JAPAN Trends and Developments Contributed by: Daniel Jarrett and Hirofumi Kaji, Atsumi & Sakai
reduce financing costs and expand their investor base further to include individual investors. Exchange trading of loan receivables (centralised platform) Tokyo Financial Exchange The Tokyo Financial Exchange (TFX) has announced plans to create a new platform for loan receivable transactions for financial institu - tions of various sizes, both in Japan and over - seas. Although the transactions will be conducted over the counter, the centralisation of information by the TFX may be a way to stimulate the buying and selling of loan receivables. This is because originators can, through the TFX, identify inves - tors more easily than they can with syndicated loans (which are generally entered into between parties who already knew each other). In addi - tion, investors are able to gain access to a wider variety of investment opportunities. TFX recently announced in June 2024 that its subsidiary, Credit Risk Management Platform Inc, had been established to conduct the credit risk trading business. The company will provide the following functions to depository financial institutions and government financial institu - tions: • a document provision function that provides various types of information to financial insti - tutions according to the negotiation stage of transactions; • a loan receivables sales function that enables financial institutions to negotiate receivables to be traded, and to proceed with transac - tions; • a bulletin board function that actively appeals to designated parties who wish to purchase or sell receivables;
• an electronic contract function that enables the electronic signing of contracts regarding transactions between financial institutions; and • a receivables management function that reg - isters information regarding loan receivables and manages due dates and interest calcula - tions. The company plans to begin offering the credit risk trading service by April 2025. Loan receivable transactions and syndicated loans Traditionally, the typical scheme for banks to originate loans where they are not able to pro - vide the full amount on their own has been via a syndicated loan, whereby a number of banks form a syndicate to spread the risk. Exchange trading of loans as a platform for spreading the risk across a larger investor base is now being positioned as an alternative to syndicated loans. Relationship with securitisation The negotiated sale of loan receivables is essen - tially a divided sale of individual loans. Secu - ritisation can be described as the process of selling loan receivables on a larger scale by pooling those loans and then dividing them into tranches. The exchange trading of loan receiva - bles represents a step towards securitisation and could facilitate the emergence of large-scale securitisation in Japan. If exchange trading func - tions as a platform for institutional investors to actively originate large-scale loans, institutional investors will be able to approach and solicit banks to participate in syndicated loans through the TFX itself, instead of needing to approach and negotiate with banks on an individual and unilateral basis.
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