A financial instruments business operator, etc. that enters into a new OTC derivative transaction checks, transaction by transaction, whether it is subject to mandatory clearing. A party that prepares trade information also checks whether a notification of transaction volume is required.

What the regulation requires

Mandatory clearing is the obligation of a financial instruments business operator, etc. that enters into a designated OTC derivative transaction to have the obligations of itself and its counterparty each assumed by a financial instruments clearing organization (hereafter "clearing organization"). For credit default swap (CDS) transactions, the obligations must be assumed by a clearing organization. For interest rate swap transactions, a foreign financial instruments clearing organization is also allowed1.

A financial instruments business operator, etc. means a financial instruments business operator or a registered financial institution2. A clearing organization is a person that carries on financial instruments obligation assumption business under a license or approval from the Prime Minister3. Financial instruments obligation assumption business is the business of assuming obligations under transactions by taking them over, by replacement (novation), or by other means4.

The trigger was the G20 Pittsburgh Summit in September 2009. The Leaders agreed that all standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest5. The substance of the agreement and how each jurisdiction has implemented it are covered in The G20 OTC Derivatives Reforms. In Japan, the provisions on clearing in the 2010 amendment of the Financial Instruments and Exchange Act (FIEA) took effect on November 1, 20126.

The laws and notice that establish the clearing obligation are as follows.

Provision What it sets
FIEA Article 156-62 The obligation itself. For CDS transactions, obligations must be assumed by a clearing organization. For interest rate swap transactions, they must be assumed by a clearing organization (including a linked clearing organization, etc.) or a foreign financial instruments clearing organization1
Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions (the OTC Derivatives Order), Article 2 The types of transactions subject to the obligation, and the transactions excluded7
OTC Derivatives Order, Article 2-2 Notification of transaction volume, and its publication by the Commissioner of the Financial Services Agency8
Notice of the Financial Services Agency (Financial Services Agency Notice No. 60 of 2012) The designation of transactions by the Commissioner of the Financial Services Agency, which Article 2 of the OTC Derivatives Order delegates9

The Commissioner of the Financial Services Agency makes the designation by notice79. The Prime Minister grants the license of a clearing organization3.

The Japanese provisions were checked in the version published on October 12, 2026 (for the OTC Derivatives Order, the version in effect from June 1, 2025).

Transactions and parties in scope

Transactions in scope

The Act covers OTC derivative transactions and other transactions that a Cabinet Office Order specifies as ones whose default could seriously affect Japan's capital markets. Among them, the transactions that must be cleared in Japan are limited to CDS transactions1. The OTC Derivatives Order sets credit default swaps (CDS) and interest rate swaps as the types of transactions in scope, and covers those of each type that the Commissioner of the Financial Services Agency designates7.

In addition to the type of transaction, the notice makes it a condition of designation that the Japan Securities Clearing Corporation (JSCC) accepts the transaction for assumption of obligations. The designation is as follows9.

Category Type set by the OTC Derivatives Order Designation in the notice Where obligations must be assumed
CDS transactions Transactions that make payment depend on events relating to the credit condition of several domestic corporations Transactions on iTraxx Japan (CDS index) that involve 50 or fewer domestic corporations and that JSCC accepts for assumption of obligations A clearing organization
Interest rate swap transactions Transactions in which both parties pay each other yen amounts on yen principal, based on an agreed rate or on the change in a market interest rate Transactions whose floating rate is TONA compounded in arrears and that JSCC accepts for assumption of obligations A clearing organization (including a linked clearing organization, etc.) or a foreign financial instruments clearing organization

The designation of CDS also limits the timing of the combination. In the notice, the date on which a combination of domestic corporations is formed is the roll date, and the designation covers only transactions whose combination was formed on or after the roll date before the one immediately preceding the effective date of the OTC Derivatives Order9.

TONA compounded in arrears is a floating rate that compounds TONA daily over the interest calculation period. The rate for the period is fixed shortly before the period ends. The Financial Services Agency considers that this includes transactions that specify JPY-TONA-OIS Compound (written in capitals as COMPOUND in the 2006 edition) as the floating rate index under the 2006 or 2021 edition of the ISDA definitions10.

Parties subject to the obligation, and excluded transactions

The obligation falls on a financial instruments business operator, etc. that enters into a designated transaction. However, a transaction that falls under any of the cases in the following table at the time the contract is concluded is excluded11.

For interest rate swap transactions, the parties subject to the obligation are narrower. Parties that prepare trade information are financial instruments business operators that carry on Type I financial instruments business, and, among registered financial institutions, the following12:

  • banks;
  • Shoko Chukin Bank, Ltd.;
  • the Development Bank of Japan Inc.;
  • federations of shinkin banks whose district is the whole country;
  • the Norinchukin Bank;
  • insurance companies (including foreign insurance companies, etc.).

In the following table, an interest rate swap transaction is in scope when both parties are parties that prepare trade information and the average notional amount is 300 billion yen or more (judged trust asset by trust asset for trust account transactions).

Case in which a transaction is excluded CDS transactions Interest rate swap transactions
One party is a person other than a financial instruments business operator, etc. Excluded Excluded
A transaction accounted for as belonging to a trust account Excluded Excluded. However, transactions on trust assets whose average notional amount is 300 billion yen or more are not excluded
The counterparty is a parent, etc., subsidiary, etc., or subsidiary, etc. of a parent, etc. of the business operator, etc. entering into the transaction (excluding the business operator, etc. itself) Excluded Excluded
A party's side is not a clearing member of the same clearing organization, and there is a reasonable ground (Note 1) Excluded No provision
One or both parties are not parties that prepare trade information, or are parties that prepare trade information with an average notional amount below 300 billion yen (Note 2) No provision Excluded
The Commissioner of the Financial Services Agency designates the case as one with special circumstances that make it inappropriate to have a clearing organization assume the obligations Excluded Excluded

Note 1: "Not a clearing member of the same clearing organization" means that no single clearing organization has participants on both sides. One side is the party, its parent, etc., or its subsidiary, etc. The other side is the counterparty, its parent, etc., or its subsidiary, etc. A "reasonable ground" exists only when one or both parties (including their parents, etc. or subsidiaries, etc.) have a reason for not being a participant.

Note 2: Among parties that prepare trade information with an average below 300 billion yen, trust account transactions are not excluded on this row. They are judged on the trust account row above.

The 300 billion yen test uses the average notional amount. The notional amounts of OTC derivative transactions (those covered by trade information, excluding trust account transactions) are summed for each month-end, and the 12 monthly figures are averaged. The period runs from April two years before the year in which the contract is made to March of the year before that year. For a contract made in December, it runs from April of the previous year to March of that year12. For a contract made in April 2026, the month-ends from April 2024 to March 2025 count, and for a contract made in December 2026, those from April 2025 to March 2026. For trust account transactions, the same average is calculated for each trust asset12.

Decision flow and examples for interest rate swap transactions

The conditions so far, put in order of questions for an interest rate swap transaction, give the figure below. Trust account transactions are judged trust asset by trust asset, so the figure leaves them out.

YesNoIs the floating rate TONAcompounded in arrears,and does JSCC assumeobligations on it?Not adesignatedtransactionNoYesIs the counterparty aparent, subsidiary, orsister company, etc.?ExcludedYesNoAre both parties partiesthat prepare tradeinformation?ExcludedYesNoIs the average notionalamount of both 300billion yen or more?ExcludedNoYesIs it one of thetransactions designatedfor specialcircumstances?ExcludedSubject to theobligation
Figure 1Whether an interest rate swap transaction is subject to mandatory clearing
Figure description

The figure checks whether an interest rate swap transaction is subject to the mandatory clearing obligation, through five questions in order. The first question confirms that the transaction is a designated one, and the second through fifth check the conditions that take it outside the obligation: "yes" at questions 2 and 5, or "no" at questions 3 and 4. If all are passed, the transaction is subject to the obligation.

Consider a hypothetical example in which Bank A and Company B enter into yen interest rate swaps in October 2026. Bank A is a bank that is a party that prepares trade information, and Company B is an insurance company that is also such a party. Both are financial instruments business operators, etc. (registered financial institutions). They have no parent-subsidiary or similar relationship, and no designation for special circumstances applies.

Example 1: Bank A and Company B enter into an interest rate swap whose floating rate is TONA compounded in arrears and on which JSCC assumes obligations. The average notional amount is 500 billion yen for Bank A and 400 billion yen for Company B. The transaction is designated, and both averages are at least 300 billion yen, so it is subject to the obligation.

Example 2: The transaction is the same as in example 1, but Company B's average is 200 billion yen. Company B is below 300 billion yen, so the transaction is excluded.

Example 3: Bank A and Company B enter into an interest rate swap whose floating rate is 3-month euro-yen TIBOR. The average is 500 billion yen for Bank A and 400 billion yen for Company B. The only designation from February 10, 2025 is TONA compounded in arrears, so this is not a designated transaction13.

What is required, and the treatment of a breach

A financial instruments business operator, etc. that enters into a designated transaction that is not excluded must have the obligations of itself and its counterparty each assumed by a clearing organization1.

Item Content
Where For CDS transactions, a clearing organization. For interest rate swap transactions, a clearing organization (including a linked clearing organization, etc.) or a foreign financial instruments clearing organization14
When When the transaction is entered into. Neither the FIEA nor Article 2 of the OTC Derivatives Order sets a number of days allowed before the obligations are assumed
Notification: timing A party that prepares trade information notifies the Commissioner of the Financial Services Agency, only in a year in which it crosses the criterion, between April 1 and May 318
Notification: what triggers it The average crosses the 300 billion yen criterion, from below to 300 billion yen or more or the reverse. Crossing the criterion for a trust asset also counts
Notification: publication The Commissioner publishes on the internet the trade name or name of any party that has notified that it is above the criterion and has not yet notified that it is below it

A clearing organization has a duty to provide information on the trades whose obligations it has assumed (information on cleared trades, etc.) to a trade repository15. Reporting of trade information is covered in the Trade Reporting page.

As supervisory action, the Act provides, for both financial instruments business operators and registered financial institutions, for a business improvement order and, for a violation of laws and regulations, revocation of registration or suspension of business for up to 6 months16.

The FIEA has no penalty provision directly targeting a violation of this obligation17. This does not mean that a violation carries no sanction.

Effective date and changes to the designation

The table below shows the effective date of the clearing obligation and the changes to the designation and to the parties subject to it.

Date Type Content
July 11, 2012 Promulgation The OTC Derivatives Order and Financial Services Agency Notice No. 60 were promulgated6
November 1, 2012 Effective, applies from this date The obligation took effect. The initial designation was CDS on iTraxx Japan, and interest rate swaps whose floating rate was 3-month or 6-month yen LIBOR1819
December 1, 2014 Effective An amendment to the OTC Derivatives Order added, for interest rate swap transactions, an exclusion based on the criterion of parties that prepare trade information1820
December 1, 2016 Effective Insurance companies were added to the parties subject to the obligation1820
November 5, 2021 Promulgation An amendment to the notice was promulgated21
December 6, 2021 Applies from this date An amendment to the notice removed the two yen LIBOR items from the interest rate swap designation and added TONA compounded in arrears. The two euro-yen TIBOR items remained2122
February 10, 2025 Applies from this date An amendment to the notice removed the two items for 3-month and 6-month euro-yen TIBOR from the interest rate swap designation. The designation became TONA compounded in arrears only2313

The 300 billion yen criterion was 1 trillion yen until November 30, 20151820.

An amended provision of the notice applies to transactions entered into on or after its application date, and transactions entered into before that date remain under the previous rules22. Transactions entered into before the effective date of the obligation are also outside its scope18. The Financial Services Agency has summarized in a Q&A how transactions entered into before the effective date of the OTC derivatives regulation (legacy contracts) are excluded under the transitional measure, and how contracts whose reference rate was changed from LIBOR to a replacement benchmark are treated20.

Differences from other jurisdictions

The US and the European Union (EU) also have clearing obligations. The differences from Japan lie in who is subject to the obligation and in how the transactions in scope are decided. The US column follows the Code of Federal Regulations as of September 30, 2026.

Japan US EU
Who is subject Financial instruments business operators, etc. For interest rate swaps, parties that prepare trade information whose average notional amount is 300 billion yen or more, on both sides (judged trust asset by trust asset for trust account transactions) Every person that executes a swap of a covered class. Non-financial end users and others can elect an exception24 Financial counterparties, and non-financial counterparties that meet the conditions EMIR sets (including exceeding the clearing threshold). This includes trades with third-country entities2526
How the transactions in scope are decided The Commissioner of the Financial Services Agency designates CDS and interest rate swap transactions by notice Rules of the Commodity Futures Trading Commission (CFTC) list the classes of interest rate swaps and CDS indices24 The classes of OTC derivatives declared subject to the clearing obligation under the EMIR procedure25

Practical implications

Whether a transaction is subject to the obligation is decided by the terms of the transaction when the contract is concluded. The check is therefore made contract by contract, on the terms at that time11.

What this page does not cover

This page does not cover the passage and promulgation of the amending act, actual cases of action for a breach, or JSCC's conditions for CDS transactions.

Notes

  1. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-62, item 1 (CDS transactions; a clearing organization) and item 2 (interest rate swap transactions; a clearing organization or a foreign financial instruments clearing organization). The items correspond to the types of transactions in Article 2, paragraph 1 (CDS) and paragraph 2 (interest rate swaps) of the OTC Derivatives Order. ↩ ↩2 ↩3 ↩4

  2. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 34 (definition of financial instruments business operators, etc.) and Article 2, paragraph 11 (definition of registered financial institution). ↩

  3. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 29 (definitions of financial instruments clearing organization and foreign financial instruments clearing organization), Article 156-2 (license for financial instruments obligation assumption business), Article 156-19, paragraph 1 (approval of a financial instruments exchange), and Article 156-20-2 (license of a foreign juridical person). ↩ ↩2

  4. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 28 (definition of financial instruments obligation assumption business: assuming obligations "by taking over, by replacement, or by other means", our translation of "引受け、更改その他の方法により負担する"). ↩

  5. "G20 Leaders Statement: The Pittsburgh Summit" (September 24–25, 2009), the paragraph on OTC derivative contracts. ↩

  6. Financial Services Agency, "平成22年金融商品取引法等改正（２年６ヶ月以内施行）に係る内閣府令案等に対するパブリックコメントの結果等について" (Results of the public comments on the draft Cabinet Office Orders for the 2010 amendment of the Financial Instruments and Exchange Act, to take effect within two and a half years, our translation) (July 11, 2012), "２．本件の内閣府令等の公布" (2. Promulgation of the Cabinet Office Orders in question) and "３．施行日" (3. Effective date) (in Japanese). ↩ ↩2

  7. "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) (the version in effect from June 1, 2025), Article 2, paragraph 1 (transactions in item 1) and paragraph 2 (transactions in item 2). ↩ ↩2 ↩3

  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; English translation: Japanese Law Translation) (the version in effect from June 1, 2025), Article 2-2, paragraphs 1 and 2. ↩ ↩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二条第一項及び第二項に規定する金融庁長官が指定するものを定める件" (Notice specifying what the Commissioner of the Financial Services Agency designates under Article 2, paragraphs 1 and 2 of the Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, our translation; Financial Services Agency Notice No. 60 of 2012, the current version published by the Financial Services Agency) (in Japanese), Article 1 (CDS) and Article 2 (interest rate swaps). ↩ ↩2 ↩3 ↩4

  10. Financial Services Agency, "コメントの概要及びコメントに対する金融庁の考え方" (Summary of the comments and the Financial Services Agency's views on them, our translation) (November 5, 2021), page 2, answer to No. 1 on "清算集中告示第 2 条第 1 号、電子取引基盤告示第 1 号" (Article 2, item 1 of the Clearing Notice and item 1 of the Electronic Trading Platform Notice) (in Japanese). ↩

  11. "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) (the version in effect from June 1, 2025), Article 2, paragraph 3, items 1 to 5 (transactions in item 1) and paragraph 4, items 1 to 5 (transactions in item 2). ↩ ↩2

  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) (the version in effect from June 1, 2025), Article 2, paragraph 4, item 2 (trust accounts), item 4 (a) (the range of parties that prepare trade information) and (b) (average notional amount below 300 billion yen). ↩ ↩2 ↩3

  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二条第一項及び第二項に規定する金融庁長官が指定するものを定める件の一部改正する件" (Notice partially amending the notice specifying what the Commissioner of the Financial Services Agency designates under Article 2, paragraphs 1 and 2 of the Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, our translation) (2025), the comparison table of old and new provisions (item 2 and item 3 before the amendment of Article 2; the upper limit of the period is 1,839 days for item 2 and 3,666 days for item 3) and Supplementary Provisions, paragraph 2 (in Japanese). ↩ ↩2

  14. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-20-16 (linked financial instruments obligation assumption business; it covers transactions other than those in Article 156-62, item 1). ↩

  15. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-63, paragraph 1. ↩

  16. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 51 (business improvement order for a financial instruments business operator), Article 52, paragraph 1, item 7 (revocation of registration or suspension of business), and Article 51-2 and Article 52-2, paragraph 1, item 3 (the same actions for a registered financial institution). ↩

  17. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation). Across the whole Act, the only provisions that cite Article 156-62 are Article 156-20-16 and Article 156-62 itself, and neither is a penalty provision. ↩

  18. "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), Supplementary Provisions. Article 1 and Article 2, paragraph 1 (the original and the 2014 amendment) and the proviso to Article 1 (the 2016 amendment). ↩ ↩2 ↩3 ↩4 ↩5

  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二条第一項及び第二項に規定する金融庁長官が指定するものを定める件" (Notice specifying what the Commissioner of the Financial Services Agency designates under Article 2, paragraphs 1 and 2 of the Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, our translation; Financial Services Agency Notice No. 60 of 2012), Articles 1 and 2 as originally enacted (July 11, 2012; applies from November 1, 2012) (in Japanese). ↩

  20. Financial Services Agency, "店頭デリバティブ取引規制関連" (Regulation of OTC derivative trades, our translation), "清算集中義務及び取引規模の届出・公表" (Mandatory clearing and the notification and publication of transaction volume) (the transitional criterion amount and the date for insurance companies), and the Q&A on the transitional measures for legacy contracts (in Japanese). ↩ ↩2 ↩3 ↩4

  21. Financial Services Agency, "LIBORの恒久的な公表停止に伴う〜パブリックコメントの結果等について" (Results of the public comments on the amendments accompanying the permanent cessation of LIBOR, our translation) (November 5, 2021), "２．改正の概要" (2. Outline of the amendment) and "３．公布日等" (3. Promulgation date, etc.) (the notice was promulgated dated November 5, 2021 and applies from December 6, 2021; two notices were amended, the Clearing Notice and the Electronic Trading Platform Notice) (in Japanese). ↩ ↩2

  22. 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二条第一項及び第二項に規定する金融庁長官が指定するものを定める件の一部を改正する件" (Notice partially amending the notice specifying what the Commissioner of the Financial Services Agency designates under Article 2, paragraphs 1 and 2 of the Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions, our translation) (2021), the comparison table of old and new provisions (Article 2; the euro-yen TIBOR items remained as "[omitted]") and Supplementary Provisions, paragraphs 1 and 2 (in Japanese). ↩ ↩2

  23. Financial Services Agency, "ユーロ円TIBORの恒久的な公表停止に伴う〜パブリックコメントの結果等について" (Results of the public comments on the amendments accompanying the permanent cessation of euro-yen TIBOR, our translation) (February 10, 2025), "２．適用日" (2. Application date) (in Japanese). ↩

  24. 17 CFR Part 50 (eCFR as of September 30, 2026), § 50.2(a) (every person that executes a swap of a covered class), § 50.4(a) (classes of interest rate swaps) and § 50.4(b) (classes of CDS), and § 50.50 (exception for non-financial end users). ↩ ↩2

  25. European Securities and Markets Authority (ESMA), "Article 4 Clearing obligation", EMIR (Regulation (EU) No 648/2012), Article 4, paragraphs 1 and 2. ↩ ↩2

  26. European Securities and Markets Authority (ESMA), "Clearing thresholds". A financial counterparty that exceeds a clearing threshold is subject to the obligation for all OTC derivative contracts of the classes to which the clearing obligation applies. A non-financial counterparty is subject to the obligation only for contracts of the asset classes in which it has exceeded the threshold. ↩

  27. Japan Securities Clearing Corporation, "清算対象取引（金利スワップ）" (Transactions eligible for clearing (interest rate swaps), our translation), "1．定義集" (1. Definitions), "2．取引相手方の要件" (2. Requirements for counterparties), "5．変動金利の期間" (5. Floating rate period), "8．契約期間" (8. Contract term), "9．残存期間" (9. Remaining term), and "10．想定元本" (10. Notional amount) (in Japanese). ↩

  28. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 27 (definition of brokerage for clearing of securities, etc.; it covers both financial instruments clearing organizations and foreign financial instruments clearing organizations, and transactions made for a client's account; the items listing the requirements are omitted). ↩