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.”
Table of Contents
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1. IRS Products Eligible for Clearing
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2. The Clearing Process
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3. Deposit of Margin
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4. Management of Collateral Posted to JSCC － Trust Scheme
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5. Post Clearing Services －Compression / Cross Margining / Position Transfer
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6. Fees
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7. Clearing Participant Default
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8. Onboarding Process － How to Start Clearing
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9. Contact Information
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10. Regulatory Status － Overseas Licenses/Recognitions
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11. 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:
- More details of the requirements for eligible transactions is available here:
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:
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:
- Details of the Deposit method, Calculation method, and Deposit Deadline for Margin are available here:
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:
- An overview of the comparison of protection available to U.S. Person between under U.S. and Japanese Law is available here:
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:
- 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:
- 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:
6. 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):
7. 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:
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:
8. 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, 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:
- 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.
9. 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
10. 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:
11. Other
- List of Clearing Participants and Customers (Affiliates & Clients) using JSCC’s IRS clearing service:
- Rules and Public Notices related to JSCC’s IRS clearing service:
- IRS clearing performance data:
- Disclosures under the Principles for Financial Market Infrastructures:
