If mid-term cancellation of a derivatives trade gives rise to a termination payment, the financial institution explains this in writing before the trade, together with the estimated payment under a worst-case scenario1. During the life of a trade its market value can be positive or negative, and one party can end the trade early by paying the other its market value. Market value is calculated without transaction costs2. In the discussion of settlement amounts for trades terminated early, two items are named as what is added to market value: the credit cost borne by a financial institution that enters into the same trade anew, and the bid-ask spread3.
Consider a hypothetical example in which a client paying a fixed rate on an interest rate swap with a notional amount of 1 billion yen cancels it when its market value is −20 million yen, and the added costs are 2 million yen. The client pays 22 million yen. If the market value is +15 million yen, the client receives 13 million yen after the costs are deducted.
Complaint cases published by the Japanese Bankers Association also use the form "chūto kaiyaku seisankin."4
Notes
-
Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-3-3-1-2(2)①イ, item b (pages 217–218) (in Japanese). ↩
-
Society of Actuaries, "Interest Rate Swaps" (May 2017), Section 6, "Market Value," page 15, text and footnote 8. ↩
-
全国銀行協会 金融法務研究会 (financial law study group of the Japanese Bankers Association), "デリバティブ取引に係る諸問題と金融規制の在り方" (Issues in derivatives transactions and the approach to financial regulation) (March 2018), Chapter 2 (神田秀樹), "６ 店頭デリバティブ取引におけるネッティング後の損害の額の算定" (6. Calculating the amount of loss after netting in OTC derivatives transactions), "（３）コメント" (3. Comment), pages 36–37 (in Japanese). ↩
-
Japanese Bankers Association, "全国銀行協会紛争解決等業務の実施状況（平成23年度第2四半期）" (Status of the JBA's dispute resolution operations, second quarter of fiscal 2011), "⑻デリバティブ業務" (8. Derivatives business), page 8 (in Japanese). ↩