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Division News FIA Japan Chapter publishes September 2008 newsletter
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FIA Japan Chapter publishes July 2008 newsletter
To read the latest newsletter please click on the link(s) below.
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FIA Japan Chapter May 2008 newsletter
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Commodity Clearinghouse Task Force – Second Report Issued
FIA Japan issued a second report in July 2008 with recommendations for improvements in the clearinghouse function for the commodities industry in Japan; This report has been sent to the commodities regulators and the JCCH. As reported earlier, the FIA-Japan Clearinghouse Task Force issued an Interim Report in April 2008 summarizing our recommendations for improving the clearinghouse function for the commodities industry in Japan, including the identification of several strategic business considerations. Subsequently, a regulators’ study group issued its own report on changes that they believe should be made to the clearinghouse function. We have reviewed the study group recommendations and we have considered several areas where we believe further attention needs to be focused. Our comments and suggestions are included in this “follow-up report”. Our report also includes certain overall comments about the current status of the commodities industry in Japan as well as our suggestion to expand the scope of the clearinghouse project. Detailed recommendations included in the follow-up report cover the following areas: financial considerations (clearinghouse capital), corporate governance and management requirements (including conflicts of interests issues), operations planning (including planning for higher expenses and paying interest on deposits), clearing member minimum net capital requirements (such as adoption of global standards of calculation), and position transfers, give-ups and direct market access.
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To all Members of FIA-Japan
Recently we obtained an English translation of a report issued by the Japan Securities Clearing Corporation (JSCC). This report is the “Comprehensive Improvement Plan of the Risk Management System”. It includes changes which will be put into place related to collateral and margining and other areas related to risk management including the timing of cash movements and updating of information. Many of the changes will be effective in June and July this year.
JSCC is the clearinghouse for cash securities transactions executed on the stock exchanges in Japan, as well as the clearinghouse for the derivatives traded on TSE. Other derivatives exchanges including OSE, TFX have their own separate clearing organization.
The changes are primarily an upgrading of procedures to bring JSCC closer to global standards. However, most of the changes have already been in place at TFX and OSE. One area of concern by member firms relates to the valuation of bonds as collateral. This will require additional systems changes. This area should require coordination with the other exchanges as it provides a complex method for valuation not currently used by the other exchanges. Implementation of this change is currently scheduled for 2009.
Regards,
Mitch Fulscher
Commodity Clearinghouse Task Force – Interim Report Issued
The FIA-Japan Task Force issued an Interim Report with recommendations for improvement in the clearing function for the Japan commodities markets. This report was delivered to METI in connection with their study of the clearing function. The Report contains strong recommendations for improvements in clearing procedures and controls particularly with respect to financial safeguards and risk monitoring. There are serious shortfalls in the current system. In Japan. The Task Force considered the function and methods used by clearinghouses in the US and Europe, and has evaluated its application to the Japan commodity markets.
The Interim Report contains recommendations in the following areas:
Increase in Financial Requirements and Capital AdequacyThe clearinghouse corporate capital and the clearing members’ minimum net capital requirements need to be increased. A focus on “liquid capital” should be instituted as part of the rules. Also improvement is needed in the fundamental structure of the financial guarantee (including the current “silo structure” by Exchange)
Corporate Governance
Improvements are needed in the corporate governance structure of the clearinghouse, its Board of Directors and committees, and management (including conflict of interest considerations). Management and the Board must be empowered to act strongly for the interest of the clearinghouse.
Risk Management Pre-trade and post-trade risk management system must be established. This will require adequate systems and IT capability at the clearinghouse as well as close inter-cooperation with the exchanges and clearing members. Adequate examination of clearing members must be instituted.
Margining MethodologyRequirement for risk based margining system with real-time information is required. Globally accepted systems, such as SPAN, should be put into place.
Information and Service for Clearing MembersData, information, timeliness for providing clearing members with adequate information for risk management is essential. This will require significant investments in technology and human resources by the clearinghouse.
Other Strategic Business Considerations
In addition to the above areas, there are several strategic business considerations that needs to be addressed.
· “For-Profit” model versus “not for profit” utility
· Interest on Margin and Member deposits
· Clearing OTC business
· Role of Clearinghouse as Customer Money Custodian
· Relationship and Support from International Clearinghouses
The Task Force intends to comment further on these strategic issues.
A copy of the Interim Report can be obtained from our FIA-Japan offices. Please contact Mitch Fulscher, Chairman FIA-Japan, or Ms. Motoko Ogawa, Executive Secretary.
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FIA-Japan Issues Report Calling for "Urgent Action" to Strengthen Japan's Position as International Financial CenterRecently the inadequacy of the Japan financial market has been focused on by the Prime Minister's Cabinet. Prime Minster Abe's announced platform addresses these shortfalls and his intention to make changes. FIA-Japan was invited to meet with the special Cabinet Office Working Group and discuss our views with them, and we were asked to write a letter with our recommendations. On July 6, 2007, our Board approved the attached letter which was sent to the Cabinet Office.
The comments identify the priorities that should be focused on in order for Tokyo to become a global financial center. The critical priority action steps outlined in the letter include:
- Develop a clear Strategy for the Tokyo Financial Market
- Eliminate the financial market “Silos"
- Create a competitive environment
- Encourage international entry, remove regulatory hurdles
- Establish a High Level promotional Tokyo Financial Center Office
View FIA-Japan's letter
Newsletter
FIA Japan May 2008 Newsletter
FIA Japan March 2008 Newsletter
FIA Japan December 2007 Newsletter
FIA Japan October 2007 Newsletter
FIA Japan July 2007 Newsletter
Past Events and Newsletters
Division Background
FIA-Japan is the only truly international organization in Japan dedicated to spreading the understanding and appreciation of futures and options markets, including commodity markets as well as all financial market instruments. The FIA-Japan Chapter was organized in 1989 as a nonprofit organization by foreign and Japanese futures industry participants representing the entire cross section of the futures industry.
Its current membership consists of over 50 foreign and domestic organizations, bringing together FCMs, securities firms, banks, futures exchanges and futures associations and other professional firms and technology providers to the industry.
The Chapter monitors and comments on Japanese legislative and regulatory developments and exchange rules affecting the futures and options markets and its participants. It provides a forum for discussion of industry matters and provides training, seminars and information about Japan and international market practices and regulations. | 
