Default ManagementSegregation and Portability
Segregation and Portability
Segregated Management of Customer Positions and Margin
(As of April 14, 2023)
- For each Clearing Business, JSCC has adopted differing segregation arrangements for customer protection, in accordance with the nature of the products it clears, in order that customer assets deposited to JSCC should be protected, even when a Clearing Participant default occurs.
- For the CDS Clearing Business and IRS Clearing Business, Clearing Participants' proprietary and customer positions/margin are managed on a gross basis. Customer positions/margin are segregated in individual customer accounts with JSCC at all times, regardless of whether or not the customer is an affiliate of the Clearing Participant (i.e. an entity who belongs to the same Corporate Group of the Clearing Participant; the same applies hereinafter). JSCC has established this framework to protect margin related to customer positions from the default or insolvency of a Clearing Participant. In addition, for the IRS Clearing Business, customers have the right to claim payment from JSCC of the “profit equivalent” that they should have received on and after the default determination date, when they choose not to transfer their positions to another Clearing Participant following a Clearing Participant default.
- For listed derivatives of the Listed Products Clearing Business, customer positions/margin are managed in an individual segregated account or on a gross basis in an omnibus account with JSCC, separate from the Clearing Participant’s proprietary account, in consideration of cross-border and other diverse customer types. Individual customer positions/margin are managed by the Clearing Participant even if they are managed in an omnibus account with JSCC. JSCC has the authority to request information related to individual customer positions/margin from the Clearing Participant when necessary, and has a framework in place to protect such margin related to customer positions from the default or insolvency of a Clearing Participant. See the following “Transfer of Positions/Margin” section for further details.
- For the OTC JGB Clearing Businesses, Clearing Participant’s proprietary and customer positions/margin are managed on a gross basis. Customer positions/margin are always segregated in individual customer accounts with JSCC, regardless of whether or not the customer is an affiliate of the Clearing Participant. For customer protection arrangements, the Financial Instruments and Exchange Act (FIEA) requires each Clearing Participant to conduct the segregated management of customer securities and cash.
- For listed cash products in the Listed Products Clearing Business, JSCC would conduct netting for all of a defaulting Clearing Participant’s transactions. As such, JSCC only receives collateral deposits from Clearing Participants. For customer protection arrangements, the FIEA requires each Clearing Participant to conduct the segregated management of customer securities and cash. Also, the protection of customer securities and cash related to unsettled contracts is achieved under alternative schemes in Japan. Specifically, the Japan Investor Protection Fund, established according to the FIEA, which provides a customer protection scheme for small-scale customers who are the customers of the Financial Instruments Business Operators defined under the FIEA, while JASDEC DVP Clearing Corporation provides DVP Settlement Services for NETDs (non-exchange transaction deliveries) for large-scale (professional) customers. These schemes provide a means of eliminating principal risk.
Transfer of Positions/Margin
- JSCC has adopted positions/margin transfer arrangements, in accordance with the nature of the products it clears, in order that customer assets deposited to JSCC should be protected even when a Clearing Participant default occurs.
- For listed derivatives, CDS, and IRS, if a Clearing Participant defaults, customers may transfer their own positions and margin to another Clearing Participant without the consent of the defaulting Clearing Participant. In such a case, agreement would be necessary from the Clearing Participant receiving the transfer of positions/margin.
- For listed derivatives, the Clearing Participant receiving a transfer would be required to express its consent and to follow the exchange’s prescribed procedures, after which JSCC would conduct the transfer based on the exchange’s decision. For CDS and IRS, a customer would apply to JSCC via the Clearing Participant receiving the transfer, after which JSCC would confirm that the required amount of margin pertaining to the transferring positions has been deposited by such Clearing Participant. After this confirmation, JSCC would transfer the positions and margin of the relevant customer.
- For listed derivatives, CDS, and IRS, Clearing Participants may determine whether they accept a transfer of positions and margin based on an agreement with the transferring customer.
- For listed cash products of the Listed Products Clearing Business, there are no customer positions, nor margin that would be available to be transferred.
- For the OTC JGB Clearing Business, currently only an affiliate of a Clearing Participant is a customer, and threfore there are no positions, nor margin that would be available to be transferred.
