On August 12, ISDA responded to the Japan Securities Clearing Corporation’s (JSCC) consultation on its proposal to consolidate clearing fund consumption, calculation and deposit segmentation across six clearing qualifications under the Financial Instruments and Exchange Act.

ISDA members broadly support the JSCC’s objective to achieve greater capital efficiency, diversification benefit and operational simplicity consistent with default fund frameworks at other major central counterparties globally. However, ISDA flagged that consolidation could create cross-product subsidization between clearing qualifications with materially different risk profiles, particularly between the financial futures segment (index futures and Japanese government bond futures) and commodity-related segments. ISDA asks JSCC to share an analysis of participant overlap and, if overlap proves limited, to consider splitting the fund between the commodity-related segments and financial futures segments instead.

The response also seeks further clarity on JSCC’s backtesting conducted on the consolidated clearing fund, the practical impact of the proposal on clearing participants, including an illustrative worked example of the loss allocation waterfall, JSCC’s intentions on reallocating its skin-in-the-game contributions, and the rationale behind the proposed increase in the margin period of risk (MPOR) for precious metal contracts. ISDA also asks whether MPOR for other commodity contracts (rubber, agricultural and petroleum futures) should be similarly extended.