FFAJ seeks to help FX brokers with new margin calculations

Japan has been one of the biggest FX markets in global terms and that is why it is useful to keep an eye on any developments there, especially when the changes concern Forex regulation and basic components of the industry’s functioning like leverage levels.

FinanceFeeds has already informed you of the plans of Japanese regulators to impose new rules for margin for FX transactions of corporate customers. The new rules which seek to ensure appropriate risk control of business operators, etc. at the time of rapid change in forex market prices were drafted by Japan’s Financial Services Agency and were included in the F.I. Business Ordinance dated June 14, 2016.

The Ordinance implements margin regulations for over-the-counter FX transactions with the counterparties of corporate customers. The effective date of the Ordinance is February 27, 2017.

The new Margin Regulations apply only to over-the-counter FX transactions with the counterparties of corporate customers and do not apply to currency-related over-the-counter derivatives transactions, with the exception of over-the-counter FX transactions, such as over-the-counter currency options transactions.

The minimum margin ratio is fixed at 4% for all currencies in the case of margin regulations for FX transactions with the counterparty of an individual customer, but, under these margin regulations of corporate over-the-counter FX transactions, margin ratios vary among currency pairs, and a revision at least once a week is required. A business operator, etc. computes margin ratios internally using its internally produced prices, or outsources the computation work.

Another option is that the Financial Futures Association of Japan (FFAJ) computes and publishes values and the business operator uses such published values. FFAJ has already started doing this, offering a helping hand to its members.

The Association will calculate the margin ratio and publish the margin ratio information on its site weekly. Its members should make use of this information for their OTC FX margin trades with their own institutional customers instead of calculating a foreign exchange risk assumption ratio by themselves.

FFAJ notes that the publication of each currency pair’s leverage data together with the foreign exchange risk assumption ratio will help investors understand FX market trends.

Price data used for this calculation will be provided by NEX Data Services Ltd (NEX Data) and the calculation and publication work will be conducted by NEX Data outsourced by the FFAJ.

Forex companies operating in Japan have already sought to respond to the new rules. To mention at least several examples of companies that have alerted their customers of the changes and are implementing the new rules, let’s enlist Forex.com (Japan), IG Group (Japan), Saxo Bank (Japan), GMO Click, DMM FX, Invast Japan, Hirose FX, and many more. Practically, all FX companies working with corporate clients in Japan have taken the necessary steps to comply with the new requirements.