Japan’s leading clearing house under JPX – Japan Securities Clearing Corporation (JSCC) – have been clearing Interest Rate Swaps (IRS) since 2012 and offering cross-margining with ETD since 2015. Now this has been extended to include TONA (Tokyo Overnight Average rate) futures traded at the OSE.
Recently, OpenGamma hosted a breakfast briefing attended by a number of our clients. Following an introduction from the CEO of JSCC, the attendees heard a panel discussion from representatives of OpenGamma, JSCC and Barclays. In conjunction with the briefing, we produced an Ebook alongside JSCC covering the subjects that were discussed in more detail.
The Ebook covers topics such as customer segregation, how JSCC compares with other CCPs, and potential initial margin savings of around 80% from the use of cross-margining.
Japan’s Listed Initial Rate Derivatives
In the first chapter of the Ebook, we discuss the surge in trading volume for 10 year JGB futures, which was fuelled by price volatility and stemmed from the changes in the Bank of Japan’s (BoJ) monetary policy.
Furthermore, this chapter explores the switch in trades from Japanese yen Libor to TONA-based transactions. Plus the launch and aims of the 3 month TONA futures – a short-term interest rate (STIR) derivative.
JSCC Offering
Cleared Products and IRS Market
The second chapter provides an overview of JSCC’s history from its initial launch in 2003 to the CCPs key milestones in the last two decades. We also discuss the clearing services it provides for JPY (Japanese Yen)-based products and the types of swaps it clears since it started clearing IRS. Since the size of JSCC’s IRS Market hit a record high in 2023, we take a look at its consistent growth, what has been driving it and the impact it is having.
Customer Segregation
We then dive into JSCC’s rigorous customer protection and how it works. We discuss its protection measures, such as its Individual Segregated Account (ISA) model, how collateral is held in a bank and the fact that Clearing Brokers need to deliver all customer funds to JSCC without delay.
Customers Wishing To Clear JPY IRS
Along with its customer protection, we go into detail about JSCC’s improvements towards making it easier for customers to clear JPY IRS. For instance, institutional customers executing JPY swaps can now clear their transactions via JSCC or how they have enhanced their customer buffer to reduce the possibility of trades being rejected for clearing.
Cross-margining
The last part of this chapter focuses on JSCC’s cross-margining service, which now covers the short-term with TONA futures, the long-term with 10 year JGB futures, and the full curve with IRS.
JSCC Vs Other CCPs
Though there are similarities between JSCC and other CCPs, we dedicate this section of the Ebook to discuss the differences between them. We detail the differences between JSCC and other CCPs through different key aspects. They are listed below.
- Initial Margin Model
How JSCC differs in calculating margin. - Volatility Scaling
How EWMA (Exponentially Weighted Moving Average) is applied and how the parameters are used. - Confidence Level
The confidence level used for margin calculation. - Lookback and Holding Period
How many days JSCC looks back at and the values used for house and client accounts. - Stress Scenarios
The different approaches in how stress scenarios are included within JSCC’s and other CCP’s algorithms. - Add Ons
The add-ons included to cover specific risks. - Market Size
The percentage of the market JSCC covers in terms of clearing JPY IRS. - Cross-margining system
The similarities and differences between JSCC and other CCPs in regards to their cross-margining systems.
Download Our Ebook To Learn More About JSCC
This blog is just a small glimpse into our Ebook. Download our free Ebook where we look into more detail about JSCC in terms of their offering and how they differentiate themselves from other CCPs.
OpenGamma’s Software Solution For Margin Optimisation
Identifying opportunities for margin optimisation is difficult, but here at OpenGamma we possess the appropriate tools that help our clients know where to clear a particular JPY trade or which ETD position to include within the cross-margin calculation. Our solution has access to a replicated model of the JSCC ETD-OTCC cross-margining, which in turn helps our customers better manage their margin processes. Schedule a demo to learn more.
