JAPAN Law and Practice Contributed by: Daisuke Tanimoto, Etsuko Yamazaki and Miki Okuda, Anderson Mōri & Tomotsune
4. Documentation Issues 4.1 Trading Documentation
lish law IM CSD or New York law IM CSA (including the Japanese Securities Provisions) and an Account Control Agreement; (ii) an ISDA Euroclear Collateral Transfer Agreement (including the Japanese Collateral Provisions) and an ISDA Euroclear Security Agree - ment; or (iii) an ISDA Clearstream Collateral Transfer Agreement and ISDA Clearstream Security Agreement (including the Recommended Amendment Provisions with respect to Japanese Collateral), depending on which global custodian is retained by the parties (eg, BNY Mellon, Euroclear or Clearstream). In addition, for certain domestic transactions, the par - ties may also have entered into an ISDA 2016 Phase One Credit Support Annex for Initial Margin (IM) (Loan – Japanese Law) and a Trust Scheme Adden - dum. There are also domestic transactions in which a Japanese language trust agreement for initial margin is entered into by the parties. Japanese parties may have also entered into a Japan Initial Margin Threshold Agreement, a template which enables parties to agree on a threshold amount appli - cable to each posting party in order to benefit from the documentation relief under the Japanese regula - tory initial margin requirement in the case where the bilateral initial margin amount does not exceed JPY7 billion threshold on a group basis. 4.1.3 Other Agreements Each Japanese bank may have its own standard form bespoke Japanese language derivative master agree - ment for its Japanese customers (eg, domestic Japa - nese corporations and individuals). In addition, the JSDA publishes Japanese language master agreements for securities transactions such as the Master Agreement for Bond Transactions with Repurchase Agreement (Gensaki Transactions) and the Master Agreement for Bond Lending Transactions. These master agreements are widely used in Japan. For cross-border repo and securities lending transac - tions, GMRAs, MRAs, MSFTAs, GMSLAs and MSLAs are often entered into by Japanese parties with over - seas counterparties or global financial institutions.
4.1.1 Industry Standards and Master Agreements The industry standard for documentation of OTC derivatives is the ISDA documentation including but not limited to the ISDA Master Agreement, ISDA Credit Support Annex (CSA) and ISDA Definitions. When using ISDA documentation, a short form con - firmation is typically prepared by the dealer with ref - erence to the relevant ISDA Definitions. Master con - firmation agreements are sometimes prepared for certain equity derivatives transactions. For ETDs, it is usual that the standard form terms and conditions are delivered by the dealer to customers. Such terms and conditions would govern the con - tractual relationship between the dealer and each customer (eg, settlement and custody arrangement) with reference to the relevant exchange rules and the CCP’s clearing rules. 4.1.2 Margins Before the introduction of the regulatory variation margin requirement for uncleared OTC derivatives under the FIEA, the typical documentation for the exchange of margin was (i) a Japanese law CSA (loan and pledge); (ii) an English law CSA (title transfer); or (iii) a New York law CSA (security interest). Documentation for Variation Margin The ISDA CSAs mentioned in 4.1.1 Industry Stand- ards and Master Agreements were updated in line with the regulatory variation margin requirement under the FIEA, and the parties now typically enter into (i) a Japanese law VM CSA (loan); (ii) an English law VM CSA (title transfer); or (iii) a New York law VM CSA (security interest). If a Japanese counterparty enters into (ii) or (iii), it is generally recommended that the Japanese Party Annex be incorporated in order to ensure that the close-out netting arrangement will be protected in Japanese insolvency proceedings. Documentation for Initial Margin Since the regulatory initial margin requirement for uncleared OTC derivatives was introduced under the FIEA, parties have typically entered into (i) an Eng -
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