New Regulation of OTC Derivatives in 

Japan

Financial Services Agency

Government of Japan

October 2010
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LEADERS’ STATEMENT AT THE PITTSBURGH SUMMIT 

(September 24–25, 2009)

Strengthening the International Financial Regulatory 

System

“Improving over-the-counter derivatives markets: All 

standardized OTC derivative contracts should be traded 

on exchanges or electronic trading platforms, where 

appropriate, and cleared through central counterparties 

by end-2012 at the latest. 

OTC derivative contracts should be reported to trade 

repositories. Non-centrally cleared contracts should be 

subject to higher capital requirements. We ask the FSB and its 

relevant members to assess regularly implementation and 

whether it is sufficient to improve transparency in the 

derivatives markets, mitigate systemic risk, and protect against 

market abuse. ”
2

 In order to improve the stability and transparency in Japanese 

financial system and ensure protection of investors, the Financial 

Instruments and Exchange Act (FIEA) was amended on May 2010.

 2010 Amendment of the FIEA aims:

- to improve the stability and transparency of the settlement of OTC 

derivative transactions

・ Mandatory CCP clearing of large-scale derivative transactions

・ Mandatory clearing at domestic CCPs for derivative transactions

that are closely related to Japanese bankruptcy procedures

・ Storing and reporting of trade information data

- to strengthen group-wide regulation and supervision of financial instruments business operators (e.g. securities firms)

Japan’s legislative action: Amendment of the Financial 

Instrument and Exchange Act (2010)
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Mandatory CCP Clearing 

OTC derivatives that need to be cleared at CCPs (domestic or foreign) are to 

be designated by a cabinet office ordinance no later than November 18th 2012. 

The designation will be considered in light of the market size and regulatory 

approach by other regulators.

(at present “plain vanilla” yen-denominated interest rate swaps are 

considered for inclusion)

Those OTC derivative transactions need to be cleared at domestic CCPs 

a) for which clearing criteria relate closely to the bankruptcy procedures under 

Japanese law 

b) of which transaction volume in Japan is above a certain level. 

(at present “iTraxx Japan” CDS index is considered for inclusion)

Bankruptcy related OTC derivatives

・ A CDS CCP should consider establishing an internal determination committee that 

may determine the credit event where no decisions are taken by the market participants.

(CPSS/IOSCO Consultative report on OTC derivates CCPs in May 2010)

※ Other countries CDS CCPs (e.g. ICE trust (US, UK), Eurex Clearing (Germany)) determine Credit Events 

under their operational rules in instances where no decisions are taken by the market participants.

Rationale for mandatory clearing at domestic CCP 
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Strengthening the Infrastructures for Central Clearing

[Existing regulation] 

License is required. No minimum 

capital requirements, nor authorization 

to become major share holders. 

Strengthening the financial base of domestic CCPs

[New regulation] 

 Introduction of minimum capital requirement

 Authorization is required in order to hold 

more than 20% of voting rights

Foreign CCPs will be allowed into Japanese market 

Provision of CC services by foreign CCPs will be 

allowed in the following two forms:

A) Through Link System (Authorization is required for the 

linked domestic CCP ) ; or,

Provision of central 

clearing services by 

foreign CCPs to 

domestic financial 

institutions is not 

allowed.

B) Direct Provision (License is required for the foreign CCP )

 Maintain an adequate infrastructure to operate appropriately and reliably 

during Japanese market hours

 The foreign CCP is subject to proper supervision by its home country 

regulator

Exemptions: Exemption can be granted if designated by the cabinet order (e.g. CDS transactions which refer to 

foreign companies and is cleared by foreign CCPs.)

※ The licensed foreign CCP will be subject to inspection and business 

improvement order by Japanese FSA as well.
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Storing and Reporting of trade information data for OTC Derivatives 

Transactions 

 Financial institutions will be responsible for storing and reporting of trade 

information data for their OTC derivative transactions. 

However;

 If Financial Institutions use Trade Repositories, the Trade Repositories will 

become responsible.

 If Financial Institutions use CCPs, the CCPs will become responsible.

Use of TR

TRs

e.g. Warehouse 

Trust , TriOptima

Yes No 

Use of CCP

Yes No 

CCPs FIs
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Schedule for Implementation

 Mandatory clearing

 Storing and reporting 

requirement

 Strengthening the 

infrastructure of CCPs

 Allowing entry of foreign 

CCPs

Promulgation of 

Law (May 18th,

2010)

Within 1 year 

(May 18th, 2011)

Within 2 years and 6 

months (November 

18th, 2012)