Universal Disclosures for Mizuho Americas

1. Mizuho Securities USA LLC ("MSUSA")
2. Mizuho Alternative Investments (“MAI”)
3. Mizuho Capital Markets LLC ("MCM")
4. Mizuho Bank (USA) (“BKUSA”)
5. Mizuho Bank, Ltd. (“MB”)
6. Mizuho Securities Canada Inc. (“MSCN”)
7. Sharing of Corporate Customer Information to Group Companies
8. Benchmark Rate Reform and Transition to Risk Free Rates
9. Mizuho Americas Pre-Hedging Disclosure

1. Mizuho Securities USA LLC (“MSUSA”)

 

​​a. General Disclosures and Disclaimers
 

Read about the Mizuho Securities USA LLC conversion as of April 1, 2017.

Information contained in this website is for informational purposes only and does not constitute a recommendation, offer, general solicitation or confirmation of terms. Investments and investment strategies discussed on this website may not be suitable for you.  You should weigh any investment decision carefully after considering your specific investment objectives and financial circumstances.

Information contained in this website is based upon generally available information believed to be reliable, but no representation is made as to the accuracy, timeliness or completeness of such information or that any returns indicated will be achieved. Changes to assumptions may have a material impact on returns. Price/availability is subject to change without notice. Past performance is not indicative of future results. MSUSA and its affiliates may have accumulated a long or short position in any subject investment.

The information contained in this website is not intended for distribution or use in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Representatives of MSUSA may only conduct business in jurisdictions where they are licensed or exempt from the licensing requirements. Clients should contact a MSUSA representative in their home jurisdiction unless governing law permits otherwise. MSUSA is regulated in the US by the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), the Commodity Futures Trading Commission (“CFTC”), the Municipal Securities Rule Board (“MSRB”) and CME Group, Inc., and is a member of most major futures exchanges.

Copies of MSUSA’s audited financial statements will be provided upon request to any customer (as defined in FINRA Rule 2261).

​​b. Anti-Money Laundering Disclosures

Company Status with Regulators

MSUSA is a registered broker-dealer with the SEC and a member of the securities self-regulatory organization, FINRA.  MSUSA also is registered as a futures commission merchant with the CFTC and a member of the futures self-regulatory organization, the National Futures Association (“NFA”).  As such, MSUSA is considered a “covered financial institution” for purposes of the US Bank Secrecy Act, as amended by the USA PATRIOT Act and is subject to its regulations as well as the rules and oversight of the federal regulatory authorities and self-regulatory organizations listed above.

Anti-Money Laundering Program

The policy of MSUSA is to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities. Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the unlawful proceeds appear to have been derived from legitimate origins or constitute legitimate assets. The MSUSA Anti-Money Laundering (“AML”) Program has been designed to comply with legal and regulatory requirements, including FINRA Rule 3310 and NFA Compliance Rule 2-9, by:

(a) including procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder;

(b) including policies, procedures, and internal controls reasonably designed to achieve compliance with the US Bank Secrecy Act, USA PATRIOT Act and the implementing regulations thereunder;

(c) providing for independent testing for compliance to be conducted by appropriate staff or by a qualified outside party;

(d) designating individuals responsible for implementing and monitoring the day-to-day operation and internal controls of the AML Program; and,

(e) providing for ongoing training of appropriate staff.

Customer Identification Program

In compliance with federal anti-money laundering requirements, MSUSA has developed and implemented a Customer Identification Program (“CIP”) to identify and verify the identity of customers that open new accounts. The purpose of the CIP process is to ensure that MSUSA has taken reasonable efforts to determine the identity of its customers through documentary and or non-documentary means.

Notice to Prospective Customers

To help the US government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity who opens an account. When you open an account, we are required to ask for certain identifying information such as your name, address, and other information that will allow us to identify you. We also may ask to see identifying documents to verify your identity and to screen your name against various government databases.

Notice Regarding Entities Identified As Being of Primary Money Laundering Concern

Pursuant to US regulations issued under section 311 of the USA PATRIOT Act, 31 CFR 103.192, we are prohibited from opening or maintaining a correspondent account for, or on behalf of, certain Specified Banks. The regulations also require us to notify you that your correspondent account (if applicable) with our financial institution may not be used to provide the Specified Banks with access to our financial institution. If we become aware that the Specified Banks are indirectly using the correspondent account (if applicable) you hold at our financial institution, we will be required to take appropriate steps to prevent such access, including terminating your account.

Questions

Any questions regarding the MSUSA AML Program, CIP or requests to share information under Section 314(b) of the USA PATRIOT Act should be directed to:

Brendan Daly
AML Officer 
Mizuho Securities USA LLC
1271 Avenue of the Americas, 19th Floor
New York, NY 10020
212-209-9386

​​c. Research Disclosures

Compensation of Research Analysts

The research analysts principally responsible for MSUSA research report do not receive any compensation that is directly or indirectly related to the specific recommendations or views expressed by that research analyst.  The research analysts may receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.

Research Reports Prepared by Foreign Affiliates

MSUSA may distribute research reports prepared by its foreign affiliates.  Persons wishing to effect transactions in securities discussed in such reports should contact MSUSA.  Research reports prepared by our foreign affiliates will be authored by analysts employed by the foreign affiliate; such persons are not registered with FINRA or associated persons of MSUSA.  Employees of our foreign affiliates are not subject to the restrictions set forth in FINRA Rules 2241 and 2242 on communications with a subject company, public appearances and trading securities held by a research analyst account.

​d. Order Handling and Trading Disclosures

FINRA Rule 5310 – Best Execution

In any equity transaction for a customer, MSUSA will use reasonable care in seeking to obtain the most advantageous terms reasonably available under the circumstances for the execution of a customer’s order.  In determining where to send customers’ orders MSUSA takes into consideration in, among other things, the size and type of order, the terms and instructions of the order, the trading characteristics of the security, the character of the market for the security, the accessibility of quotations, transaction costs, the opportunity for price or size improvement, the speed of execution, the availability of efficient and reliable order handling systems, the level of service provided by the market venue and the customer’s overall objectives with respect to the market conditions at the time of the order. MSUSA regularly reviews transactions for quality of execution.

Order Handling and Capital Commitment

The MSUSA US Equity Trading Desk (“MSUSA US ET”) may maintain inventory of principal positions to provide our clients with opportunities for enhanced capital commitment. To effectively manage these inventory positions and sustain immediate liquidity for our clients, MSUSA US ET may trade out of risk resulting from customer facilitation activity at the same time we may be handling your orders at the same price level.  MSUSA US ET will trade principally alongside a customer order to the extent that our principal activity either hedges or liquidates risk resulting from client facilitation.  In certain instances, principal orders entered in anticipation of future client demand may also be worked concurrently with customer orders.

Regulation NMS – Order Protection Rule was adopted to strengthen the national market system for equity securities. It requires markets to interact in a way that permits orders to seek the best available market.  The Order Protection Rule (Rule 611), is the primary rule that affects broker-dealers and requires broker-dealers to prevent “trade-throughs.”  Therefore, MSUSA US ET will be prohibited from effecting that transaction at a price that is lower (higher) than the best bids (offers) in the market, without first satisfying those better-priced protected quotations.

The Regulation NMS – Order Protection Rule contains various exceptions that, in certain situations, permit the execution of trades at prices that would otherwise constitute a trade-through.  In instances where no other exceptions are available, MSUSA US ET will use an Intermarket Sweep Order (“ISO”) to sweep the market and execute any better-priced protected quotations.

In any transaction where the firm commits capital, you may choose to decline the executions .resulting from the ISOs. Whether you choose to accept or decline the ISO executions, MSUSA US ET is still required to satisfy those better-priced quotations and the benefit of those executions will be factored into your negotiated price. If you accept the ISO executions, your transaction price will reflect the receipt of those better-priced executions and differ from the originally-negotiated price.

FINRA Rule 5320 - Trade Along, Not Held Orders

Customer orders received by MSUSA are deemed “Not Held” orders unless you (customer) specifically request and provide other specific order instructions.  A “not held” order means you are giving MSUSA time and price discretion in seeking to obtain the best execution of your order.

When handling “not held” limit orders for institutional customers, MSUSA is generally not required by regulation to display or protect the limit order.  MSUSA may trade for its own account at prices equal to, or better than, those of “not held” orders.  However, MSUSA is still obligated to provide best execution.

Handling orders on a Not Held basis also means that MSUSA may on occasion simultaneously conduct same-side principal trading in the same or related products while your order is outstanding.  Principal trading while in possession of a customer order is allowed and may occur with knowledge of the customer order, as pre-positioning and anticipatory hedging for the overall benefit of the customer order.

In the first case of no-knowledge, MSUSA has established Information Barriers to restrict information about unexecuted orders from other trading areas not involved with the handling of the order either as an agent or as a solicited contra-party.

In the case of pre-positioning or anticipatory hedging with knowledge and consideration of the customer order, your order to MSUSA may be marked as trade-along.  MSUSA holding a customer order are restricted from related trading except where pre-positioning is designed to enhance the overall execution quality for the customer.  Efforts to enhance execution quality by related principal pre-positioning can occur in varying circumstances. 

By way of example without limitation, when a customer seeks a guarantee to be filled at the closing price it carries the expectation that MSUSA may engage in pre-positioning activity in order to lessen the market impact of the block, particularly on the closing price.  Pre-positioning under these circumstances may diffuse the impact of a large block order by spreading out its execution effect over a period of time and perhaps over several different markets.  Another example would be in connection with the placement of a large ETF order where the execution of an anticipatory hedge in one or more non-option related products may serve to reduce facilitation risk and produce an overall benefit to the customer in the form of a superior execution.  It should be noted, however, that Exchange rules restrict the use of anticipatory hedges in the listed options market until after the customer’s order is publicly exposed or in the case of tied stock, where both the option order and anticipatory hedge transactions are offered to the option trading crowd. 

If you choose to opt into the protections afforded by Rule 5320, please send notice to

Compliance Department
Mizuho Securities USA LLC
1271 Avenue of the Americas, 19th Floor
New York, NY 10020

or by email to EQ-Compliance@us.mizuho-sc.com

Execution Alternatives and Sourcing Liquidity

MSUSA US ET utilizes vendor developed tools (algorithm strategy) designed to access external and internal sources of liquidity to obtain the most favorable execution of your orders reasonably available under market conditions.  These tools include smart order routers that route orders in accordance with your instructions for orders placed with MSUSA.  These tools may also provide access to Alternative Trading Systems (“ATS”) that seek anonymous crossing opportunities. Please note that MSUSA does not operate an ATS.  MSUSA subscribes to various ATS and may also access such destinations via another contracted Broker Dealer.  Orders worked through any of the automated execution strategies MSUSA accesses may receive automated capital provision in an attempt to improve overall execution quality.  Given the variety of means that MSUSA may employ to provide your orders with the best possible execution, and absent specific instructions to the contrary, your transactions may be executed on an agency, agency cross, principal basis or a combination of these.

Regulation NMS – Rule 605 - Disclosure of Order Execution Information

Rule 605 states that broker dealers (market centers) must make available standardized monthly reports of statistical information concerning our equity order executions.  MSUSA has contracted with a third party vendor, SunGard – Protegent Trading Compliance (“PTC”), to collect MSUSA order execution data and organize the statistics. 

You can find these Rule 605 monthly reports at the following link: http://public.s3.com/rule605/mzho/ 

Legacy 605 statistics can be viewed at the following link:
https://www.sungard.com/solutions/compliance-tax/protegent/protegent-trading-compliance/best-execution-order-routing


Regulation NMS – Rule 606 - Disclosure of Order Routing Information

Rule 606 states that broker dealers (market centers) must make available standardized quarterly reports of statistical information concerning our equity order routing information.  MSUSA has contracted with a third party vendor, SunGard – Protegent Trading Compliance (“PTC”), to collect MSUSA order execution data and organize the statistics. 

You can find these Rule 606 monthly reports at the following link:
http://public.s3.com/rule606/mzho/ 

Legacy 606 statistics can be viewed at the following link:
https://www.sungard.com/solutions/compliance-tax/protegent/protegent-trading-compliance/best-execution-order-routing. Use the drop down box to select Mizuho Securities USA LLC

 

Foreign Affiliate

Transactions executed in non-U.S. markets may be effected with or through MSUSA’s affiliate. Such affiliate may have acted as principal or agent and as a result derived compensation from the transaction. Additional information is available upon written request.

FINRA Rule 2124 – Net Trading

At your request, MSUSA may confirm equity transaction(s) on a net basis.  A net transaction is a principal transaction in which the market maker, after having received an order to buy or sell an equity security, buys or sells the security (from or to another dealer or another customer) and then sells to or buys from the customer at a different price.  MSUSA is compensated in the form of a spread added to/subtracted from the cost of the position.  The official confirmation for a net trade will reflect a single, all inclusive price and will not explicitly identify the spread added/subtracted.  In accordance with FINRA Rules, MSUSA will confirm your authorization orally to continue executing your orders on a net basis for each request made.

Indications of Interest

For the purpose of attracting contra side trading interest in an attempt to minimize market impact, MSUSA may utilize certain third party vendor systems to disseminate indications of interest (“IOI”) to other market participants or trading venues.  MSUSA will label an IOI as a “natural” if it is the result of (1) an existing agency order, (2) an indication of interest to transact in a particular security other than an order (in touch with) from a customer; or (3) interest on a principal basis that is being or was established for the purpose of facilitating a client order.  Resulting transactions may be executed on a principal basis, agency cross basis or a combination thereof. 

FINRA Rule 5270 – Prohibition on Front Running Client Block Transactions

Rule 5270 (the “Rule”) prohibits a broker-dealer from trading for its own account while in possession of information regarding an imminent client block transaction.  MSUSA employees are strictly prohibited from engaging in such activity.  Rule 5270 does contain certain exceptions to this general prohibition. The Rule does not preclude a broker-dealer from trading for its own account for purpose of fulfilling or facilitating the execution of a client’s block transaction. Consistent with this exception, you should be aware that MSUSA may engage in trading to hedge the risk of your block transaction using market data and other forms of permissible information that are available to us. This hedging activity may coincidentally impact the market prices of the securities or financial instruments you are buying or selling. MSUSA will conduct this trading in a manner designed to limit market impact and consistent with our best execution obligations.

Whether in the facilitation of block transactions or other services for which you engage MSUSA, we will not place our financial interests ahead of your own.

Extended Trading Hours

FINRA Rule 2265 requires that MSUSA disclose to you the following potential risks if you engage in equities transactions during extended trading hours (4:00pm – 9:29:59am Eastern Standard Time)

  • Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in extended hours trading as compared to regular trading hours. As a result, your order may only be partially executed, or not at all.
  • Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in extended hours trading than in regular trading hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price when engaging in extended hours trading than you would during regular trading hours.
  • Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of regular trading hours, or upon the opening the next morning. As a result, you may receive an inferior price when engaging in extended hours trading than you would during regular trading hours.
  • Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours trading system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
  • Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular trading hours. Similarly, important financial information is frequently announced outside of regular trading hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
  • Risk of Wider Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.

 

Municipal Advisor Disclosure

You are receiving this periodic notice because you have an investment account with Mizuho Securities USA LLC (“MSUSA”). The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) and the Securities Exchange Act of 1934 (“Exchange Act”) require that certain financial entities register as “municipal advisors,” depending on the actives of their clients. The requirement covers firms that either: (1) provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or (2) undertakes a solicitation of a municipal entity or obligated person. “Municipal financial products” include municipal derivatives, guaranteed investment contracts, and investment strategies (including importantly plans or programs for the investment of proceeds of municipal securities; or the recommendation of municipal escrow investments). The requirements are intended to mitigate certain “pay to play” practices, undisclosed conflicts of interest, inadequate advice, and failures to place the duty of loyalty to their clients ahead of the firm’s own interests. During the financial crisis, a number of municipalities suffered losses from complex derivatives products that were marketed by unregulated financial intermediaries. Mizuho Securities USA LLC is not an “investment adviser” registered under the Investment Advisers Act of 1940, a registered municipal advisor under the Exchange Act, and does not intend to register as an investment advisor nor as a municipal advisor in the future. MSUSA will not provide you any advice concerning municipal financial products or the issuance of municipal securities, including the investment of proceeds of municipal securities, investment of other funds of a municipal entity, guaranteed investment contracts or the use of municipal derivatives. By accepting this notice, you acknowledge that:

  • You qualify as an Institutional Investor and/or a Sophisticated Municipal Market Professional (“SMMP”) under the applicable industry standards. As such, you exercise independent judgment and are fully capable of evaluating the quality of secondary market transactions, and/or evaluating any information provided by MSUSA, including the investment risks and market value of particular transactions and investment strategies. You do not receive (and you do not expect MSUSA to provide) any information that is otherwise reasonably accessible to the institutional market, and/or to undertake any customer-specific suitability obligations.
  • MSUSA acts as a securities dealer. You trade with MSUSA acting as principal for its own account, on a Receipt-Against-Payment/Deposit-Against-Payment (“RVP/DVP”) basis. When MSUSA acts as the principal to a trade, it will use its own inventory to fill your client orders. You wish to continue to trade with MSUSA as principal basis.
  • MSUSA does not provide you any advice with respect to municipal financial products or the issuance of municipal securities, including municipal derivatives, guaranteed investment contracts, or the investment of proceeds of municipal securities. MSUSA may provide you certain ongoing securities market information (either in writing or in oral communications), but does not provide any “advice” that would otherwise require MSUSAs registration as a municipal advisor. Accordingly, MSUSA does not provide you, without limitation, any ‘recommendations’ that are particularized to your specific investment needs, objectives, or circumstances with respect to municipal financial products or the issuance of municipal securities and MSUSA does not owe you a fiduciary duty pursuant to Section 15B of the Exchange Act. MSUSA may provide general financial and investing information, including information of a factual nature that does not include any tailored subjective assumptions, opinions, or views, and information that is particularized to your specific investment needs. This type of general information may include, and is typically limited to general market and financial information (including e.g., information concerning current market interest rates or index rates for different types of bonds or categories of credits; information regarding investments (e.g., the terms, maturities, and interest rates at which MSUSA offers these investments); price quotes; axes for investments available for purchase or sale; factual information describing various types of debt financing structures (e.g., fixed rate debt, variable rate debt, general obligation debt, debt secured by various types of revenues, or insured debt); or comparisons of the general characteristics, risks, advantages, and disadvantages of certain debt financing structures. This information is typically available to all Mizuho clients, and is not particularized to your needs. It is factual in nature, and does not contain or express subjective assumptions, opinions, or views, or constitute a recommendation. You do not view any information received from MSUSA as a suggestion to take action or refrain from taking action. You do not deem this information to imply a recommendation or otherwise constitute advice. You are encouraged to discuss any information or material provided to you by MSUSA with any and all internal or external advisors and experts that you deem appropriate before acting on any such information.

 

Statement on Options Position Limits / Exercise Procedures and Other Disclosures for U.S. Listed and Over the Counter (“OTC”) Options

Options Disclosure Document

  • Structured securities, derivatives, and options are complex instruments that are not suitable for all investors, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. For listed options, prior to effecting an option transaction you should have received, read and understand the Characteristics & Risks of Standardized Options pamphlet found on The Options Clearing Corporation’s website: http://www.theocc.com/about/publications/character-risks.jsp

 

Professional Customer Designation for Listed Options

  • Pursuant to the rules and regulations of certain U.S. options exchanges of which MSUSA is a member, MSUSA is required to indicate certain public customer orders as “professional orders”, where appropriate. The orders of any customer that had an average of more than 390 orders in listed options per day during any month of a calendar quarter must be marked as professional orders for the next following calendar quarter. If, during a quarter, an Exchange identifies a customer for which orders are not being represented as Professional Orders but that has averaged more than 390 orders per day during a month, the Exchange will notify the Member and the Member will be required to change the manner in which it is representing the customer’s orders within five days. To comply with this requirement, MSUSA is required to review each customer’s activity on at least a quarterly basis. This notice is to inform you that MSUSA will mark your orders as professional customer orders if you meet the above criteria. Brokers or dealers that route order flow to MSUSA have an obligation to review their client’s order flow and ensure that any professional customer orders are appropriately marked.

 

Solicited Order Mechanisms

MSUSA is required to notify customers pursuant to U.S. options Exchange rules of our intent to use the solicited order mechanisms that it has available for members to cross customer options orders.

  • Cboe Exchange, Inc. – Automated Improvement Mechanism (“AIM”) AON Solicitation Mechanism. When handling an order of 500 contracts or more on your behalf, Mizuho may solicit other parties to execute against your order and may thereafter execute your order using the Cboe Exchange, Inc.’s AON AIM Solicitation Mechanism. This functionality provides a single-priced execution, unless the order results in price improvement for the entire quantity, in which case multiple prices may result. For further details on the operation of this mechanism, please refer to Cboe Exchange, Inc. Rule 6.74B, which is available at https://markets.cboe.com/us/options/regulation/
  • Nasdaq U.S. Options Exchanges – Solicitation Order Mechanisms. When handling an order of 500 contracts or more on your behalf, Mizuho may solicit other parties to execute against your order and may thereafter execute your order using the Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) Exchange’s Solicited Order Mechanisms. This functionality provides a single-price execution only, so that your entire order may receive a better price after being exposed to the Exchange’s participants, but will not receive partial price improvement. For further details on the operation of this Mechanism, please refer to Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) Rules 716(e), all which are available at http://www.ise.com/options/regulatory- and-fees/rules-and-rule-changes/.

 

Position Limits

  • The U.S. options regulators have imposed position limits on the maximum number of equity and index exchange listed and over-the-counter (OTC) put and call options covering the same underlying security that may be held or written by a single investor or group of investors acting in concert or under common control (regardless of whether the options are purchased or written on the same or different exchanges or are held or written in one or more accounts or through one or more brokers). Under the terms of the MSUSA Listed Options Agreement, clients agree not to violate these limits and authorize MSUSA to take action to bring the client’s positions in compliance with regulatory requirements. MSUSA is required to monitor and report a client’s positions to the options regulators and may be required by regulators to liquidate positions in excess of these limits. Failure by MSUSA to adhere to these regulations may result in the imposition of fines and other regulatory actions. The position limit applicable to a particular option class is determined by the options exchanges and is based on the number of shares outstanding and trading volume of the security underlying the option. Positions are calculated on both the long and short side of the market. To calculate your long position you aggregate calls purchased (long calls) with puts written (short puts), on the same underlier. To calculate your short position, you aggregate calls written (short calls) and puts purchased (long puts) on the same underlier. OTC option positions are calculated separately from listed option positions. In addition, there are position limits on OTC options on non-U.S. listed equity securities for accounts held on U.S. broker-dealers.

    For example, if the limit on a particular option class is 250,000 contracts, an investor or group of investors acting in concert or under common control (i.e., same order placer or ultimate decision maker) may purchase up to 250,000 listed calls on a particular underlying security, and at the same time, write up to 250,000 listed calls covering the same underlying security (long call and short call positions are on opposite sides of the market and are not aggregated for purpose of position limits). An investor or group of investors acting in concert or under common control that purchased 125,000 listed puts on a particular underlying security may at the same time, write up to but no more than 125,000 listed calls covering the same underlying security (long put and short call positions are on the same side of the market, and are aggregated for purposes of the limits) without exceeding the position limit for the security. In addition, the same investor or group of investors acting in concert or under common control may purchase or write up to 250,000 OTC options on the same side of the market without exceeding the position limits for the underlying security.

    The exchanges’ position limit rules also permit positions in excess of the applicable limit, if the client is engaging in certain qualified hedging strategies. These exemptions from the established position limits can be found in each exchange’s rules. For example, Cboe Exchange, Inc. Rules 4.11, 20.6, 22.6, 23.3, 24.4, 24.4A, 24.4B, 24.4C and 24A.7 Position Limits, Rule (link: https://markets.cboe.com/us/options/regulation/) and FINRA Rule 2360 Options (link: https://www.finra.org/rules-guidance/rulebooks/finra-rules/2360) discuss the qualified hedge strategies in detail. To prevent exceeding the regulatory established position limits, clients should determine the current position limits from their brokers or the Options Clearing Corporation Website (http://www.optionsclearing.com) before engaging in any options transactions.

 

Exercise Limits

  • The U.S. options regulators have imposed exercise limits on the maximum number of equity and index listed and OTC options covering the same underlying security that can be exercised within any five (5) consecutive business day period by a single investor or group of investors acting in concert or under common control (regardless of whether the options are purchased or written on the same or different exchanges or are held or written in one or more accounts or through one or more brokers). The exercise limit is the same as the position limit for the underlying security. If a client has an open option position that is above the established position limit, but has on a qualified hedge strategy, they are permitted to exercise the amount of options that they are fully hedged for within any five (5) consecutive business day period.

 

​e. Business Continuity Disclosure

MSUSA has developed and implemented a Business Continuity Plan (“BCP”) designed to address and mitigate the potential consequences of a significant business disruption.

Our BCP is intended to permit the temporary continuation of the key parts of our business despite the occurrence of a significant business disruption with a goal of recovering the key aspects of our business within twenty four hours or less. Our BCP also is designed to safeguard employees, protect our books and records, and provide ready access for our clients to any securities and/or funds in the custody of MSUSA’s bank depositories in the event that we are unable to achieve a timely recovery.

Our BCP tries to anticipate the various types of events that could interfere with our ability to operate on a normal basis. Staff have been assigned to specific recovery responsibilities and trained in special procedures to be followed should an event occur that could cause a disruption to occur. MSUSA has deployed an overlapping communications triangle that connects three geographically diverse locations to ensure flexibility and redundancy in our ability to communicate internally and externally. All mission critical systems have been duplicated in each of our data centers with data backed up electronically on a near synchronized basis at locations over 700 miles apart and also duplicated in physical form and sent to secure off-site facilities at the end of each business day. We also have deployed redundant communication lines from multiple locations with industry utilities, information providers, and clearing organizations. We have established alternative methods to communicate with our employees, clients and regulators.

We believe that our BCP meets or exceeds all industry standards and regulatory requirements. We further believe that we have implemented reasonable and prudent measures to overcome or at least mitigate the consequences of an event that would otherwise interfere with the normal course of our business. However, because it is not possible to anticipate the nature, scope, impact and consequence of every possible business disruption, MSUSA does not represent or guaranty that it will be able to continue or resume business operations within any specified period of time under all circumstances.

Our BCP is subject to periodic modification. A copy of the summary of our BCP is available upon request by writing to: 

Mizuho Securities USA LLC
Attn:  Chief Operating Officer
1271 Avenue of the Americas
New York, New York  10020

​f. CFTC Reg. 22.16 Disclosure to Cleared Swap Customers

Mizuho Securities USA LLC (“MSUSA”) currently clears swap transactions for its clients as a clearing member of two clearing organizations: CME Group and SGX Derivatives Clearing Limited (“SGX-DC”). They are both registered with the CFTC as a Derivatives Clearing Organization (“DCO”). In the unlikely event of MSUSA’s insolvency, customer rights would be determined pursuant to the commodity broker liquidation provisions of the US Bankruptcy Code and the CFTC’s Part 190 Rules regarding the return to clients of assets in segregated, secured/30.7, and customer cleared swap accounts. However, if the DCO or the insolvency proceeding is outside the US, local insolvency law could affect a customer’s ability to recover funds and securities or the speed of any such recovery. SGX-DC is located outside the US. Rules of these DCOs and related exchanges also could affect a customer’s ability to recover funds or the speed of such recovery. Each DCO has rules that govern the use of cleared swaps customer collateral, and/or the transfer, neutralization of risks, and liquidation of cleared swaps in the event of a default relating to a cleared swap customer account. Rulebooks are posted at their respective websites. Please note that such rules and the URL links to those rules are susceptible to change. The following are URL links to the clearing houses’ rules:

CME Group (CME, CBOT, NYMEX and COMEX)
http://www.cmegroup.com/market-regulation/rulebook/ 

SGX-DC
http://rulebook.sgx.com/# 

 

​g. CFTC Rule 1.55(k) Firm-Specific Disclosure
 

Click here to link to MSUSA’s CFTC Rule 1.55(k) Firm-Specific Disclosures document.

​h. CFTC Rule 1.55(o) Financial Regulatory Information
 

Financial information regarding the futures commission merchant, MSUSA, including how the futures commission merchant invests and holds customer funds, may be obtained from the National Futures Association.  Click here to link to the National Future Association website.

Additional financial information on all futures commission merchants is available on the CFTC’s website.  Click here to link to the CFTC’s website.

Click here to link to MSUSA’s CFTC Rule 1.55(o) Daily Financial Regulatory Information disclosures.

​i. MSUSA Statement of Financial Condition
 

Click below to view MSUSA’s most recent financial statements.

 

​j. Sales of Investment Products to Customers of Mizuho Bank (USA).
 

Investment products offered through MSUSA to customers of Mizuho Bank (USA):

Are Not FDIC Insured

Are Not Deposits

Are Not Bank Guaranteed

May Lose Value

k. Collateral Arrangements
 

An Information Statement has been prepared to comply with Article 15 of the Securities Financing Transactions Regulation by informing customers of the general risks and consequences that may be involved in consenting to a right of use of collateral provided under a security collateral arrangement or of concluding a title transfer collateral arrangement. The information statement can be located at https://www.icmagroup.org/assets/documents/Maket-Practice/Regulatory-Policy/Repo-Markets/SFTR-Information-Statement-May-13-2016.pdf

2. Mizuho Alternative Investments (“MAI”)

This website provides general information about MAI and its investment strategies. This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Investments and investment strategies discussed on this website may not be suitable for you. You should weigh any investment decision carefully after considering your specific investment objectives and financial circumstances.

All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of Mizuho Financial Group, Inc. (“Mizuho”) as a whole. MAI products and services may not be available in all jurisdictions or to all client types. Investing entails risks, including possible loss of principal. Investments in hedge funds and alternative investments are speculative and generally involve a higher degree of risk than more traditional investments. Investments in hedge funds and alternative investments are intended for sophisticated investors. Indexes are unmanaged and are not available for direct investment. Past performance is not indicative of future results.

Information contained in this website is based upon generally available information believed to be reliable, but no representation is made as to the accuracy, timeliness or completeness of such information or that any returns indicated will be achieved. Changes to assumptions may have a material impact on returns. 

MAI is a wholly-owned subsidiary of Mizuho. Mizuho and its affiliates are involved in a broad spectrum of financial services. Because of the wide range of services offered by Mizuho and its affiliates, it is possible that conflicts may arise. MAI and its affiliates may have accumulated a long or short position in any investment.

MAI is registered with the Securities and Exchange Commission (“SEC”) as an Investment Adviser.

To view MAI’s SEC registration information, visit the Investment Adviser Public Disclosure database.

Should you have any additional questions regarding MAI, please contact:
Mizuho Alternative Investments, LLC
757 Third Avenue, 8th Floor
New York, NY 10017
Info_mai@mizuhocbus.com

Complaints may be directed to: Mizuho Alternative Investments, LLC
757 Third Avenue, 8th Floor
New York, NY 10017
Attn: Chief Compliance Officer
+1 (212) 282-4739
mai.compliance@mizuhocbus.com

3. Mizuho Capital Markets LLC (“MCM”)

MCM is (provisionally) registered with the Commodity Futures Trading Commission (“CFTC”) as a US Swap Dealer pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection (“Dodd-Frank”) Act. The Dodd-Frank Act creates a comprehensive regulatory framework that, among other things, requires that swap dealers make certain disclosures of material information to their swaps counterparties prior to entering into a swap with that counterparty.

​a. General Risk Disclosures and Asset Specific Disclosures
 

ISDA Standard Disclosures

The International Swaps and Derivatives Association (“ISDA”) maintains the disclosures required by CFTC Rule 23.431(a). These disclosures are updated from time to time, and may be found on ISDA’s website at the following URL:  https://www2.isda.org/functional-areas/legal-and-documentation/disclosures/. Prior to executing a swap with MCM, we ask that you review the most recent Updated General Disclosure Statement, which will contain general disclosures regarding certain risks associated with executing a swap transaction. We also ask that you review the most recent asset-specific disclosure annex for interest rate and/or foreign exchange derivatives as applicable to your anticipated trading activity, including without limitation, the IBOR Alternative Reference Rates Disclosure for Interest Rate Transactions which may be found on ISDA’s website at the following URL: https://www.isda.org/a/UE8EE/IBOR-Alternative-Reference-Rates-Disclosure-March-2018.pdf.

Mizuho FX Market Making Disclosures

Mizuho provides its clients with additional disclosures regarding its foreign exchange market making business.  These disclosures supplement the ISDA Standard Disclosures provided above and should be read in conjunction with those disclosure.  Mizuho’s FX Market Marketing Disclosures can be found here.

​b. Initial Margin Segregation Disclosure
 

CFTC Rule 23.701 requires that we notify you, to the extent that you post Initial Margin in respect of an Uncleared Swap, that you have the right to elect to have that Initial Margin segregated in accordance with the requirements of CFTC Rules 23.702 and 23.703.  Capitalized terms, as used herein, are defined in CFTC Rule 23.700.

If you would like further information on this offering, please contact onboarding@mizuhocap.com.

​c. Mid-Market Mark Disclosures
 

Pre-trade Mid-Market Mark Disclosure

As required by CFTC rule 23.431(a)(3)(i), we will provide you with a mid-market mark for each proposed swap at or about the time we provide you with an executable price.  Any pre-trade mid-market mark that we may provide to you is an indicative mid-market mark of a swap and will not include amounts for profit, credit reserve, hedging, funding, liquidity, or any other costs and adjustments and may not necessarily (i) be a price at we would agree to replace or terminate the swap; (ii) unless otherwise expressly agreed, be the basis for margin calls and maintenance of collateral; and (iii) be the value of the swap that is marked on our books and records.

Daily (Post-Trade) Mid-Market Mark Disclosures

As required by CFTC rule 23.431(d)(2), we will provide you with a daily mark for all uncleared swaps. Such daily mark may not necessarily (i) be a price at which either we or you would agree to replace or terminate such swap; (ii) unless otherwise expressly agreed, be the basis for margin calls and maintenance of collateral, if any; and (iii) be the value of the transaction that is marked on our books and records. The daily mark will be provided to you at such address we have on record or as you otherwise advise to us by communication to collny@mizuhocap.com.

Daily mark methodology and assumptions can be found here. You have the right to obtain the daily mark for cleared swaps originally executed with us from the relevant derivative clearing organization. 

​d. Scenario Analysis
 

As required by CFTC rule 23.431(b) if you are not a Swap Dealer, Major Swap Participant, Security-Based Swap Dealer, or Major Security-Based Swap Participant (collectively “Regulated Swap Entity”), then prior to entering into a swap that is not “made available for trade” (as such term is defined in the CFTC Regulations) on a designated contract market or swap execution facility, you may request and consult on the design of a scenario analysis to assess your potential exposure in connection with a swap.

​e. Right to Select the Clearinghouse
 

If you are not a Regulated Swap Entity, then you have the sole right to select the DCO at which a swap will be cleared for any swap entered into between you and MCM that is subject to the mandatory clearing requirements under Section 2(h) of the Commodity Exchange Act. If you are not a Regulated Swap Entity, then you may elect to clear any swap and have the sole right to select the DCO at which the swap will be cleared with respect to any swap entered into between you and MCM that is not subject to the mandatory clearing requirements under Section 2(h) of the Commodity Exchange Act.

​f. Special Entities
 

If you are an employee benefit plan as defined in Section 3 of Employee Retirement Income Security Act (“ERISA”) that is not subject to the Title 1 of ERISA then MCM hereby notifies you of your right to elect to be treated as a special entity pursuant to CFTC rule 23.430(c).

​g. Potential Conflicts of Interest
 

If MCM determines that it may have a conflict of interest in connection with a particular swap or that it may have received compensation of other material incentives from a source other than the counterparty to the swap in connection with such swap, MCM will notify the counterparty of such apparent conflict of interest or material incentive prior to entering into such swap.

​h. Contact Information
 

Should you have any additional questions regarding these disclosures, please contact onboarding@mizuhogroup.com.  Complaints may be directed to:

Mizuho Capital Markets LLC
1271 Avenue of the Americas, 19th Floor
New York, NY 10020
Attn: Chief Compliance Officer
+1 (212) 547-1500
customerservice@mizuhocap.com 

4. Mizuho Bank (USA) (“BKUSA”)

BKUSA is a New York State-chartered bank and is a member of the Federal Reserve System and of the Federal Deposit Insurance Corporation (“FDIC”).  BKUSA is supervised by the New York State Department of Financial Services and the Board of Governors of the Federal Reserve System.

BKUSA accepts deposits from institutional clients through a variety of channels, including the Mizuho Americas Treasury Services platform. Deposits placed with BKUSA are insured up to certain coverage limits. The current standard maximum deposit insurance amount is $250,000 per depositor. For more information regarding FDIC deposit insurance coverage, visit www.fdic.gov

BKUSA also offers certain non-deposit investment products. Non-deposit products are not insured by the FDIC; are not deposits or other obligations or BKUSA and are not guaranteed by BKUSA; and are subject to investment risks, including possible loss of the principal invested.

Investment products offered by BKUSA:

Are Not FDIC Insured

Are Not Deposits

Are Not Bank Guaranteed

May Lose Value

BKUSA maintains representative offices in Chicago, Illinois; Atlanta, Georgia; Houston, Texas; Los Angeles, California; and San Francisco, California.

​a. Community Reinvestment Act (“CRA”) Rating Statement
 

BKUSA has received an “Outstanding” CRA rating for meeting the needs of its community, particularly in low- and moderate-income neighborhoods through community development loans, investments, grants and services.

​b. Bank Secrecy Act/Anti-Money Laundering Disclosure
 

The policy of BKUSA is to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities.

In order to guard against money laundering and terrorist financing, the Bank Secrecy Act (“BSA”) requires financial institutions, including BKUSA, to establish a written anti-money laundering program reasonably designed to assure and monitor compliance with the provisions of the BSA.  At a minimum, the anti-money laundering program must provide for: (i) the appointment of a compliance officer; (ii) a system of internal controls designed to ensure compliance with the BSA; (iii) training for appropriate personnel; and (iv) an independent testing of BSA compliance.

To help the US government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person and entity that opens an account.

When you open an account, we will ask for certain information, including your full legal name, physical business address, tax identification number and other information that will allow us to identify you. We may also seek to see your legal organizational documents, financial statements or other identifying documents, among other things.

5. Mizuho Bank, Ltd.  (“MB”)

MB is a foreign banking organization organized under the laws of Japan. MB maintains state-licensed branch offices in New York, New York; Chicago, Illinois; and Los Angeles, California and representative offices in Atlanta, Georgia; Houston, Texas; and San Francisco, California. MB is supervised by the states in which it maintains offices, the Board of Governors of the Federal Reserve System, and the Financial Services Agency of The Government of Japan. MB is not a member of the Federal Deposit Insurance Corporation (“FDIC”).

MB accepts deposits from institutional clients through a variety of channels, including the Mizuho Americas Treasury Services platform. MB does not accept deposits from the general public, and deposits placed with MB at or through any of its three US branches are not insured by the FDIC.

USA PATRIOT Act Certification

Click here to link to the MB Global Certification Regarding Correspondent Accounts for Foreign Banks.

Should you have any questions regarding this Certification, please contact:
Eric Kaplan, Eric.Kaplan@mizuhocbus.com; or
Frank Carellini, Frank.Carellini@mizuhocbus.com.

6. Mizuho Securities Canada Inc. (“MSCN”)

Mizuho Securities Canada Inc. (MSCN), a wholly owned subsidiary of Mizuho Securities USA LLC, conducts securities business in Canada as a registered investment dealer in each Canadian province and territory.  MSCN is a member of the Investment Industry Regulation Organization of Canada and a member of the Canadian Investor Protection Fund. In the US, MSCN is a member of the Financial Industry Regulatory Authority.  

Click below to view MSCN’s most recent financial statements.

Please direct all inquiries regarding the MSCN AML or Compliance Program, including any complaints to:

Nick Pomponio
Chief Compliance Officer
Mizuho Securities Canada Inc.
100 Yonge St. Suite 1100
Toronto, Ontario M5C 2W7
Canada
nick.pomponio@mizuhogroup.com
416 874-1148

7. Sharing of Corporate Customer Information to Group Companies

Mizuho Bank, Ltd.
Mizuho Bank (USA)

Thank you for your continued relationship with Mizuho Financial Group.

Mizuho Bank, Ltd. and Mizuho Bank (USA) (collectively, “Mizuho”) strive to provide high quality financial products and services to their customers.  Cooperating with, and leveraging the capabilities of, other Mizuho Financial Group affiliate companies (“Mizuho Affiliates”) is one way to facilitate this effort.  Therefore, Mizuho wishes to provide to and share with its group companies, corporate customer information as detailed below according to the "opt-out method" as stipulated in Articles 123(2) and/or 153(2) of the Cabinet Office Ordinance on Financial Instruments Business under Japanese law.

The "opt-out method" is a method whereby a customer's "written consent" on the provision of customers information to Mizuho's group companies is considered to be obtained through prior notice or by other means, under the condition that such customer is adequately offered the opportunity to cease the provision of information, until the customer's request to cease the provision of information is received.

In order to start providing information by the "opt-out method," Mizuho will provide prior written notice to its customers.

Mizuho kindly requests those customers receiving such written notice who do not consent to the provision of information to contact the "Inquiries & Liaison Offices" as shown below. Other inquiries regarding this matter are also accepted at the "Inquiries & Liaison Offices" as shown below. 

​1. Customers subject to the provision of information according to the "opt-out method"
 

Customers who consent to allow Mizuho to share information with its affiliates via the "opt-out method" are corporate customers to whom the notice on the provision of customer information to Mizuho’s group companies by the "opt-out method" has been sent by registered mail / e-mail or delivered by Mizuho, after the customer's approval on providing information has been obtained.

​2. Scope of information
 

Undisclosed corporate customer information already obtained or to be obtained (including "non-public information" as defined in the Cabinet Office Ordinance on Financial Instruments Business, etc.).

​3. Recipients of information
 

Mizuho Affiliates, including, without limitation, Mizuho Securities Co., Ltd. and Mizuho Global Alternative Investments, Ltd.

​4. Method for transferring information
 

Information will be transferred by hand, mail, FAX, e-mail, or other means. However, appropriate transfer methods will be selected considering factors such as the importance of the information and the type of storage media on which the information is recorded, after confirming the appropriateness of the recipient, the content of the information to be provided, the method of provision, purpose of use, etc.

​5. Recipient's method for managing information
 

Information will be managed for a prescribed retention period upon implementation of appropriate security measures at each management phase (acquisition/input, use/processing, retention/storage, transfer/transmission, elimination/disposal) according to the importance of the information, type of storage media on which the information is recorded, etc.

​6. Recipient's purpose of use
 

(1) For proposal/introduction and research/development of products and services, etc.
(2) For decision making regarding the provision of products and services, etc.
(3) For adequate execution of management and administrative operations as a group.
The recipient will act adequately according to its "financial instrument solicitation policy" when proposing or introducing products and services to its customers.

7. Means for making a "request to cease the provision of information"
 

Customers not consenting to the provision of information according to the "opt-out method" need to make a "request to cease the provision of information." No action of any kind is necessary for customers consenting to the provision of information.

​8. Method for managing information upon customer's "request to cease the provision of information"
 

(1) Upon customer's "request to cease the provision of information," the provision of information will be ceased promptly.
(2) Notwithstanding the foregoing, transfer of information for which written consent of the customer is not required according to the Financial Instruments and Exchange Act or other laws and regulations may be performed even after such "request to cease the provision of information." The following are some examples of information transfer for which written consent is not required.
(3) Transfer of information which is necessary for carrying out internal control and operation (compliance management, loss and risk management, internal audits and inspections, financial, taxation, accounting operations and settlement of transactions) or maintenance and management of electronic information processing systems.
(4) Transfer of information pursuant to laws and regulations, etc.
(5) Information provided prior to a "request to cease the provision of information" may continue to be stored and used by the recipient.

Information that will continue to be stored by the recipient will be managed according to the methods outlined in 5. above.

​9. Notes
 

(1) Information of customers that have granted written consent will be shared based on the relevant written consent.
(2) In cases where there are other prevailing agreements (confidentiality agreements, etc.), regarding the treatment of non-public information or other information, information will be handled according to such other agreements. 

[Inquiries & Liaison Offices]
For relevant inquiries and requesting to cease the provision of information, please contact your Mizuho representatives or below e-mail address:
E-mail address: jpfwoptout@mizuhocbus.com
Tel: 212-282-3000

<Operating Hours>
Business Hours (Monday to Friday, 9:00 to 17:00)
Excluding public and national holidays

8. Benchmark Rate Reform and Transition to Risk Free Rates

Interbank Offered Rates (IBORs) are a series of benchmark interest rates, used globally for over 30 years to price loans, debt securities and derivatives, value certain financial products and as a performance tracker for funds, among other purposes. Following recommendations made by the Financial Stability Board in 2014, global initiatives have been undertaken to reform such benchmarks, including by facilitating a transition away from certain IBORs to alternative benchmark reference rates.

For example, the UK Financial Conduct Authority (FCA) has stated that after 2021 it will no longer compel banks to submit rates used for the calculation of the London Interbank Offered Rate (LIBOR). LIBOR, the most widely used of the IBORs, represents the rate at which banks can borrower from each other in the London interbank market. IBORs are calculated using submissions from a panel of contributor banks of such rates covering a variety of currencies and time frames. LIBOR is expected to be discontinued, and this may occur even prior to the end of 2021. Regulators have indicated the current need to transition away from LIBOR and begin using alternative benchmark reference rates. These reforms are expected to cause at least some interest rate benchmarks to perform differently than current rates or disappear altogether, which may impact the Mizuho products and services you currently use and those we may provide in the future.

The contents of this disclosure provide a summary of Mizuho’s current understanding of the expected changes related to the upcoming benchmark reforms and the potential impact on your financial transactions with Mizuho. Mizuho does not represent that the statements below contain an exhaustive and complete analysis of all potential changes to benchmark rates and all potential market consequences nor do the statements constitute any form of advice or recommendation. Clients should contact their professional advisors on the possible implications of these changes, such as financial, legal, accountancy or tax consequences.

​a. General Background
 

LIBOR is the most widely used benchmark today and is referenced in financial products denominated in a number of currencies such as GBP (British Pound), USD (US Dollar), CAD (Canadian Dollar), EUR (Euro), and JPY (Japanese Yen).

Financial regulatory authorities have expressed concern that the interbank lending market is no longer sufficiently active or liquid and that the calculation of IBORs thus relies more upon expert judgments made by panel banks rather than actual underlying transactions. As a result, the Financial Stability Board has encouraged reforming major interest rate benchmarks by transitioning to alternative risk-free or near risk-free rates (RFRs) that are more transaction-based in more robust overnight lending markets with higher liquidity. In several jurisdictions, RFR working groups have identified replacement benchmarks and have begun developing strategies for transition.

Country / Region

United States

Japan

United Kingdom

European Union

Switzerland

Australia

Canada

Alternative Reference Rate

Secured Overnight Funding Rate (SOFR)

Tokyo Overnight Average Rate (TONA)

Revised Sterling Overnight Index Average (SONIA)

Euro-Short Term Rate (ESTER)

Swiss Average Overnight Rate (SARON)

Interbank Overnight Cash Rate (AONIA)

Canadian Overnight Repo Rate (CORRA)

Working Group

Alternative Reference Rates Committee

Committee on Japanese Yen Interest Rates Benchmark

Working Group on Sterling Risk Free Reference Rates

Working Group on Euro Risk Free Rates

National Working Group on CHF Reference Rates

BBSW Advisory Committee

Canadian Alternative Reference Rate Working Group

Secured or unsecured

Secured overnight funds

Unsecured overnight funds

Unsecured overnight funds

Unsecured overnight funds

Secured overnight funds

Unsecured overnight funds

Secured overnight funding

Measure

US Treasury overnight repo transactions

Uncollateralized overnight call rate from money market brokers

Wholesale deposit transactions with 1 day maturity

Overnight fixed rate deposits

Interest on overnight interbank swiss franc repo

Cash market transactions between banks that settle any payments across their own ESA

Based on the trimmed median repo rate of daily transactions

Administrator

Federal Reserve Bank of New York

Bank of Japan

Bank of England

European Central Bank

SIX Swiss Exchange

 

Reserve Bank of Australia

Bank of Canada (future admin); Refinitive (current)

Publication Status

Currently published: since April 2018

Currently published: since 1992

Currently published: since April 2018

Currently published; since October 2019

Currently published: since 2009

Currently published; since 2016

Currently published: since 2009

b. Differences between IBORs and RFRs

There a number of differences between IBORs and RFRs which may be addressed in the transition process away from certain IBORs, including:

  • Credit and Liquidity Premiums: IBORs include the cost of bank credit risk and term liquidity risk as they are based on the submissions of panel banks indicating where they can borrow unsecured funds in the relevant interbank market, whereas RFRs are based on overnight transactions. Transitioning existing contracts from IBORs to RFRs may involve incorporating a spread on the RFR to account for such risks in IBOR.
  • Calculation direction: RFRs are currently contemplated as backward looking overnight rates whereas IBORs are forward looking term rates, meaning that for IBORs the rate of interest is fixed and publicly available at the beginning of each interest period. As a result, an RFR may not perform the same way as the IBOR it replaces would have.

 

 

IBOR

RFR

Credit risk premium of the banking system

Included

Not included

Term structure

Various, such as 1,3, and 6 months

Currently overnight only

Transaction based

Partially

Wholly

Calculation

Forward looking

Backward looking

Examples

LIBOR, EURIBOR, TIBOR

TONIA, SONIA, SOFR, €STR

​c. Points for you to consider in relation to IBOR transition and reform

At present, the exact scope and timing of changes to existing IBOR rates are unclear. Certain benchmarks may cease to be published, have their use restricted, cease to be in customary market usage or be calculated in a different way. References to IBOR rates in existing products may need to change to an alternative benchmark rate, which might be a RFR, an IBOR rate which is not being discontinued, or a financial institution's cost of funds. Some alternative reference rates may be delayed or disappear and there is no guarantee that an appropriate alternative reference rate will be available or gain market acceptance.

Any changes to benchmark interest rates may impact the loans, debt securities, derivatives and other products you currently hold (and those you enter into in future), including, without limitation, by requiring or resulting in:

  • the determination of, or an agreement on, a successor or alternative reference rate;
  • potential changes to the interest and other provisions of existing contracts, to provide for the transition to an alternative reference rate, such as the incorporation of fallback provisions;
  • the potential for material mismatch of interest rates between products (such as loans and corresponding hedges), which currently refer to the same benchmark rate;
  • some benchmarks may perform differently than their alternative reference rate and even with spread adjustments, may not result in an rate that is the economic equivalent of the IBOR benchmark rate used in such transaction;
  • the need for an adjustment to the alternative reference rate, which may include a term structure methodology, addition of a credit spread component or any other applicable calculating conventions;
  • an impact on the value or pricing or cost to you of any product;
  • potential accounting and tax issues, as many businesses use IBORs for derivative and other valuation purposes; and/or
  • potential operational implications, such as changes to systems or processes (such as the impact on cashflow forecasting, when moving from backward looking to forward looking rates).

For existing transactions that extend beyond 2021, market participants may have to decide whether to (x) replace the referenced IBOR with the RFR ahead of its discontinuation or (y) use so-called “fallback” provisions that will determine the replacement of the referenced IBOR upon certain trigger events or (z) terminate such transactions. Where Mizuho is not the issuer of a bond, note, commercial paper or certificate of deposit or other financial product, but is acting in other transaction roles or is offering a secondary market product, you should know that Mizuho does not set the terms of such products. In addition, for some products there may be no fallback language. If there is fallback language, it may vary greatly from other Mizuho products, and/or a change in benchmark rates and/or repricing may be required as a result of the cessation of LIBOR. There are industry efforts to harmonize the approach taken by market participants, although this is voluntary guidance and fallbacks may differ among parties and across products, such as different trigger events, timing or even a different fallback rate.

You should consider whether you require independent professional advice (whether legal, accountancy, tax or other advice), with respect to the changes, and continue to keep your position under review.

​d. Next steps

Industry bodies in every region have been working on the IBOR transition. In the US, the Federal Reserve convened the Alternative Reference Rates Committee (ARRC), consisting of a group of public and private-market participants, which was formed in 2014 to help ensure a successful transition to a more robust alternative reference rate. The ARRC has chosen the Secured Overnight Financing Rate (SOFR) to serve as an alternative reference rate to USD LIBOR. The ARRC has published more robust fallback language providing for mechanisms to implement a replacement benchmark for IBORs for a number of products, including bilateral and syndicated loans, floating rate notes and securitizations, among others. The ARRC has also published a Paced Transition Plan outlining key milestones to track and facilitate the incorporation of SOFR as the alternative replacement rate for USD LIBOR. The International Swaps and Derivatives Association (ISDA) intends to implement a protocol system (for adhering parties) to amend legacy contracts and is working on updating the 2006 ISDA Definitions to implement fallbacks to IBORs in new contracts.

We recommend you prepare for the possible discontinuance of LIBOR and the change to the reference rate in your financial transactions by consulting with your legal, financial, tax, accounting and other advisors. We also encourage you to participate in industry associations and trade groups, which we are doing as well.

Mizuho Bank, Ltd., Mizuho Securities USA LLC, Mizuho Alternative Investments, Mizuho Capital Markets LLC, and Mizuho Bank (USA) are actively preparing for IBOR transition, participating in industry working groups and working on the development of new products with alternative reference rate, and we have been, and will continue to, engage with our clients individually as the market develops with respect to the changes arising from the transition to new reference rates at an industry level.

In the meantime please feel free to contact your relationship manager or email US.IBORCentral@MizuhoGroup.com  if you have any questions or would like additional information.

​e. Further information and resources

Additional information can be found at:

​f. Disclaimers

This document has been prepared by Mizuho Bank, Ltd. and Mizuho Americas LLC (together, Mizuho) solely for the purpose of supplying information to Mizuho clients. It is not intended for persons who are restricted in accordance with US, Japanese or any other applicable securities laws.  Any distribution, retransmission or reproduction of this information to any person, in whole or in part, in any format is prohibited, unless otherwise required by law or regulation or with the prior consent of Mizuho.

This document has been prepared by Mizuho solely from publicly available information. Information contained herein and the data underlying it have been obtained from, or based upon, third party sources believed by us to be reliable, but no assurance can be given that the information, data or any computations based thereon are accurate or complete. The distribution of third party content in any form may be prohibited except with the prior written permission of the related third party.  The content of this document is subject to change without notice. We do not accept any obligation to any recipient to update or correct this information.

This document is not intended to be investment research and has not been prepared in accordance with requirements to promote the independence of investment research. You understand and agree that Mizuho is not acting as your agent, fiduciary or advisor with respect to any matters contemplated herein.  This document is not independent from Mizuho’s interests. Mizuho may reference benchmarks for internal purposes or in respect of products and transactions which we execute with clients.

Any views, opinions or forecasts expressed in this document are not intended to be and should not be viewed as advice or recommendations.  Past performance is not a guarantee or indication of future results.  It is not and should not be construed as a recommendation or an offer or solicitation to buy or sell any security or financial instrument or any interest in any security or financial instrument or enter into any transaction.  Nothing contained herein is in any way intended by Mizuho to offer, solicit and/or market any security, loan, derivative or any related product which Mizuho is otherwise prohibited by U.S., Japanese, or any other applicable laws, rules, regulations, or guidelines from offering, soliciting, or marketing.  Mizuho makes no representation, warranty or other assurance of any kind with respect to the suitability of any information and provides no advice in respect of legal, regulatory, tax or accounting matters in any applicable jurisdiction. You should form your own independent judgement as to the applicability and relevance of the information contained herein. Neither Mizuho nor any officer, director, employee, agent, advisor or controlling person of Mizuho is responsible for and accepts no liability with respect to the use of this document or of its contents or for any errors therein or omission therefrom.  Mizuho further disclaims any civil responsibility for any legal recourse caused by action or omission derived from the information provided herein.  Without limiting any of the foregoing, to the fullest extent permitted by applicable law, in no event shall Mizuho have any liability for any special, punitive, indirect, or consequential damages (including lost profits or lost opportunity), in connection with the information contained herein or the use or distribution thereof, even if notified of the possibility of such damages.

9. Mizuho Americas Pre-Hedging Disclosure

Please note that Mizuho Securities, Mizuho Capital Markets, and/or Mizuho Bank, as applicable, and/or their subsidiaries or affiliates (“Mizuho”) may enter into derivatives, futures, or other transactions with third parties (“Exposure Hedging or Pre-Hedging Transactions”) related to securities which you may issue or to other business or transactions you may conduct with Mizuho. The Exposure Hedging or Pre-Hedging Transactions between Mizuho and such third parties shall be entered into with a view to managing risk and may be executed by Mizuho before, during or after the pricing or consummation of any directly or indirectly related transactions between Mizuho and you. Any such Exposure Hedging or Pre-Hedging Transactions or any related discussions or preliminary actions between Mizuho and such third parties (together or individually “Exposure Hedging or Pre-Hedging Transactions Activity”) will be entered into by Mizuho for the purpose of, or in connection with, hedging its actual or potential exposure arising from the transactions between Mizuho and you (sometimes referred to as pre-hedging or pre-positioning). Such Exposure Hedging or Pre-Hedging Transactions Activity may, dependent upon market conditions, have the direct or indirect effect of impacting the price, rate, liquidity or otherwise adversely affecting the terms of any existing or potential transactions to be entered into by you in relation to such securities or other business you may conduct with Mizuho. If you enter into discussions with Mizuho and / or give to Mizuho any engagement, order or mandate with regard to Mizuho’s actual or intended involvement in any issue of securities by you or other business activity between Mizuho and you, Mizuho will treat you as having acknowledged and accepted the impact / risk arising from such Exposure Hedging or Pre-Hedging Transactions Activity by Mizuho, as described above.

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