A financial institution that concludes an OTC derivatives trade sends the trade information to an entity the authorities designate. Banks submit their capital adequacy ratio and the state of their risks to the authorities, and securities firms file a notification of their capital requirement ratio, which is a separate ratio. The report data rest on the record made at trade capture and on internal reconciliation.

Types and purposes of reports to the authorities

The reports that a financial institution dealing in derivatives submits to the authorities fall into two groups: reports sent trade by trade, and reports of firm-wide figures sent at set times. There are also reports submitted when the authorities ask for them. The main trade-by-trade report is trade reporting for OTC derivatives. The Financial Instruments and Exchange Act (FIEA) requires financial instruments business operators, etc. and central counterparties (CCPs) to send trade information to a trade repository or other recipients, so that the state of their trading is clear1. The trade repository publishes the size and other details of the reported trades, and the Prime Minister also publishes an outline of the trades reported directly to the Prime Minister2.

Report Who reports Sent to Timing
Trade reporting Financial instruments business operators, etc. that traded OTC derivatives; central counterparties Trade repository and others Trade by trade
Notification of the capital requirement ratio Financial instruments business operators engaged in Type I Financial Instruments Business (such as securities firms) Prime Minister At the end of each month and at other set times
Statement of financial results, business report Banks Financial Services Agency Each fiscal year end and interim period
Data on the state of risks Banks Financial Services Agency Monthly for market risk, quarterly for credit risk, monthly or quarterly for liquidity risk
Reports on request Banks Financial Services Agency When the authorities ask

The second and later rows are reports sent at set times and reports submitted on request. The FIEA requires financial instruments business operators engaged in Type I Financial Instruments Business to file a notification of their capital requirement ratio at the end of each month and at other set times3. The capital adequacy ratio that a bank reports in its statement of financial results and business report is the figure used to decide whether to issue a prompt corrective action order4. As a rule, banks are asked to submit the business report through the Financial Services Agency's integrated business support system5.

The Financial Services Agency (FSA) uses the market risk, credit risk, and liquidity risk data it receives from banks to keep track of and analyze the state of their risks on an ongoing basis. When a bank meets the early warning criteria, the FSA asks it for reports under Article 24 of the Banking Act where needed6.

The authorities use the figures they receive in examinations and analysis. The April 2001 examination manual of the US Federal Reserve Board noted that examiners and the staff who analyze reports depend on the accuracy of the reported data, and stated that false reporting is punishable by civil money penalties7. In Japan, too, failing to send trade information or sending false information is subject to penalties.

Flow and deadlines of trade reporting

A financial instruments business operator, etc. sends trade information to a trade repository or a designated foreign trade repository within three business days, counting the day an OTC derivatives trade was concluded8. Because the day the trade was concluded counts as the first day, the deadline is T+2 (two business days after the trade date)9. Of the trades for which a central counterparty has assumed the obligations, information on those that a Cabinet Office order specifies is sent by the central counterparty1.

InstitutionTrade repositoryAuthoritiesRecord the tradein the systemShare the UTIwith thecounterpartyPrepare and checkthe report dataRecord and storethe tradeinformationReceive reports onthe stored tradeinformationRe-reportchanged termsand corrections
Figure 1Flow of trade reporting
Figure description

This figure shows the flow of OTC derivatives trade information from a financial institution through a trade repository to the authorities. The financial institution records the trade in its system and shares the UTI (unique transaction identifier), which identifies the trade, with the counterparty. It prepares the report data, checks them before sending, and sends them to the trade repository within three business days, counting the day the trade was concluded. The trade repository prepares and stores records of the information it receives and reports to the authorities. When the terms of the trade change or the institution finds an error, it sends the report for the same trade again.

Reporting starts from recording the trade correctly in the firm's own systems. Trade capture and the internal checks on it are covered in Trade Capture and Approval. The trade repository prepares and stores records of the trade information it receives and reports them to the Prime Minister10.

Reporting does not end with a single report at execution. If a reported item changes after the report is sent, the firm either reports the changed items or sends the trade information again with the change reflected, within three business days counting the day of the change8. An early termination or the exercise of an option is reported as the end of the trade (Terminate). The mark-to-market valuation and the collateral amounts are updated in a separate daily report, apart from the trade report11.

Data and identifiers used in reports

The items to report are set by the Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions (the OTC Derivatives Order) in ten categories plus other matters12. The individual items in each category are specified in the FSA's guidelines on the items to be recorded, kept, and reported under Article 4(1) of the Order (the FSA's guidelines on reporting items). Many of the items are taken from the internationally harmonized critical data elements (CDE) and from the reporting fields of the US Commodity Futures Trading Commission (CFTC) and the European Securities and Markets Authority (ESMA)13.

Category in the OTC Derivatives Order Example items (number in the guidelines)
Dates and times of the trade Effective date (1), Expiration date (2), Reporting timestamp (4), Execution timestamp (5)
Parties to the trade and the reporting entity Entity responsible for reporting (6), Counterparty 1 (7), Counterparty 2 (8)
Clearing, settlement, and identification of the trade Cleared (15), Central counterparty (16), Confirmed (19), UTI (25)
Valuation, collateral, and margin Valuation amount (39), Valuation method (42), Initial margin (45–50), Variation margin (51–56)
Price and notional amount Price (64), Fixed rate (71), Notional amount (87)
Events in the life of the trade Action type (101), Event type (102)

The other categories are payments (the day count convention, payment frequency), the underlying (such as the name of the reference rate), and the contract type13. The valuation amount to report is the present value before valuation adjustments such as CVA14.

The parties are identified by LEI (Legal Entity Identifier). An LEI is a 20-character alphanumeric code under ISO 17442, and it lets you look up who a legal entity is and who owns it15. The LEI is entered for the entity responsible for reporting and for Counterparty 1. If Counterparty 2 cannot obtain an LEI, a provisional LEI can be used. For a financial institution counterparty, it is the reporting firm's own LEI followed by the counterparty's BIC code. For a non-financial company or an individual, it is the firm's own LEI followed by a unique alphanumeric string such as an internal reference number. In that case, the field showing whether Counterparty 2 is identified by an LEI is set to "False"16.

The trade is identified by its UTI. A UTI is an alphanumeric code of up to 52 characters under ISO 23897:2020, and its first 20 characters are the LEI of the entity that generated it. It is used to prevent duplicate reports and to let authorities aggregate data across jurisdictions17. The UPI (unique product identifier), which identifies the product, was not among Japan's reporting items as of April 1, 202418, but reporting of it was scheduled to start on April 7, 202519.

The FSA's guidelines on reporting items set out, for each combination of parties, who should generate the UTI. For trades between two entities that both have a reporting obligation, the UTI is generated following the steps in the international guidance (the UTI Technical Guidance), and where those steps cannot be followed, the parties decide by agreement. On that basis, the entity that generates the UTI is fixed for the following trades20.

Trade Who generates the UTI
A trade between an entity whose average outstanding OTC derivatives in the previous fiscal year were under 300 billion yen and one whose average was 300 billion yen or more The entity at 300 billion yen or more
A trade between a reporting entity and a non-financial company or other party without a reporting obligation, where one of the two parties generates the UTI The reporting entity
Interest rate derivatives and credit default swaps (CDS) between parties using an electronic trading platform or an electronic confirmation platform That platform (the confirmation platform only when the trading platform has not generated one)
Among trades on such platforms that are cleared by a central counterparty, the trades between the central counterparty and each party The central counterparty
Interest rate derivatives and CDS not executed on a platform, or where the platform has not agreed to generate the UTI Decided by agreement between the parties

Who prepares and who checks the reports

The roles of the staff who prepare reports and those who check them are set out in the April 2001 examination manual of the US Federal Reserve Board, in the form of questions that examiners ask when reviewing the reporting setup22.

Role What the examination manual checks
Staff who prepare reports Whether they keep the most current reporting instructions, and whether they understand the trading instruments and the reporting requirements
Reviewer independent of preparation Whether every report is reviewed for accuracy before it is submitted to the authorities
Accounting department Whether it has procedures to have the preparer or reviewer investigate when the authorities' report analysts ask about arithmetic discrepancies or large changes from the previous period
Internal audit Whether it reviews how reports are prepared and the accuracy of the trading data in them
Signatory of the report Whether the signatory knows the content of the report being signed and the controls that keep it accurate

Under the sound practices in the same examination manual, a financial institution has a procedure for consulting the staff who prepare reports when it introduces a new product, so that the product is classified in the correct line of the report7. For a bank's capital ratio, one point of focus in the Comprehensive Guidelines for Supervision of Major Banks, etc. is whether the bank has it checked externally, for example through agreed-upon procedures23.

A firm can also have another business send its trade reports. For example, when a regional bank asks a trust bank to report for it, the bank's own LEI goes in the field for the entity responsible for reporting, and the LEI of the business it has asked goes in the field for the submitter24.

Checks before and after sending

Under the April 2001 examination manual, before a report is sent, the firm confirms that the data are as of the report date, that they match the traders' records, and that they include the post-closing adjustments25. As support for the reported figures, the firm keeps the results of reconciliation with the general ledger and subsidiary ledgers, and records how reconciling items were handled22.

In trade reporting, when both parties to a trade have a reporting obligation, both report the same UTI. So that both can meet the deadline, the UTI is, as a rule, shared at execution9. It can be shared through an electronic confirmation platform, SWIFT, a paper trade confirmation, email, and other means. The FSA's guidelines on reporting items point out that paper confirmations carry higher operational risk than the other methods, and say that electronic methods are preferable wherever possible9. If the entity that generates the UTI is late in sharing it, a firm can also report with a provisional UTI of its own. The provisional UTI is replaced as soon as the official UTI has been generated9.

Once confirmations have been exchanged, the "Confirmed" item in the report is also updated with a Modify report. The same applies to other items whose status changes during the life of the trade, such as the LEI26. Confirmation matching and what to do when confirmations do not match are covered in Booking Errors and Confirmation Mismatches.

Under the rules of the US CFTC, the reporting party also checks after sending, by comparing the data held by the swap data repository (SDR) with its internal books and records. Swap dealers and certain other entities do this at least once every 30 days, and other reporting parties at least once a quarter. They keep a record of the errors found and the corrections made27.

Correcting errors and what to do when reports cannot be sent

Under the April 2001 examination manual, early in an examination the examiner looks at the trading data for arithmetic mistakes, accounting errors, and misunderstandings of the reporting instructions. Common conceptual errors are incorrect recognition of income, incorrect valuation of trading-account securities, omission of securities not yet settled, and reporting cross-currency swaps as interest rate swaps28. Because complex instruments handled outside normal processes or systems may be left out of reports, the examiner also asks whether procedures are in place to capture them22.

Errors in trade information are corrected with a report with the action type that fits the correction11.

Action type When it is used
Correct To correct errors in the data of a trade reported earlier
Error To cancel the whole report of a trade when a trade that did not exist or was not subject to reporting was reported by mistake, or when the report was sent twice
Revive To restore a trade that was canceled as an error or terminated by mistake
Modify When the terms of the trade change, or to add information that was missing earlier

When an error in anything other than the UTI is corrected, the report is updated under the same UTI29. If a correction and an update of the mark-to-market valuation occur on the same day, the firm sends two records, one for the correction and one for the valuation11. Under the rules of the US CFTC, an error must be corrected within seven business days after it is discovered, and if the firm determines that it cannot correct it in time, it must notify the CFTC within 12 hours30.

There are also rules for when a report cannot be sent by the deadline. If there are unavoidable reasons, the firm can postpone the report with the approval of the Commissioner of the Financial Services Agency. The application for approval and the statement of reasons are submitted by the original deadline31. This applies when there is no trade repository, the repository has suspended its business, or a communication line has failed with no prospect of repair. In that case the firm prepares records of the trade information and keeps them for five years. It submits those records to the Commissioner in weekly batches32. A person who fails to send trade information or sends false information is subject to imprisonment for up to one year, a fine of up to 3 million yen, or both33.

Laws and guidelines behind the work

Trade reporting is based on the following laws and guidelines.

Source Article or item Summary
FIEA Article 156-63 A central counterparty sends a trade repository or other recipients information on the trades that a Cabinet Office order specifies, among those for which it has assumed the obligations
FIEA Article 156-64 Financial instruments business operators, etc. send trade information other than that sent by central counterparties. If they cannot send it, they prepare and keep records and report to the authorities
FIEA Article 156-65 A trade repository prepares and keeps records of the information it receives and reports to the authorities
OTC Derivatives Order Article 4, paragraph 1 Categories of reporting items
OTC Derivatives Order Article 7 Reporting deadline (within three business days), reports of changes, postponement of reports
FSA's guidelines on reporting items Attachments 1 and 2 Definitions and allowed values of the items; how UTIs are generated and shared

The FSA's guidelines on reporting items were issued on December 9, 2022, and have applied since April 1, 2024. They state that the items and their allowed values may change in the future in light of international developments34.

Notes

  1. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-63, paragraph 1 (central counterparties) and paragraph 3 (scope of trade information), and Article 156-64, paragraph 1 (financial instruments business operators, etc.). ↩ ↩2

  2. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-66, paragraph 1 (publication by the trade repository) and paragraph 2 (publication by the Prime Minister). ↩

  3. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 46-6, paragraph 1. The Article is in Section 3, Subsection 1, which covers financial instruments business operators engaged in Type I Financial Instruments Business. ↩

  4. 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.), III-2-1-3-2(1)① (page 90; page 106 of the PDF) (in Japanese). ↩

  5. 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.), II-1-9(2) (page 22; page 38 of the PDF) (in Japanese). ↩

  6. 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.), III-2-3-2-6(1)① (credit risk, page 121), III-2-3-3-3(1)① and ③ (market risk, page 128), and III-2-3-4-3(1)① (liquidity risk, page 132); pages 137, 144, and 148 of the PDF (in Japanese). ↩

  7. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2130.1 "Regulatory Reporting" (April 2001), page 1 (the introductory paragraph and "Sound Practices"); page 204 of the PDF. ↩ ↩2

  8. "店頭デリバティブ取引等の規制に関する内閣府令" (Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, in Japanese), Article 7, paragraph 1 (within three business days counting the day the trade was concluded) and paragraph 2 (within three business days counting the day of the change). An English translation is available: Japanese Law Translation; it reflects amendments only up to Cabinet Office Order No. 9 of 2016, and the article numbers in this note follow the current Japanese text. ↩ ↩2

  9. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (Guidelines on the items to be prepared, retained, and reported under Article 4, paragraph 1 of the Cabinet Office Order on the regulation of OTC derivatives transactions, our translation) (December 2022), Attachment 2, "固有取引識別子（UTI）の付番等の考え方" (Approach to generating unique transaction identifiers (UTIs)), section 4(1) and note 7 (page 5; page 53 of the PDF) (in Japanese). ↩ ↩2 ↩3 ↩4 ↩5

  10. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-65, paragraphs 1 and 2. ↩

  11. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, item 101 "Action type", definition and notes (page 26; page 30 of the PDF) (in Japanese). ↩ ↩2 ↩3

  12. "店頭デリバティブ取引等の規制に関する内閣府令" (Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, in Japanese; English translation: Japanese Law Translation), Article 4, paragraph 1 (items 1 to 11), and Article 8, paragraph 1. ↩

  13. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, "報告事項 一覧" (List of reporting items) (pages 1–2) and the note on the abbreviations in the Source column (page 3); pages 5–7 of the PDF (in Japanese). ↩ ↩2

  14. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, notes to item 39 "Valuation amount" and item 41 "Valuation timestamp" (page 13; page 17 of the PDF) (in Japanese). ↩ ↩2

  15. Global Legal Entity Identifier Foundation, "Introducing the Legal Entity Identifier (LEI)". ↩

  16. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, allowed values for items 6 to 8 and notes to item 8 (page 5), and notes to item 9 (page 6); pages 9–10 of the PDF (in Japanese). ↩

  17. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 2, section 2(2), "固有取引識別子（UTI）とは何か" (What is a unique transaction identifier (UTI)?) (page 1; page 49 of the PDF) (in Japanese). ↩

  18. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, note (page 2) and the definition of item 127 (page 32); pages 6 and 36 of the PDF (in Japanese). ↩

  19. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項ガイドライン【新旧対照表】" (November 2023), the section on the UPI and delta ("固有商品識別子（UPI）及びデルタについて") and item 107; pages 1 and 2 of the PDF (in Japanese). ↩

  20. The same document, Attachment 2, section 3(1) (page 3) and section 3(2) (pages 4–5). The name of the Technical Guidance is from the definition in section 2(1) of Attachment 2 (page 1). Pages 49 and 51–53 of the PDF (in Japanese). ↩

  21. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, how to read the allowed values (page 3) and item 64 "Price" (page 18); pages 7 and 22 of the PDF (in Japanese). ↩

  22. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2130.4 "Internal Control Questionnaire" (April 2001), questions 1, 2, and 5 to 10; page 207 of the PDF. ↩ ↩2 ↩3

  23. 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.), III-2-1-2-2(1) (page 80; page 96 of the PDF) (in Japanese). ↩

  24. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, notes to item 6 "Entity responsible for reporting", case 3 (page 5; page 9 of the PDF) (in Japanese). ↩

  25. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2130.2 "Regulatory Reporting: Examination Objectives" (April 2001), page 1, objective 1; page 205 of the PDF. ↩

  26. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 1, item 19 "Confirmed" (page 8) and notes to item 101 "Action type" (page 26); pages 12 and 30 of the PDF (in Japanese). ↩

  27. 17 CFR 45.14(b)(1), (4), and (5). ↩

  28. Board of Governors of the Federal Reserve System, "Trading and Capital-Markets Activities Manual," Section 2130.3 "Regulatory Reporting: Examination Procedures" (April 2001), page 1, procedure 1; page 206 of the PDF. ↩

  29. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), Attachment 2, section 5(1)(i)e (page 7; page 55 of the PDF) (in Japanese). ↩

  30. 17 CFR 45.14(a)(1)(i) and (ii). ↩

  31. "店頭デリバティブ取引等の規制に関する内閣府令" (Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, in Japanese; English translation: Japanese Law Translation), Article 7, paragraphs 5 and 6. ↩

  32. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-64, paragraph 2, and "店頭デリバティブ取引等の規制に関する内閣府令" (Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, in Japanese; English translation: Japanese Law Translation), Article 7-2, paragraph 1, Article 8, paragraph 2, and Article 9, paragraph 1. ↩

  33. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 198-6, item 17-2-2. ↩

  34. Financial Services Agency, "店頭デリバティブ取引等の規制に関する内閣府令第４条第１項で定める作成・保存・報告事項 ガイドライン" (December 2022), main text (page 2; issued December 9, 2022, and applied from April 1, 2024) and the note to "報告事項 一覧" (List of reporting items) in Attachment 1 (page 2); pages 3 and 6 of the PDF (in Japanese). ↩