Japan has moved closer to overhauling its swaps market in line with global reforms, with the approval of a Depository Trade and Clearing Corporation (DTCC) data repository.
The DTCC Data Repository Japan (DDRJ) is the first trade repository to offer OTC derivatives reporting services in Asia, although competing repositories may establish themselves in the future.
Under G20 guidelines, Japan’s Financial Services Agency has mandated that market participants report OTC derivatives transactions directly to regulators or to a third-party trade repository from 1 April.
Stewart Macbeth, president and CEO of DTCC subsidiary Deriv/SERV LLC, believes Japan’s continued growth is an important component of the global OTC derivatives landscape.
“Sending single messages to multiple repositories helps us aggregate data more readily for regulators because they share common references and identifiers and the formats are the same, so there’s a value proposition for regulators and customers,” Macbeth said.
Speaking to theTRADEnews.com, Macbeth added the service would lead to greater transparency and risk mitigation, although challenges to this – including the possibility of multiple repositories – could fragment data across multiple silos, decreasing the quality of a complete market view.
“There is an issue with fragmentation in terms of the immediate ability of regulators to assess systemic risk and we hope to be part of the solution to that by offering a common, multi-jurisdictional response,” he said.
Japanese market participants have been testing with the DDRJ over recent weeks and Macbeth said the trade repository will meet with market participants toward the end of the month to address any functionality issues ahead of 1 April.
The authorisation of the DTCC trade repository signals a significant step towards Japan’s responsibilities under G20 rules agreed in Pittsburg in 2009, which include an obligation to clear standardised OTC derivatives in the wake of the 2008 financial crisis.
In October, domestic clearing house Japan Securities Clearing Corporation (JSCC) added interest rate swaps to the list of OTC derivatives it clears, efforts Macbeth believe put Japan ahead of other Asian nations.
“Japan has been progressive with its G20 legislation: It set out its framework early in 2010 and has the first start date for OTC trade reporting in Asia, in addition to its work on clearing, through the JSCC,” Macbeth said.
While the US has moved ahead with swaps reporting requirements under G20 rules, and since 31 December large market participants have been required to report interest rate and credit default swap transactions regulated by the Commodity Futures Trading Commission on newly-created swaps data repositories.
In the Us, large market participants have had to report interest rate and credit default swap transactions on newly-created swaps data repositories since 31 December.
While, in the Europe mandatory reporting is expected to begin in mid-2014, under rules contained in the European markets infrastructure regulation. In Asia, the DTCC opened a regional data centre in Singapore, which it plans to act as a regional base for OTC derivatives trading.