Japan’s Bankruptcy Safe Harbour Provisions and Repurchase Agreements: A commentary and annotated translation of the “Act Concerning Close-out Netting of Specified Financial Transactions Undertaken by Financial Institutions etc.”

Abstract

In this article I provide an annotated English translation of the Japanese Act concerning close-out netting of specified financial transactions undertaken by financial institutions etc (“Act”). The Act forms part of Japan’ response to the debate about bankruptcy safe harbour provisions, which save transactions which may otherwise be void in a formal insolvency proceeding. The Act was part of the Big Bang financial reforms introduced in Japan at the end of the 1990s. As part of my commentary on the Act I discuss the drivers for its introduction, which included harmonization and international trends, and concerns about financial regulation of new financial products aimed at a wider audience in the post-Bang, deregulated environment. I also consider the interaction of the Act with Japan’s formal insolvency proceedings. Finally, I analyse the potential market implications of the Act in light of repurchase agreements and the global financial crisis, which focused attention on bankruptcy safe harbour provisions.