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Default ManagementSegregation and Portability

Segregation and Portability

Segregated Management of Customer Positions and Margin

  • For each Clearing Business, JSCC has adopted differing segregation arrangements for customer protection, in accordance with the nature of the products it clears, in order that customer asset deposited to CCP should be protected even when a Clearing Participant default occurs.
  • For the CDS Clearing Business and IRS Clearing Business, Clearing Participant’s proprietary and customer positions/margin are managed on a gross basis. Customer positions/margin are segregated in individual customer accounts with JSCC at all times, regardless of whether or not the customer is an affiliate of the Clearing Participant (i.e. an entity who belongs to the same Corporate Group of the Clearing Participant; the same applies hereinafter). JSCC has established this framework to protect margin related to customer positions from the default or insolvency of a Clearing Participant.
  • For listed derivatives of the Listed Products Clearing Business, customer positions/margin are managed on a gross basis in an omnibus account with JSCC, separate from the Clearing Participant’s proprietary account, in consideration of cross-border and other diverse customer types. Individual customer positions/margin are managed by the Clearing Participant. JSCC has the authority to request information related to individual customer positions/margin from the Clearing Participant when necessary, and has a framework in place to protect such margin related to customer positions from the default or insolvency of a Clearing Participant. See the following “Transfer of Positions/Margin” section for further details.
  • For the OTC JGB Clearing Businesses, Clearing Participant’s proprietary and customer positions/margin are managed on a gross basis. Customer positions/margin are segregated in individual customer accounts with JSCC at all time, regardless of whether or not the customer is an affiliate of the Clearing Participant. As customer protection arrangements, the Financial Instruments and Exchange Act (FIEA) requires each Clearing Participant to conduct the segregated management of customer securities and cash.
  • For listed cash products of the Listed Products Clearing Business, JSCC would conduct netting for all of a defaulting Clearing Participant’s transactions. As such, JSCC only receives collateral deposits from Clearing Participants. As customer protection arrangements, the FIEA requires each Clearing Participant to conduct the segregated management of customer securities and cash. Also, protection of customer securities and cash related to unsettled contracts is achieved under alternative schemes in Japan. Specifically, the Japan Investor Protection Fund, established according to the FIEA, provides a customer protection scheme for small-scale customers who are the customers of the Financial Instruments Business Operators defined under FIEA, while JASDEC DVP Clearing Corporation provides DVP Settlement Services for NETDs (non-exchange transaction deliveries) for large-scale (professional) customers. These schemes provide a means of eliminating principal risk.

Transfer of Positions/Margin

  • JSCC has adopted positions/margin transfer arrangements, in accordance with the nature of the products it clears, in order that customer asset deposited to CCP should be protected even when a Clearing Participant default occurs.
  • For clearing of listed derivatives, CDS, and IRS, when a Clearing Participant defaults, customers may transfer their own positions and margin to another Clearing Participant without the consent of the defaulting Clearing Participant. In such case, agreement is necessary from the Clearing Participant receiving the transfer of positions/margin.
  • For listed derivatives, the Clearing Participant receiving the transfer is required to express its consent to the exchange and to follow the exchange’s prescribed procedures, after which JSCC conducts the transfer based on the exchange’s decision. For CDS and IRS, the customer applies to JSCC via the Clearing Participant receiving the transfer, after which JSCC will confirm that the required amount of margin pertaining to the transferring positions has been deposited by such Clearing Participant. After this confirmation, JSCC transfers the positions and margin of the relevant customer.
  • For clearing of listed derivatives, CDS, and IRS, Clearing Participants may determine whether they accept a transfer of positions and margin based on an agreement with the transferring customer.
  • There are no customer positions that are to be transferred in relation to the listed cash products of the Listed Products Clearing Business.
  • Actually, only an affiliate of a Clearing Participant is a customer in the OTC JGB Clearing Business, and with respect to other type of a customer there are no positions, nor margin that are to be transferred.