22 December 2009

FSA Japan issues Blueprint for Financial Services Regulation

The FSA intends to introduce a mandatory clearing of OTC derivatives on CCPs. Also, securities clearing and settlement systems will be under scrutiny. Further plans include introducing consolidated regulation and supervision of securities companies and reporting requirements for Hedge Funds.

The Japanese Financial Services Agency (FSA) issued the English translation of its “Draft Blueprint for the Development of Institutional Frameworks Pertaining to Financial and Capital Markets” as issued in September in preparation for the ordinary session of the Diet beginning early next year.

 

With regard to the stability and transparency of the settlement of OTC derivative transactions, the FSA proposes that the clearing of OTC derivative transactions of a large trading volume needs to be subject to mandatory CCP clearing to prevent contagion and reducing settlement risk in Japan’s financial markets.

 

In parallel with the mandatory CCP clearing, regulations on major shareholders and regulations on capital should be introduced for domestic CCPs.

 

Furthermore, information on OTC derivative transactions should be submitted to the authority from trade repositories and from CCPs. Also, the authority also needs to be able to require that financial institutions submit information directly to it.

 

For the securities clearing and settlement systems, including for government bond transactions and stock lending transactions market participants, including the JGBCC should produce and publish a roadmap during the first half of 2010 outlining the way to strengthen the systems of JGBCC in order to increase the use of its clearing services, as well as shortening the settlement interval, and establishing and disseminating rules for handling settlement fails. The FSA will consider the mandatory CCP clearing of JGB transactions as a statutory measure.

 

The FSA also intends to formalize the consolidated regulation and supervision of securities companies whose overall risks might be hard to be identified under the current non-consolidated-based regulation and supervision.

 

Further issues include the regulation on Hedge Funds, where the Japanese FSA is closely monitoring the developments in the EU and the US. Also, short selling measures and the regulation of unsolicited offer for overall derivative transactions are under scrutiny for 2010.

 

Link to the summary report

FSA website (incl. Japanese version)

 

© FSA Japan