Derivatives clearing infrastructure renewal in Japan: The impending post-trade market revolution

Abstract

This is the second in a series of reports on the securities settlement revolution in Japan. It is based on a Celent survey conducted in 2017 about technology use in post-trade operations. It offers a comprehensive overview of the current state of market participants and the challenges they face in the ongoing market transformation, while offering proposals related to the potential of emerging technologies, innovation, legacy issues and ecosystem migration. Japan’s derivative market has grown in leaps and bounds in tandem with the expansion of market derivatives and securities over-the-counter (OTC) derivatives. Work on an initiative to renew the clearing infrastructure has followed in the wake of market integration already completed on the execution system side by virtue of the new Japan Global Access Trading Engine (J-GATE; futures, options) that began operating in July 2016. The Japan Securities Clearing Corporation (JSCC) new clearing system will mandate action on the part of market participants in areas including the revision of clearing services, risk management and clearing systems. While many of the major participants in the clearing market appear to have already completed preparation for the transition to the new system, there remain stragglers that are in the process of responding — and even some who have yet to take action. At the same time, the actions being taken by these entities to respond to the coming changes are also thrusting challenges related to the overall posttrade market into the limelight.