第5回 FIAジャパン オペレーション委員会 議事録（公開版）FIA Japan Operations Committee — 5th Meeting Minutes (Public Version)

Note (Chatham House Rule): This record has been prepared under the Chatham House Rule; statements that would identify individual speakers have been removed. With the exception of the Chair (Shun Yanagisawa), the Secretariat (Tony Crane), the chairs of other FIAJ committees, and the Webmaster (David Wilkinson), neither individual names nor organization names are recorded. No substantive content — what was discussed or decided — has been altered.

Note (Status of this public version): This public version is not a verbatim translation of the Secretariat's internal version. Wording has been deliberately altered to apply the Chatham House Rule. Substantive content — what was discussed and decided — matches the internal version, but word-for-word equivalence is not intended.

Meeting Overview

1. Purpose of the Meeting

The purpose of this meeting is to conduct concrete discussions toward industry-wide standardization to resolve challenges in Japan's futures post-trade processing. The focus is on reducing operational burdens and improving processing efficiency by addressing minor discrepancies in settlement amounts (the so-called "1-yen problem"), FIFO, the handling of the "New/Close" flag on order tickets, related system and institutional issues, and average price processing.

2. Key Discussion Points

2.0. Feedback from FIAJ Summer Party, Survey Results, and Individual Comments from Asset Management Companies, etc.

1. Current Situation:
   1. Feedback on the summer party was positive. Overall satisfaction was 83% "very good." The futures post-trade panel was rated at 67% "very useful," 6% "useful," with 22% who didn't attend the panel and 6% "other."
   2. Individual feedback from Asset Managers (AM):
      1. Necessity of establishing guidelines: Unlike cash equities, CTM/OMS for futures lack standardization for trade matching, allocation matching, and the choice between block orders and average pricing at the time of order. Custom development with vendors is likely to be inefficient as only a limited number of brokers can support it.
      2. For domestic futures accounts, the full amount of margin surplus/deficit must be deposited or withdrawn. To ensure smooth post-close processing, the "New/Close" distinction must be determined in advance to quickly finalize the margin transfer amount. It would be better if surplus funds could be maintained in the futures account, similar to what is done in overseas accounts.
      3. Differences in handling investment trusts vs investment advisory services: For investment advisory, trade and allocation data are sent to the custodian bank. For investment trusts, in addition to trade and allocation data, the margin transfer amount must also be sent, requiring re-confirmation in case of discrepancies, which could lead to double-checking.
      4. Vendors of accounting systems are also expected to play an important role in improving post-trade processing.

2.1. Minor Discrepancies in Settlement Amounts (1-Yen Problem) and Operational Practices

1. Current Situation:

   1. Minor discrepancies of 1 to several yen frequently occur in settlement amounts between FCMs (Futures Commission Merchants) and trust banks, etc.
   2. Each time a discrepancy occurs, confirmation work via phone or email is required, placing a significant burden, especially on securities firms.
   3. There are differences in processing flows depending on the actor. Investment trusts require strict "as instructed" processing, while non-investment trusts (e.g., investment advisory) allow for easier adjustments in later stages.

2. Discussion & Proposal:

   1. A proposal was made to create an industry guideline to unconditionally match the amount presented by the FCM if it is within a certain tolerance range, such as "1 to 10 yen."
   2. Such a guideline is expected to significantly reduce unnecessary inquiries and operational burdens.
   3. For clients that require strict matching of settlement amounts, such as investment trust funds, it will be necessary to carefully explain the purpose of this guideline and seek their understanding.

2.2. Standardization of FIFO/Close-out Logic

1. Current Situation:

   1. A committee member shared the results of a survey of six major brokers (of which five responded).
   2. It was confirmed that a common logic supported by many brokers is to first prioritize the closing of day trades, and then close the oldest remaining positions first (FIFO). A "REAL FIFO" method without day-trade priority was also identified.
   3. However, some clients request proprietary close-out logic such as "MAX Gain," which has prevented full standardization.

2. Discussion & Proposal:

   1. A proposals was made to prioritize the unification of FIFO logic for financial futures under the Financial Instruments and Exchange Act (FIEA).
   2. It was noted that uniform standardization for commodity futures would be difficult due to their unique culture and background, such as hedging physical transactions (allocation designation). A flexible approach was deemed appropriate: making FIFO mandatory for financial futures and recommending its adoption for commodity futures where possible.
   3. It would be advisable to narrow down the logic to 2-3 simpler patterns, considering standardization and maintenance costs, rather than maintaining a wide range of supportable logics.

2.3. Handling of "New/Close" Flag on Order Tickets

1. Current Situation:

   1. The practice of specifying "New/Close" when placing an order is unique to Japan. With electronic trading now mainstream, many brokers initially place all orders as "Open" and subsequently reflect the result of FIFO processing on the ticket.
   2. However, the "New/Close" field remains a mandatory item in exchange execution APIs and trade reporting data, contributing to inefficiency.
   3. In JSCC's clearing practice, the concept of "resale/repurchase" has been eliminated, leaving only the "close-out declaration."
   4. Commodity futures are excluded from this discussion due to the persistent culture of allocation designation for hedging physical transactions (items outside the FIEA are out of scope).

2. Discussion & Proposal:

   1. There was a consensus that while the final classification is necessary for accounting purposes, it would be sufficient to determine it at the final stage after execution, rather than at the time of order.
   2. An opinion was raised that if this practice is unnecessary, lobbying the Financial Services Agency (FSA) and other bodies for deregulation should be considered.
   3. It was suggested that processing based on a pre-agreed FIFO logic might not be an issue, based on the interpretation of the exemption clause in Article 9 of the OSE's Brokerage Agreement Rules (which permits post-facto assignment with prior customer consent).
   4. It is necessary to broadly investigate the impact of abolishing the "New/Close" flag, as it could affect not only order tickets but also trade reports and other statutory books.

2.4. Settlement Matching System and Institutional Issues

1. Current Situation:

   1. JASDEC (Japan Securities Depository Center) provided an explanation of the current status and future plans for its PSMS (Pre-Settlement Matching System).
   2. The current handling of futures and options data is primarily a continuation of legacy functions migrated from NTT Data, and trade matching, as is done for stocks, is not performed. Many items, such as the "New/Close" classification, originate from electronification requirements under the old Securities and Exchange Act, and their necessity under the current FIEA is subject to review.

2. Discussion & Proposal:

   1. If the "New/Close" classification item could be removed from the PSMS trade reporting data in the future, it would enable the sending of trade reports without waiting for the close-out (FIFO) batch, thereby improving efficiency.
   2. Futures transactions are currently not included in the full reconstruction of JASDEC's settlement matching system (Third Phase), and any support is not expected until 2032 or later.
   3. The direction was confirmed that the industry should proceed with ”先行して”, developing industry guidelines to standardize operational practices first, rather than waiting for long-term system modifications.

2.5. Developing Industry Guidelines and Collaborating with Related Organizations

1. Policy:
   1. The Trust Companies Association of Japan has established strict self-regulations, which has been a historical challenge. Rather than negotiating directly with the trust industry, this working group will first organize the issues and create a high-quality draft guideline.
   2. Subsequently, the draft will be presented to related organizations such as the Investment Trusts Association, Japan, and the Trust Companies Association of Japan. The aim is to build an industry consensus through a public comment period.
   3. It was agreed to start by drafting guidelines for the unification of FIFO logic, the 1-yen problem, and average pricing.
   4. This is a timely moment, as these are important themes from the perspective of the FSA's Asset Management Forum and the government's "Asset Management Nation" initiative.

2.6. System Flow Overview

The data contains duplicate information and a mix of items that are necessary and unnecessary for matching.

Note on the JASDEC Pre-Settlement Matching System (PSMS): The system does not handle so-called trade matching operations (matching data from institutional investors and securities firms on the system) for futures. However, when NTT Data discontinued its service for electronically sending futures trade data from institutional investors and securities firms to trust banks, JASDEC took over that function as is, targeting data transmission and reception (launched in May 2003). Since then, the format has not been significantly revised, except for removing some unnecessary items during the ISO 20022 compliance update (launched in January 2014). In the current format, items that were required as statutory requirements for the electronification of trade reports under the old Securities and Exchange Act are, in principle, mandatory. Under the FIEA, legal requirements have changed; for example, trade reports are now contract conclusion documents, which can be omitted for professional investors. As such, the current format does not fully satisfy all the current statutory requirements for contract conclusion documents.

3. Action Items

4. Next Meeting (from the covering email that distributed these minutes)

Scheduling was carried out via an online scheduling poll. The response URL is an operational link intended for committee members and is therefore not reproduced in this public version.

Reference: Attendee List

Individual names are withheld except for the Chair and Secretariat. Participating organizations, attendance mode (in-person/Zoom), and row count (= number of participants) are preserved as in the source.

These minutes are a record of the discussions held during the meeting. Please direct any corrections or amendments to the Secretariat (Tony Crane).