OTC Derivatives Market R

and 

Cross Border Issue

Financial Services Agency, Jap

(JFSA)

(Chairman of the Board, IOSC

November 2012

Masamichi Kono

* The views expressed in this presentation are th

presenter, not necessarily those of the FinanciaAgency of Japan (JFSA) or the International OrgSecurities Commissions (IOSCO).
Background for OTC Derivatives Ma

1. All standardized OTC derivative con

a) should be traded on exchanges or 

trading platforms, where appropria

b) cleared through central counterpa

2. OTC derivative contracts should be 

trade repositories. 

Based on the G20 Summit Statement, 

reforms for OTC derivatives markets aimplemented in major jurisdictions 

(G20 Summit Deadline: end-2012)

G20 Pittsburgh Summit
OTC Derivatives Market Reforms 

<First stage: Approved by the Diet on 12 M

 Mandatory central clearing at CCPs Reporting requirements to trade repo⇒ Implemented as of November 1st 2012

<Second stage: Approved by the Diet on 6 2012>

 Mandatory use of electronic trading p⇒ Implementation will be phased-in (up 

years)

Amendments to

the Financial Instruments and Exchang
OTC Derivatives Market Reform

The implementation plan for the init

- Centralized clearing-

<Use of CCPs>Index-based CDSs and JPY-denominate

reference to Yen LIBOR are subject to mcentral clearing

Mandatory central clearing requirements 

applicable to transactions between large financial institutions, who are members clearing organizations 

(Note) Currently, the Japan Securities Cle

Corporation (JSCC) is the only liceunder the FIEA in Japan 
OTC Derivatives Market Reforms 

The implementation plan for the init

- Trade reporting -

<Reporting Requirements to Trade ReposiFinancial institutions are required to rep

OTC derivatives transactions for which Tavailable

Examples of such transactions are credi

transactions, and forward, option and swtransactions with reference to interest raexchanges, and equities
Mandatory 

central clearing

 Reporting 

requirement

2010

May

2012Sep. 

becam

Current Schedule for Implementatio

 Use of electronic 

trading platforms

Promulgation 

of amended 

FIEA (1)

Promulgation 

of amended 

FIEA (2)

No

Imph

becam
Cross Border Issues arisin

overlapping or conflicting r

• Swap Dealer registration for non-US pe

required before cross-border guidance 

• “Substituted compliance” not guarante

countries with equivalent regulation an

• Cross-border transactions subject to d

requirements for central clearing and d

• Foreign CCPs not recognized under US • Not coordinated with SEC rules for sec

swaps

Issues arising from CFTC’s propos
Cross-border issues arising from 

Relevant authorities in Japan (JFSA ancomment letter in August 2012A joint ministerial-level letter

(※) has be

October 2012, with a focus on cross-bo

Comments on CFTC’s proposed rule

(

※

) The signatories of the letter

• Chancellor of the Exchequer, the United K• Commissioner of the European Commiss• Minister of Finance, France• Minister of State for Financial Services, J
Cross-border issues arising from t

Overarching concerns

expressed in JFSA-BOJ le

• Avoidance of overlapping or co

regulation

• Need for international coordinat

cross-border regulation
Cross-border issues arising from t

Specific requests made in JFSA-BOJ co

・Further extension of the application of 

compliance”, with clarification as soon of its details on procedure and timing

・Deferral of application of CFTC regulati

respect to non-US persons

・Exclusion of certain transactions from 

of swap transactions in regard to the d

threshold for non-US persons
Cross-border issues arising from t

Proper sequencing of reform

and sufficient transitional measures 

Important elements of US regulations finalized and remain unclear(Examples)• Details of “substituted compliance”• Exact scope of products subject to 

central clearing 

• Method for calculating transaction v

relation to de-minimis thresholds fo

swap dealer registration, etc.

Implementing US regulations under sucircumstances has created considerabin markets
Cross-border issues arising from t

Proper sequencing of refor

and adequate transitional measures 

In particular, a sufficient transition pespecial measures for non-US personrequested to avoid regulatory conflicinconsistencies arising from differencontent and the timing of implementanational regulationsIf appropriate steps are not taken, main market liquidity and/or shifts in travenues could occur (already starting 
Cross-border issues arising from t

Mandatory central clearing requirement

Transaction-Level Regulation

• Under the current circumstances, no 

licensed or registered both in Japan aJPY-denominated IRSs, for example 

• As a result, market participants canno

transactions without breaching the reeither Japan or the US (especially whextends its regulations to cross-bord

• JSCC is currently seeking CFTC regis

DCO in the US. However, some of the and the timeline for registration are n
Cross-border issues arising from t

Transaction-Level Regulations (co

There should be coordination in inspesupervision of the CCPs, licensed or both in Japan and the US (e.g. througan MoU)JFSA should be recognized as the priregulator of CCPs established under Jtasked with conducting proper inspecsupervision of those CCPs

Mandatory central clearing requirement (
Cross-border issues arising from t

Transaction-Level Regulations (co

Trade execution requirement

Going forward, the same problems as above would arise, if there exists no etrading platforms which are permitted both in Japan and the US
Cross-border issues arising from t

Entity-Level Regulations

Some financial institutions

(

※) will be 

overlapping regulations (= not only Jaregulations but also US regulations wthem)

(

※) Examples

• Head offices of Japanese financial 

registered as swap dealers in the U

• Subsidiaries and branches in Japan 

financial institutions

Swap data recordkeeping and reporting, 
Cross-border issues arising from t

Entity-Level Regulations (contin

There should be proper coordination and supervision of financial institutiooverlapping regulation (e.g. substituteunder an MoU) JFSA should be recognized as the priregulator to conduct inspection and sfinancial institutions which are establJapanese law

Swap data recordkeeping and reporting, 
Thank you very much

for your kind attentio

www.fsa.go.jp/en/