Derivatives 2025

JAPAN Trends and Developments Contributed by: Daisuke Tanimoto and Mitsuo Shimada, Anderson Mōri & Tomotsune

• (ii) financial derivative transactions under Article 10, Paragraph 2, Item 14 of the Banking Act (Act No 59 of 1981, as amended); • (iii) conditional sale and purchase of securities; • (iv) securities lending; • (v) sale and purchase of securities with options; • (vi) forward foreign exchange transactions; • (vii) OTC commodity derivative transactions defined under the Commodity Derivatives Transac - tion Act (Act No 239 of 1950, as amended); and • (viii) loans for consumption or deposits for con - sumption of cash or securities as collateral for the purpose of securing any of the transactions listed in (i) through (vii) above. It should be noted, with respect to item (i) above, that OTC derivative transactions referencing crypto-assets fall within the scope of OTC Derivative Transactions. This is because crypto-assets fall within the defini - tion of Financial Instruments under the FIEA. In this regard, it is also worth noting that the Financial Ser - vices Agency of Japan (FSA) has discretion in des - ignating any given Electronic Payment Instruments (based on its definition in the PSA, Electronic Pay - ment Instruments essentially means stablecoins) as a Financial Instrument, although the FSA has not exer - cised such discretion to date. In view of the foregoing, it is important to determine whether the digital assets referenced by a specific OTC digital asset derivative transaction constitute crypto-assets under the PSA, for purposes of ascertaining whether the Netting Act applies to such OTC digital asset derivative transac - tion. Master Agreement The term “Master Agreement” is broadly defined in Article 2, Paragraph 5 of the Netting Act as “an agree - ment intended to govern two or more Specified Finan - cial Transactions to be entered into on a continuing basis between a Financial Institution and a counter - party, stipulating the terms of such transactions and other basic matters relating thereto.” The master agreement governing two or more other master agreements (ie, the ultimate master agree - ment) is generally understood as constituting the Master Agreement under the Netting Act.

Although the ISDA Master Agreement is a prime example of such “Master Agreement”, it may be nec - essary to analyse whether other master agreements tailored for OTC digital asset derivative transactions fall within the definition of the Master Agreement. In certain cases, such tailored master agreements may require revision to ensure that they fall within the ambit of the Netting Act. Close-out netting under the Bankruptcy Act An OTC digital asset derivative transaction that does not fall within the ambit of the Netting Act may never - theless fall within the ambit of close-out netting under Article 58 of the Bankruptcy Act (Act No 75 of 2004, as amended), which provides as follows: “(1) If an agreement with respect to transaction in instruments having quotations on organized exchang - es or other markets may not achieve its objectives unless it is settled at a particular time and date and if the settlement time and date is scheduled after the commencement of bankruptcy proceedings, then the contract is deemed to be terminated upon the com - mencement of bankruptcy proceedings. (2) In the case mentioned in paragraph (1) above, the amount of damages arising from termination of the agreement should be the difference between the mar - ket quotation prevailing at the relevant place and time and the contract price. (3) (Omitted) (4) In relation to matters set forth in paragraphs (1) and (2) above, if the relevant exchange or market pro - vides otherwise, then paragraphs (1) and (2) should be interpreted in accordance with and give effect to such provision of the relevant exchange or market, as applicable. (5) If a master agreement for repeated transactions of those set forth in paragraph (1) above provides that all such transactions should be settled by netting the amount of damages set forth in paragraph (2) above, then the amount of damages that a party owes to the other should be determined pursuant to that provi - sion.”

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