No-Action Relief to JSCC from Reg. 39.6(b)(1) and CEA Sec. 4d(f) and 4m(1)

Summary: No-Action Relief to JSCC from Reg. 39.6(b)(1) and CEA Sec. 4d(f) and 4m(1)

CFTC LETTER NO. 25-32 NO-ACTION SEPTEMBER 12, 2025

Mr. Konuma Yasuyuki

President and Chief Executive Officer

Japan Securities Clearing Corporation

2-1 Nihombashi-Kabuto-cho

Chuo-Ku

Tokyo 103-0026, Japan

Re: No-Action Letter with Regard to Sections 4d(f) and 4m(1) of the Commodity

Exchange Act and Commission Regulation 39.6(b)(1)

Dear Mr. Yasuyuki:

This is in response to the Japan Securities Clearing Corporation (“JSCC”) letter dated

April 7, 2025, to the Division of Clearing and Risk and Market Participants Division

(“Divisions”) of the Commodity Futures Trading Commission (“Commission”). In the letter,

you request that the Divisions confirm that they will not recommend that the Commission take

enforcement action against (i) JSCC with respect to failure to satisfy the restrictions in

Commission Regulation 39.6(b), or (ii) JSCC’s clearing members that are not incorporated in the

United States (“U.S.”) with respect to futures commission merchant (“FCM”) registration

requirements in Commodity Exchange Act (“CEA”) Section 4d(f)1 and commodity trading

advisor (“CTA”) registration requirements in CEA Section 4m(1).2

The letter represents that JSCC is making the request to enable U.S. market participants

to clear Japanese Yen (“JPY”) denominated interest rate swaps (“IRS”) through clearing

members of JSCC that are not incorporated in the U.S nor registered with the Commission as

FCMs.

Statement of Facts

Based on the representations made in the letter, we understand the relevant facts to be as

follows:

JSCC was established as a joint-stock company under the Companies Act of Japan on

July 1, 2002. JSCC is licensed to perform clearing services under Japan’s Financial Instruments

and Exchange Act and regulated by the Japanese Financial Services Authority.

1 7 U.S.C. § 6d(f)

in the letter, we understand the relevant facts to be as

follows:

JSCC was established as a joint-stock company under the Companies Act of Japan on

July 1, 2002. JSCC is licensed to perform clearing services under Japan’s Financial Instruments

and Exchange Act and regulated by the Japanese Financial Services Authority.

1 7 U.S.C. § 6d(f).

2 7 U.S.C. § 6m(1).

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

www.cftc.gov

Mr. Konuma Yasuyuki

Page 2

JSCC obtained from the Commission an exemption from registration as a derivatives

clearing organization (“DCO”) in 2015.3 Under the conditions set forth in the exemption order

and Commission Regulation 39.6(b)(1), JSCC, like other exempt DCOs, is limited to clearing

swaps for only U.S. persons that are clearing members of JSCC or affiliates of JSCC clearing

members (“proprietary swaps”). In other words, U.S. persons that are neither clearing members

of JSCC nor affiliates of JSCC clearing members (“U.S. customers”) are currently not permitted

to clear at JSCC.

JSCC attempted to register with the Commission as a DCO in 2014, which would have

allowed JSCC to clear for U.S. customers. However, JSCC was unable to do so due to a conflict

between Section 4d(f) of the CEA, which requires a registered DCO to segregate FCM customer

funds at all times from the DCO’s own funds to ensure that the funds are protected under U.S.

bankruptcy law, and Japanese law. Specifically, JSCC states that it holds all customer property

in a trust account to ensure that the property is remote from any Japanese bankruptcy proceeding

against JSCC

ct

between Section 4d(f) of the CEA, which requires a registered DCO to segregate FCM customer

funds at all times from the DCO’s own funds to ensure that the funds are protected under U.S.

bankruptcy law, and Japanese law. Specifically, JSCC states that it holds all customer property

in a trust account to ensure that the property is remote from any Japanese bankruptcy proceeding

against JSCC. However, customer funds transferred by clearing members to or from JSCC are

held for a short period of time (approximately one hour) in JSCC’s account at the Bank of Japan

in a commingled manner with JSCC’s proprietary funds and other funds, which is inconsistent

with the segregation requirements of Section 4d(f) of the Act.

In 2024, JSCC cleared approximately 55% of the global JPY-IRS market, as measured by

the volume of traded notional.

Discussion of Request for No-Action Position and Applicable Legal Requirements

JSCC claims that the prohibition on U.S. customer clearing at JSCC forces U.S. customers

to trade and clear JPY-IRS in markets with lower liquidity, creating increased risk and leading to

more disadvantageous prices than those available to non-U.S. customers who can access the higher

liquidity and competitive pricing at JSCC.

JSCC further claims that current market conditions are exacerbating the need for U.S.

customers to hedge JPY interest rate risk. JSCC notes that, starting in 2016, the Bank of Japan

(“BoJ”) maintained a Yield Curve Control Policy (“YCC”), which had targeted a 0% yield for

10-year Japanese Government Bonds (“JGBs”), with a cap of 0.25%

he higher

liquidity and competitive pricing at JSCC.

JSCC further claims that current market conditions are exacerbating the need for U.S.

customers to hedge JPY interest rate risk. JSCC notes that, starting in 2016, the Bank of Japan

(“BoJ”) maintained a Yield Curve Control Policy (“YCC”), which had targeted a 0% yield for

10-year Japanese Government Bonds (“JGBs”), with a cap of 0.25%. Recently, the BoJ

implemented the following amendments to the YCC:

3 Section 5b(h) of the CEA gives the Commission the authority to conditionally or unconditionally exempt a DCO

from the registration requirement for the clearing of swaps if the Commission determines that the DCO is subject to

comparable, comprehensive supervision and regulation by the appropriate government authorities in the home

country of the DCO. 7 U.S.C. § 7a-1(h). The Commission originally issued an exemptive order to JSCC on

October 26, 2015. The Commission issued an amended exemptive order on May 15, 2017, which expanded the

scope of products that JSCC is permitted to clear as an exempt DCO, subject to several conditions set forth in the

order. See In the Matter of the Petition of Japan Securities Clearing Corporation For Exemption from Registration as

a Derivatives Clearing Organization, Amended Order of Exemption From Registration (May 15, 2017), available at

https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptamdorder5-15-

17.pdf.

ubject to several conditions set forth in the

order. See In the Matter of the Petition of Japan Securities Clearing Corporation For Exemption from Registration as

a Derivatives Clearing Organization, Amended Order of Exemption From Registration (May 15, 2017), available at

https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/jsccdcoexemptamdorder5-15-

17.pdf.

Mr. Konuma Yasuyuki

Page 3

• In December 2022, the YCC cap was amended to 0.5%. In response to this change, the

10-year JGBs immediately spiked to 0.5% (i.e., the new cap) from 0.25% (i.e., the

previous cap).

• In July 2023, the YCC cap was amended to 1%.

• In October 2023, the YCC cap was further amended to allow 10-year JGB yields to

exceed 1%.

In March 2024, the BoJ abolished the YCC and started targeting 0 ~ 0.1% for the

overnight unsecured call rate. The BoJ further amended the targeted rate as follows:

• In July 2024, the targeted overnight unsecured call rate was raised to 0.25%.

• In January 2025, the targeted rate was further raised to 0.5%.

JSCC notes that, driven in part by these changes, increased volatility has been observed

in the JPY interest rate markets, with market participants anticipating additional interest rate

volatility to come. Given this anticipation, participants have been seeking to hedge this risk

using JPY-IRS, thus making the hedging of JPY interest rate risk an urgent risk management

matter for market participants.

With the above as background, JSCC is requesting a no-action letter that would enable

U.S. customers to clear at JSCC. Among other needs, this would allow them to hedge their JPY

interest rate risk in what has been an increasingly volatile and uncertain interest rate

environment. JSCC states that this access would decrease the risks to U.S

t risk management

matter for market participants.

With the above as background, JSCC is requesting a no-action letter that would enable

U.S. customers to clear at JSCC. Among other needs, this would allow them to hedge their JPY

interest rate risk in what has been an increasingly volatile and uncertain interest rate

environment. JSCC states that this access would decrease the risks to U.S. customers, and

ultimately the United States, by (1) providing access to the most liquid venue for clearing JPY-

IRS and (2) eliminating the counterparty credit risk associated with alternative hedging products

that are not cleared.

JSCC notes that U.S. customers clearing JPY-IRS must qualify as eligible contract

participants,4 which includes investment firms, life insurance companies and asset managers.

Because these U.S. customers transact internationally, their ability to access available liquid

markets and clearing solutions for interest rate swaps directly impacts their ability to manage and

hedge risks across global markets, obtain reasonable returns on investments, and remain

competitive with their non-U.S. peers. JSCC argues that recent global interest rate trends,

including expectations for Japanese interest rates as described above, have further raised the

priority for efficient risk management of interest rate risks.

JSCC is requesting that only JSCC clearing members affiliated with registered FCMs

incorporated in the United States (which are in the same corporate group) be able to clear for

U.S. customers under the no-action letter, arguing the overall impact of competition between

non-U.S. clearing members of JSCC and the registered FCMs would be minimal. Rather, these

corporate groups could efficiently use the capacity for customer clearing available in their non-

U.S. affiliates, thus mitigating any capacity issues at their registered FCM entities while

4 7 U.S.C. §§ 1a(18) and 2(e).

rall impact of competition between

non-U.S. clearing members of JSCC and the registered FCMs would be minimal. Rather, these

corporate groups could efficiently use the capacity for customer clearing available in their non-

U.S. affiliates, thus mitigating any capacity issues at their registered FCM entities while

4 7 U.S.C. §§ 1a(18) and 2(e).

Mr. Konuma Yasuyuki

Page 4

providing their U.S. customers access to the liquidity of JPY-IRS at JSCC. Additionally, this

approach would not lead to additional costs for the corporate group as their non-U.S. affiliates in

Japan are already onboarded as JSCC clearing members.

With regard to customer protection, JSCC states that it holds all customer property in a

trust account with the customers as beneficiaries to ensure that the customer property is remote

from any Japanese bankruptcy proceeding against JSCC. JSCC further states that title to the

customer property is transferred to JSCC to ensure that (i) the customer collateral is not subject

to any claim from third-party creditors of a defaulted clearing broker clearing on behalf of

customers, and (ii) the customer collateral could be used only to cover losses from a customer’s

own positions, as prescribed in JSCC’s rulebook, in the case of a default of the customer’s

clearing broker.

JSCC also notes that it discloses the details of its own rulebook, as well as the bankruptcy

regime in Japan on its website, including comparisons between them and the customer

protections available under the U.S. regime.5 JSCC believes that, by using this public

information, as well as information provided by JSCC’s clearing members, U.S. customers could

readily assess JSCC’s customer protection regime. JSCC notes that some major U.S. and non-

U.S. asset managers have already onboarded their non-U.S. funds onto JSCC as customers

risons between them and the customer

protections available under the U.S. regime.5 JSCC believes that, by using this public

information, as well as information provided by JSCC’s clearing members, U.S. customers could

readily assess JSCC’s customer protection regime. JSCC notes that some major U.S. and non-

U.S. asset managers have already onboarded their non-U.S. funds onto JSCC as customers.

JSCC assumes that since professional asset managers would normally conduct their own due

diligence on risk management and customer protections at DCOs prior to onboarding their funds,

those U.S. asset managers must be satisfied with JSCC’s customer protection regime.

JSCC notes in its request that Section 5b(h) of the CEA authorizes the Commission to

“conditionally or unconditionally” exempt a DCO from registration, and JSCC acknowledges

that the Commission has conditioned its exemption on JSCC not clearing swaps for U.S.

customers, as also required by Commission Regulation 39.6(b)(1). JSCC indicates that it is

separately requesting that the Commission amend its exemption order to remove this restriction.

Accordingly, JSCC is requesting that the Division of Clearing and Risk take a no-action position,

pursuant to Commission Regulation 140.99, with respect to Commission Regulation 39.6(b)(1).

In addition, JSCC states in its request that Section 4d(f) of the CEA would require a

clearing member that clears swap transactions on behalf of U.S. customers to register with the

Commission as an FCM. JSCC is requesting, on behalf of its clearing member firms that are

incorporated outside of the U.S., that the Market Participants Division (MPD) take a no-action

position, also pursuant to Commission Regulation 140.99, that it will not recommend

enforcement action to the Commission if such clearing members clear JPY-IRS at JSCC on

behalf of U.S. customers without registering as FCMs in violation of Section 4d(f) of the CEA

f its clearing member firms that are

incorporated outside of the U.S., that the Market Participants Division (MPD) take a no-action

position, also pursuant to Commission Regulation 140.99, that it will not recommend

enforcement action to the Commission if such clearing members clear JPY-IRS at JSCC on

behalf of U.S. customers without registering as FCMs in violation of Section 4d(f) of the CEA.

JSCC further requests a no-action position from the commodity trading advisor (“CTA”)

registration requirements of Section 4m(1) of the CEA. A CTA is defined as any person who,

for compensation or profit, engages in the business of advising others, either directly or through

publications, writing, or electronic media, as to the value of or the advisability of trading

5 See https://www.jpx.co.jp/jscc/otc/u89at30000007w62-att/bankruptcyprotections_20250106.pdf.

Mr. Konuma Yasuyuki

Page 5

commodity interest.6 JSCC states that its clearing members in soliciting and accepting orders

from U.S. customers for JPY-IRS may provide advice regarding such transaction, which may

trigger CTA registration requirements. JSCC notes that a CTA registration requirement would

be a potential impediment or disincentive for clearing members to accept U.S. customers.

Therefore, JSCC requests that MPD confirm that it will not recommend an enforcement action

for failure to register as a CTA against a JSCC clearing member incorporated outside of the U.S.

that provides trading advice to a U.S customer solely with respect to the clearing of JPY-IRS.

No-Action Position

Based on the facts presented and the representations JSCC has made, the Divisions will

not recommend that the Commission take enforcement action against JSCC or its non-U.S

for failure to register as a CTA against a JSCC clearing member incorporated outside of the U.S.

that provides trading advice to a U.S customer solely with respect to the clearing of JPY-IRS.

No-Action Position

Based on the facts presented and the representations JSCC has made, the Divisions will

not recommend that the Commission take enforcement action against JSCC or its non-U.S.

incorporated clearing members for failure to comply, as appropriate, with the FCM and CTA

registration requirements of Sections 4d(f) and 4m(1) of the CEA and Commission Regulation

39.6(b)(1), subject to the following conditions:

1. JSCC clearing members may only solicit and accept orders for JPY-IRS from U.S.

customers that are eligible contract participants as defined under Section 1a(18) of the

CEA and Commission Regulation 1.3;

2. JSCC clearing members that solicit and accept orders from U.S. customers for JPY-IRS

may not be registered with the Commission as FCMs nor incorporated in the United

States;

3. JSCC clearing members that solicit and accept orders from U.S. customers for JPY-IRS

must be affiliates of Commission-registered FCMs;

4. JSCC must adopt rules that require any clearing member seeking to clear for a U.S.

customer to provide written notice to, and to obtain an acknowledgment from, the U.S.

customer prior to clearing that explains that (i) the clearing member is not registered with

the CFTC as an FCM, nor a member of the National Futures Association; (ii) JSCC is

exempt from registration with the Commission as a DCO; (iii) in the event of the

bankruptcy of JSCC or a JSCC clearing member holding U.S. customer property, the

bankruptcy would be governed by the laws of a non-U.S. jurisdiction; and (iv) in the

event of the bankruptcy of JSCC or a JSCC clearing member holding U.S. customer

property, the protections of the U.S. Bankruptcy Code, as defined in CFTC Regulation

190.01, that are applicable to customers of a registered FCM and DCO do not apply to

the U.S

clearing member holding U.S. customer property, the

bankruptcy would be governed by the laws of a non-U.S. jurisdiction; and (iv) in the

event of the bankruptcy of JSCC or a JSCC clearing member holding U.S. customer

property, the protections of the U.S. Bankruptcy Code, as defined in CFTC Regulation

190.01, that are applicable to customers of a registered FCM and DCO do not apply to

the U.S. customers, or to the funds and positions of the U.S. customers. The written

notice must include an explicit comparison of the protections available to the U.S.

customer positions and funds under the U.S. Bankruptcy Code and Part 190 of the

Commission’s regulations and JSCC’s home country regulatory regime. JSCC’s rules

6 7 U.S.C. 1a(12).

Mr. Konuma Yasuyuki

Page 6

shall require the JSCC clearing member to retain the U.S. customer’s acknowledgment of

the receipt of the written notice in its records;

5. JSCC clearing members and JSCC must hold funds received from U.S. customers to

margin, guarantee, or secure JPY-IRS, or funds accruing to U.S. customers as a result of

JPY-IRS, in accordance with applicable Japanese laws, regulations, and JSCC rules; and

6. This no-action letter shall expire upon a determination by the Commission to either grant

or deny JSCC and its clearing members an exemption, pursuant to Section 4(c) of the

CEA, from Sections 4d(f) and 4m(1) of the CEA and related Commission regulations.

The position taken herein concerns enforcement action only and does not represent a

legal conclusion with respect to the applicability of any provision of the CEA or the

Commission’s regulations. In addition, the Divisions’ position does not necessarily reflect the

views of the Commission or any other division or office of the Commission

4m(1) of the CEA and related Commission regulations.

The position taken herein concerns enforcement action only and does not represent a

legal conclusion with respect to the applicability of any provision of the CEA or the

Commission’s regulations. In addition, the Divisions’ position does not necessarily reflect the

views of the Commission or any other division or office of the Commission. Because this

position is based on the representations contained in JSCC’s request letter, any different,

changed, or omitted material facts or circumstances may require a different conclusion or render

this letter void. Finally, as with all no-action letters, the Divisions retain the authority to

condition further, modify, suspend, terminate, or otherwise restrict the terms of this letter, in

their discretion.

Sincerely,

_______________________________

____________________________

Richard Haynes

Acting Director

Division of Clearing and Risk

Thomas J. Smith

Acting Director

Market Participants Division