Article 2, paragraph 1 of the close-out netting act defines a specified financial transaction as a transaction under which money is paid or received based on changes in interest rates, currency prices, market prices, or similar indicators1. It is limited to over-the-counter derivative transactions under the Financial Instruments and Exchange Act and other transactions set by a Cabinet Office order. Article 1 of the enforcement regulations lists over-the-counter derivative transactions, financial derivative transactions under the Banking Act, sales of securities with a repurchase condition and purchases with a resale condition, securities lending, forward foreign exchange transactions, and over-the-counter commodity derivative transactions, among others, each together with its collateral transaction2.
Consider a hypothetical example in which a bank that is a financial institution and a non-financial company enter into an interest rate swap and a forward foreign exchange transaction under one master agreement. Both are specified financial transactions because both appear in the list. If the master agreement provides for close-out netting and a petition to start bankruptcy proceedings is filed against one party, the net total of the values of the two transactions becomes a single claim or obligation.
A transaction that is not in the regulations' list is not a specified financial transaction under the act. The term is not a general name for derivative transactions. It is the name the law gives to the transactions it covers.
Notes
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"金融機関等が行う特定金融取引の一括清算に関する法律" (Act on Close-Out Netting of Specified Financial Transactions Conducted by Financial Institutions), Article 2, paragraph 1 (in Japanese). ↩
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"金融機関等が行う特定金融取引の一括清算に関する法律施行規則" (Regulation for Enforcement of the Act on Close-Out Netting of Specified Financial Transactions Conducted by Financial Institutions, the title in the Japanese Law Translation Database System, an English translation that predates the 2020 amendment), Article 1, items 1 to 7 (in Japanese). ↩