Japan Intends to Meet Trillion-Dollar Swap Market Rule Schedule

  • FSA official speaks after EU said it won’t meet Sept. deadline
  • Rules to ensure banks have enough collateral for swaps deals

Japan’s financial regulator intends to introduce collateral rules for the multi-trillion-dollar swap market from Sept. 1, even after the European Union said it wouldn’t meet the global deadline.

“It would probably be sounder to implement the rules on schedule,” said Shunsuke Shirakawa, deputy commissioner for international affairs at Japan’s Financial Services Agency. At the same time, he didn’t rule out a delay by Japan.

Financial institutions have had enough time to prepare for the new rules, which have already been postponed once, Shirakawa said in an interview at the FSA’s offices in Tokyo Wednesday. He said the regulator risks a loss of confidence if it doesn’t proceed as planned for the standards, which are aimed at ensuring banks have sufficient collateral to backstop transactions done directly with other traders.

The European Commission, the EU’s executive arm, said this month it won’t be able to meet the deadline adopted by the U.S. and laid out as a goal by global regulators. If Japan and others implement the rules on schedule without the EU, European banks may still comply from September, effectively establishing the framework internationally, according to Shirakawa.

The FSA is collecting information to judge the impact of the EU’s decision, which was “very regrettable,” Shirakawa said. “It’s not that we don’t have flexibility, and we are currently examining the circumstances.”

Yellen Monitoring

The over-the-counter derivatives market, estimated at $493 trillion by the Bank for International Settlements, is dominated by global banks such as Citigroup Inc. and JPMorgan Chase & Co.

Federal Reserve Chair Janet Yellen said Wednesday she is closely monitoring the EU’s postponement of the rules and the U.S. will need to consider the impact. Commodity Futures Trading Commission Chairman Timothy Massad said earlier this month that he didn’t expect the U.S. to delay.

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