The letter highlights two key concerns, one of which is in relation to the negative effect that the proposed restrictions of the Volcker rule would have on Japanese Government Bonds trading.
The letter highlights the following two concerns:
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First, the importance of taking due account of the cross-border effect of financial regulations and the need to collaborate with the affected countries. The Japanese FSA is sure that the US would agree that regarding extraterritorial application of financial regulations the home authorities bear the primary regulatory and supervisory responsibilities.
Considering the potentially serious negative impact on the Japanese markets and associated significant rise in the cost of related transactions for Japanese banks, they would appreciate the US refraining from extraterritorial application of the Restrictions, or the US amending the definition of “control” and “affiliate” so as not to include such foreign joint ventures and foreign subsidiaries which are controlled by foreign banking groups.
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Second, they are concerned that the proposed Restrictions would have an adverse impact on Japanese Government Bonds (JGBs) trading. They would raise the operational and transactional costs of trading in JGBs and could lead to the exit from Tokyo of Japanese subsidiaries of US banks. Some of the Japanese banks might be forced to cease or dramatically reduce their US operations. Those reactions could further adversely affect liquidity and pricing of the JGBs.
Full letter
© FSA Japan
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