JAPAN Law and Practice Contributed by: Daisuke Tanimoto, Etsuko Yamazaki and Miki Okuda, Anderson Mōri & Tomotsune
cover a broader scope of derivatives. The legal cer - tainty brought about by netting legislation has under - pinned the growth of the derivatives market in Japan. The development of the regulatory framework gov - erning derivatives transactions has also influenced the way the derivatives markets have evolved. Before the Securities and Exchange Act was renamed as the Financial Instruments and Exchange Act by the amendments of 2006 (effective as of 2007), deriva - tives transactions were regulated as follows: • Securities-related derivatives were regulated under the Securities and Exchange Act. • Financial futures and options listed on the financial futures exchange were regulated under the Finan - cial Futures Trading Act (Act No 77 of 1988, as amended). • Commodities futures and options listed on the commodity futures exchange were regulated under the Commodity Exchange Act (Act No 239 of 1950, as amended). • OTC derivatives referencing interest rates, FX or certain other financial instruments were not directly regulated by any specific legislation. The Securities and Exchange Act and the Financial Futures Trading Act were merged into the FIEA, and the regulation of OTC Financial Derivatives Transac - tions was integrated under the FIEA. Following the global financial crisis in 2008, the G20-initiated OTC derivative regulatory reforms (ie, mandatory clearing, mandatory trade execution, a trade data reporting requirement and a margin require - ment for uncleared derivatives) were implemented under the FIEA. As a result of an amendment to the CFEA in 2014, derivatives referencing electricity became regulated. In addition, as a result of an amendment to the FIEA in 2019, derivatives referencing crypto-assets became regulated. As described in 1.1 Overview of Deriva- tives Markets , the amendment to the FIEA in 2022 defined the term “crypto-assets etc” to include not only crypto-assets but also a certain type of electronic payment instrument and as a result derivatives refer - encing “crypto-assets etc” became regulated as such.
Derivatives referencing other types of electronic pay - ment instruments also fall under the scope of deriva - tives regulated under the FIEA. As regards the most recent developments in this area, the following amendments to the trade data reporting requirement came into force in April 2024: • Although reporting dealers were previously allowed to report trade data to either the JFSA (ie, direct reporting) or the designated trade repository (ie, indirect reporting), they are now obligated to sub - mit trade data to the trade repository, unless there is a natural disaster or any other due reason why they cannot report to the trade repository (in such a case, reporting dealers may submit trade data to the JFSA). • For the purpose of implementing the data require - ments specified by CPMI-IOSCO’s CDE Technical Guidance, the use of an LEI (legal entity identifier), a UTI (unique transaction identifier) and improved CDE (critical data elements) is now required. • In addition, effective from April 2025, reporting of unique product identifier (UPI) and delta has become mandatory. The risk of rising interest rates in the future is having a major impact on the derivatives market. Specifical - ly, the balance of outstanding JPY interest rate swap transactions cleared by the Japan Securities Clearing Corporation (JSCC) has reached record levels. Futures and options are listed on regulated markets operated by the following four Japanese exchanges: • Osaka Exchange, Inc. (OSE) (for both financial instruments and commodities derivatives); • Tokyo Financial Exchange Inc. (TFX) (for financial instruments derivatives); • Tokyo Commodity Exchange, Inc. (TOCOM) (for commodities derivatives); and • Osaka Dojima Exchange, Inc. (ODEX) (for com - modities derivatives). 2. Types of Derivatives 2.1 Futures and Options
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