFX accepts both LG and cash from
Clearing Member who is FX Broker Trading Member, while accepting only cash. from
Clearing Member who is LP Trading Member;
When a Clearing Member is going to deposit collateral, TFX confirms if it is eligible. TFX collateralmanagement system verifies if collateral is eligible at the time of registration and automaticallydetects when collateral deposited becomes ineligible.

Consequently, any Clearing Member

cannot deposit ineligible collateral.
Wrong-Way Risk
The TFX rules do not allow a Clearing Member to deposit share certificates issued by the Clearing
Member, its Parent Company, or its group affiliates, as collateral. By this means, TFX guards
against Wrong-Way Risk with respect to collateral deposited by Clearing Members.

Key Consideration 2:
An FMI should establish prudent valuation practices and develop haircuts that are regularly
tested and take into account stressed market conditions.
Valuation Practices
TFX values deposited collateral on a daily basis using market prices obtained from transparent
public information source. Valuation of government bonds is conducted daily based on market
prices such as reference prices published by Japan Securities Dealers Association.
Valuation of share certificates is conducted based on closing prices published by the relevant
financial instruments exchanges as well.
Collateral Haircut Ratio
For Japanese Government bonds, TFX adopts haircut ratio to cover the largest historical 4consecutive day price decline rate (100% confidence level) based on the sample data of pricemovements observed during the period of the past ten year.
As for share certificates, TFX adopts haircut ratio of 70 % in principle in accordance with the
FIEA and its associated rules.
FSA published notice to designate FX Clearing Futures contracts as Market transactions ofderivatives using a LG as eligible securities, etc. and banks eligible to issue LG are limited to those
designated by TFX among banks satisfying grading requirements set forth by “Cabinet Office Orderon Financial Instruments Exchange, etc. (“qualified LG issuing banks”) and the contents of LG issued
by such qualified LG issuing banks are subject to the Order and TFX rules and regulations.
1233

For LG, TFX adopts haircut ratio at 99 % of the LG limit amount.
Review of Haircut Ratio
TFX validates haircut ratio once a year for review. Further, TFX is prepared to reduce haircut
ratio temporarily, if considerable movements in prices of eligible securities are detected.13
In addition, TFX may review and reduce LG haircut ratio following downgrade with respect toqualified LG issuing banks.14

Key Consideration 3:
In order to reduce the need for procyclical adjustments, an FMI should establish stable andconservative haircuts that are calibrated to include periods of stressed market conditions, tothe extent practicable and prudent.
TFX adopts conservative and stable haircut ratio which can cover extreme price movements
under stressed market conditions. Consequently, TFX believes that the need for procyclicaladjustments is limited. (See, Key Consideration 2 of this Principle for Collateral Haircuts andReview of Haircuts)

Key Consideration 4:
An FMI should avoid concentrated holdings of certain assets where this would significantly
impair the ability to liquidate such assets quickly without significant adverse price effects.

Concentration Limits
Concentrated holding of certain collateral assets may excessively affect the total value of thedeposit if the prices of the held assets move.

TFX imposes limits on the number of sharecertificates (that can be) of a single company deposited in order to prevent this from happening15.

Article 9, Enforcement Regulations for Regulations for Margin and Unsettled Market Derivatives
Contracts, Article 10, Regulations for Eligible Securities for Market Entry Deposit, Article 10,
Regulations for Eligible Securities for Clearing Deposit
14 Article 19, Enforcement Regulations for Regulations for Margin and Unsettled Contracts for FX
Clearing Futures Transactions
15 Article 15-3-3, Clearing Regulations
13

34

Key Consideration 5:
An FMI that accepts cross-border collateral should mitigate the risks associated with its use
and ensure that the collateral can be used in a timely manner.
TFX does not accept any cross-border collateral.

Key Consideration 6:
An FMI should use a collateral management system that is well-designed and operationally
flexible.
Primary Functionality of Collateral Management System
TFX reconciles the outstanding balance of the collateral and accepts and withdraws the collateralon a real-time basis, utilizing its collateral management function of the Clearing System. With
this function, TFX also monitors collateral values on an ongoing basis evaluating them byapplying the latest market prices and haircut ratio.
By accessing the TFX Clearing System, Clearing Members can make request for
deposit/withdrawal of collateral and confirm the resulted balance on a real-time basis.

In

addition, the Clearing Members can recognize the dates of interest payment/redemption in
respect of deposited collateral.
TFX sends instructions to transfer funds to the Settlement Banks’ current accounts with BOJ,
transfer Japanese Government Bonds, and change the payee of interest with respect to Japanese
Government Bonds via data transmission from the TFX Clearing System to the BOJ-Net. By thismeans, TFX can maintain smooth operation even under stressed market conditions.

Principle 6: Margin
A CCP should cover its credit exposures to its participants for all products through aneffective margin system that is risk-based and regularly reviewed.
Key Consideration 1:
A CCP should have a margin system that establishes margin levels commensurate with therisks and particular attributes of each product, portfolio, and market it serves.
Margin System

35

TFX provides in-house clearing service and clears all derivative products listed and traded on
the market operated by TFX.

Margin requirements are calculated as per characteristics ofproducts and attributes of customers.
Calculation Method for Margin
TFX adopts the following margin calculation methods appropriate for characteristics of products
and attributes of customers. Details of the margin calculation methods and procedures todetermine parameters and the Margin Reference Amount are stipulated in TFX margin related
rules as published on the TFX website.
(1) Interest Rate Futures contracts
For Interest Rate Futures contracts, SPAN® margin system is used to calculate initial margin
requirements at the portfolio base.

Cash settlement variation which arises daily from adifference of the traded price on the day from the previous day’s DSP is paid to or received fromeach Clearing Member as variation margin on the next following business day．
(2) Daily Futures contracts
For Daily Futures contracts, margin requirements are composed of initial margin calculated
based on the Margin Reference Amount multiplied by the number of contracts, plus variation
margin, as the case may be, given revaluation loss that are taken into account.
(3) FX Clearing Futures contracts
For FX Clearing Futures contracts, margin requirements are composed of initial margin
calculated based on Margin Reference rate, as determined by TFX, multiplied by notional
principal amount for net position, plus variation margin that is in the net loss valued at the endof the day based on DSP.

Key Consideration 2:
A CCP should have a reliable source of timely price data for its margin system. A CCP should
also have procedures and sound valuation models for addressing circumstances in which
pricing data are not readily available or reliable.
Source of Price Data
TFX uses reliable price data in margin calculations.
TFX clears only listed products on its market and calculates margin requirements using DSP
determined by TFX based on actual traded prices or current price in the market. TFX adopts
traded prices as DSP in principle, however, if such prices are not appropriate due to market

36conditions, TFX may determine DSP otherwise in accordance with procedures, thoroughly
considering factors such as bid and ask prices, etc.
As all transactions which TFX clears are listed and traded on the TFX markets, the DSP never
becomes unavailable.

Key Consideration 3:
A CCP should adopt initial margin models and parameters that are risk-based and generatemargin requirements sufficient to cover its potential future exposure to participants in theinterval between the last margin collection and the close out of positions following aparticipant default. Initial margin should meet an established single-tailed confidence levelof at least 99 percent with respect to the estimated distribution of future exposure. For a
CCP that calculates margin at the portfolio level, this requirement applies to each portfolio’s
distribution of future exposure. For a CCP that calculates margin at more-granular levels,
such as at the sub portfolio level or by product, the requirement must be met for thecorresponding distributions of future exposure. The model should (a) use a conservative
estimate of the time horizons for the effective hedging or close out of the particular types of
products cleared by the CCP (including in stressed market conditions), (b) have anappropriate method for measuring credit exposure that accounts for relevant product risk
factors and portfolio effects across products, and (c) to the extent practicable and prudent,
limit the need for destabilising procyclical changes.
Initial Margin Model, Closeout Period and Sample Period(1) Interest Rate Futures contracts
Margin Reference Amount (Price Scan Range) is determined by price movement range for
futures, and implied volatility for options, while Margin parameters are calculated based on
confidence level of 99%, closeout period of 1 day, and sample period of 6 months.
TFX employs closeout period of 1 day considering high liquidity of these products.
While TFX determines Margin Reference Amount by product, margin requirements arecalculated at the portfolio base taking into account inter-product and inter-contract monthoffsets by using SPAN® system. According to SPAN® system calculation logic, the maximum
loss arising from a portfolio is calculated as initial margin requirements.
(2) FX Daily Futures contracts① Transactions by Individual Customers
The Margin Reference Amount is based on margin requirement ratio 4% (maximum
leverage ratio of 25 times) as prescribed in the FIEA and its associated rules and historical37

5-trading day average price of each product.

The Margin Reference Amount is weekly

reviewed in principle. (Closeout period of 1 day and sample period of 5 days)② Transactions by Trading Members or Non-Individual Customers
TFX determines the Margin Reference Amount that covers 99% confidence level of thefluctuation distribution generated by applying the statistical method to the data on thedaily price fluctuation of each product (herein-after called “HV method”). However, formarket makers, "HV method with the limit of maximum leverage ratio of 25 times" isadopted.
The sample periods are past 8 weeks and 104 weeks, and the larger of the two calculation
results is adopted. In principle, the Margin Reference Amount is reviewed on a weekly
basis.
(3) Equity Index Daily Futures contracts
TFX determines the Margin Reference Amount based on HV method. The sample periods are
past 8 weeks and 104 weeks, and the larger of the two calculation results is adopted. However,for market makers, "HV method with the limit of maximum leverage ratio of 10 times" is adopted.
In principle, the Margin Reference Amount is reviewed on a weekly basis.
(4) FX Clearing Futures contracts
TFX determines Margin Reference rate based on HV method.
The sample periods are past 8 weeks and 104 weeks, and the larger of the two calculation results
is adopted, provided that minimum value is set for a certain currency pairs.
In principle, the Margin Reference rate is reviewed on a weekly basis.

Key Consideration 4:
A CCP should mark participant positions to market and collect margin at least daily to limit
the build-up of current exposures. A CCP should have the authority and operational capacity
to make intraday margin calls and payments, both scheduled and unscheduled, toparticipants.
TFX variation margin covers current exposure. For Interest Rate Futures contracts, once a day,
unsettled positions held by each Clearing Member are marked to market based on the day’s DSP.
Cash settlement variation which arises from a difference from the previous day’s DSP or the
traded price on the day is paid to or received from each Clearing Member as variation margin on
the next following business day．
For Daily Futures contracts, TFX revaluates positions held at the close of each trading day on DSP
and requires Trading Members to maintain the margin greater than the margin requirements

38

which are a sum of amount equivalent to the unrealized loss, if any, and the initial margin. With
this framework, TFX covers its current and potential future exposures.
For FX Clearing Futures contracts, TFX calculates gain or loss for the positions held at the closeof each trading day based on DSP and requires Trading Members to maintain the margin greaterthan the margin requirements which are a sum of amount equivalent to the calculated net loss
and the initial margin. With this framework, TFX covers its current and potential future
exposures.
In addition, TFX adopts the following framework to avoid accumulation of current exposuresarising from significant intraday price movements:(1) For Interest Rate Futures contracts, in case of significant market price movements, TFX
may call additional intraday margin under the Clearing Regulations.
(2) For Daily Futures contracts, a Clearing Member is obligated: 1) to revaluate positionsof their customers on the current market price at certain time intervals, 2) to assess
and judge the sufficiency of margin deposited by the respective customers relative tothe margin requirements, and 3) to forcibly close out their positions when their margin
becomes deficient to a certain extent.16.
① For FX Daily Futures contracts, the above requirements (2) on the Clearing
Member are applicable to positions for both individual customers and nonindividual customers (excluding “Professional Investors17” as defined in the FIEA).
② For Equity Index Daily Futures contracts, the above requirements (2) on the
Clearing Member are applicable to only for individual customers (excluding“Professional Investors18” as defined in the FIEA).
(3) For FX Clearing Futures contracts, TFX continuously monitors sufficiency of margin ona real time bases using current market price with respect to positions of the Clearing
Member who is FX Broker Trading Members (i.e. effective margin ratio monitoring).
The Clearing Member is required to maintain Effective Margin Ratio of “over 200% (ordeposit more than double for the required margin); if the Ratio falls below 160%, TFX
publish warning and if the Ratio falls below 140%, TFX may suspend execution oftransaction by the Member, and if the ratio falls below 110%, TFX may force theClearing member to settle positions by offsetting transaction.

As for FX Daily Futures contracts, Article 123.1(xxi)-2, (xxi)-3, Cabinet Office Ordinance on
Financial Instruments Business Operators. As for Equity Index Daily Futures contracts, Article 288, TFX Brokering Terms.
17 The term means those who are specified investors under Article 2.31 and those who are
regarded as specified investors under Article 34-3, FIEA.
18 The term means those who are qualified institutional investors under Article 2.31(1) and those
who are regarded as specified investors under Article 34-3, FIEA.
16

39

Key Consideration 5:
In calculating margin requirements, a CCP may allow offsets or reductions in required margin
across products that it clears or between products that it and another CCP clear, if the risk of
one product is significantly and reliably correlated with the risk of the other product. Where
two or more CCPs are authorised to offer cross-margining, they must have appropriate
safeguards and harmonized overall risk-management systems.
Margin Calculated at the Portfolio Level
For Interest Rate Futures contracts, TFX calculates margin requirements, using SPAN® systems
based on portfolio of positions by type of account, i.e., either customer account or house account.
The SPAN® calculation method allows to offset margin requirements between products as wellas contract months based on correlation between price movements.
For Daily Futures contracts and FX Clearing Futures contracts, margin is not calculated on theportfolio base.
Cross-Margining with Other CCPs
TFX does not offer cross-margining arrangements with any other CCPs.

Key Consideration 6:
A CCP should analyse and monitor its model performance and overall margin coverage byconducting rigorous daily back testing – and at least monthly, and more-frequent whereappropriate, sensitivity analysis.

A CCP should regularly conduct an assessment of thetheoretical and empirical properties of its margin model for all products it clears.

In

conducting sensitivity analysis of the model’s coverage, a CCP should take into account a wide
range of parameters and assumptions that reflect possible market conditions, including themost-volatile periods that have been experienced by the markets it serves and extremechanges in the correlations between prices.
Back Testing
The Clearing Operation Department conducts daily back testing to confirm that calculated
margin requirements sufficiently cover loss arising from actual unsettled positions and market
price movements for each Clearing Member. The result is reported to the Risk Management
Office and CRO.

40

The Risk Management Office compiles monthly the results of back testing to validate the margin
calculation method and parameter, and reports them to CRO and the Risk Management
Committee.
The Risk Management Committee discusses any measures as necessary.

Key Consideration 7:
A CCP should regularly review and validate its margin system.
TFX reviews and validates margin system as follows:•The Risk Management Office monthly reports results of validation and analysis on the marginsystem to CRO and the Risk Management Committee.
• The Risk Management Committee reports to the Board of Directors, (i) risk management
conditions and analysis result, on a quarterly basis, and (ii) result of validation for generalframework of risk management, annually.
•The Board of Directors reviews the Credit Risk Management Policy at least once a year.

Principle 7: Liquidity Risk
An FMI should effectively measure, monitor, and manage its liquidity risk.

An FMI

should maintain sufficient liquid resources in all relevant currencies to effect same-day
and, where appropriate, intraday and multiday settlement of payment obligations witha high degree of confidence under a wide range of potential stress scenarios that should
include, but not be limited to, the default of the participant and its affiliates that would
generate the largest aggregate liquidity obligation for the FMI in extreme but plausible
market conditions.

Key Consideration 1:
An FMI should have a robust framework to manage its liquidity risks from its participants,
settlement banks, nostro agents, custodian banks, liquidity providers, and other entities.
TFX defines liquidity risk in the “Liquidity Risk Management Policy” as the risk of suffering loss
which arises from the failure of settlement on the due date, by TFX’s counterparties such as
Clearing Members, settlement banks, custodian banks, liquidity providers, even though thecounterparties may be able to fulfill their obligations at some point in time in the future.
The Clearing and Settlement Department measures and monitors on a daily basis the liquidity
requirements, and ensures the liquid resources sufficient to cover them through Stress Testing.

41

The results of the Stress Testing are reported to the Risk Management Office and CRO on a daily
basis.
The Risk Management Office analyses on a monthly basis the status of liquidity risk management,
and CRO reports the analysis made by the Risk Management Office to the Risk Management
Committee.
The Risk Management Committee reports the status and the analysis of liquidity risk
management to the Board of Directors on a quarterly basis.
The Board of Directors determines matters of importance with respect to the liquidity risk
management framework and, at least once a year, reviews the “Liquidity Risk Management
Policy.”Key Consideration 2:
An FMI should have effective operational and analytical tools to identify, measure, andmonitor its settlement and funding flows on an ongoing and timely basis, including its use of
intraday liquidity.
TFX monitors daily its settlement operation as follows:(1) Interest Rate Futures contracts
TFX monitors the status of variation margin payments receivable from Clearing Members.
Each Clearing Member who is liable to pay variation margin has to credit the amount of
the margin to its account with the Settlement Bank by 11:00 a.m. of the settlement date.
In the event of a paying Clearing Member is in default, the Settlement Bank needs to inform
TFX of the fact immediately. By this means, TFX checks the status of the settlement by
Clearing Members.
The Settlement Bank which receives the payments from Clearing Members, has to credit
the amount of the variation margin to TFX’s account with BOJ by 11:30 a.m. of thesettlement date. TFX monitors the status of settlement on an ongoing basis, through the
BOJ-Net.
(2) Daily Futures contracts and FX Clearing Futures contracts
TFX monitors the status of Exchange Margin payments from each Clearing Member.
A paying Clearing Member has to send money to TFX’s account with the Settlement Bankby the due time defined in the ‘rules’, such that the amount of balance exceeds the amountof Exchange Margin to be maintained.
TFX accesses its accounts for margin settlement with the Settlement Banks and monitors
the status of settlement properly.

42Key Consideration 3:
A payment system or SSS, including one employing a DNS mechanism, should maintainsufficient liquid resources in all relevant currencies to effect same-day settlement, andwhere appropriate intraday or multiday settlement, of payment obligations with a highdegree of confidence under a wide range of potential stress scenarios that should include,
but not be limited to, the default of the participant and its affiliates that would generate thelargest aggregate payment obligation in extreme but plausible market conditions.

This consideration is not applicable as TFX is not an SSS.

Key Consideration 4:
A CCP should maintain sufficient liquid resources in all relevant currencies to settle securitiesrelated payments, make required variation margin payments, and meet other payment
obligations on time with a high degree of confidence under a wide range of potential stressscenarios that should include, but not be limited to, the default of the participant and its
affiliates that would generate the largest aggregate payment obligation to the CCP in extreme
but plausible market conditions. In addition, a CCP that is involved in activities with a morecomplex risk profile or that is systemically important in multiple jurisdictions should
consider maintaining additional liquidity resources sufficient to cover a wider range ofpotential stress scenarios that should include, but not be limited to, the default of the twoparticipants and their affiliates that would generate the largest aggregate payment obligation
to the CCP in extreme but plausible market conditions.
A CCP should maintain sufficient liquid resources in all relevant currencies to settle securitiesrelated payments, make required variation margin payments, and meet other payment
obligations on time with a high degree of confidence under a wide range of potential stressscenarios that should include, but not be limited to, the default of the participant and its
affiliates that would generate the largest aggregate payment obligation to the CCP in extreme
but plausible market conditions. In addition, a CCP that is involved in activities with a morecomplex risk profile or that is systemically important in multiple jurisdictions should
consider maintaining additional liquidity resources sufficient to cover a wider range ofpotential stress scenarios that should include, but not be limited to, the default of the twoparticipants and their affiliates that would generate the largest aggregate payment obligation
to the CCP in extreme but plausible market conditions.
Sufficiency of Liquid Resources

43

TFX verifies daily that it maintains liquid resources sufficiently enough to cover the liquidity
requirements, which are calculated under the stress scenarios which include the largest pricechange based on historical scenarios in the adequate sample period and the price change basedon hypothetical scenarios, where the extreme but plausible market conditions are taken into
consideration.
These stress scenarios envision a chain reaction collapse involving a Clearing Member who
requires the largest liquid resources (on a consolidated basis) and the Clearing Members withsmaller net assets.
Furthermore, these stress scenarios are extremely conservative, as it assumes that the Clearing
Members who would have the largest loss in the respective markets simultaneously go bankrupt.
Characteristics of TFX’s Clearing Business
TFX’s Clearing Business has the following features, which do not involve complex risk
characteristics:(1) The settlement currency is limited to Japanese yen, and the settlements are made only
through BOJ and the Settlement Banks in Japan.
(2) Eligible securities, etc. deposited as collateral are only Japanese Government Bonds, stocks
listed in Japan and LG that is submitted by qualified LG issuing banks designated by TFX
among those banks satisfying grading requirements.
(3) TFX does not clear any product with complicated risk profile, such as CDS.

Key Consideration 5:
For the purpose of meeting its minimum liquid resource requirement, an FMI’s qualifying
liquid resources in each currency include cash at the central bank of issue and at creditworthy
commercial banks, committed lines of credit, committed foreign exchange swaps, andcommitted repos, as well as highly marketable collateral held in custody and investments thatare readily available and convertible into cash with prearranged and highly reliable funding
arrangements, even in extreme but plausible market conditions.

If an FMI has access toroutine credit at the central bank of issue, the FMI may count such access as part of theminimum requirement to the extent it has collateral that is eligible for pledging to (or for
conducting other appropriate forms of transactions with) the relevant central bank. All such
resources should be available when needed.
TFX maintains the following the qualifying liquid resources sufficiently enough to cover theliquidity requirements calculated under stressed market conditions which are extreme but
plausible:441. Liquidity Supply Facilities
The liquidity supply facilities are set with several commercial banks designated as the
Settlement Banks and TFX can utilize the funds within the same day upon taking procedural
steps provided in the applicable agreements.
2. Exchange Margin and Clearing Deposit
TFX holds the most of the collateral deposited in cash by Clearing Members, on its bankaccounts with the Settlement Banks, so that the funds are available within the same day.
With respect to LG which can be deposit as margin with TFX, qualified LG issuing banks are
required to specify in LG Agreement that on a claim from TFX to perform the guaranteed
obligation, they shall fulfil its obligation within 24 hours in principle.

Key Consideration 6:
An FMI may supplement its qualifying liquid resources with other forms of liquid resources.
If the FMI does so, then these liquid resources should be in the form of assets that are likely
to be saleable or acceptable as collateral for lines of credit, swaps, or repos on an ad hoc basis
following a default, even if this cannot be reliably prearranged or guaranteed in extreme
market conditions. Even if an FMI does not have access to routine central bank credit, it
should still take account of what collateral is typically accepted by the relevant central bank,as such assets may be more likely to be liquid in stressed circumstances. An FMI should notassume the availability of emergency central bank credit as a part of its liquidity plan.
Supplemental Liquid Resources
As described in the Key Consideration 5, TFX secures qualifying liquid resources to sufficiently
cover the liquidity requirements. In addition to this, TFX is able to apply its bank deposits held
as the Default Compensation Reserve and a part of its surplus funds as supplement to qualifying
liquid resources.

Key Consideration 7:
An FMI should obtain a high degree of confidence, through rigorous due diligence, that eachprovider of its minimum required qualifying liquid resources, whether a participant of the
FMI or an external party, has sufficient information to understand and to manage its
associated liquidity risks, and that it has the capacity to perform as required under its
commitment. Where relevant to assessing a liquidity provider’s performance reliability withrespect to a particular currency, a liquidity provider’s potential access to credit from the45

central bank of issue may be taken into account. An FMI should regularly test its procedures
for accessing its liquid resources at a liquidity provider.
Qualifying Liquid Resources
TFX’s qualifying liquid resources consist of Exchange Margin and Clearing Deposit (held in bankaccount) deposited in cash by Clearing Members and liquidity supply facilities provided by the
Settlement Banks.
Credibility of Liquidity Providers
TFX designates only sound commercial banks with strong financial bases as the Settlement
Banks and manages its yen cash, diversifying them across several Settlement Banks.
The liquidity providers for TFX are selected from among the Settlement Banks and are all leading
commercial banks, trust banks and co-operative banks in Japan. Each of these banks obtains abanking license under the Japanese Banking Act, etc. and is supervised by JFSA.
TFX clears only Japanese yen and requires each of the Settlement Banks, as eligibility
requirements, to have a current account with BOJ, in order for it to access the funding from BOJ.
TFX comprehensively manages overall risks under the “Rules for Risk Management of theSettlement and Custodian Banks”, timely recognizing the financial status of each Settlement Bank
such as creditability, capital, liquid assets and avoiding to excessively concentrate credit andliquidity risks on a certain bank.
TFX maintains the agreements with a multiple of Settlement Banks with regard to the Liquidity
Supply Facilities and periodically confirms with the Settlement Banks the procedure of utilizing
the Facilities.

Key Consideration 8:
An FMI with access to central bank accounts, payment services, or securities services should
use these services, where practical, to enhance its management of liquidity risk.
For Interest Rate Futures contracts, TFX conducts daily money transfers with Settlement Banks
through its current accounts held at BOJ.
TFX is also a direct member of Japan Government Bond book-entry system run by BOJ and keeps
Japanese Government Bonds pledged as collateral by Clearing Members, etc. at TFX’s accountwith BOJ.

46

For Daily Futures contracts and FX Clearing Futures contracts, the settlement of accounts iscarried out by transfer between accounts established in the settlement bank because thebusiness conditions of the Clearing Members are diverse and do not necessarily have the current
account of the BOJ.

Key Consideration 9:
An FMI should determine the amount and regularly test the sufficiency of its liquid resources
through rigorous stress testing. An FMI should have clear procedures to report the resultsof its stress tests to appropriate decision makers at the FMI and to use these results toevaluate the adequacy of and adjust its liquidity risk-management framework.

Inconducting stress testing, an FMI should consider a wide range of relevant scenarios.
Scenarios should include relevant peak historic price volatilities, shifts in other market factors
such as price determinants and yield curves, multiple defaults over various time horizons,
simultaneous pressures in funding and asset markets, and a spectrum of forward-looking
stress scenarios in a variety of extreme but plausible market conditions. Scenarios should
also take into account the design and operation of the FMI, include all entities that might posematerial liquidity risks to the FMI (such as settlement banks, nostro agents, custodian banks,
liquidity providers, and linked FMIs), and where appropriate, cover a multiday period. In allcases, an FMI should document its supporting rationale for, and should have appropriate
governance arrangements relating to, the amount and form of total liquid resources it
maintains.
Stress Testing for Liquidity Risk
TFX calculates the liquidity requirements and verifies the qualifying liquid recourses to satisfy
the liquidity requirements through daily Stress Testing.
The stress scenarios are based on the assumption of price changes under extreme but plausible
market conditions.

TFX has verified that it retains sufficient and qualified liquid resources

available in the event of a default or multiple defaults under stressed market conditions.
By adding hypothetical scenarios to the stress scenarios as well as the largest historical pricechange, TFX is prepared for the surge of price volatility in the future which would not likely
happen under the current market condition.
Review and Analysis of Models and Stress Scenarios
TFX regularly tests the sufficiency of its total Liquid Resources available against the liquidity
requirements on intraday and end-of-day basis.
The result of Stress Testing is reported daily to the Risk Management Office and CRO.

47

The Risk Management Office reports monthly the status of liquidity risk and the analysis ofadequacy of scenarios, models, and parameters to the Risk Management Committee. The Risk
Management Committee reports to the Board of Directors the status of liquidity risk
management and its analysis on a quarterly basis and the result of verifying adequacy of liquidity
risk management framework on a yearly basis.
The Board of Directors makes decisions on matters of important with respect to liquidity risk
management and, at least once a year, reviews the Liquidity Risk Management Policy.

Key Consideration 10:
An FMI should establish explicit rules and procedures that enable the FMI to effect same-day
and, where appropriate, intraday and multiday settlement of payment obligations on time
following any individual or combined default among its participants. These rules andprocedures should address unforeseen and potentially uncovered liquidity shortfalls andshould aim to avoid unwinding, revoking, or delaying the same-day settlement of payment
obligations. These rules and procedures should also indicate the FMI’s process to replenish
any liquidity resources it may employ during a stress event, so that it can continue to operate
in a safe and sound manner.
The Clearing Regulations stipulate that TFX is able to take necessary measures such as changing
the cut-off time for settlements and rescheduling the settlements in case settlement becomes inexecutable or extremely difficult due to natural disasters, economic upheavals or the othercompelling reasons.
However, even in the case of a clearing member's default, TFX will execute the settlements by
the regular cut-off time stated in the regulations and will not consider changing it unless thesettlement is in-executable or extremely difficult.

48

Settlement
Principle 8: Settlement Finality
An FMI should provide clear and certain final settlement, at a minimum by the end of
the value date.

Where necessary or preferable, an FMI should provide final

settlement intraday or in real time.

Key Consideration 1:
An FMI’s rules and procedures should clearly define the point at which settlement is final.
Point of Settlement Finality
The following are two major settlements:- Settlements of Exchange Margin (deposit and withdrawal of collaterals); and- Settlements of variation margin.
TFX conducts Yen cash settlements and securities settlements, and in both cases, settlements are
considered to be final at the point when the transfer process between accounts has been
executed at BOJ, the Settlement Banks and JASDEC.
The methods and cut off time of settlements are specified in the TFX rules and regulations19.

Key Consideration 2:
An FMI should complete final settlement no later than the end of the value date, andpreferably intraday or in real time, to reduce settlement risk.

An LVPS or SSS should

consider adopting RTGS or multiple-batch processing during the settlement day.
Final Settlement No Later Than the End of Value Date
TFX clearly defines the cut off time of settlements in the TFX rules and regulations20 in order tosecure the final settlements no later than the end of the value date.

“Japanese Yen Settlement Regulations”, “Regulations for Regulations for Margin and Unsettled
Market Derivatives Contracts”, “Regulations for Margin and Unsettled Market Derivatives Contract
for FX Daily Futures Transactions”, “Regulations for Margin and Unsettled Market Derivatives
Contract for Equity Index Daily Futures Transactions”, “Regulations for Margin and Unsettled
Contracts for FX Clearing Futures Transactions”, etc.
20 “Japanese Yen Settlement Regulations”,” Japanese Yen Settlement Regulations for the Settlement
Banks”, “Regulations for Margin and Unsettled Market Derivatives Contracts”, “Regulations for Margin
and Unsettled Contracts for FX Daily Futures Transactions”, “Regulations for Margin and Unsettled
Contracts for Equity Index Daily Futures Transactions”, “Regulations for Margin and Unsettled
Contracts for FX Clearing Futures Transactions”, etc.
19

49

TFX has never experienced an incident where the final settlement is postponed to the next
business day.
Settlements are made on a real time basis during the day and TFX verifies the settlements arecompleted according to the process predetermined in the rules.

Key Consideration 3:
An FMI should clearly define the point after which unsettled payments, transfer instructions,or other obligations may not be revoked by a participant.
The operational procedures for Clearing Members to carry out settlements are stipulated in
TFX’s clearing related rules21.
Clearing Members cannot unilaterally revoke the settlement once executed.

Principle 9: Money Settlements
An FMI should conduct its money settlements in central bank money where practicaland available. If central bank money is not used, an FMI should minimise and strictly
control the credit and liquidity risk arising from the use of commercial bank money.

Key Consideration 1:
An FMI should conduct its money settlements in central bank money, where practical andavailable, to avoid credit and liquidity risks.
TFX only uses Japanese Yen for the settlement currency, and conducts settlements between TFX
and the Settlement Banks through current accounts with BOJ.
Nevertheless, as not all of Clearing Members have a current account with BOJ due to the varietyof their business, settlements between TFX and a Clearing Member are conducted by transfers
between TFX’s account and the Clearing Member’s account with the Settlement Bank selectedby the Clearing Member among those designated by TFX.

“Japanese Yen Settlement Regulations”, “Regulations for Margin and Unsettled Market Derivatives
Contracts”, “Regulations for Margin and Unsettled Contracts for FX Daily Futures Transactions”,“Regulations for Margin and Unsettled Contracts for Equity Index Daily Futures Transactions”,“Regulations for Margin and Unsettled Contracts for FX Clearing Futures Transactions”, etc.
2150

Key Consideration 2:
If central bank money is not used, an FMI should conduct its money settlements using asettlement asset with little or no credit or liquidity risk.
Settlements between Clearing Members and TFX are conducted by transfers between theaccounts with the Settlement Banks which satisfy the requirements set forth under the TFX rules
and have sufficient financial bases and high credit enough to carry out the settlement businessas a settlement bank. TFX’s accounts for settlements are the current accounts covered by theJapanese Deposit Insurance System, with little or no credit or liquidity risk.

Key Consideration 3:
If an FMI settles in commercial bank money, it should monitor, manage, and limit its credit
and liquidity risks arising from the commercial settlement banks.

In particular, an FMI

should establish and monitor adherence to strict criteria for its settlement banks that takeaccount of, among other things, their regulation and supervision, creditworthiness,
capitalisation, access to liquidity, and operational reliability.

An FMI should also monitor

and manage the concentration of credit and liquidity exposures to its commercial settlementbanks.
TFX stipulates the criteria of selecting the Settlement Bank in “Rules for Risk Management of theSettlement and Custodian Banks as follows”:(i) The Settlement Bank shall be a licensed bank under the Banking Act of Japan, having abusiness office in Japan, and having a current account with BOJ as well as having thecapability sufficiently enough to perform stable operation as a settlement bank.
(ii) The Settlement Bank shall be those TFX recognizes its eligibility taking into account its
financial conditions, creditworthiness and appropriateness in controlling its liquidity
risks, etc.
TFX continuously monitors the Settlement Banks for compliance with the above requirements
and confirms periodically that the amount of settlement is not concentrated in a certain
Settlement Bank.

Key Consideration 4:
If an FMI conducts money settlements on its own books, it should minimise and strictly
control its credit and liquidity risks.

TFX conducts money settlements through the accounts with BOJ or the Settlement Banks. TFX
does not conduct money settlements on its own books.

51

Key Consideration 5:
An FMI’s legal agreements with any settlement banks should state clearly when transfers on
the books of individual settlement banks are expected to occur, that transfers are to be final
when effected, and that funds received should be transferable as soon as possible, at aminimum by the end of the day and ideally intraday, in order to enable the FMI and its
participants to manage credit and liquidity risks.
TFX’s settlement-related rules prescribe the cut-off time for the settlements between TFX andClearing Members or the Settlement Banks.
Central Bank Money Settlement
For the settlement at the central bank, BOJ’s “Rules on Current Deposit Account,” Article 5
Paragraph 3 states that “instruction of fund transfer shall be irrevocable.” As such transfers are
irrevocable upon completion of the transfer process on the BOJ-Net, the settlements at BOJ
become final at that time.
Commercial Banks Money Settlement
The settlements between TFX and Clearing Members are conducted in accordance with TFX’s
settlement-related rules. The rules stipulate the cut-off time for the settlements between TFX’s
account and Clearing Members’ accounts. As the settlement is considered to be irrevocablewhen the funds are credited to the recipient’s bank account, the settlements between TFX andClearing Members become final at that time.

52

Principle 10: Physical Deliveries
An FMI should clearly state its obligations with respect to the delivery of physicalinstruments or commodities and should identify, monitor, and manage the risks
associated with such physical deliveries.
This principle is not applicable as TFX does not engage in the delivery of physical instruments
or commodities.

CSDs and Exchange -of-Value Settlement Systems
Principle 11: Central Securities Depositories
A CSD should have appropriate rules and procedures to help ensure the integrity of
securities issues and minimise and manage the risk associated with the safekeeping
and transfer of securities.

A CSD should maintain securities in an immobilized or

dematerialized form for their transfer by book entry.
This principle is not applicable as TFX is not a CSD.

Principle 12: Exchange-of-Value Settlement Systems
If an FMI settles transactions that involve the settlement of two linked obligations(for example, securities or foreign exchange transaction), it should eliminate
principal risk by conditioning the final settlement of one obligation upon the final
settlement of the other.
This principle is not applicable as TFX does not offer Exchange-of-Value Settlement.

Default Procedures
Principle 13: Participant-Default Rules and Procedures
An FMI should have effective and clearly defined rules and procedures to manage aparticipant default.

These rules and procedures should be designed to ensure that

the FMI can take timely action to contain losses and liquidity pressures and continue
to meet its obligations.

53

Key Consideration 1:
An FMI should have default rules and procedures that enable the FMI to continue to meet its
obligations in the event of a participant default and that address the replenishment of resources
following a default.
Participant-Default Rules and Procedures
The Clearing Regulations stipulate important matters regarding default procedures, such as thedefinition of default, measures and procedures that TFX may take when a Clearing Member
defaults, the obligations of a defaulting Clearing Member and related parties including Nondefaulting Clearing Members.
When a Clearing Member becomes insolvent or is so deemed by TFX, TFX will take suchmeasures deemed necessary and appropriate and will declare that the Clearing Member is indefault.
TFX will, according to its rules, appropriately handle the unsettled positions of the defaulting
Clearing Member by liquidating or transferring them to the Non-defaulting Clearing Members.
Specifically for Interest Rate Futures contracts where there should be unsettled positions of a
defaulting Clearing Member, TFX shall convene an auction to offset these positions, and if theauction ends up being unsuccessful, TFX will redeem these defaulting contracts before their termin accordance with the scheme of early termination (Partial Tear-up).
TFX will, as a general rule, maintain the regular settlement schedule to the extent possible andconduct settlements even when a Clearing Member’s default occurs.
TFX has liquidity supply facilities arrangements with the Settlement Banks prepared for liquidity
pressures triggered by the defaults of Clearing Members. Separately, as to the Daily Futurescontracts, TFX has secured sufficient balance of readily callable deposits at the Settlement Banks.
(See, Principle 7” Liquidity Risk” for further details)
Framework for Loss Compensations
In the Clearing Regulations, TFX has established a loss compensation framework in case there
should be losses because of a Clearing Member’s default. This protects Non-defaulting Clearing
Members from any effects of such losses and ensures continuous and stable implementation of
the Clearing Business.
Losses resulting from a Clearing Member’s default will be covered by the financial resources
prepared for the market on which such losses have occurred, in accordance with the following
priority of application of the financial resources:

54

(1)

Default Waterfall (Daily Futures)
Default of Clearing Member
Contributor

Applied Financial Resources

1st Priority

Defaulting Clearing Member

Margin, Clearing Deposit,
Market Entry Deposit, etc.

2nd Priority

TFX

Default Compensation Reserve

3rd Priority

Non-defaulting Members

Clearing Deposit

4th Priority

Non-defaulting Members

Additional Clearing Deposit(2) Default Waterfall (Interest Rate Futures22 and FX Clearing Futures)With respect to Interest Rate Futures contracts and FX Clearing Futures contracts, the following
priority is applied respectively by each of the contract markets to cover incurred losses.

Contributor
1st Priority

Defaulting Clearing Member

2nd Priority

TFX

3rd Priority

Non-defaulting Members

4th Priority

Non-defaulting Members

5th Priority

Applied Financial Resources
Margin, Clearing Deposit,
Market Entry Deposit, etc.
Default Compensation Reserve
Clearing deposit(up to the Initial Requirement of Clearing Deposit)
First Additional Clearing Contribution(up to the amount, equivalent to 3rd priority)

Non-defaulting Members

Second Additional Clearing Contribution(having revaluation profit)(VM haircu)

Since March 2023, the Loss Compensation Scheme for Interest Rate Futures contracts have beenswitched to the similar scheme that is adopted to FX Clearing Futures contracts.
2255

If the losses are not fully compensated by using the 1st to 3rd priority financial resources, TFX
requires Non-defaulting Members to deposit First Additional Clearing Contribution.
If the losses are not fully compensated by using the 1st to 4th priority financial resources, TFX
requires Non-defaulting Members to deposit Second Additional Clearing Contribution that is
calculated on the basis of the amount of variation margin gains among Non-defaulting Members.

Key Consideration 2:
An FMI should be well prepared to implement its default rules and procedures, including any
appropriate discretionary procedures provided for in its rules.
TFX provides for the procedures applicable to a Clearing Member’s default in its rules andoperational manuals. According to this rules and manuals, TFX is to determine the suspensionof the defaulting Clearing Member’s trading and clearing, handle the defaulting Clearing
Member’s positions (by transferring them to the Non-defaulting Clearing Members or byliquidating them or any appropriate means) and compensate the losses with available resources.
TFX specifies the roles and responsibilities of the departments, as well as the commitment of thesenior management to a series of these default procedures.
If a Clearing Member is in default, TFX shares information and works in close cooperation with
JFSA, making reports to JFSA in accordance with the FIEA and its associated rules.
TFX also shares information with Clearing Members and the public respectively throughappropriate media.

Key Consideration 3:
An FMI should publicly disclose key aspects of its default rules and procedures.
TFX stipulates its Clearing Member’s default procedures in the Clearing Regulations andassociated rules, and discloses them through the website. TFX also prepares a default manual
for Clearing Members, setting forth the default procedures, and distributes them to Clearing
Members for their better understanding.
When a Clearing Member defaults, TFX will, to the extent reasonably possible, provide any
related parties in the market with important information regarding specific countermeasuresagainst the default, including but not limited to, the measures taken as for the defaulting Clearing
Member, the way of handling their own or their customers’ positions, and the manner forcompensating losses.

56Key Consideration 4:
An FMI should involve its participants and other stakeholders in the testing and review of the
FMI’s default procedures, including any close-out procedures. Such testing and review should
be conducted at least annually or following material changes to the rules and procedures toensure that they are practical and effective.
In order to ensure the effectiveness of default procedures, TFX conducts at least once a year
default management drills in which the Clearing Members should participate. Furthermore,
TFX makes use of the results in order to review and revise once a year the current default
procedures.
When TFX is to revise the rules on default procedures, it discusses with Clearing Members andconsults with the Market Operation Committee which is comprised of key Clearing Members, inorder to reflect their opinions.
TFX also invites opinions from the public as well as Clearing Members when it is to revise theimportant rules.

Principle 14: Segregation and Portability
A CCP should have rules and procedures that enable the segregation and portability ofpositions of a participant’s customers and the collateral provided to the CCP withrespect to those positions.
Key Consideration 1:
A CCP should, at a minimum, have segregation and portability arrangements that effectively
protect a participant’s customers’ positions and related collateral from the default or insolvencyof that participant. If the CCP additionally offers protection of such customer positions andcollateral against the concurrent default of the participant and a fellow customer, the CCP shouldtake steps to ensure that such protection is effective.
Segregated Management of Customer Positions and Margin
In accordance with the respective characteristics of each of its clearing products, TFX has
adopted the following segregation arrangements for protecting positions and margin ofcustomers:
For Interest Rate Futures contracts, TFX manages customer positions and margin of each of the
Clearing Members in an omnibus account, separated from the Clearing Member’s proprietaryaccount, considering varieties and diversity of customer types including institutional investors57

in or outside Japan. While customer positions and margin are managed by Clearing Members
at their accounts segregated by the respective customers, TFX has the authority to require
information from the Clearing Member, related to each such customer positions and marginwhen necessary23.
As for Daily Futures contracts, TFX manages customer positions and margin in segregatedaccounts considering that most of the customers are domestic individuals.
As for FX Clearing Futures contracts, TFX does not manage customer positions and margin; thetype of account for the contracts is limited to “house account”.
Rules on Transfer of Positions/Margin
TFX has the following arrangements for customers’ positions and margin transfer in respect ofits clearing products:
When a Clearing Member defaults, customers of the defaulting Clearing Member may transfer
their own positions and margin to another Clearing Member (herein-after referred as“Transferee”). In such case the customers have to obtain consent from the Transferee to accept
the transfer of their positions and margin by the time and date specified by TFX.
When the transfer is completed, the margins initially deposited with TFX via the defaulting
Clearing Member are treated as having been deposited via the Transferee as the customers’
agent. Claim for refund of customers’ margin is to be made by the Transferee as the customers’
agent.
Protection from Defaults of a Clearing Member and its Fellow Customer
In case that a Clearing Member defaults due to the default of its customer, TFX has the following
arrangements to protect the other customers of the defaulting Clearing Member against risk
arising from such default (herein-after called "Fellow Customer Risk"):For Interest Rate Futures contracts, customers’ positions and margin are managed in an omnibus
account, and for Daily Futures contracts, they are managed in principle in each individual
account.

Article 6.5, Rule & Regulations for Regulations for Margin and Unsettled Market Derivatives
Contracts, Article 4.2, Regulations for Margin and Unsettled Contracts for FX Daily Futures
Transactions, Article 5.5, Regulations for Margin and Unsettled Contracts for Equity Index Daily
Futures Transactions.
23

58

The TFX rules 24 and the “Agreement on Establishment of Transaction Account” require a
Clearing Member as its customer’s agent to deposit each customer’s margin calculated on a grossbasis with TFX.

This means a Clearing Member is not allowed to offset one customer’s

positions with another’s in margin calculation.
Even if a Clearing Member defaults, its customers’ claim for refund of margins deposited with
TFX will be executed as specified in the TFX rules25 and the Agreement on Establishment ofTransaction Account. These arrangements avoid the Fellow Customer Risk to occur.

Key Consideration 2:
A CCP should employ an account structure that enables it readily to identify positions of aparticipant’s customers and to segregate related collateral. A CCP should maintain customer
positions and collateral in individual customer accounts or in omnibus customer accounts.
Please refer to Key Consideration 1 of this Principle as for the account structure to segregate
customer positions and margin from those of Clearing Members.

Key Consideration 3:
A CCP should structure its portability arrangements in a way that makes it highly likely that thepositions and collateral of a defaulting participant’s customers will be transferred to one or moreother participants.
As described in the preceding Key Consideration 1 of this Principle, TFX allows the transfer ofcustomer positions and margin in accordance with TFX’s arrangement for portability ofcustomer accounts.
TFX conducted a series of transfer of customer accounts without any problem during the 2008
Lehman Brothers Crisis, which demonstrates the effectiveness of TFX’s arrangements.

Chapter2, Regulations for Margin and Unsettled Market Derivatives Contracts, Agreement
concerning Establishment of Interest Rate Futures Transactions Account, Chapter2, Regulations for
Margin and Unsettled Contracts for FX Daily Futures Transactions, Agreement concerning
Establishment FX Daily Futures Transactions Account, Chapter2, Regulations for Margin and
Unsettled Contracts for Equity Index Daily Futures Transactions, Agreement concerning
Establishment of Equity Index Daily Futures Transactions Account .
25 Article 15, 16, 17, Agreement concerning Establishment of Interest Rate Futures Transactions
Account etc.” Article 13, 14, Agreement concerning Establishment of FX Daily Futures Transaction
Account, Article 13, 14 Agreement Concerning Establishment of Equity Index Daily Futures
Transaction Account.
24

59

Key Consideration 4:
A CCP should disclose its rules, policies, and procedures relating to the segregation andportability of a participant’s customers’ positions and related collateral. In particular, the CCP
should disclose whether customer collateral is protected on an individual or omnibus basis. In
addition, a CCP should disclose any constraints, such as legal or operational constraints, that may
impair its ability to segregate or port a participant’s customers’ positions and related collateral.
Disclosure on TFX’s arrangements for Segregation and Portability
The arrangements for the segregation and transfer with regard to customers' positions andmargins are specified in TFX clearing-related rules 26 .

These rules are publicly available on

TFX’s website.
TFX discloses on its website that customers’ margins for Interest Rate Futures contracts aremanaged in an omnibus account, and that those for Daily Futures contracts are managed in eachindividual account.
Disclosure on Legal or Operational Constraints(1) Legal constraints
The FIEA stipulates that in the event of commencement of insolvency procedures such as
special liquidation proceedings, bankruptcy proceedings, rehabilitation proceedings andreorganisation proceedings for a defaulting Clearing Member, the Clearing Regulations will
apply, in preference to above general insolvency procedures, to the settlement of outstanding
obligations between the defaulting Clearing Member and TFX.

Thus, in relation to theinsolvency procedures, legal admissibility of the Clearing Regulations is ensured.
If a Clearing Member defaults, in accordance with the Clearing Regulations the proprietary
positions of the defaulting Clearing Member will be liquidated, and customers’ positions andmargin of the defaulting Clearing Member will be transferred to the other Clearing Members
or liquidated. For these reasons, TFX recognizes no legal constraints on segregation andportability of positions and margin.
(2) Operational constraints
TFX discloses operational conditions and constraints on segregation and portability ofpositions and margin in TFX rules and manuals for Clearing Members.

Regulations for Margins and Unsettled Market Derivatives Contracts, Regulations for Margins
and Unsettled Contracts for FX Daily Futures Transactions, Regulations for Margins and Unsettled
Contracts for Equity Index Daily Futures Transactions.
2660

As Daily Futures contracts, which are mainly traded by individual customers, are managed inindividual accounts, it will require a certain allowance time to complete the position transfer
corresponding to the volume of the transferred data.

TFX describes these operational

constraints in the manual addressed to Clearing Members and separately explains the sameto them for a clear disclosure purpose in this respect.

Business Risk Management and Operation Risk Management
Principle 15: General Business Risk
An FMI should identify, monitor, and manage its general business risk and holdsufficient liquid net assets funded by equity to cover potential general business losses
so that it can continue operations and services as a going concern if those losses
materialize.

Further, liquid net assets should at all times be sufficient to ensure arecovery or orderly wind-down of critical operations and services.
Key Consideration 1:
An FMI should have robust management and control systems to identify, monitor, andmanage general business risks, including losses from poor execution of business strategy,
negative cash flows, or unexpected and excessively large operating expenses.
Identification, Monitoring and Management of Business Risks
General business risks at TFX are defined as the risks of suffering losses that may arise from
TFX's business strategies or business execution and operation and exclude credit risks andliquidity risks arising from Clearing Members’ defaults. While general business risks could becaused by various factors, TFX manages the business risks arising from its business strategies
and managerial judgment as described below.
TFX develops a medium-term management plan as its business strategies and obtains anapproval on it of the Board of Directors. Furthermore, TFX develops its annual business andbudget plans for each fiscal year based on the medium-term management plan and obtains anapproval on them from the Board of Directors.
Progress of these business plans, as well as the financial status resulting therefrom, are reported
monthly to the Board of Directors.

The Board of the Directors and the Board of Auditors

manage and monitor the status of the business execution and the profit or loss.
The Board of Directors also determines important matters in management including new listingor delisting of products and an investment plan such as system renewal etc. through sufficientconsideration of risks involved and the investment efficiency of these measures.

61

In addition, any business risk arising from operational risks, system risks, legal risks, reputation
risks, etc. are managed properly in accordance with each risk management policy and rules.

Key Consideration 2:
An FMI should hold liquid net assets funded by equity (such as common stock, disclosed
reserves, or other retained earnings) so that it can continue operations and services as agoing concern if it incurs general business losses. The amount of liquid net assets funded byequity an FMI should hold should be determined by its general business risk profile and thelength of time required to achieve a recovery of orderly wind-down, as appropriate, of its
critical operations and services if such action is taken.
TFX holds liquid net assets funded by equity so that it can continue operations and services as agoing concern even if it incurs general business losses.
The amount of the liquid net assets funded by equity covers 6 months or more of operating
expenses.
TFX ensures that it holds sufficient equity to sustain its operations and to meet capitalrequirements, and it reports its financial conditions to the Board of Directors on a monthly basis.

Key Consideration 3:
An FMI should maintain a viable recovery or orderly wind-down plan and should holdsufficient liquid net assets funded by equity equal to at least six months of current operating
expenses. These assets are in addition to resources held to cover participant defaults orother risks covered under the financial resources principles. However, equity held underinternational risk-based capital standards can be included where relevant and appropriate to
avoid duplicate capital requirements.
TFX holds liquid net assets funded by equity covering 6 months or more of operating expenses.
These assets are managed and held separately from financial resources held to cover the risks
arising from Clearing Members’ defaults.
TFX will consider developing “a recovery and wind-down plan” through discussions withregulators, Clearing Members and other related parties, based on “the international standards
for FMI recovery and resolution” published by CPMI-IOSCO and Financial Stability Board in
October 2014.

62

Key Consideration 4:
Assets held to cover general business risk should be of high quality and sufficiently liquid inorder to allow the FMI to meet its current and projected operating expenses under a range of
scenarios, including in adverse market conditions.
TFX holds its liquid net assets to cover general business risks in Japanese Yen cash deposited atbanks or in the form of Japanese Government Bonds.
These are assets of high quality and high liquidity, even in stressed market conditions. Custodianbanks are chosen in accordance with the strict standards set forth in the “Rules for Funds
Management”. (See, Principle 16 “Custody and Investment Risk” for further details.)

Key Consideration 5:
An FMI should maintain a viable plan for raising additional equity should its equity fall close
to or below the amount needed. This plan should be approved by the board of directors andupdated regularly.
TFX may take the following measures if its capital decreases significantly or falls below the level
required to cover 6 months of operating expenses. Currently, TFX is considering a viable plan
to implement these measures:・ Thorough review of expenses;
・ Review and revision of Clearing Fee;・ Thorough review of business and operations; and・ Injection of additional capital, etc.

63Principle 16: Custody and Investment Risks
An FMI should safeguard its own and its participants’ assets and minimise the risk ofloss on and delay in access to these assets.

An FMI’s investments should be in

instruments with minimal credit, market, and liquidity risks.
Key Consideration 1:
An FMI should hold its own and its participants’ assets at supervised and regulated entities
that have robust accounting practices, safekeeping procedures, and internal controls thatfully protect these assets.
Custodian for Clearing Members' Assets
TFX manages and holds cash deposited as collateral from Clearing Members, in the form of bankdeposits or JGBs in accordance with its Management Rules for the Exchange Margin.
JGBs and stocks deposited as collateral from Clearing Members are held at a segregated accountin the name of TFX with BOJ and JASDEC respectively.
LG is acceptable for the purpose of eligible securities, etc. as collateral with respect to FX Clearing
Futures contracts. LG submitted in the form of written agreement by LG issuing banks
designated by TFX is held by TFX at its premises.
Custodian for TFX's Assets
TFX holds a part of its own assets which have been held as liquid assets to cover general businessrisks and assets to be prepared for default of Clearing Members, in the form of bank deposits inaccordance with its Rules for Fund Management.
As for the rest of its own assets held for purposes other than those to cover general businessrisks and to be prepared for default of Clearing Members, TFX holds them with BOJ and JASDEC.

Key Consideration 2:
An FMI should have prompt access to its assets and the assets provided by participants, whenrequired.
As described in Key Consideration 1, TFX holds and has prompt access to its own assets and theassets deposited by Clearing Members, which are deposited with banks, BOJ, JASDEC and TFX.

64

Key Consideration 3:
An FMI should evaluate and understand its exposures to its custodian banks, taking into
account the full scope of its relationships with each.
Credit Risks and Concentration Risks
All of TFX's custodian banks are the Settlement Banks. In accordance with the “Rules for Risk
Management of the Settlement and Custodian Banks,” TFX recognizes their statuses on credit,
capitals, liquid assets, etc. in a timely manner and conducts comprehensive risk management not
to concentrate credit risks or liquidity risks excessively in particular Settlement Banks.
TFX stipulates requirements for the Settlement Banks in its settlement-related rules as follows:(i) Being a licensed bank under the Banking Act of Japan, having a business office in Japanand having a current account with BOJ; and(ii) Having a sound financial condition with the credit rating and equity capital greater thana certain level(iii) Having enough capability to perform stable operation as a Settlement Bank.
TFX monitors and ensures regularly that each bank designated as the Settlement Bank satisfies
these standards and that the settlement amount is not concentrated in certain banks.
The accounts that TFX has opened for cash settlement at the Settlement Banks are current
accounts which are for “payment and settlement”, which are wholly protected by the Deposit
Insurance System.

Key Consideration 4:
An FMI’s investment strategy should be consistent with its overall risk-management strategy
and fully disclosed to its participants, and investments should be secured by, or be claims on,
high-quality obligors.

These investments should allow for quick liquidation with little, ifany, adverse price effect.
Investment Strategy
TFX conducts and manages the investment of its own assets under the investment plan approvedby the Board of Directors, in accordance with the Rule for Funds Management.
TFX's investment status is reported to the Board of Directors monthly. The consistency withoverall risk management strategy is thus confirmed.
TFX manages the Exchange Margin deposited by Clearing Members in line with the Management
Rules for the Exchange Margin.

65Principle 17: Operational Risk:
An FMI should identify the plausible sources of operational risk, both internal andexternal, and mitigate their impact through the use of appropriate systems, policies,
procedures, and controls.

Systems should be designed to ensure a high degree of

security and operational reliability and should have adequate, scalable capacity.
Business continuity management should aim for timely recovery of operations andfulfilment of the FMI’s obligations, including in the event of a wide-scale or major
disruption.

Key Consideration 1:
An FMI should establish a robust operational risk-management framework with appropriate
systems, policies, procedures, and controls to identify, monitor, and manage operational risks.
Identification of Operational Risk
TFX manages operational risks by dividing them into administrative risks and system risks.
Administrative risks are identified as the possibility of incurring losses caused by various factors
such as defects or insufficiencies of information systems or internal procedures, etc., in addition
to human errors of its officers and employees failing to conduct administrative work properly or
causing accidents or committing illegal acts in the course of the administrative work process.
System risks are identified as the possibility of incurring losses to TFX and parties connected to
the Exchange System, caused by TFX computer system / network breakdown, malfunction or
inadequacies, or by inappropriate or unauthorized use or cyber-attack of TFX computer system.
TFX sets the “Administrative Risk Management Policy” and the “System Risk Management Policy”,
which provide the definitions of the risks, framework and methods for the risk managements,
and controls the risks according to these policies.
The Frameworks of Management for Administrative Risks
TFX has the framework of management that while each business department takes the
responsibility for administrative risks arising from its allocated business activities, the General
Administration Department oversees the respective business departments’ risk management.
Each department identifies and evaluates its respective administrative risks arising from its
operations and draws up the necessary risk reduction measures, and then the General
Administration Department compiles these findings and reports them to the Risk Management
Office and CRO.

66

The director responsible for the General Administration Department reports the status of theadministrative risks to the Risk Management Committee regularly and when necessary. The
Risk Management Committee reports major issues, if any, related to the administrative risks, tothe Board of Directors every quarter.
The Board of Directors determines any major issues related to the administrative risk
management, and further reviews the suitability of the administrative management frameworks.
The “Administrative Risk Management Policy” is reviewed and updated at least once every year.
The Frameworks of Management for System Risks
The System Department manages the system risks in accordance with the “System Risk
Management Policy,” “Information Security Policy,” and “Security Guidelines.”
In the system development process, user departments and Clearing Members also participate in
the comprehensive tests in accordance with development plans.
The director in charge of TFX’s system department reports the status of system risks to the Risk
Management Committee regularly and when necessary.
When the system failure occurs, the emergency measures will be taken immediately to preventthe spread of damages. TFX draws up measures to prevent the recurrence, investigating thecause of the failure.
The Management of Outsourced Contractor
When outsourcing system operation, development or administrative processes, TFX selects
outsourcing contractors in accordance with the “Policy and procedures to manage outsourced
business operations” and “the Security Guidelines”.

In outsourcing agreements, TFX clearlyspecifies the role-sharing, responsibility, the power of supervision, sub-contract procedures, andmanages outsourcing contractors through the periodical monitoring so that outsourcing task
should be adequately performed.
The Management of “the Single Point of Failure”
In accordance with the “Security Guidelines,” when developing system, TFX avoids the single
point of failure by implementing more than double redundant configurations.
TFX reviews the specifications to make sure that all the requirements are included appropriately,
and further tests the developed system to check if it is programmed according to the67specifications. As such, TFX does not view that there exist any potential single points of failure
in its systems.

Key Consideration 2:
An FMI’s board of directors should clearly define the roles and responsibilities for addressing
operational risk and should endorse the FMI’s operational risk-management framework.
Systems, operational policies, procedures, and controls should be reviewed, audited, andtested periodically and after significant changes.
Roles, Responsibilities, Frameworks
The Board of Directors has adopted the “Administrative Risk Management Policy” and the“System Risk Management Policy,” which specify the risk management frameworks, including
but not limited to, the roles and responsibilities for the management of operational risks. In
addition, the Board of Directors makes a decision about important matters related to theoperational risk management, and annually reviews the said Policies.
Assessment, Audit, and Validation
The Risk Management Committee reviews the validity of both the administration risk
management framework and the system risk management framework at least once a year andreports the review result to the Board of Directors. The Board of Directors then reviews thevalidity of operational risk management frameworks, in reference to the report received.
The Internal Auditing Office audits that the operations of each business department have been
performed properly in accordance with the applicable rules and procedures. In addition to this,the system is subjected to the external audit, through which external auditors review and verify
that the systems or applications thereof are developed and managed under TFX’s adequate andsufficient control and governance.

Key Consideration 3:
An FMI should have clearly defined operational reliability objectives and should have policies
in place that are designed to achieve those objectives.
The “System Risk Management Policy” specifies an objective to minimize losses to TFX andClearing Members caused by the system failure and the unauthorized use of system and cyberattack.

68

To achieve the above objective, the systems are designed to have the processing capacity above
their historical threshold, so that TFX makes sure on a daily basis that the processing ability andcapacity are adequate to respond to any unanticipated sudden increase in the processing.
Furthermore, in accordance with the “Security Guidelines,” TFX manages all system
irregularities that may have occurred during the system processing, and makes necessary
improvements to it accordingly.

Key Consideration 4:
An FMI should ensure that it has scalable capacity adequate to handle increasing stressvolumes and to achieve its service-level objectives.

TFX prepares the following measures to keep sufficient processing capacity of its systems:(1) When replacing critical systems or implementing a large-scale system change, TFX
secures the replaced or changed systems to withstand sufficient processing ability andcapacity in light of estimates for future trading volumes during the expected system
lifetime; and(2) After the system goes live, TFX analyzes trends and reviews the necessity for expanding
the ability and capacity according to increments in the number of products and trading
volumes.

Adequacy of system capacity is monitored on an ongoing basis throughmonitoring standards set during developments.

Alerts will be sent and incident

tickets are generated when the pre-set thresholds are breached, by which issues aremanaged.
Key Consideration 5:
An FMI should have comprehensive physical and information security policies that address
all potential vulnerabilities and threats.

Physical Security
TFX’s data center which houses TFX’s clearing system satisfies all the requirements set by theCenter for Financial Industry Information Systems (FISC), called the “Security Guidelines on
Computer Systems for Banking and Related Financial Institutions,” which is recognized as thestandard for Japanese financial market safety.
The outsourcing agreement stipulates that the data center’s administrators shall comply with
the Security Guidelines. TFX checks and verifies through monthly reports received from thedata center’s administrators that the physical security measures are undertaken pursuant to the69

Guidelines and any issues as for the potential vulnerabilities and threats are appropriately
addressed.
Information Security
TFX establishes the Information Security Policy to provide a basic principle for actions regarding
the protections and usages of the overall information assets which include not only the
information but also the systems themselves. The “Information Security Management rules” and“Security Guidelines” are set to illustrate specific requirements and practical measures to satisfy
the Policy.
The “Information Security Policy” provides for such points as definitions of the information
assets and governing structure for information security.
TFX verifies that it properly manages and handles the information assets in accordance with the“Information Security Policy”, “Information Security Management rules” and “Security
Guidelines”. Further, TFX reviews the “Information Security Management rules” periodically and“Information Security Policy” as necessary, and if necessary, amends them in order to keep them
relevant.
The “Security Guidelines” specify as security measures the requirements for HR measures,
physical measures, technical measures, as well as for the management of the outsourcing
contractors.
The “Security Guidelines” have been prepared in compliance with the “Security Guidelines of
FISC” and is reviewed and revised from time to time as needs arise upon evaluation of any
revisions made to the Security Guidelines of FISC.

Key Consideration 6:
An FMI should have a business continuity plan that addresses events posing a significant riskof disrupting operations, including events that could cause a wide-scale or major disruption.
The plan should incorporate the use of a secondary site and should be designed to ensure thatcritical information technology (IT) systems can resume operations within two hours
following disruptive events.

The plan should be designed to enable the FMI to complete

settlement by the end of the day of the disruption, even in case of extreme circumstances.
The FMI should regularly test these arrangements.
The Objective of Business Continuity Plan (“BCP”)
TFX sets objectives for BCP as follows:・ To pursue actions to minimize the systemic impacts to the Clearing Members and relatedparties by continuing TFX’s operations as much as possible when the risks of natural70

disasters, such as earthquakes and epidemics, and failures of social infrastructure, suchas electric power and communications or an act of terrorism are actualized; and・ To quickly and efficiently recover the operations, should TFX be compelled to suspend its
operations.
Designing the Business Continuity Plan
The BCP specifies the recovery procedures in the case of the risk events causing the suspensionof the Exchange operations. These procedures include those for the business operations at the
Backup Offices and the switch operations to the DR (Disaster Recovery) site.
It is designed that the time for the recovery of vital information systems for TFX’s important
operations should be less than two hours.
Other than the above, as part of the crisis management system, TFX sets the “Initial Response
Rules in the Event of a Large Scale Natural Disaster”, ”Correspondence Rules in the Event of a
Large Scale Natural Disaster” and the “Contingency Plan for System Failure and Other
Emergencies (herein-after called “Contingency Plan”),” and provides therein the policies forhandling an emergency situation such as the occurrence of a large-scale disaster by which TFX
is prevented from using its systems or other settlement-related systems.
Secondary Site
TFX has a DR site as a secondary data center and the two Backup Offices as secondary businessoffices. The main data center and primary back up office are located in a reasonable distanceenough to dispatch necessary employees for the risk events like a large -scale natural disasterand have sufficient systems as well as data to continue operations. This ensures TFX a scheme
for swift failover.
The DR site and the secondary Backup office are located in an area having a considerable
distance from the main data center and main office and are connected to power utilities ofdifferent zones and are linked through different telecommunications infrastructures. With thesefacilities, TFX has established a scheme that enables the exchange to resume systems andbusiness operations within the targeted recovery time.
Review and Testing
BCP sets forth the BCP drills and training, and the following drills are conducted annually:
・ BCP drills to operate the systems at site of the Backup Offices
・ drills to test that staff can reach at the Backup Offices within certain designated time limits
・ emergency contact network drills by the entire personnel
・ data center switching drills

71Furthermore, TFX participates, along with the other FMIs such as BOJ, in an industry-wide BCP
drill organized by the Japanese Bankers Association (herein-after called “JBA”) and Tokyo
Foreign Exchange Market Committee.
These drills assume a wide-area disaster and involve a broad scope of participants in thefinancial markets. At TFX, the BCP education program for employees is provided annually.
Through the results from these drills and education program, TFX continually develops BCP as
necessary and confirms its effectiveness.

Key Consideration 7:
An FMI should identify, monitor, and manage the risks that key participants, other FMIs, andservice and utility providers might pose to its operations.

In addition, an FMI should

identify, monitor, and manage the risks its operations might pose to other FMIs.
Management of Risks to TFX’s Operations from Major Members and Other Entities
BCP and the Contingency Plan provide for the recovery procedures in the case of the risk events
causing the suspension of TFX’s operations.
TFX has a close relationship with Clearing Members, BOJ, the Settlement Banks, Ippan Shadan
Hojin JBA Tibor Administration, infrastructures providers, such as electric power providers.
The Contingency Plan provides for the respective countermeasures against failures of systems
provided by these counterparties.
TFX provides the test environment to enable the Members to connect and test their backup
systems. Accordingly, the Members can test the ability to restore their systems connected to
TFX.
Measures to Avoid Risks that TFX May Pose to Other FMI
TFX has prepared the Contingency Plan through discussions with mutually dependent FMIs as
to the way to avoid impacts of TFX system failures on those FMIs as much as possible.
When the risk is realised, TFX will minimize the impacts to the Clearing Members andorganisations concerned by:・ continuing the business operations as far as possible in accordance with BCP; and・ seeking to recover them quickly and efficiently when TFX is compelled to stop them.

72Principle 18: Access and Participation Requirements
An FMI should have objective, risk-based, and publicly disclosed criteria forparticipation, which permit fair and open access.
Key Consideration 1:
An FMI should allow for fair and open access to its services, including by direct and, where
relevant, indirect participants and other FMIs, based on reasonable risk-related participation
requirements.
TFX has established the clearing qualifications, i.e., “Interest Rate Futures Clearing Membership”,“Daily Futures Clearing Membership” and “FX Clearing Futures Clearing Membership”(collectively, the “Clearing Membership”), each of which is required for an entity to become acounterparty to TFX’s relevant Clearing Business.
Major requirements for the Clearing Membership are as follows, 27 and the requirements arerationally aligned with the nature of the relevant Clearing Business:(i) Geographic basis; having its office or branch in Japan;(ii) Trading membership; possessing a trading membership for the relevant product to becleared;(iii)

Personnel; (a) being licensed as a financial instruments firm or a registered financial
institution under the FIEA; and(b) having the knowledge and capacity sufficiently enough to performbusinesses as a Clearing Member; and(iv) Financial resources; satisfying certain financial requirements, such as net assets, etc.
JFSA has approved the Business Rules that stipulate the requirements for the clearing
qualifications. TFX further discloses on TFX’s website the participation criteria.
Upon receipt of an application for a Clearing Membership, TFX examines the application fairly
according to the qualification criteria28 for each type of Clearing Membership.
TFX has established no qualification limitations on the attributes of indirect customers such as
the Clearing Members’ customers.

27
28

Article 5, Clearing Regulations
Article 4.2, Clearing Regulations73

Key Consideration 2:
An FMI’s participation requirements should be justified in terms of the safety and efficiencyof the FMI and the markets it serves, be tailored to and commensurate with the FMI’s specificrisks, and publicly disclosed. Subject to maintaining acceptable risk control standards, an FMI
should endeavor to set requirements that have the least restrictive impact on access thatcircumstances permit.
Legality and Reasonability of Criteria of Membership
TFX has established reasonable qualification requirements for the acquisition of Clearing
Membership for each of TFX’s Clearing Business, which is aligned with the risks and nature of
the relevant Clearing Business.
TFX ensures, in principle, to provide an equal access to all Members of the same Clearing
Membership.

Categories of TFX’s Clearing Member include banks and financial instrument

trading brokers (securities companies) etc., and TFX has established eligibility criteria based on
indicators of financial soundness, depending on the differences in the applicable industries.
For an applicant whose net asset amount is less than TFX’s required level, TFX allows suchapplicant to access the Clearing Business on the condition that it obtains a guarantee from its
parent company.
There are two types of Clearing Members; i.e., a Clearing Member entitled to brokerage forclearing of non-Clearing Members’ contracts (“Clearing Member with Clearing Brokerage
Power”), and a Clearing Member not entitled to such clearing brokerage (“Clearing Member
without Clearing Brokerage Power”). The membership criteria for the Clearing Member with
Clearing Brokerage Power are stricter than those for the Clearing Member without Clearing
Brokerage Power.
Amendment to and Disclosure of the Membership Criteria
The Membership criteria are amended as needed according to changes in the regulatoryenvironment surrounding financial markets, and the revision to the relevant laws.

Themembership criteria are publicly available on TFX’s website, and can be accessed by all current
and potential Clearing Members.

Key Consideration 3:
An FMI should monitor compliance with its participation requirements on an ongoing basisand have clearly defined and publicly disclosed procedures for facilitating the suspension

74

and orderly exit of a participant that breaches, or no longer meets, the participation
requirements.
Monitoring Clearing Members’ Compliance with Qualification Criteria
TFX continuously monitors Clearing Members for their compliance with the qualification
criteria for the Clearing Members, as described below.
Clearing Members are obliged to report their compliance with the qualification criteria for the
Clearing Members to TFX periodically and in a timely manner.29
In particular, from a viewpoint of financial soundness, Clearing Members are required to reporttheir financial conditions to TFX monthly, quarterly or annually, and TFX continuously monitors
the soundness of Clearing Members.

Before taking any actions, such as amendment to thearticles of incorporation, merger, succession of the business, acts which may have an impact on
the Member’s management and business structure, the Clearing Members are required to notify
TFX of the details thereof.
Additionally, in accordance with TFX’s Inspection Regulations, TFX inspects Clearing Members’
business conditions and operations.
Based on the above measures, TFX makes a continual follow-up by requiring a Clearing Member
to submit additional reports or documents30, as necessary.
Suspension and Orderly Exit of a (Clearing) Members
If TFX determines that a Clearing Member’s conditions of business or assets are inappropriate
in light of the operation of the relevant market, TFX may recommend the Clearing Member totake appropriate actions, and may request a report from the Clearing Member for the actions it
took31.
When TFX determines that a Clearing Member does not satisfy qualification criteria for the
Clearing Member or has violated the TFX rules, TFX will take disciplinary measures against the
Clearing Member, according to the method which is prescribed in the Clearing Regulations32.
These measures include the suspension from access to all or part of TFX’s Clearing Business andrevocation of the clearing qualification for the relevant Clearing Membership.
As a Clearing Member must as well be a Trading Member under the qualification criteria,
disciplinary measures against a Trading Member will be determined by the Self-Regulatory
Committee following the consultation to the Disciplinary Committee.
Chapter2 Section4-2, Clearing Regulations
Article 14 -6, Clearing Regulations
31 Article15-8, Clearing Regulations
32 Chapter2 Section5, Clearing Regulations
29
30

75

The Discipline

Committee is composed of a number of experts and professionals, such as lawyers, who work
autonomously from TFX and Clearing Members.
A Member whose Clearing Membership has been deregistered shall perform all outstanding
obligations owed to the other Clearing Members, non-Clearing Members and TFX, byappropriating money, securities or other equivalents deposited at TFX, in accordance with the
TFX rules33. By these rules, TFX ensures the Clearing Member’s orderly exit from its market.
When TFX has imposed any disciplinary measure on a Clearing Member including thesuspension of, or restriction on the access to TFX’s Clearing Business and/or revocation of therelevant Clearing Membership, TFX notifies such effect to all the other Clearing Members andNon-Clearing Members, and releases the notice on TFX’s website.34
When a Clearing Member’s Clearing Membership is deregistered, TFX gives a public notice onsuch deregistration and notifies it to all the other Clearing Members and Non-Clearing
Members35.

Principle 19: Tiered Participation Requirements
An FMI should be reviewed in the context of Principle 14 on segregation and portability,
Principle 18 on access and participation requirements, and other principles, as
appropriate.
Key Consideration 1:
An FMI should ensure that its rules, procedures, and agreements allow it to gather basic
information about indirect participation in order to identify, monitor, and manage any material
risks to the FMI arising from such tiered participation arrangements.
(1) Tiered Participants of TFXA Clearing Member is a direct participant with Clearing Membership who can act as a direct
counterparty to TFX performing its Clearing Business, and who are required to be a financial
instruments firm or a registered financial institution under FIEA.
TFX’s indirect participants are classified as follows:・ Customer of Clearing Member, who opens an account with the Clearing Member;
・ Non-Clearing Member that is entitled to trading qualification but not to clearing
qualification; andArticle14-2, Clearing Regulations
Article15-11, Clearing Regulations
35 Article14, Clearing Regulations
33
34

76

・ Customer of Non-Clearing Member, who opens an account with the Non-Clearing Members.
The business categories of indirect participants may vary, including brokers, banks, asset
management companies (investment management business operators, investment advisory
and agency operators), hedge funds, market makers, and individuals.
(2) Gathering Information on Indirect Participants
TFX has the right to request a Clearing Member to submit documents concerning information
on each customer’s positions and margin, as TFX deems necessary36. The Clearing Member
is obliged to submit promptly such documents to TFX, whenever TFX requests.
TFX further obliges a Non-Clearing Member to periodically report its financial conditions to
TFX37. In any other cases where TFX determines as necessary for TFX’s operational reasons,
TFX has the right to request a Non-Clearing Member to submit reports or documents
concerning the Member’s business or assets38.
Please refer to Key Consideration 3 and 4 of this Principle as for the risks to TFX arising fromtiered participation arrangements.

Key Consideration 2:
An FMI should identify material dependencies between direct and indirect participants thatmight affect the FMI.
A Clearing Member is a direct counterparty to TFX performing its Clearing Business.

By

monitoring and assessing the Clearing Member’s proprietary/customer positions, TFX is able toidentify noted dependencies between the Clearing Member and its indirect participants.
TFX is also able to assess Non-Clearing Members’ position status relative to the related Clearing
Member’s financial soundness, and confirm whether there is any impact for the Clearing
Member if the related Non-Clearing Member defaults or bankruptcies occur, by receiving
periodical reports on financial conditions from the Clearing Member and Non-Clearing Members
respectively.
In particular, for Daily Futures contracts, TFX is able to easily identify noted dependencies
between a Clearing Member and its indirect participants, as TFX adopts the account structure in
Article 6.5, Regulations for Margin and Unsettled Market Derivatives Contracts, Article 4.5,
Regulations for Margin and Unsettled Contracts for FX Daily Futures Transactions, and Article 5.5,
Regulations for Margin and Unsettled Contracts for Equity Index Daily Futures Transactions.
37 Article 57, Trading Member Regulations.
38 Article 58, Trading Member Regulations.
36

77

which TFX can monitor each participant’s position/margin on an account basis. See Principle 14
for details on Segregation and Portability.

Key Consideration 3:
An FMI should identify Indirect Participants responsible for a significant proportion oftransactions processed by the FMI and Indirect Participants whose transaction volumes orvalues are large relative to the capacity of the direct participants through which they access the
FMI in order to manage the risks arising from these transactions.
Since a Clearing Member is the direct counterparty to TFX performing the Clearing Business, theClearing Member is responsible for meeting its obligations to TFX, even when indirect
participants of the Clearing Member have not performed their obligations to the Clearing
Member.
If a Clearing Member has excessively large positions (including positions of indirect
participants) in light of the Clearing Member’s financial conditions, the risk to TFX that the
Clearing Member would fail to fulfill its obligations will increase. In order to manage such risk,
TFX is able to request the Clearing Member or the Trading Member under the TFX rules tosubmit additional information concerning their indirect participants, as TFX deems necessary.
TFX monitors on a daily basis the positions outstanding of each of the Clearing Members relative
to each Member’s financial conditions.
Key Consideration 4:
An FMI should regularly review risks arising from tiered participation arrangements and shouldtake mitigating action when appropriate.
When TFX recognizes that a Clearing Member has an excessive risk concerning its unsettled
positions in comparison with its net assets, or that TFX deems necessary in light of risk
management, TFX requests the Clearing Member to submit a report on relevant information
including the causes of such risk.

TFX may take appropriate measures to mitigate risk,

including such measures as additional requirements for collateral deposit, if necessary.

78Principle 20: FMI Links
An FMI that establishes a link with one or more FMIs should identify, monitor, andmanage link-related risks.
Key Consideration 1:
Before entering into a link arrangement and on an ongoing basis once the link is established,
an FMI should identify, monitor, and manage all potential sources of risk arising from the linkarrangement. Link arrangements should be designed such that each FMI is able to observe
the other principles in this report.
TFX conducts an assessment of potential risks prior to establishing a proposed link arrangement,
including those related to trading and clearing. In this assessment, TFX makes an analysis of
the potential risks relating to legal, credit, liquidity, regulation and operation that may have an
impact on TFX.
TFX currently has FMI links with the following entities:
1.

BOJ:

Fund settlement bank for money settlement and custodian of collateralin form of Japanese Government Bond.

2.

JASDEC:

Custodian of collateral in form of listed stocks, etc.

TFX has only two FMI Links in operation, one with BOJ and the other with JASDEC, and considers
that these link arrangements do not and will not become an obstacle for TFX’s adherence to the
FMI principles.
[Note]

LIFFE Administration and Management:
TFX had a trading and clearing link arrangement with
LIFFE on Three-Month Euroyen Futures contracts.
However, the Link terminated on 5th April, 2018.

Key Consideration 2:
A link should have a well-founded legal basis, in all relevant jurisdictions, that supports its
design and provides adequate protection to the FMIs involved in the link.
The links are implemented between TFX and Japanese FMIs under Japanese law.

79

Key Consideration 3:
Linked CSDs should measure, monitor, and manage the credit and liquidity risks arising fromeach other. Any credit extensions between CSDs should be covered fully with high quality
collateral and be subject to limits.
This consideration is not applicable as TFX is not a CSD.

Key Consideration 4:
Provisional transfers of securities between linked CSDs should be prohibited or, at aminimum, the retransfer of provisionally transferred securities should be prohibited prior
to the transfer becoming final.
This consideration is not applicable as TFX is not a CSD.

Key Consideration 5:
An investor CSD should only establish a link with an issuer CSD if the arrangement
provides a high level of protection for the rights of the investor CSD’s participants.
This consideration is not applicable as TFX is not a CSD.

Key Consideration 6:
An investor CSD that uses an intermediary to operate a link with an issuer CSD shouldmeasure, monitor, and manage the additional risks (including custody, credit, legal, andoperational risks) arising from the use of the intermediary.
This consideration is not applicable as TFX is not a CSD.

Key Consideration 7:
Before entering into a link with another CCP, a CCP should identify and manage the potential
spill-over effects from the default of the linked CCP. If a link has three or more CCPs, each CCP
should identify, assess, and manage the risk of the collective link arrangement.
Currently, TFX does not have a valid linkage with any other CCPs.

80

Key Consideration 8:
Each CCP in a CCP link arrangement should be able to cover, at least on a daily basis, its
current and potential future exposures to the linked CCP and its participants, if any, fully witha high degree of confidence without reducing the CCP’s ability to fulfil its obligations to its
own participants at any time.
TFX does not have current and potential exposures to the linked CCP or its participants.

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

Efficiency
Principle 21: Efficiency and Effectiveness
An FMI should be efficient and effective in meeting the requirements of its
participants and the markets it serves.
Key Consideration 1:
An FMI should be designed to meet the needs of its participants and the markets it serves, inparticular, with regard to choice of a clearing and settlement arrangement; operating
structure; scope of products clearing, settled, order recorded; and use of technology andprocedures.
When taking any actions such as changing its Clearing and Settlement Rules, its operation
structure, products to be cleared, or its systems, TFX designs such actions taking into accountneeds of its Clearing Members and markets.
In order to reflect the opinions of Members, TFX has set up the Market Operation Committee as
an advisory panel to the Board of Directors.
The Market Operation Committee, which is comprised of major Clearing Members of TFX andacademic experts, may express an opinion to the Board of Directors with regard to any important
decisions made for the operation of the TFX market.
Furthermore, through interaction with its Clearing Members and market participants, andseeking an opinion from the public (public comments) etc., TFX reflects needs of Clearing

81Members and markets and intends to keep all the related parties informed about actions taken
by TFX.
TFX requests public comments through its website and accepts various opinions from the public,
including but not limited to, those from its Clearing Members and their customers.

Key Consideration 2:
An FMI should have clearly defined goals and objectives that are measurable and achievable,
such as in the areas of minimum services levels, risk-management expectations, and businesspriorities.
TFX’s mission as a comprehensive exchange for financial derivatives is to contribute to thegrowth of Japanese economy through sound development of the financial market.
Aiming to accomplish this mission, TFX has set the following objectives as its key businessstrategies under TFX’s mid-term management plan, while it formulates a measurable andachievable annual business plan for each fiscal year:
1) Promote retail business by “expanding CFD products offering”, “attracting overseas
investors”, and “supplying our tools to financial institutions and encouraging their new
business creations”;
2) Promote wholesale business by “diversifying clearing business” and “offering new tools for
credit risk management”; and
3) Expand scope of business partner by “developing partnership with overseas firms, and“collaborating with non-financial industry”.
TFX conducts various measures and carries out its operations in accordance with these plans.

Key Consideration 3:
An FMI should have established mechanisms for the regular review of its efficiency andeffectiveness.
TFX develops its business strategies based on the mid-term management plan and annual
business plan, and, through the realization of various measures, seeks to improve its efficiency
and effectiveness in order to meet needs of its Members and markets.
TFX monthly reports the progress of such measures and their assessments to the Board of
Directors.

82

Principle 22: Communications Procedures and Standards
An FMI should use, or at a minimum accommodate, relevant internationally accepted
communication procedures and standards in order to facilitate efficient payment,
clearing, settlement, and recording.

Key Consideration 1:
An FMI should use, or at a minimum accommodate, internationally accepted communication
procedures and standards.
TFX uses the widely accepted communications procedures and standards for the communication
with the Clearing Members, the Settlement Banks, and the other FMIs.
Procedures/Standards for Communication with Clearing Members
For Interest Rate Futures contracts, TCP/IP is used as a communication protocol, and the data is
exchanged with XML data format.
For Daily Futures contracts, the TCP/IP is used as a communication protocol, and the data is
exchanged with FIX standards or FTP data format.
For FX Clearing Futures contracts, the TCP/IP is used as a communication protocol, and thedata is exchanged with FIX standards format.
Procedures/Standards for Communication with the Settlement BanksFor Interest Rate Futures contracts, TFX uses the BOJ-NET for its Japanese yen settlement at BOJ.
For Daily Futures contracts and FX Clearing Futures contracts, TFX uses the firm banking
systems offered by commercial banks for its Japanese yen settlement at commercial banks.
Procedures/Standards for Communication with the other FMIs
For the settlement of JGBs, TFX conducts operational procedures via the BOJ-NET terminals,
provided by BOJ.
TFX conducts the settlement of stocks via the JASDEC’s network system.

83

Transparency
Principle 23: Disclosure of Rules, Key Procedures, and Market Data
An FMI should have clear and comprehensive rules and procedures and should provide
sufficient information to enable participants to have an accurate understanding of therisks, fees, and other material costs they incur by participating in the FMI. All relevant
rules and key procedures should be public disclosed.
Key Consideration 1:
An FMI should adopt clear and comprehensive rules and procedures that are fully disclosed
to participants. Relevant rules and key procedures should also be publicly disclosed.
TFX Rules
TFX clearly prescribes comprehensive rules and procedures regarding the Clearing Business in
its Clearing Regulations and associated rules, and discloses them on its website in Japanese andEnglish.

These rules provide details of qualification criteria and obligations for Clearing

Membership, rights and obligations related to clearing and settlement between TFX and Clearing
Members, settlement procedures and the financial resources framework such as Margin and
Clearing Deposit.
Revision of TFX Rules
TFX revises its rules, after hearing opinions from the relevant Clearing Members, and, whereappropriate, in consultation with the Market Operation Committee and soliciting publiccomments.
While TFX obtains an approval from JFSA before revising its key rules, it provides a notice to
JFSA when revising other minor rules.
TFX notifies each Clearing Member of the revisions and discloses them on the website dedicatedonly to the Clearing Members at the same time. In case of revising key rules or changing listed
contracts, TFX holds an explanatory meeting with Clearing Members or explains to each Clearing
Member individually.
General Information on TFX's Website
TFX's website is publicly accessible and provides the following information:
・ TFX's corporate outline, history and financial information;
・ Outline of clearing framework and Clearing Member framework, and clearing-related data;
・ Market information and trading-related data; and・ Rules and Regulations, etc.

84

Key Consideration 2:
An FMI should disclose clear descriptions of the system’s design and operations, as well as
the FMI’s and participant’s rights and obligations, so that participants can assess the risks
they would incur by participating in the FMI.
Details of TFX's clearing framework, rights and obligations between TFX and Clearing Members
are clearly stipulated in its Clearing Regulations and associated rules, and they are disclosed
publicly.
TFX provides Clearing Members with the following information that may be necessary for themto identify and assess any risks or costs involved for their use of TFX's Clearing Business:
・ Information about methods and terms of clearing;・ Information about collateral, e.g.;-Obligations for Margin, Market Entry Deposit, and Clearing Deposit, acceptable
collateral, haircuts for collateral; and・ Information about procedures for the default of a Clearing Member, e.g.;-Waterfall of Financial Resources for Loss Compensation (Margin, Market Entry
Deposit, Clearing Deposit (including Special Purpose Cash Collateral for Interest Rate
Futures contracts and FX Clearing Futures contracts), and Default Compensation
Reserve), methods for dealing with the positions of the defaulting Clearing Member.

Key Consideration 3:
An FMI should provide all necessary and appropriate documentation and training to facilitate
participants’ understanding of the FMI’s rules and procedures and the risks they face fromparticipating in the FMI.
When a company intends to obtain Clearing Membership, TFX holds an explanatory meeting
individually and provides information about the outline of clearing framework, the procedure ofobtaining Membership, system requirements, etc.
In respect of existing Members, TFX makes inspections to ensure that the Members operate theirbusinesses in accordance with the TFX rules and procedures.
When TFX recognizes that a Clearing Member does not fully comprehend the TFX rules,
procedures or the risks it would incur by participating in the Clearing Business or there is any
failure or insufficiency in the Clearing Member's operational structure relating to theparticipation in the execution of Clearing Business, TFX makes such Member to correct thesituation, issuing an improvement or corrective order to the relevant Member.

85

Key Consideration 4:
An FMI should publicly disclose its fees at the level of individual services it offers as well as
its policies on any available discounts. The FMI should provide clear descriptions of priced
services for comparability purposes.
TFX discloses the rule stipulating its fee structures on its website and anyone can access it easily.
TFX discloses its trading fees, which include clearing fees.
In case of making a significant change in its services and fees, where appropriate, TFX resolves
the change after consulting the Market Operation Committee and soliciting public comments.
TFX informs each Clearing Member of the change and disclose it publicly on its website.

Key Consideration 5:
An FMI should complete regularly and disclose publicly responses to the CPSS-IOSCO
disclosure framework for financial market infrastructures. An FMI also should, at a minimum,
disclose basic data on transaction volumes and values.
In July 2015, TFX disclosed the first document pursuant to the CPSS-IOSCO “Disclosure
Framework for Financial Market Infrastructures." then updated it in August 2017, August 2019and August 2021. This is the fourth update of the document. TFX will continue to update thisdocument when there are major changes, and at least once every two years.
Disclosure of Data
TFX discloses the following statistical data of clearing contracts on its website:
・ Cleared volume (traded volume) and open interest;
・ Final settlement volume and final settlement price; and・ Daily settlement pricePrinciple 24: Disclosure of Market Data by Trade Repositions
A TR should provide timely and accurate data to relevant authorities and the public
in line with their respective needs.
This principle is not applicable as TFX is not a TR.

86

V. List of Publicly Available Information＜TFX Information＞
TFX Rules and Regulations
https://www.tfx.co.jp/en/rules/
TFX Financial Information (Japanese only)
https://www.tfx.co.jp/about_tfx/ir.html
TFX Company Guide (Annual Report)
https://www.tfx.co.jp/en/publication/
TFX Corporate Outline
https://www.tfx.co.jp/en/about_tfx/
TFX Clearing
https://www.tfx.co.jp/en/about_tfx/outline/outline03.html
TFX Clearing Membershiphttps://www.tfx.co.jp/en/wholesale/clearing/clearing01.html
TFX Market Information (Statistics)
Daily Statistics Report (Interest Rate Futures contracts)
https://www.tfx.co.jp/en/historical/futures/
Daily Statistics Report (FX Daily Futures contracts)
https://www.tfx.co.jp/en/historical/fx/
Daily Statistics Report (Equity Index Daily Futures contracts)
https://www.tfx.co.jp/en/historical/cfd/
Daily Statistics Report (FX Clearing Futures contracts)
https://www.tfx.co.jp/t-clearfx/data.php
Monthly / Annual Statistics Report (All Products)
https://www.tfx.co.jp/en/historical/

87

＜Related Laws and Regulations＞
Financial Instruments and Exchange Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4405
Cabinet Office Order on Financial Instruments Clearing Organizations
https://www.japaneselawtranslation.go.jp/en/laws/view/3449
Principles for Financial Market Infrastructures (PFMI)
https://www.bis.org/cpmi/publ/d101a.pdf
Disclosure Framework and Assessment Methodology
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD396.pdf
Implementation monitoring of the PFMI: Level 2 assessment report for central
counterparties and trade repositories
https://www.bis.org/cpmi/publ/d127.htm
Comprehensive Guidelines for Supervision of Financial Market Infrastructureshttps://www.fsa.go.jp/en/laws_regulations/index.html
European Market Infrastructure Regulation (EMIR)
https://eur-lex.europa.eu/legal-content/EN/ALL/;ELX_SESSIONID=9hKlTthNJ5HW5KnGD
Civil Codehttps://www.japaneselawtranslation.go.jp/en/laws/view/4314
https://www.japaneselawtranslation.go.jp/en/laws/view/4275
Companies Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4135
https://www.japaneselawtranslation.go.jp/en/laws/view/4136
Act on Recognition of and Assistance for Foreign Insolvency Proceedings
https://www.japaneselawtranslation.go.jp/en/laws/view/3780
Banking Act
https://www.japaneselawtranslation.go.jp/en/laws/view/4390＜Regulatory Authorities and Organizations＞(The) Financial Services Agency of Japan
https://www.fsa.go.jp/en/index.html(The) Bank of Japan
https://www.boj.or.jp/en/index.htm/

88

The Bank of Japan Act
https://www.japaneselawtranslation.go.jp/en/laws/view/3788
The Bank of Japan Policy on Oversight of Financial Market Infrastructures
https://www.boj.or.jp/en/announcements/release_2013/data/rel130312a.pdf
Rules on Current Deposit Account (Japanese only)
https://www.boj.or.jp/paym/torihiki/touyo08.htm/
Japan Securities Depository Center, Inc.
https://www.jasdec.com/en/
The Financial Futures Association of Japan
https://www.ffaj.or.jp/en/
The Centre for Financial Industry Information System (FISC)
https://www.fisc.or.jp/english/89VI. Glossary
BCP

Business Continuity Plan

CCP

Central Counterparty

CPSS

The Committee on Payment and Settlement Systems

CPMI

The Committee on Payment and Market Infrastructure

CRO

Chief Risk Officer

CSD

Central Securities Depositary

DFAM

Disclosure Framework and Assessment Methodology

DSP

Daily Settlement Price

DVP

Delivery Versus Payment

EMIR

European Market Infrastructure Regulation

ESMA

European Securities and Market Authority

FIEA

Financial Instruments and Exchange Act

FISC

The Center for Financial Industry Information Systems

FMI

Financial Markets Infrastructure

IOSCO

The International Organization of Securities Commissions

JASDECJapan Securities Depository Center, Inc.

JBA

Japanese Bankers Association

JFSA

Financial Services Agency of JapanJFSA Guidelines

Comprehensive Guidelines for Supervision of Financial Market
Infrastructures - Clearing Organizations, Fund Clearing
Organizations, Book-entry Transfer Institutions, and Trade
Repositories -LIBOR

London Interbank Offered Rate

PFMI

Principles for Financial Market Infrastructure

SSS

Securities Settlement System

TC-CCP

Third Country CCP

TFXTokyo Financial Exchange Inc.

TR

Trade Repository90