Recent Developments in Settlement System Reforms in Japan

Transcription

1 ======= Recent Developments in Settlement System Reforms in Japan ======= November 10 th, 2009 <Content> 1. Shortening of JGB settlement cycle Review of market practices concerning failed transactions for Bonds Enhancement of tax exemption treatment pertinent to public and corporate bonds and simplified procedures for foreign investors Study to Establish CCP for Settlement of OTC Derivatives Enforcement of the Order Partially Revising Order on Transfer Account Management Institution New BOJ-NET (as a Public Comment) Group of Experts (GoE) Meeting on Asian Bond Markets...6 Page 1 of 6

2 1. Shortening of JGB settlement cycle Purpose To reduce settlement risk by reducing unsettled position of JGBs and by making quick reconstructing of positions possible in case of default of the counterpart. To improve the competitiveness of JGB markets by expanding financing and investment opportunities in short term financial markets in Japan. Contents To shorten JGB settlement cycle from the current T+3 to T+2 or T+1. Current situation The study launched in September 2009 An interim report will be compiled by September Duration to study is to be 2 years. The study group members may be divided into front office team and middle back office team, if necessary. Currently, the details of the shortened settlement cycle is still undecided whether T+1 or T+2, and when to start is also unclear. Non-resident are requested to review BTMU s information release of the entire process of shortened settlement cycle should be reviewed carefully whether it is practicable or not. 2. Review of market practices concerning failed transactions for Bonds Purpose Study to review the market practices to control frequent occurrence of failed transactions for bonds. And systematize the market practices reflecting on the turmoil in the market in September Contents Introduction of (1) fail charge to prevent occurrence of failed trades, (2) change of cut-off time and (3) review of structure of buy-in system. Current situation Studying of levying 3%-Money Market Rate (which is the level introduced in the United States) charge on failed trades. Studying the change of cut-off time from the current 15:30 pm to 14:00 pm. Flexible handling of financing for failed trades can be expected by fixing failed transactions. However, there are many counter opinions on this issue as the notice to the market participants on the result of bid for JGBs is 14:45 pm. Buy-in system will not be reviewed at the moment as it exerts huge influence on both parties of settlement. Review of the plan will be compiled by the end of Clerical work load can be increased for the intermediary custodians to settle levying charges when such charge system is introduced. Therefore, for BTMU, the progress should be watched carefully. Page 2 of 6

3 3. Enhancement of tax exemption treatment pertinent to public and corporate bonds and simplified procedures for foreign investors Purpose To promote investment by foreign investors to Japanese financial/capital markets by improving the environment of the Japanese financial markets for the foreign investors. Contents To simplify the current application procedures for the investors to enjoy tax relief on interests on JGBs as well as municipal bonds. To introduce tax exemption treatment on the interest of corporate bonds to raise the holding ratio of foreign investors. Current situation The request is included in the Requests for Fiscal Year 2010 Tax Reform released by Japan Financial Services Agency (JFSA) as one of the most important requests. Procedures for Tax Reform will be changed due to the inauguration of the Hatoyama Cabinet. JFSA is currently inviting public comments on Proposal for Fiscal Year 2010 Tax Reform once again. The investment return on corporate bonds will be more attractive for investors. Simplified application procedure can be attained in case of significant reduction in the volume of filing documents, such as application procedures for tax exempt required of the overseas financial institutions and for QFI of the qualified foreign intermediaries (QFIs) At least 1 month period will be necessary before judging whether the above mentioned simplified procedure be realized, as the political power shift has just occurred in Japan. Page 3 of 6

4 4. Study to Establish CCP for Settlement of OTC Derivatives Purpose Study to establish Central Counter Party (CCP) for settlement of over-the-counter (OTC) derivatives in Tokyo markets in order to improve control over OTC-derivative trading and the transparency based on the G20 agreement. Contents A working group organized under Tokyo Stock Exchange/Japan Securities Clearing Corporation(JSCC)studies operational issues to create operational process guidelines. It covers interest rate swap and credit default swap (CDS) trading. Procedures such as undertaking debts, settlement process, settlement fund system, settlement guarantee, bankruptcy process scheme and method of linkage between London Clearing House (LCH) and Clearnet have been studied. Current situation Plan to create operational process guidelines by the end of Plan to obtain permission from JFSA by the end of March 2010 to start operation around June Tokyo Financial Exchange Inc. (TFX) and ISDA are also considering establishment of CCP. Based on G20 recommendations, settlement of the JPY interest rate swap and CDS transactions will be off set (net out) thru CCP in Japan. JSCC (is to serve as CCP) is seeking a linkage between LCH and Clearnet, and the cash-settlement amount of JPY OTC derivatives will be reduced. In that case, will need less settlement funds. 5. JASDEC Pre-settlement Matching Cutoff Time for Non-resident Transactions to be Extended Purpose To extend the cutoff time for JASDEC pre-settlement matching in order to enable more settlements of non-resident transactions performed thru Straight through Processing (STP). Contents Extend the cutoff time of JASDEC Pre-settlement Matching System (PSMS) to 12:20 from the current of 11:45. The extended deadline will enable more transactions to be settled thru JASDEC STP as it covers the transactions processed at 12:00 at JSCC, and reduce manual matching on telephone. Current situation Settlement Matching (Non-resident Transactions) Subcommittee is going to determine the start date by reviewing the questionnaires responded by Market participants for the extension in September It will contribute for stabilization of the settlement and improvement of operational process efficiency. It will also provide time for recovery in the case of a system trouble in the morning. Currently no possibility to extend cutoff time settlement instruction to BTMU is considered as this extension is aimed to enable more transactions to be settled in the Japan Market. Page 4 of 6

5 6. Enforcement of the Order Partially Revising Order on Transfer Account Management Instit ution Purpose Contents Current situation All the foreign financial institutions intermediating Japanese securities for their have to be approved as Account Management Institution under the Ordinance on Transfer Account Management Institution. Current AMI holders are subject to one-time reporting requirement. Each foreign financial institution was conventionally filing required documents to the Japan Financial Services Agency (JFSA), the Ministry of Finance (MOF), the Ministry of Justice (MOJ) respectively to become a foreign intermediary, although there was no written order. A written order has been promulgated and stipulates filing in the newly designated format and registration of the institution s representative. (This registration is a new requirement.) It also requires all of the current approved institutions to re-submit information in the format (no evidential matters are required for this re-submission). The order has become effective as of August 2009 and re-submission in the format is being required within 6 months (by the end of January 2010). As for new AMI the procedures are not changed and filing is needed each time. The approved as AMI need to file required information by the end of January There is also a designated format to notify change in the name, address and representative person. 7. New Bank of Japan (BOJ) -NET New information/direction towards the operation starting in 2015 JGB It will propose ISO20022=XML for synchronization and connection with JASDEC and BOJ-NET to provide market participants with STP. BOJ target adoption of ISIN code. Fund Transfer Limited to basic reforms, such as XML service/bus maintenance. Direct connection between BOJ and JASDEC will improve the efficiency of the STP in the entire market. Page 5 of 6

6 8. Group of Experts (GoE) Meeting on Asian Bond Markets Purpose Make proposals to establish infrastructures and to improve the system to stimulate Asian bond markets and to have Asian funds reinvested in Asia. Contents Two subcommittees have been organized: One subcommittee for the establishment of security settlement infrastructures Current situation covering Asian regions - Regional Settlement Intermediary (RSI). (a) The other to list up regulatory or system issues currently hindering investors from investing Asian bonds and to propose resolution or improvement on them. (b) (a) Regarding RSI, study is in progress for both models of Euroclear (ICSD model) and Clearstream (CSD linkage model). (b) Regulatory and system issues related to bond investments are divided into the following categories. Foreign exchange regulations, fund transfer regulations, tax rules, omnibus accounts, trade confirmation/settlement matching, physical securities, message format and securities code. The final meeting will be held in December 2009 and the GoE s proposal will be finalized in January Further to the GoE, plan to create an occasion/place such as Bond Forum in the middle of 2010 or afterwards to continue practical study/discussion. If RSI is established in Asia, the custody business in Asia will be affected depending on the scope and details of RSI operation. At the moment, details of the plan are still uncertain. As for regulatory and system issues, there may be some increase of investment to the countries depending on the degree of deregulation. BTMU Profile Corporate Name: The Bank of Tokyo-Mitsubishi UFJ, Ltd. Registration Number: Director General of the Kanto Local Finance Bureau Registration Number 5 Head Office: 7-1, Marunouchi 2-Chome, Chiyoda-ku, Tokyo Japan Main business areas: Banking business, Registered financial institution business Page 6 of 6