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Loss Compensation

(As of June 18, 2024)

  • JSCC continuously monitors Clearing Participants in order to avoid their defaults, but preparing for the worst, JSCC has established a Loss Compensation Framework for each Clearing Business. This prevents losses from a single Clearing Business impacting the others.
  • Loss Compensation Framework is based on the principle that first tier resource should be Defaulter’s Pay (Margin, etc.), and Survivors’ Pay (Clearing Fund, etc.) should be used afterwards. JSCC should compensate losses before Survivors’ Pay, in order to keep incentive for appropriate risk management.
  • JSCC conducts stress testing at least daily to determine whether overall financial resources, including margin and the Clearing Fund, are sufficient to cover potential losses, for each of its Clearing Businesses.
  • The results of daily stress testing are reported to the Chief Risk Officer (CRO), CEO and other executive directors, and the related division head. Additionally, stress testing results are reported as to the Risk Oversight Committee on a monthly basis, the Board of Directors and the Risk Committee on a quarterly and annual basis and the Advisory Committees of each clearing business on at least annual basis.
  • Risk Management Office of JSCC validates its overall risk management models at least annually, and if necessary, each Clearing Business reviews its model. Within these validations, JSCC evaluates the policies and calculation methods of the risk management framework, including margining and clearing fund, based on the circumstances. Validation results are reported to the Board of Directors, the Risk Committee and the advisory committees of each Clearing Business.
  • Loss Compensation financial resources for each Clearing Business are as follows:

Loss Compensation financial resources for each Clearing Business

(*1) 7 bil. yen of the total 9.1 bil. yen is funded by OSE to compensate for losses excluding Energy Futures (for a limited period since June 2023).
(*2) The amount of the Settlement Guarantee Reserve to be borne by JSCC and the replenishment of any amount used is stipulated in the rules for each Clearing Business.
(*3) For OTC JGB, Contributions to compensate for losses from the Clearing Fund and Special Clearing Charge of non-defaulting Clearing Participants are allocated separately according to the classification of either trust bank Clearing Participants' trades for trust or non-trust trades. Allocation of contribution to trades for trust will be determined based on the ratio of underlying transactions for trust to the entire position of the defaulting Clearing Participant.