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Clifford Chance

Clifford Chance

Briefings

OTC Derivatives in Japan - clearing and related developments [Japanese version]

24 June 2011

The bill to amend the Financial Instruments and Exchange Law passed the Diet as of 12 May 2010 and was promulgated on 19 May 2010 (Amendment Act). The Amendment Act, the related Cabinet Order (Amendment Cabinet Order) and the Cabinet Office Ordinance regarding Financial Instruments Clearing Organisations came into force on 1 April 2011. The Amendment Act includes provisions to improve the stability and transparency of clearing and settlement of over-the-counter (OTC) derivatives transactions by requiring clearing organisations to be used, and stipulating different possible clearing organisations depending on the characteristics of the transactions:

• Clearing by a domestic clearing organisation;
• Clearing by aligned domestic and foreign clearing organisations; or
• Clearing by a foreign clearing organisation.

Additionally, existing restrictions on cold calling with respect to OTC derivatives trades have been amended and the target scope (i.e., regulated type of trades) has been expanded.

Finally, the existing scope of the licensing regime and code of conduct for derivatives has been expanded by the Amendment Cabinet Order and the cabinet ordinance regarding definitions to cover real estate derivatives trades.

This briefing explains the recent developments.

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