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OTC Derivatives ClearingFor Clients ー Client Clearing Service

JSCC started clearing Japanese Yen interest rate swaps (IRS) in October 2012, and 26 Clearing Participants, consisting of Japanese and global financial institutions, and more than 100 Customers (Affiliates & Clients) (*), are currently using the service.

(*) Client Clearing service enables the clearing of trades for a Clearing Participant's unaffiliated Customer (a Customer not in the same Corporate Group as the Clearing Participant) ("Client") trades through "Brokerage for Clearing."

1. IRS Products Eligible for Clearing
2. The Clearing Process
3. Deposit of Margin
4. Management of Collateral Posted to JSCC － Trust Scheme
5. Post Clearing Services －Compression / Cross Margining / Position Transfer
6. JSCC Direct
7. Fees
8. Clearing Participant Default
9. Onboarding Process － How to Start Clearing
10. Contact Information
11. Regulatory Status － Overseas Licenses/Recognitions
12. Other

1. IRS Products Eligible for Clearing

JSCC's IRS clearing service covers a broad range of products including, but not limited to, the products subject to the central clearing requirement in Japan.
List of IRS Products eligible for clearing at JSCC:

List of Products Eligible for Clearing

More details of the requirements for eligible transactions is available here:

Matters Prescribed as Requirements for Eligible IRS Transactions

2. The Clearing Process

Operational flow for Over-the-Counter IRS, from trade execution to clearing at JSCC, and details of the relevant clearing times, are outlined here:

Clearing Application Flow and Clearing Timing

3. Deposit of Margin

The risk to a Client's cleared positions arising from interest rate fluctuations is covered by "Margin". Clients must deposit Margin to JSCC through their Clearing Brokers (the relevant Clearing Participants providing the Client Clearing service)
Each type of Margin is explained here:

Outline of Margin

Details of the Deposit method, Calculation method, and Deposit Deadline for Margin are available here:

Margin Deposit and Calculation Method
Initial Margin and Liquidity Charge

Customer Buffer
At JSCC, the "Customer Buffer" framework is available, under which an allocation of collaterals posted by a Clearing Broker for such purpose is allowed at a time of Customer's collateral shortfall (Affiliate and Client). Please see here for details.

4. Management of Collateral Posted to JSCC － Trust Scheme

JSCC has established a trust scheme for the collateral posted by Clearing Participants and their Customers (Affiliates & Clients)*. The trust scheme allows collateral to be isolated (bankruptcy remote) from the default risk of JSCC under Japanese law.
*Alternatively, cash collateral can be posted in the custody of the Bank of Japan with a current account.
An overview of the trust scheme is available here:

Overview of Trust Scheme

An overview of the comparison of protection available to U.S. Person between under U.S. and Japanese Law is available here:

Overview of Comparison of Bankruptcy Protections

5. Post Clearing Services － Compression / Cross Margining / Position Transfer

Compression
JSCC offers "Compression" services that enable the netting and compression of outstanding cleared trades. "Per-Trade Compression","Blended Rates Compression" and "Vendor-Initiated Compression" are available for Clients. An overview of these services is available here:

Compression

Click here for prescribed economic terms of trades eligible for Per Trade Compression.
Click here for other points of attention on Per Trade Compression.
Click here for prescribed economic terms of trades eligible for Blended Rates Compression.
Click here for other points of attention on Blended Rates Compression.

Cross Margining
JSCC offers a "Cross Margining" service that enables the offsetting of risk between cleared IRS and 10-year JGB Futures positions. An overview of this service is available here:

Cross Margining

Position Transfer
JSCC offers a "Position Transfer" service that enables the transfer of cleared IRS to another participant of JSCC's IRS Clearing Service. An overview of this service is available here:

Position Transfer

6. JSCC Direct

About JSCC Direct
JSCC provides the "JSCC Direct" system as an additional service, which allows Clearing Customers to directly obtain reports related to clearing information and required margin amounts provided by JSCC. Usage of this service is optional. If you wish to use it, please inquire with the Clearing Broker.

7. Fees

Two different Fee tables for Client Clearing are available depending on the clearing volume / trading frequency. Details of the fees for Clients are available here (Please see Section 4 for Client Clearing Fees):

Clearing Fees

8. Clearing Participant Default

JSCC performs a full range of Clearing Participant credit risk management to minimize the risk of the default of a Clearing Participant. However, in the event of a Clearing Broker's default, each Client's positions may be transferred to another Clearing Broker.
Details of JSCC's Clearing Participant default management processes, and the rules relating to the transfer of a Client's positions, are available here:

Participant Default Management
Segregation of Customer Collateral / Position Transfer
Loss Compensation Financial Resources
Fund Liquidity Management

Specific details of the responsive measures JSCC could take following a Clearing Participant Default in the IRS Clearing Service are available here:

Settlement Scheme upon Participant Default / Framework of Loss Compensation

9. Onboarding Process － How to Start Clearing

Clearing Brokers Providing Client Clearing Service
The following Clearing Participants currently offer Client Clearing services at JSCC:
- Citigroup Global Markets Japan Inc.
- Nomura Securities Co., Ltd.
- Barclays Bank PLC
- Mizuho Bank, Ltd.
- Sumitomo Mitsui Trust Bank, Limited.
- Morgan Stanley MUFG Securities Co., Ltd.
Please contact JSCC directly for more details of these Clearing Participants.
Conditions on JSCC Client Clearing
To begin clearing at JSCC as a Client, the following conditions must be satisfied:
(1) Execution of a "Clearing Brokerage Agreement" (*1) with a Clearing Broker;
(2) Submission of a "Letter of Undertaking" to JSCC (*2); and
(3) Utilization of a trade affirmation platform / electronic trading platform (*3) designated by JSCC.
Please see here for details.

(*1) For the Clearing Brokerage Agreement, please use the format prescribed as Exhibit Form 3-2 (English) to the "Handling Procedures of Interest Rate Swap Business Rules."
(*2) For the Letter of Undertaking, please use the format prescribed as Exhibit Form 4-2 (English) to the "Handling Procedures of Interest Rate Swap Business Rules."
(*3) The trade affirmation platforms / electronic trading platforms with direct connections to JSCC are;
MarkitWire, Tradeweb, Bloomberg VCON, and Bloomberg ETP.

In addition, the documents that a Clearing Broker is required to submit to JSCC when onboarding a new client for Client Clearing are listed here:

List of Documents Required to be Submitted upon Commencement of Client Clearing

Timeline
Before onboarding as a Client at JSCC, certain procedures are generally required between the Client and its Clearing Broker, including Clearing Broker selection, preparation of required documents with the Clearing Broker and an operational system check. The required timeframe for each process differs with each Clearing Broker. Please check with your Clearing Broker for specific timeline and details.

Verification Process of Prospective Clients by their Clearing Member under Japanese Anti-Money Laundering Laws
The "Act on Prevention of Transfer of Criminal Proceeds" ("the Act") is a Japanese law designed to prevent money laundering. It requires banks and financial instrument business operators, such as brokers clearing swaps on behalf of their clients, to verify prescribed items before entering into transactions, to create and retain records of the verification and the transactions, and to report suspicious activity to the relevant authorities.
OTC derivative transactions, such as OTC interest rate swaps, are included in the definition of "Specified Transactions" (Article 4 of the Act & Article 7 of the "Order for Enforcement of the Act" ("the Order")). Before conducting such transactions, a financial instrument business operator (incl. a clearing broker) is required to verify the following information about their clients:
1. Identification
  For corporations, verification should be conducted by receiving a "Certificate of Registered Matters" (i.e. Articles of Incorporation (or similar) from non-Japanese clients) from a representative of the corporation (Article 7 of Ordinance for Enforcement of the Act ("the Ordinance")).
  Additionally, for natural persons acting on behalf of the corporation in "Specified Transactions", identification details (incl. name, address, date of birth) must be verified with official government-issued documents (such as a driver's license or passport), along with the fact that the persons are authorized to act on behalf of the client in Specified Transactions (Article 4, Paragraph 4 of the Act & Articles 7 and 12 of the Ordinance).
2. Purpose of Transactions
  Verification is conducted by receiving a declaration of the purpose of the intended transactions from a representative of the client (Article 9 of the Ordinance).
3. Business Description
  For foreign corporations, verification is conducted using documents required by foreign laws or regulations that describe the business activity of the corporation (Article 10 of the Ordinance).
4. Beneficial Owner
  Verification is conducted by receiving a declaration from a representative of the client, based on the following rules to determine the beneficial Owners: (Article 11 of the Ordinance)
  - For joint-stock companies and limited liability companies: a natural person who holds directly and/or indirectly more than 25% of the voting rights (unless another natural person holds more than 50% of the voting rights)
  - For other companies: a natural person who is deemed to have a dominant influence on the business activities.
  - For this purpose, the definition of a natural person can include governmental entities and listed companies. (Article 14 of the Order)
  - For comprehensive information about the verification of Beneficial Owner, please see Article 11 of the Ordinance.
Please note, the following documents referred to in this summary are only available in Japanese:
"The Act": Act on Prevention of Transfer of Criminal Proceeds
"The Order": Order for Enforcement of the Act on Prevention of Transfer of Criminal Proceeds
"The Ordinance": Ordinance for Enforcement of the Act on Prevention of Transfer of Criminal Proceeds

Please also note: This information is provided as a reference for Japanese and non-Japanese clients, which are planning to start clearing OTC interest rate swaps through a JSCC clearing member domiciled in Japan, and are subject to the relevant Japanese anti-money laundering laws, which may differ from the laws in the jurisdiction where the client is incorporated. Please consult the JSCC clearing member acting as your broker and legal counsel for full details of the requirements.This information is solely for referential purposes. This is not, and is not intended to be, a complete or comprehensive description of the regime. Japan Securities Clearing Corporation ("JSCC") has no obligation to update the information in response to the changes of the relevant laws, regulations, guidance and/or policies of the authorities. The contents do not, and do not seek to, constitute advice of any nature, including any legal or investment advice. The contents only intended to provide a high-level English language summary, based on JSCC's interpretation of the referenced laws and regulations. Readers should always take their own legal advice and review the JSCC's rulebook in terms of the use of JSCC's clearing services. JSCC will accept no liability over any and all damages resulting from any use of this information for any reason whatsoever.

Withholding taxes on Foreign Clearing Participants and Customers and Procedures for Exemption (Interest Rate Swap)
Foreign Clearing Participants and Customers are liable to pay Japanese Income Tax and Special Income Tax for Reconstruction (hereinafter referred to as "Income Taxes") in accordance with the Japanese tax-related laws and regulations if they have domestic source income. JSCC is required to withhold said Income Taxes (Income Tax Act, Article 5, Article 7, Article 212).
However, depending on a case, a foreign corporation may enjoy a reduction or exemption of income tax, or withholding tax exemptions. If application of said exemption or reduction cannot be confirmed, the foreign corporation bears a risk of double taxation in Japan and its home country as well as other economic and procedural burdens. So, we ask foreign Clearing Participants and Customers to check the applicable laws and regulations and take appropriate procedures.
This information is posted for foreign Clearing Participants and Customers as reference information concerning the Japanese tax withholding procedures, as well as reduction and exemption of income tax and withholding exemptions available to them. For detailed procedures, please consult with your legal counsel or your Clearing Broker.

Interest on Variation Margin (PAI)	An income tax withholding is not required for the adjustment amount paid to a user of VM-as-settlement scheme (PAA).
Interest on Initial Margin and Clearing Fund	Collateral management profit, if any, is paid out as an interest, which is subject to tax withholding.

Major examples of reduction or exemption and withholding tax exemptions on domestic source income subject to JSCC's income tax withholding

(1) Reduction or Exemption of Income Taxes under the Income Tax Convention

Income Subject to Relief	Interest paid to a foreign corporation that is a resident of the contracting state of the Income Tax Convention with Japan
Legal Basis	Income Tax Convention
Procedures	A foreign corporation intending to enjoy the relief shall submit the documents listed below to JSCC, and JSCC files the documents with the district director of the competent tax office in the place where JSCC (the payer of the interest) resides. Application Form for Income Tax Convention (If the applicable Income Tax Convention has an article of limitation on benefits which prescribes additional conditions for the benefits accorded by the Convention, both of the documents listed below also need to be submitted) Attachment Form for Limitation on Benefits Article Residency certification (a document proving that the corporation is a resident of the contracting state which must be issued by the competent authority of the country of residence no earlier than one year before the presentation to JSCC)
Renewal	Renewal required every 1 or 3 years - A need for renewal and the renewal frequency vary depending on the fulfillment of Limitation on Benefits Article.
Reference Information	National Tax Agency JAPAN website explaining procedures Application Form for Income Tax Convention (Interests) Attachment Form for Limitation on Benefits Article The United States of America The United Kingdom of Great Britain and Northern Ireland The French Republic Australia The Kingdom of the Netherlands Switzerland Federal Republic of Germany - In addition to the countries listed above, there are other Income Tax Conventions with Limitation on Benefits Article. Please refer to the website of the National Tax Agency JAPAN.

(2) Tax Exemption under the Act on Special Measures on Taxation

Income Subject to Exemption	Interest from the margin on OTC transactions of derivatives paid to a "foreign financial institution, etc." - A "foreign financial institution, etc." means a foreign corporation engaged in the banking business, financial instruments business or insurance business in a foreign state in accordance with the laws and regulations of the state. A fund is not included in the definition of a "foreign financial institution, etc." - Only the Initial Margin and Variation Margin are subject to the exemption , but not the interest of Clearing Fund.
Legal Basis	The Act on Special Measures on Taxation, Article 42 - Temporary measures effective until March 31, 2027 (as of March 2025)
Procedures	A foreign corporation intending to enjoy the exemption shall submit the application form and the documents listed below to JSCC, and JSCC files the application form with the district director of the competent tax office in the place where JSCC (the payer of the interest) resides. Certification document concerning foreign corporation Foreign corporation with a permanent establishment (PE) in Japan Certificate of registered matters (issued no earlier than 6 months before the presentation) Foreign corporations without permanent establishment (PE) in Japan A document issued by a government or municipal office that states the name of the foreign corporation and the location of its head office or main office Application form of withholding tax exemption on the interests from the margin on over-the-counter transactions of derivatives
Renewal	Renewal required every 5 years
Reference Information	Application form of withholding tax exemption on the interests from the margin on over-the-counter transactions of derivatives

(3) Exemption from withholding for foreign corporations with permanent establishments

Income Subject to Exemption	Specified domestic source income attributable to a permanent establishment of a foreign corporation
Legal Basis	Income Tax Act, Article 180
Procedures	A foreign corporation intending to enjoy the exemption shall submit the documents listed in (1) below to the district director of the competent tax office and present the certificate listed in (2) below issued by the district director of the competent tax office to JSCC. (1) Documents to be submitted to the district director of tax office - Application for Certificate of Exemption from Withholding for Foreign Corporations or Nonresidents - When the foreign corporation is licensed or registered to operate in Japan, a copy of the document evidencing such license or registration. (2) Document to be submitted to JSCC - Certificate of Exemption from Withholding
Renewal	Renewal required at each expiration timing indicated on the Certificate of Exemption from Withholding.
Reference Information	Application for Certificate of Exemption from Withholding for Foreign Corporations or Nonresidents - Only in Japanese

(Disclaimer) This information is provided solely as reference information with respect to JSCC's understanding of the Japanese laws and regulations as of March 31,2025. This information is not, and is not intended to be, a complete or comprehensive description of the legal regime. Japan Securities Clearing Corporation ("JSCC") has no obligation to update the information even if there is any change in the relevant laws, regulations, guidance and/or policies of the authorities. In particular, tax exemptions under The Act on Special Measures on Taxation are subject to certain time limits. The contents of this posting do not, and do not intend to, constitute an advice of any nature, including any legal or investment advice. The contents of this posting only intend to provide a high-level English language summary of the referenced laws and regulations based on JSCC's interpretation. Readers are encouraged to obtain a legal advice by themselves and are required to comply with JSCC's rulebook for the clearing services. JSCC will accept no liability for any and all damages resulting from any use of this information for any reason whatsoever.

10. Contact Information

OTC Derivatives Clearing Service (IRS), Japan Securities Clearing Corporation
Telephone: +81-50-3361-1794
E-mail: otc@jpx.co.jp

For inquiries related to the documentation in section 8. to be submitted to the Risk Monitoring Division, please contact:
Risk Monitoring Division, Risk Management Department, Japan Securities Clearing Corporation
Tel: +81-50-3361-1789
E-mail: risk-mo@jpx.co.jp

11. Regulatory Status － Overseas Licenses/Recognitions

In line with each country's initiatives towards central clearing of OTC derivatives transactions since the financial crisis in 2008, JSCC has obtained authorization from overseas regulatory authorities (U.S., EU, Australia, Hong Kong, Switzerland, Canada, and UK) to offer clearing services to non-Japanese entities.
This allows users to comply with the central clearing requirements in each jurisdiction through JSCC's IRS clearing service. Please see here for full details:

License / Authorization Acquisition Status