Bank of Japan shines new light on securities financing markets
03 March 2020 Japan
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The Bank of Japan (BoJ) has undertaken new initiatives to increase securities financing market transparency by collecting and publishing monthly transaction data in a new, more granular way.
The country’s central bank says it wishes to contribute to the global effort to shine a light on securities finance markets following the 2008 financial crisis, which has also produced the EU’s Securities Financing Transactions Regulation that is set to come into force in April.
The BoJ first published its new statistics in January, which covered Japanese securities finance transactions (SFTs) between December 2018 to November 2019.
Until now, transparency into Japan’s securities financing markets was offered via the central bank’s annual ‘Tokyo Money Market Survey’, along with the Japan Securities Dealers Association’s monthly report ‘Balance of Bond Transactions with Repurchase Agreements’.
The BoJ notes in a research paper on its first data release that these existing formats lack the necessary granularity or offer an accurate reading of key figures such as monthly outstanding balances.
The bank says that the key difference is that the new reports collect data on individual transactions, which will allow it to compile and release data on other areas, such as outstanding balances of transactions where the cash leg is denominated in a foreign currency.
Other new statistics include information about counterparty jurisdiction, original maturity, which is calculated as the difference between the ending date and the starting date of the transactions, and daily data on repo transactions.
December 2018 to November 2019 market data
The BoJ’s data for the period shows that for cash lending, the average month-end outstanding balance in securities financing markets in Japan was JPY164 trillion (US$1.52 trillion).
Of that total outstanding balance of SFTs, the outstanding balance of transactions denominated was JPY148 trillion ($1.37 trillion) (approximately 90 percent of the total outstanding balance), indicating that, unsurprisingly, transactions in Japanese yen make up the bulk of SFTs in Japan.
Of the transactions denominated in Japanese yen, the average month-end outstanding balance was JPY89 trillion ($823.52 billion) for repo transactions with Japanese government securities, and JPY45 trillion ($416.4 billion) for securities lending transactions with Japanese government bonds (JGBs) (accounting for approximately 60 percent and 30 percent, respectively).
This indicates that transactions with JGBs make up the majority of SFTs where the cash leg is denominated in Japanese yen.
Elsewhere, the new reports for the first time collect data on counterparty jurisdiction under the headings of ‘US’, ‘Europe’, and ‘Other’ for transactions where counterparties are residents outside Japan.
Over the same one-year period, reporting financial institutions borrowed an equivalent of JPY130 trillion ($1.2 trillion) from residents in Japan, and an equivalent of JPY72 trillion ($666.2 billion) from residents outside Japan.
Borrowing from Europe accounts for 44 percent of all foreign currencies borrowed. BoJ notes that this is mainly because financial institutions headquartered in Europe conduct many transactions between their Japanese offices and those located overseas.
The country’s central bank says it wishes to contribute to the global effort to shine a light on securities finance markets following the 2008 financial crisis, which has also produced the EU’s Securities Financing Transactions Regulation that is set to come into force in April.
The BoJ first published its new statistics in January, which covered Japanese securities finance transactions (SFTs) between December 2018 to November 2019.
Until now, transparency into Japan’s securities financing markets was offered via the central bank’s annual ‘Tokyo Money Market Survey’, along with the Japan Securities Dealers Association’s monthly report ‘Balance of Bond Transactions with Repurchase Agreements’.
The BoJ notes in a research paper on its first data release that these existing formats lack the necessary granularity or offer an accurate reading of key figures such as monthly outstanding balances.
The bank says that the key difference is that the new reports collect data on individual transactions, which will allow it to compile and release data on other areas, such as outstanding balances of transactions where the cash leg is denominated in a foreign currency.
Other new statistics include information about counterparty jurisdiction, original maturity, which is calculated as the difference between the ending date and the starting date of the transactions, and daily data on repo transactions.
December 2018 to November 2019 market data
The BoJ’s data for the period shows that for cash lending, the average month-end outstanding balance in securities financing markets in Japan was JPY164 trillion (US$1.52 trillion).
Of that total outstanding balance of SFTs, the outstanding balance of transactions denominated was JPY148 trillion ($1.37 trillion) (approximately 90 percent of the total outstanding balance), indicating that, unsurprisingly, transactions in Japanese yen make up the bulk of SFTs in Japan.
Of the transactions denominated in Japanese yen, the average month-end outstanding balance was JPY89 trillion ($823.52 billion) for repo transactions with Japanese government securities, and JPY45 trillion ($416.4 billion) for securities lending transactions with Japanese government bonds (JGBs) (accounting for approximately 60 percent and 30 percent, respectively).
This indicates that transactions with JGBs make up the majority of SFTs where the cash leg is denominated in Japanese yen.
Elsewhere, the new reports for the first time collect data on counterparty jurisdiction under the headings of ‘US’, ‘Europe’, and ‘Other’ for transactions where counterparties are residents outside Japan.
Over the same one-year period, reporting financial institutions borrowed an equivalent of JPY130 trillion ($1.2 trillion) from residents in Japan, and an equivalent of JPY72 trillion ($666.2 billion) from residents outside Japan.
Borrowing from Europe accounts for 44 percent of all foreign currencies borrowed. BoJ notes that this is mainly because financial institutions headquartered in Europe conduct many transactions between their Japanese offices and those located overseas.
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