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Global Drill Simulating the Default of a Large-sized Financial Institution

2023/11/27

Japan Securities Clearing Corporation (hereinafter referred to as “JSCC“）conducted a fire drill simulating the default of a large-sized financial institution, aligning with major CCPs in other countries1 (hereinafter referred to as “Global Fire Drill”）during the period from November 13, 2023 (Mon.) to November 20, 2023 (Mon.), with participation of the Financial Services Agency and the Bank of Japan, in addition to 52 financial institutions, such as banks and securities companies.

Each of the participating CCPs established or reinforced their default management functions to prevent contagion from the default of a member financial institution impacting other market participants, which could potentially develop into a future financial crisis. The Global Fire Drill was the first coordinated simulation where key global CCPs conducted a simultaneous default settlement drill, which simulated the default of a hypothetical global financial institution.

JSCC had previously established a robust default settlement framework to manage the default of a financial institution participating in clearing of listed or OTC transactions (Clearing Participant). This framework is designed to manage the disposal of collateral posted by a defaulted Clearing Participant, as well as liquidating its unsettled positions to prevent any impact on other market participants. These measures are one of the critical functions of a CCP, and JSCC continuously strives to maintain and enhance its default settlement framework, taking into account any findings and insights gained from regular fire drills, including this Global Fire Drill (see the reference below, for an outline of the Global Fire Drill).