Japan OTC Derivatives Regime Deemed Equivalent Under EMIR

The European Commission recognises Japan’s rules on valuation, dispute resolution and margin exchange for uncleared OTC derivative contracts as equivalent to EMIR.

The European Commission has determined that Japan’s legal, supervisory and enforcement arrangements for non-centrally cleared OTC derivatives are equivalent to EU standards under EMIR (the European Market Infrastructure Regulation).

The equivalence decision was adopted ahead of the 26th EU-Japan Summit in Brussels on Thursday (25 April), where officials reviewed EU-Japan economic and strategic partnership agreements, and pledged to cooperate on security, trade and the environment.

In particular, the equivalence decision concludes that JFSA (Japan Financial Services Agency) rules on valuation, dispute resolution and margin exchange for uncleared OTC derivative contracts are equivalent to EMIR.

However, the decision does not apply to operational risk mitigation techniques for non-cleared OTC derivatives in Japan, which “continue to be insufficient … with regard to timely confirmation of the terms of an OTC derivative contract the conduct of a portfolio compression exercise and the arrangements under which portfolios are reconciled,” the decision says.

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“The European Commission’s decision will alleviate the regulatory burden for EU and Japanese companies,” the Commission said in a statement. “It will allow market participants to comply with only one set of rules and to avoid duplicative or conflicting rules.”

The decision will enter into force 20 days after its publication in the Official Journal of the EU.

The full decision is available here.

 

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