More than one firm engaged in foreign exchange margin transactions (hereinafter in this Page, referred to as "FX transactions") has gone bankrupt since summer 2007. There were firms unable to return margins to customers because of a failure of compliance with the Financial Instruments and Exchange Act (hereinafter in this Page, referred to as "F.I. Act"), which requires separate control ※1 of customer money, such as losses of margins deposited by customers as a result of misuse of customer money by firms or losses arisen from covering transactions or trading for firms' own accounts.
Further, the risks on a failure of a covering party have come to the surface since the financial crisis in summer to autumn 2008. Based on such circumstances, the Cabinet Office Ordinance on Financial Instruments Business, etc. (hereinafter in this Page, referred to as "F.I. Business Ordinance") was amended to require a financial instruments firm or registered financial institution (hereinafter referred to as "firm, etc.") to keep margins deposited for FX transactions only by means of separately controlled money deposit with trust corporations or financial institutions engaged in trust business (hereinafter in this Page, referred to as "trust bank, etc.") in order to keep margins deposited by customers safe in the event of a failure of a firm or covering party.
Article 143.1 (1) of the F.I. Business Ordinance requires trust holding of separately controlled customer money for currency-related derivatives transactions, etc. including FX transactions (hereinafter in this Page, explanation is made only for FX transactions), and the requirement applies to both on-exchange FX transactions and over-the-counter FX transactions ※2, and to the case where a firm acting as an intermediary keeps customer margins.
The F.I. Business Ordinance was amended in 2009 to require a firm, etc. (trusting person), with respect to margins deposited by a customer (beneficiary) for FX transactions to compute appropriately each day the amount of individual customer separate money ※4 and the required amount of separately controlled customer money ※5 each day after the addition or subtraction of realized profit or loss, valuation profit or loss and swap profit or loss ※3 and the subtraction of unpaid fee (excluding those related to unconcluded transactions) if any and to place the amount corresponding thereto with a trust bank, etc. (trustee) as money trust within the stipulated time (within two business days ※6 from the computation date).
The appointment of a proxy for beneficiaries ※7 is required for such money trust. At least one of such proxies must be a lawyer, etc. ※8 In the event of a failure, etc. of a firm, etc., ※9 only such proxy for beneficiaries who is a lawyer, etc. exercises the power for the preservation of customer assets in order to facilitate smooth return of customer assets. (If such proxy for beneficiaries allows other proxy for beneficiaries to exercise the power, however, such case is excluded.) An internal controller, etc. who is an officer or employee of a firm, etc. is usually appointed as a proxy for beneficiaries who performs the control, etc. of the state of trust during an ordinary period.
【Example of Trust Scheme】
A firm, etc., trust bank, etc. and customer must be a trusting person, trustee and beneficiary, respectively.
The computation of the amount required for separate customer money control for transactions from 07:00 a.m. in a specific day (A) in Japan time until 07:00 a.m. in the immediately following day (hereinafter referred to as "computation date") assuming that the base time is 07:00 a.m. in the computation date.
If (A) is Monday, the computation date is Tuesday. The addition of the deficit amount of the trust must be made within two business day after the day (Wednesday) immediately following the computation date, i.e., no later than Thursday. A business day herein means a so-called bank business day.
【Image of trust deadline】
The system to require trust holding of separately controlled margins for FX transactions as explained in this Page does not mean the system to guarantee the full return of margins deposited by customers in any circumstances because of the time differential between the computation of the amount required for separate control and the deadline for the addition to the trust.
Cancellation of the whole or part of a contract for separately controlled customer money trust may be made only if "the valuation amount of the principal of trust properties exceeds the amount required for separate customer money control and cancellation of the whole or part of the contract for the separate customer money control trust is made within such excess amount" and "cancellation of the whole or part of the contract for the separate customer money control trust is made for the purpose of trusting as trust properties for other separate customer money control trust" (in both cases, trust properties subject to such cancellation must belong to the firm, etc. which is a trusting person.), which is considered that there is little possibility of a problem in light of the preservation of customer margins.
Even if a letter of guarantee, etc. (hereinafter in this Page, referred to as "LG") is issued to a covering party by a trust bank, etc. which is a trustee of a separate customer money control trust and payment has been made based on LG, the amount of trust properties must be larger than the amount required for separate customer money control.
A contract must clarify that customers have a priority because it may be impossible to maintain the amount required for separate customer money control trust if a separate customer money control trust terminates as a result of a failure, etc. of a firm, etc. and the payment to a covering party is made in preference over the payment to customers.
The amended F.I. Business Ordinance took effect on August 1, 2011. There are measures for six month transitional period until January 31, 2010 for firms which carried out the business as of that time, and the amended F.I. Business Ordinance became applicable to existing firms on and after February 1, 2010.