CFTC Expands Swap Clearing Exemption for Japan Securities Clearing Corporation

The Commodity Futures Trading Commission ("CFTC") issued an amended Order permitting the Japan Securities Clearing Corporation to clear certain interest rate swaps on behalf of U.S. persons.

The regulator granted a petition to amend a previous exemption Order, thereby expanding the permitted clearing activities for the Japan Securities Clearing Corporation ("JSCC"). Previously, the entity was authorized to clear interest rate swaps and credit default swaps based on a finding that it was subject to comparable and comprehensive supervision by its home country authorities. The CFTC determined that the entity demonstrated compliance with the requirements necessary to continue its eligibility for an exemption from registration as a derivatives clearing organization.

Under the amendment, the entity is now permitted to clear interest rate swaps denominated in Japanese yen for its clearing members on behalf of U.S. persons. The Order requires the entity to maintain rules ensuring open access, specifically providing that swaps with the same terms are economically equivalent and may be offset against one another. Further, the entity must ensure non-discriminatory clearing for swaps executed bilaterally or on unaffiliated electronic matching platforms.

The relief is subject to several conditions, including requirements that the entity consent to U.S. jurisdiction, designate a U.S. agent for service of process, and make its books and records available for inspection. The entity must submit daily reports on margin requirements and quarterly reports on the clearing volume and open interest of U.S. persons. Additionally, the entity must provide an annual certification that it continues to observe international financial market principles and obtain a written representation of good regulatory standing from its home country regulators.