Hironaga Miyama is President & CEO of Japan Securities Clearing Corporation (“JSCC”) since June 2013. Prior to his current post, Mr. Miyama was Managing Director at Tokyo Stock Exchange (“TSE”) where he held numerous management roles ranging from the corporate planning department, system department, derivatives market department and stock department.
Mr. Miyama graduated from Sophia University (Bachelor of Law) in 1978 then went on to work at TSE for 35 years. He was appointed as Director of the Derivatives Market Department from 2001 to 2003 where he successfully led a project to expand individual securities options and other trading products that aimed at providing greater investment alternatives and increasing market liquidity. After serving as Director of the Treasury Department and the Planning Department, he was appointed as Executive Officer in 2005, became a Senior Executive Officer in 2007 and was promoted to Managing Director in 2011.
Mr. Miyama has had extensive experience in developing services within the market infrastructure during his tenure. In these roles, he oversaw critical projects, such as the launch of “Tdex+”, a new integrated trading platform for futures and options, and “arrowhead”, a cash equity trading system which combines low latency with high reliability and scalability. Additionally, Mr. Miyama led the project to dematerialize stock certificates and the subsequent reform of the settlement system as Director of Japan Securities Depository Center, Inc. (“JASDEC”).
FIA Japan: JSCC is part of the Japan Exchange Group, since its creation following the merger of TSE and OSE. How has your business model evolved during that period? What have been some of your major achievements?
Miyama: In July 2002, Japan Securities Clearing Corporation (JSCC) was jointly established by 5 Japanese stock exchanges and the Japan Securities Dealers Association. JSCC obtained a license to become the first clearing organization in Japan to conduct a “Securities Obligation Assumption Service” (now called “Financial Instrument Obligation Assumption Service”) and started clearing cash transactions executed on Japanese Stock Exchanges in January 2003.
In February 2004, JSCC started clearing listed derivatives executed on the Tokyo Stock Exchange and in 2013, following the merger between the Tokyo Stock Exchange Group and the Osaka Securities Exchange (OSE), the clearing service of the OSE’s listed derivatives transactions was integrated into JSCC. Following the 2008 financial crisis, and the G20 Pittsburgh Summit which promoted the clearing of OTC derivatives, JSCC commenced Credit Default Swaps (CDS) clearing in 2011 and Interest Rate Swaps (IRS) clearing in 2012. In 2013, JSCC merged with the Japanese Government Bond Clearing Corporation, which provided clearing services for OTC transactions of Japanese Government Bond (JGB), including repos.
JSCC has been working to steadily expand the scope of its clearing services since the start of its business, and currently provides clearing services for OTC derivatives (CDS and IRS) and OTC JGB transactions, in addition to the clearing services for a range of listed products.
FIA Japan: Can you share any light on your recent system migration on clearing for listed derivatives? What type of new functionalities have you introduced?
Miyama: In order to further promote its competitiveness by enhancing the quality of clearing services, JSCC has completed the system replacement of the listed derivatives clearing/settlement functions in February 2018. In conjunction with this system replacement, JSCC has implemented various enhancements, including the diversification of customer account types, a globally adopted position management scheme, intra-day margining, improvements to the collateral management framework through the expansion of eligible collaterals and the like, as well as an auction scheme to liquidate the positions of a defaulting clearing participant. For instance, in response to the business needs of clearing participants and their customers, JSCC expanded the types of customer accounts available to manage positions and collaterals by introducing an individual customer account (Individually Segregated Account), in addition to the conventional omnibus customer account. JSCC also introduced a margin framework to recalculate risk at a fixed time each business day and call for additional intraday margin, in addition to the existing ad-hoc emergency margin call that can be issued following sudden market fluctuations. These practices, which are adopted by global major CCPs, reflect recent international regulations, such as the guidance regarding resilience and recovery of CCPs published by CPMI-IOSCO in July 2017. With these measures, we can implement more frequent and precise risk management operations. I believe this results in the enhancement of the quality and usability of our clearing services, to the benefit of our users.
FIA Japan: The Japanese stock and derivatives markets are largely traded by overseas participants. How has the business of JSCC been affected by international regulations such as the Dodd-Frank Act and MiFID II? Going forward, do you see any risks and/or opportunities as new global regulations are rolled out?
Miyama: In addition to Japanese users, a large number of overseas Clearing Participants and customers, and their Japanese subsidiaries, are using JSCC’s clearing services. After the financial crisis, financial regulatory reforms have been progressing in many countries, including Europe and the United States, and many of these regulations have an extra-territorial reach. Cross-border transactions occupy the majority of market volumes, particularly in OTC derivatives. Therefore, it is very important that JSCC complies with these international laws and regulations to continue to provide services to overseas users. For this reason, JSCC has already obtained licenses as a CCP in the US, EU, Hong Kong, Switzerland, Australia, and is currently working with the UK authorities to prepare for Brexit in March 2019.
I think the competitiveness of JSCC’s services will be enhanced by appropriately dealing with any relevant overseas regulations. For example, Clearing Participants will be able to treat JSCC as a Qualifying Central Counterparty (QCCP) in each jurisdiction and continue to use JSCC's clearing services without being penalized with higher capital requirements. With respect to the mandatory clearing of OTC derivatives which has been gradually introduced in many jurisdictions, users can also fulfill their clearing obligations in effect in each jurisdiction by clearing at JSCC.
As the international financial regulatory reforms advance, the scope of OTC derivatives that must be executed at trading facilities is also expanding. As a result of JSCC's efforts to obtain overseas licenses, JSCC can clear IRS transactions executed at any US SEF (Swap Execution Facility) and EU MTF/OTF (Multilateral Trading Facility/Organised Trading Facility). JSCC will continue to carefully assess trends across each regulatory jurisdiction, taking appropriate measures where required.
FIA Japan: While the use of CCP increased globally due to the introduction of mandatory clearing, margin obligations on non-cleared OTC derivatives and the exposure to CCPs under the Basel III framework, there are concerns over the concentration of risk at CCPs. What kind of initiatives do you take to address these concerns?
Miyama: Following the 2008 financial crisis, the importance of CCPs has increased significantly, and the strengthening of CCP supervision and regulations is progressing in each country based on the CPMI-IOSCO Principles for Financial Market Infrastructures issued in 2012. It is noteworthy that, in February 2015, CPMI-IOSCO evaluated that Japan had established a framework to fully and consistently implement all of the FMI Principles relevant to CCPs. With the increasing use of CCPs, CPMI-IOSCO publicized additional guidance in 2017 to ensure a stricter application of the FMI Principles. To address the requirements in this guidance, in terms of risk governance for instance, JSCC has published governance management guidelines and its Risk Appetite Statement, and established risk committees consisting of independent experts. Currently, JSCC is revising its recovery plan, which details procedures to promptly replenish JSCC's financial resource should they be consumed following a risk event, to make it even more effective. The revision is scheduled to be finalized soon. A CCP with low level of transparency on governance and risk management would not be able to gain the trust of users. JSCC is constantly improving its risk management framework, and creating an environment for users to use our service with confidence.
FIA Japan: Both the national and metropolitan governments have clearly expressed their intentions to help develop Tokyo as a financial center. What initiatives are being taken? Can Tokyo compete with London, New York and the other major centers in Asia?
Miyama: In order for Tokyo to function as a "Financial Center", it is essential for Tokyo to have world-class infrastructure that is capable of servicing both domestic and international players, allowing them to seamlessly conduct their business. For that reason, in addition to improvements to regulations and accounting rules, entities operating the financial market infrastructure, including JSCC, play an extremely important role in providing a user-friendly environment and to maintain the competitiveness of Tokyo among global markets. Having said that, I think that the situation where the execution of all financial transactions is concentrated in one place is not necessarily a desirable outcome. It is important for institutions that operate the Japanese financial market infrastructure to listen to their market users in Japan and overseas, and to continuously work to enhance their services. As a result, I believe that the Tokyo market can continue to secure a leading global position, while working in cooperation with other markets.