Shearman & Sterling LLP | Financial Regulatory Developments Focus | EU Equivalence Decision for Japan for Uncleared Derivatives
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  • EU Equivalence Decision for Japan for Uncleared Derivatives
    05/02/2019
    A Commission Implementing Decision declaring equivalence of the Japanese legal, supervisory and enforcement arrangements for risk mitigation techniques and exchange of collateral has been published in the Official Journal of the European Union. The European Market Infrastructure Regulation requires counterparties to uncleared derivatives to comply with requirements on timely confirmation, portfolio compression, procedures for reconciliation of disputes and the exchange of collateral, collectively known as the risk mitigation techniques. The European Commission is empowered to adopt an equivalence decision declaring that the requirements of a third country are equivalent to the EMIR requirements on risk mitigation. The USA has also benefited from such a decision in respect of its risk mitigation arrangements.

    To qualify for equivalence for the risk mitigation techniques, at least one of the parties to the transaction needs to be established in Japan and be registered with the Financial Services Agency of Japan. In the case of exchange of collateral, the transactions in question may alternatively qualify if they are marked-to-market and variation margin is exchanged on a daily basis, provided the counterparties to the transactions are established in Japan and the notional principal of their OTC derivatives within a specified period is below JPY 300bn.

    The equivalence decision will apply from May 22, 2019.

    View the EC's opinion.

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