OTC Japanese Government BondsClearing Fund

Clearing Fund for OTC JGB

On one business day before the last business day of each week(*1), the amount of losses exceeding initial margin (excess risk amount) which could occur in extreme but plausible market conditions (stressed conditions) is calculated with respect to the positions of each JGB OTC clearing participant at 18:30 on the previous business day.

The required amount of Clearing Fund is obtained by determining the total of the two largest excess risk amounts expected at the time of simultaneous defaults of two JGB OTC clearing participants (including other JGB OTC clearing participants in the same corporate group as the relevant clearing participant) and by prorating it according to the required initial margin base amount for each JGB OTC clearing participant (if such amount is less than the minimum required amount of JPY100 million, the required amount of Clearing Fund will be the minimum required amount).(*2)

*1 No calculation will be performed if the number of business days in a week is less than 2.

*2 The total required Clearing Fund for OTC JGB amount contributed by all Clearing Participants was JPY155.7B (as of 30, December, 2016)

Illustration of Clearing Fund

Illustration of Clearing Fund

Stress Scenarios Used for Calculations

  1. Six types of stress scenarios based on Principal Component Analysis (applied to fixed-rate coupon-bearing JGBs and discount JGBs):
    These stress scenarios (stress yield curves) are generated by identifying six different forms of yield curves using principal components of historical yield curve variations that are extracted from historical yield curve variation data by using Principal Component Analysis, in combination with the most volatile fluctuation observed in a period of five days for JGBs with the remaining maturity of 7 years with the highest liquidity.
  2. Two types of stress scenarios based on market impact (applied to floating-rate JGBs):
    These two types of stress scenarios (stress prices) are generated by extracting the most volatile fluctuation in the unit price of floating-rate JGBs (upward/downward) since the start of JSCC’s JGB OTC clearing business in May 2005, as well as the maximum deviation between the contract price and market price of any offsetting trade (upward/downward) at the time of the collapse of Lehman Brothers, and by combining the most volatile unit price fluctuation and the maximum value of deviation extracted.

For each of these scenarios, potential losses are calculated for each JGB OTC clearing participant.