The Tokyo Commodity Exchange announced today the recognition by the European Commission (EC) as a “third-country market”. This is in accordance with the European Markets Infrastructure Regulation (EMIR), published in the December 16, 2016 edition of the Official Journal of the European Union. Seven other regulated exchanges of Japan also received this recognition, including: the Tokyo Stock Exchange, the Osaka Exchange, the Nagoya Stock Exchange, the Fukuoka Exchange, the Sapporo Stock Exchange, the Tokyo Financial Exchange and the Osaka Dojima Commodity Exchange.
EMIR is a regulatory body for over-the-counter derivatives formed by the European Commission in 2012 after an agreement at the 2009 Pittsburgh G20 Summit. The G20 leaders were motivated by the 2007-2008 global financial crisis to reform and safeguard their markets. In large part, EMIR requires participants of all standard over-the-counter (OTC) derivatives to clear with central counterparties and to report trade records to trade repositories.
As a result of this third party market recognition, TOCOM is deemed equivalent to EU exchanges and is exempt from the EMIR’s OTC derivatives trade regulations. Notably, the minimum standard margin requirement for OTC derivatives, which is particularly stringent, is not applicable to TOCOM markets.
Additionally, when EU-based non-financial counterparties (NFCs) trade OTC derivatives beyond the clearing threshold, they are imposed with more rigorous reporting and margin requirements. This may discourage such NFCs from trading on a non-EU exchange without the third country market recognition. The EC’s decision has clarified any uncertainly for TOCOM markets regarding NFCs and will help avoid missed business opportunities in the EU.