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Newsletter January 2010: Japan consults on financial regulation plans |
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TOKYO – Japan’s Financial Services Agency is beginning a public consultation on a range of new financial regulations that it is considering submitting to the parliament – the Diet – early in 2010. The areas where action is being considered were set out in a paper* issued for comment in mid-December. They include: regulation of over-the-counter (OTC) derivative transactions; regulation of hedge funds; strengthening of securities clearing and settlements systems; investor protection; consolidated regulation for securities firms; and reporting of ‘short selling.’ 
The measures have been made necessary by the global financial crisis and agreed international decisions such as those reached by leaders of the Group of 20 most important economic countries, as well as developments in Japan’s financial and capital markets.As elsewhere, the Financial Services Agency (FSA) is proposing the mandatory clearing of some OTC derivatives through central counterparties. This would involve those contracts that are traded in large volume, essentially ‘plain vanilla’ interest rates swaps. In order to reduce settlement risk in Japan’s markets promptly and effectively, clearing should ideally be concentrated in locally-established central counterparties (CCPs), says the consultation document. “At the same time, given that most Japanese financial institutions conduct international transactions, mandatory CCP clearing could be achieved through alliances between foreign and domestic CCPs that meet certain requirements,” it says. “Moreover, consideration could be given to examining, as one of the possible measures, mandatory clearing at foreign CCPs.” In addition, the FSA is proposing that information on OTC derivative transactions should be submitted to the authorities by trade repositories and central counterparties in order to ensure overall transparency of markets and provide regulators with a clear picture of market conditions. As far as hedge funds are concerned, the FSA says the regulations already in place in Japan are, on the whole, already equivalent to the international agreements for the registration of these vehicles. However, the Agency is proposing an expansion of the reporting requirements pertaining to the risk management of funds. Whether ‘short selling’ requires further regulation, is still under consideration. The FSA already had permanent requirements in place even before the crisis. These were subsequently tightened. While taking into account the trends in other countries, the Agency will continue to review what reporting and disclosure requirements may be needed in future, the consultation document says.
* Draft Blueprint for the Development of Institutional Frameworks Pertaining to Financial and Capital Markets
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| (Volume:8 Issue: 1) |
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