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.
※1Keeping customer assets separate from properties of a firm, etc.
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.
※2If transactions are conducted by a juridical person engaged in the foreign trade or other business regarding foreign exchange transactions in order to reduce the risk of loss arising from the fluctuation of exchange rates which may affect adversely on the juridical person's assets and liabilities, and the financial instruments firm, etc. confirms that such transactions are conducted in order to reduce the risk of loss, such transactions are not subject to such requirement.
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.
※3Profit and loss arising from swap points (amount of adjusted interest rate differential between currencies).※4The amount of margins deposited by each customer after the addition or subtraction of the amount of realized profit or loss, valuation profit or loss and swap profit or loss of the customer and, in the case where there is unpaid fee (excluding those related to unconcluded transactions), after the subtraction of the amount of such unpaid fee.※5The total amount of each customer's separate control amounts.※6A business day referred herein means a bank business day.※7A person appointed in the case, among others, where there are many beneficiaries and it is practically impossible for a beneficiary to make supervision over the trustee or make decisions.※8A lawyer, legal professional corporation, certified public accountant, auditing corporation, certified public tax accountant, tax accountant corporation or a person designated by the Commissioner of the Financial Services Agency.※9Event of a failure, etc. of a firm, etc. in this Page means those referred to in Article 143-2.1 (4) of the F.I. Business Ordinance.
【Example of Trust Scheme】
A firm, etc., trust bank, etc. and customer must be a trusting person, trustee and beneficiary, respectively.
※10If an event of a loss of the principal resulted in a failure of the fulfillment of the amount required for separate customer money control, a firm, etc. must make an addition to trust properties to fulfill the amount required for separate customer money control.
【Example】
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.
【Notes, etc.:】
the website of the Financial Services Agency
（Japanese Page）
（F.I. Business Ordinance, etc.） http://www.fsa.go.jp/news/21/syouken/20090703-2.html
（Supervisory Guidelines） http://www.fsa.go.jp/news/21/syouken/20090703-4.html
143.1. In the case where a financial instruments firm, etc. manages money or other guarantee money under the provisions of Article 43-3.1 of the Act and such guarantee money is money, the financial instruments firm, etc. shall keep such money separate from the firm's own property in the manner provided in each of the following items according to the classification of the derivatives transactions, etc (excluding securities related derivatives transactions, etc.). referred to in such item: (1) currency related derivatives transaction, etc. - money trust with a trust bank or a financial institution engaged in trust business;
Article 143.3(1) of the F.I. Business Ordinance
143.3. "currency related derivatives transaction, etc." under the items of Article 143.1 shall be the following acts:
(1) currency related market derivatives transaction as defined in Article 123.2 or any of the acts referred to in (2) or (3) of Article 2.8 of the Act related thereto;
(2) currency related over-the-counter derivatives transaction as defined in Article 123.4 (excluding currency related over-the-counter derivatives transaction for the purpose of reducing the risk of loss arising from the fluctuation of exchange rates related to assets and liabilities held by a juridical person engaged in foreign trade or other business regarding foreign exchange
transactions if the financial instruments firm, etc. confirms that such currency related over-the-counter derivatives transaction reduces the risk of loss) or acting as an intermediary,
broker (excluding securities, etc. clearing broking) or agent therefor; and
(3) currency related foreign market derivatives transaction as defined in Article 123.5 or any of
the acts referred to in (2) or (3) of Article 2.8 of the Act related thereto.
(4) if any of the following events occurs with the financial instruments firm, etc., only agent of beneficiaries appointed among attorneys at law, etc. shall exercise the authorities (excluding the case where such agent of beneficiaries approves other agent of beneficiaries to exercise the authorities):
(a) revocation, pursuant to the provisions of Article 52.1, 52.4, 53.3, 54 or 57-6.3 of the Act, ofregistration under Article 29 of the Act;
(b) revocation, pursuant to the provisions of Article 52-2.1, 52-2.3 or 54 of the Act, of registration under Article 33-2 of the Act;
(c) filing of a petition for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, commencement of reorganization proceedings or commencement of special liquidation proceedings (in the case of a financial instruments firm, etc. which is a foreign juridical person, filing of a petition for commencement of bankruptcy proceedings, commencement of rehabilitation proceedings, commencement of reorganization proceedings or commencement of special liquidation proceedings in Japan or filing of the same type of petition under the laws or regulations of a jurisdiction, where the principal business office is located, in such jurisdiction);
(d) cessation of financial instruments business, etc. (in the case of a financial instruments firm, etc. which is a foreign juridical person, cessation of financial instruments business, etc. at all of the business offices or other type of offices in Japan; in (d), the same) or dissolution (in the case of a financial instruments firm, etc. which is a foreign juridical person, commencement of liquidation of any of the business offices or other type of offices in Japan; in (d), the same), or public notice of cessation of financial instruments business, etc. or dissolution pursuant to the provisions of Article 50-2.6 of the Act;
(e) issuance of an order under Article 52.1 of the Act to suspend the whole or part of business (limited to the case falling under (7) of said 52.1;
(f) filing of a petition by the Prime Minister to a court for commencement of bankruptcy proceedings pursuant to the provisions of Article 490.1 of the Law on Exceptions, etc. for Reorganization Proceedings of Financial Institution, etc.;
(g) receipt by the Prime Minister of a notice pursuant to the provisions of Article 379, 448 or 492 of the Law on Exceptions, etc. for Reorganization Proceedings of Financial Institution, etc. or other notice regarding special liquidation;