Work in client sales, settlement, risk management, and compliance for derivatives involves checking which laws and authorities bear on a transaction at hand.

What the regulation aims at and which transactions it covers

Japan's derivatives regulation rests on different laws for different types of transactions. The central law, the Financial Instruments and Exchange Act (FIEA), aims to make transactions in financial instruments fair and to contribute to investor protection1.

On OTC derivatives, the 2009 G20 Leaders Statement from the Pittsburgh Summit set out three points. Standardized contracts should be cleared through a central counterparty by the end of 2012 at the latest, and traded on exchanges or electronic trading platforms where appropriate. All contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements2.

Japan's 2010 amendment of the FIEA followed the international discussion after the financial crisis. To make the settlement of OTC derivatives transactions more stable and transparent, it made the use of a clearing organization (a central counterparty) mandatory and set up a system for retaining and reporting trade information3.

The types of transactions are as follows. The FIEA divides derivatives transactions into three types (the first three rows of the table)4. Of the derivatives transactions in commodities such as agricultural products and minerals, the Commodity Derivatives Transaction Act separately governs those on commodity markets, OTC commodity derivatives transactions, and similar transactions (the fourth row)5. However, transactions in some commodities carried out on a market of a financial instruments exchange fall under the FIEA6. Their scope is covered in The Commodity Derivatives Transaction Act.

Type of transaction Definition in the law Governing law
Market derivatives transactions Transactions made on a financial instruments market (including a market opened by a financial instruments exchange) under the standards and methods set by the operator of the market FIEA
OTC derivatives transactions Transactions made outside both a financial instruments market and a foreign financial instruments market, excluding those specified by Cabinet Order FIEA
Foreign market derivatives transactions Transactions on a foreign financial instruments market that are similar to market derivatives transactions FIEA
Commodity derivatives transactions Transactions on a commodity market, transactions on a foreign commodity market, and OTC commodity derivatives transactions Commodity Derivatives Transaction Act

Figure 1 puts the classification in this table into the order of questions.

YesNoIs the underlying afinancial instrumentsuch as an interest rate,currency, or equity?Commodityderivatives(commodityact)YesNoIs it a transaction thatdoes not use a financialinstruments market?Marketderivatives(FIEA)YesNoIs it a transaction thatdoes not use a foreignfinancial instrumentsmarket?Foreignmarketderivatives(FIEA)OTC derivatives (FIEA)
Figure 1Determining the legal category of a derivatives transaction
Figure description

Unlike transactions in financial instruments, transactions in commodities fall mainly under the Commodity Derivatives Transaction Act. Transactions that a Cabinet Order excludes are not included. Transactions in some commodities carried out on a market of a financial instruments exchange fall under the FIEA, which makes them an exception to commodity transactions in Figure 1.

Consider a hypothetical example in which an interest rate swap and commodity futures are traded.

  • Bank R enters into an interest rate swap with Company S directly, without using an exchange or a foreign market. The underlying is an interest rate, and neither a financial instruments market nor a foreign financial instruments market is used, so it is an OTC derivatives transaction (FIEA). Whether rules such as mandatory clearing apply to this transaction depends on the scope set by Cabinet Office Order.
  • Company S buys and sells commodity futures on a commodity market opened by a commodity exchange. The underlying is a commodity, not a financial instrument, so the Commodity Derivatives Transaction Act is the main law. If it trades some commodities on a market of a financial instruments exchange, the FIEA applies.

The laws and their roles

Anyone who trades derivatives is subject to different rules under each law, as the table below shows.

Law Role
Financial Instruments and Exchange Act (FIEA) Sets registration, conduct rules, mandatory clearing of OTC derivatives transactions, the provision of trade information, and the use of an electronic trading platform7
Cabinet Office Order on Financial Instruments Business, etc. (the Business Order) Under delegation from the FIEA, it specifies the situations in a firm's business operation that the firm must avoid. The margin requirements are one of these provisions8
Cabinet Office Order on the Regulation of Over-the-Counter Derivatives Transactions (the OTC Derivatives Order) Under delegation from the FIEA, it sets the scope of the transactions subject to the clearing obligation, the retention and reporting of trade information, and trade repositories9
Act on the Provision of Financial Services and the Improvement of the Usage Environment (Financial Services Provision Act) Sets the duty to explain important matters to clients and the ban on providing conclusive judgments, in the sale of financial instruments including derivatives
Commodity Derivatives Transaction Act Sets the organization of commodity markets and the management of transactions, and the business of commodity derivatives business operators. Only a person licensed by the competent minister can carry on commodity derivatives business10
Banking Act Aims at the sound and proper operation of banks' business, and is the basis for the standard for judging the state of capital adequacy

The FIEA also sets conduct rules such as pre-contract information and the suitability principle. The law calls a registered financial instruments business operator and a registered financial institution, such as a bank, a "financial instruments business operator, etc."11

The Financial Services Provision Act sets the duty of a seller to explain important matters to the client (duty to explain). A seller that fails to explain, or that provides a conclusive judgment, is liable for damages12.

Under the Banking Act, the Prime Minister can set a standard for judging whether a bank's capital is adequate. The notice that sets this standard is the capital adequacy ratio regulation, and it also covers the treatment of derivatives transactions13.

The authorities and self-regulatory organizations

The Financial Services Agency (FSA) leads the supervision of derivatives. The Prime Minister has delegated the authority under the FIEA, the Banking Act, and the Financial Services Provision Act (except what a Cabinet Order excludes) to the Commissioner of the Financial Services Agency14.

Organization Role
FSA Supervises financial instruments business operators, etc. and banks under the authority delegated by the Prime Minister
Local Finance Bureaus The Commissioner may delegate part of the delegated authority to the Director-General of a Local Finance Bureau or a Local Finance Branch Bureau14
Bank of Japan Concludes an on-site examination contract with its counterparty financial institutions and examines the state of their business and assets on site. At the request of the Commissioner, it can submit materials on the results of an examination15
Ministry of Economy, Trade and Industry; Ministry of Agriculture, Forestry and Fisheries Competent ministers under the Commodity Derivatives Transaction Act. Commodity derivatives business operators fall under both the Minister of Agriculture, Forestry and Fisheries and the Minister of Economy, Trade and Industry, while commodity exchanges and similar bodies fall under one or both ministers depending on the category of commodities they handle16
Financial instruments firms associations (such as the Japan Securities Dealers Association) Self-regulatory organizations under the FIEA, which set self-regulatory rules on the business of their members. The rules of the Japan Securities Dealers Association include its rules on investment solicitation and client management by association members17
Financial instruments exchanges and self-regulatory corporations Carry out self-regulatory business, such as examining listings and members' compliance with laws and rules
Japan Exchange Regulation Carries out self-regulation on behalf of the Tokyo Stock Exchange and the Osaka Exchange18
Commodity exchanges Open commodity markets and must carry out self-regulatory business properly (investigating members and others, and measures such as expulsion). As of March 2025, they are the Tokyo Commodity Exchange and the Dojima Exchange19

The FSA's supervision follows the comprehensive supervisory guidelines for financial instruments business operators, etc. and for major banks, among others, which set out how supervision is carried out and the main points of focus20.

When a financial instruments exchange entrusts its self-regulatory business to a self-regulatory corporation, the Prime Minister's authorization is required21.

The statutory provisions were checked as of October 3, 2026 (for the FIEA, the Banking Act, and the Financial Services Provision Act, amendments up to the one that took effect on August 12, 2026)22.

What each regulation requires, and where to read about it

The FSA calls four regulations OTC derivatives regulation: the mandatory clearing regulation, trade reporting, the electronic trading platform regulation, and the margin requirements23. The table below lists these four together with the structure of the FIEA, client protection, and banks' capital adequacy ratio regulation.

Regulation What it requires Page with details
Structure of the FIEA The framework of the FIEA: registration, conduct rules, and the classification of transactions The Financial Instruments and Exchange Act and Derivatives
Clearing obligation A financial instruments business operator, etc. that enters into an OTC derivatives transaction specified by Cabinet Office Order must have a clearing organization assume the obligations of itself and its counterparty24 Mandatory Clearing
Trade reporting A financial instruments business operator, etc. must provide trade information to a trade repository or similar body, in the way a Cabinet Office Order specifies. Clearing organizations have a similar duty25 Trade Reporting
Electronic trading platform requirement The duty to execute, through an electronic data processing system, yen-denominated interest rate swaps designated by the Commissioner among OTC derivatives transactions26 Electronic Trading Platform Mandate
Margin requirements For OTC derivatives transactions whose obligations a clearing organization does not assume, the firm must take measures to exchange variation margin and initial margin. The covered transactions and exceptions follow the Cabinet Office Order27 Margin Requirements for Uncleared Derivatives
Suitability principle and duty to explain The obligations that the FIEA and the Financial Services Provision Act impose on solicitation and explanation to clients Suitability and the Duty to Explain
Banks' capital adequacy ratio regulation The standard for banks to hold capital according to the risk of the assets they hold Risk-Weighted Assets (RWA)

From the 2010 amendment to the effective dates

The clearing obligation and the system for retaining and reporting trade information were to take effect within two years and six months of the promulgation of the 2010 FIEA amendment, and the effective date was November 1, 201228. The margin requirements come not from the amending Act but from a provision of the Business Order, and that provision took effect on September 1, 201629.

Date Type What happened
March 9, 2010 Submission The bill to amend the Financial Instruments and Exchange Act and other laws was submitted to the Diet30
May 12, 2010 Enactment The House of Councillors plenary session passed the bill unanimously, and it was enacted30
May 19, 2010 Promulgation Promulgated as Act No. 32 of 201031
July 11, 2012 Promulgation The OTC Derivatives Order (Cabinet Office Order No. 48 of 2012) was promulgated32
November 1, 2012 Effective date The clearing obligation and the system for retaining and reporting trade information took effect. The OTC Derivatives Order took effect the same day32
September 1, 2016 Effective date The Business Order provision on the margin requirements took effect29

Under the supplementary provisions of the OTC Derivatives Order, transactions made before the effective date were treated as not being transactions subject to the clearing obligation and similar requirements33. The provisions use both "provision" and "retention and reporting" for trade information79.

What this page does not cover

FIEA amendments that are promulgated but not yet in effect, whether regulations apply to an individual transaction (for example, whether it is subject to mandatory clearing or the duty to explain), and the effective date of the electronic trading platform requirement are not covered on this page.

Notes

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

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

  3. House of Councillors, "議案審議情報 金融商品取引法等の一部を改正する法律案" (Bill deliberation information: bill to partially amend the Financial Instruments and Exchange Act and other laws, our translation; in Japanese) (174th Diet session, Cabinet Bill No. 44), the opening of the bill summary and items 2 and 3 of "一" (1. Improving the stability and transparency of settlement for OTC derivatives transactions). ↩

  4. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 20 (derivatives transactions), paragraph 21 (market derivatives transactions), paragraph 22 (OTC derivatives transactions), and paragraph 23 (foreign market derivatives transactions). Financial instruments market is in paragraph 14 of the same article, financial instruments exchange in paragraph 16, and exchange financial instruments market in paragraph 17. ↩

  5. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 1 (commodity), paragraph 14 (OTC commodity derivatives transactions), and paragraph 15 (commodity derivatives transactions). ↩

  6. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 2, paragraph 8, item 1. Transactions in designated commodities on a market of a financial instruments exchange are "commodity-related market derivatives transactions." The designated commodities are set by paragraph 24, item 3-3 and by "金融商品取引法施行令" (Order for Enforcement of the Financial Instruments and Exchange Act), Article 1-17-2. ↩

  7. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 29 (registration of financial instruments business), Article 40-7 (duty to use an electronic data processing system), Article 156-62 (clearing), Articles 156-63 and 156-64 (provision of trade information), and Article 156-65 (retention and reporting of trade information by a trade repository). ↩ ↩2

  8. "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese), Article 123, paragraph 1 (situations specified by Cabinet Office Order under Article 40, item 2 of the FIEA), item 21-10 (variation margin) and item 21-11 (initial margin). ↩

  9. "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), table of contents. Chapter 2 Clearing (Articles 2 and 2-2), Chapter 3 Retention and Reporting of Trade Information (Articles 3 to 11-2), Chapter 4 Trade Repositories. ↩ ↩2

  10. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 1 (purpose) and Article 190, paragraph 1 (license for commodity derivatives business). ↩

  11. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 33-2 (registration of financial institutions), Article 34 (definition of financial instruments business operators, etc.), Article 37-3 (provision of information before conclusion of a contract), and Article 40, item 1 (suitability principle). ↩

  12. "金融サービスの提供及び利用環境の整備等に関する法律" (Act on the Provision of Financial Services and the Improvement of the Usage Environment, in Japanese), Article 3, paragraph 1, item 8 (market derivatives transactions and foreign market derivatives transactions) and item 9 (OTC derivatives transactions), Article 4 (duty to explain), Article 5 (prohibition of providing conclusive judgments, etc.), and Article 6 (liability for damages). ↩ ↩2

  13. "銀行法" (Banking Act, in Japanese; English translation: Japanese Law Translation), Article 1 (purpose) and Article 14-2, paragraph 1, item 1 (standard for the state of capital adequacy). The notice that sets the standard is FSA Notice No. 19 of 2006. The treatment of derivatives transactions is in Chapter 6, Section 4 (Articles 79 to 79-4). ↩

  14. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 194-7, paragraph 1 (delegation to the Commissioner) and paragraph 6 (delegation to the Director-General of a Local Finance Bureau or Local Finance Branch Bureau). "銀行法" (Banking Act, in Japanese; English translation: Japanese Law Translation), Article 59, paragraphs 1 and 2. "金融サービスの提供及び利用環境の整備等に関する法律" (Act on the Provision of Financial Services and the Improvement of the Usage Environment, in Japanese), Article 137, paragraph 1. ↩ ↩2

  15. "日本銀行法" (Bank of Japan Act, in Japanese), Article 44, paragraph 1 (examination contract) and paragraph 3 (submission of materials to the Commissioner). ↩

  16. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 354, paragraph 1 (competent ministers). Item 3 names both ministers as competent for commodity derivatives business operators and similar parties. Items 1 and 2 name the respective minister for commodity exchanges and similar bodies that handle only commodities under the Ministry of Agriculture, Forestry and Fisheries or only commodities under the Ministry of Economy, Trade and Industry. ↩

  17. "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (Financial Services Agency, October 2026, in Japanese), II-1 (3) (financial instruments firms associations) and IV-3-1-2 (the self-regulatory rules of the Japan Securities Dealers Association, including its "協会員の投資勧誘、顧客管理等に関する規則", rules on investment solicitation and client management by association members, our translation). That an association makes rules also appears in "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 67-8, paragraph 1, item 10. ↩

  18. Japan Exchange Group, "自主規制" (Self-regulation, our translation; in Japanese), the description of Japan Exchange Regulation (entrusted by the Tokyo Stock Exchange and the Osaka Exchange). ↩

  19. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 5-2 (self-regulatory business). Paragraph 1 requires proper performance, and paragraph 2 lists investigating members' compliance and measures such as expulsion. That there are two exchanges is from the Ministry of Agriculture, Forestry and Fisheries, "商品先物取引とは" (What is commodity futures trading, our translation; Q&A, Q1; as of March 2025). ↩

  20. "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (Financial Services Agency, October 2026, in Japanese), table of contents II (points to note in administrative processing of supervision) and the "主な着眼点" (main points of focus) section of each chapter. "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (Financial Services Agency, October 2026, in Japanese), table of contents II and the "主な着眼点" section. ↩

  21. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 84 (self-regulatory business) and Article 85, paragraph 1 (entrustment to a self-regulatory corporation). ↩

  22. The amendment history of the "金融商品取引法" (Financial Instruments and Exchange Act) on e-Gov Law Search (in Japanese). The amendments not yet in effect run from November 30, 2026 to June 13, 2028. ↩

  23. Financial Services Agency, "店頭デリバティブ取引規制関連" (OTC derivatives regulation, our translation; in Japanese), the section on legacy contracts (which lists the mandatory clearing regulation, trade reporting, the electronic trading platform regulation, and the margin requirements as OTC derivatives regulation). ↩

  24. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-62, item 1. ↩

  25. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 156-64, paragraph 1 (provision by financial instruments business operators, etc.) and Article 156-63, paragraph 1 (provision by clearing organizations and others). ↩

  26. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 40-7, paragraph 1, and "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese), Article 125-7, paragraph 1 (paragraph 2 lists the transactions excluded from specified OTC derivatives transactions). ↩

  27. "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese), Article 123, paragraph 1, item 21-10 (variation margin) and item 21-11 (initial margin). An uncleared OTC derivatives transaction is defined in the same items (an OTC derivatives transaction other than those whose obligations a clearing organization assumes, and similar exclusions). Article 40, item 2 of the FIEA is the basis of this measure. ↩

  28. House of Councillors, "議案審議情報" (Bill deliberation information, our translation; in Japanese), the bill summary, "四、施行期日" (4. Effective date) (the use of clearing organizations and the retention and reporting of trade information take effect on a date set by Cabinet Order within two and a half years of the date of promulgation). The Financial Services Agency announcement (April 27, 2012) is titled "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の公表について" (Publication of draft Cabinet Office Orders for the 2010 amendment of the Financial Instruments and Exchange Act, effective within two years and six months, our translation; in Japanese). The effective date is in the "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. ↩

  29. "金融商品取引業等に関する内閣府令" (Cabinet Office Order on Financial Instruments Business, etc., in Japanese), Supplementary Provisions, Article 1 of the amending Cabinet Office Order (this Cabinet Office Order takes effect on September 1, 2016). ↩ ↩2

  30. Financial Services Agency, "第174回国会における金融庁関連法律案" (Bills related to the Financial Services Agency in the 174th Diet session, our translation; in Japanese), "成立した法律" (Enacted laws) (submitted March 9, 2010 (Heisei 22), enacted May 12, 2010). In the House of Councillors bill deliberation information, the date of the plenary session vote is May 12, 2010 and the manner of the vote is unanimous. ↩ ↩2

  31. House of Councillors, "議案審議情報" (Bill deliberation information, our translation; in Japanese), the date of promulgation (May 19, 2010) and the act number (32). ↩

  32. "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 (effective date: November 1, 2012). The date of promulgation is from the e-Gov law information (Cabinet Office Order No. 48 of 2012, July 11, 2012). ↩ ↩2

  33. "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 2, paragraph 1. Financial Services Agency, "店頭デリバティブ取引規制関連" (OTC derivatives regulation, our translation; in Japanese), treats transactions made before the effective date of the regulation (legacy contracts) as outside its scope under a transitional measure. ↩