Japan to build CCP for OTC derivatives trading

Japan to build CCP for OTC derivatives trading

Japan Securities Clearing Corporation (JSCC) has announced plans to develop a central clearing counterparty for interest rate swaps and credit default swaps.

The JSCC, in association with the Tokyo Stock Exchange, has set up a working group to design detailed CCP functionality for managing risk in OTC derivatives trading.

The establishment of the group follows the March release of a specially-convened study group on post-trade processing of OTC derivatives trades. This concluded that the JSCC should co-ordinate operational procedures including the establishment of a robust risk management process, IT systems, and business analysis with the aim of launching a fully-fledged clearing service in the first half of next year.

The JSCC says it will work with foreign clearing operators already active in Japan to ensure a harmonised approach and minimal disruption to existing procedures.

The study group report concluded: "In accordance with the current common practice of using the CCP function of LCH.Clearnet's SwapClear for interest-rate swap trading by foreign financial institutions, the opinion was expressed that cooperation with LCH.Clearnet would be required when a clearing institution in Japan is introduced for the clearing of interest-rate swap trading."

Earlier this week, the Reserve Bank of Australia rejected the option of building its own domestic CCP and instead said it would encourage international central counterparties to extend their product coverage to the Australian market.

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