One suggestion would be to create a new exchange, partly
capitalised by the state. This idea, called the East Asia
Exchange, is part of Japan’s effort to develop its
futures and options markets, which once hosted a fifth of
global trading. In 2009 that proportion was a mere 1.4%.
Another alternative considered in a proposal, seen by FOW,
would be to enable an existing exchange to offer both commodity
and financial derivatives.
The plan will also alter the regulation of derivatives markets.
The Tokyo Stock Exchange and Osaka Securities Exchange are
overseen by the Financial Services Agency. However,
Japan’s largest commodities exchange, the Tokyo
Commodity Exchange, is regulated by the Ministry of Economy,
Trade and Industry, while the Tokyo Grain Exchange is under the
Ministry of Agriculture, Forestry and Fisheries.
The plan said: "If the regulatory authorities will be
centralised, a reorganization of crowded securities exchanges
and commodity exchanges is expected."
The proposal is being led by Japan’s new prime
minister, former finance minister Naoto Kan. After discussions
he will announce a firm plan by the autumn.
Market participants have said for several years that one of the
big weaknesses of Japan’s derivatives markets is
their fragmentation. There is duplication of contracts between
the exchanges, and the large number of trading venues raises
Seven exchanges share an annual trading volume of 240m
contracts – less than are traded in a couple of months
at Eurex. Of that, 166m contracts are traded at the Osaka
Securities Exchange, nearly all of that in Nikkei 225 Futures,
Options and Mini Futures.
commodity exchanges have been hit particularly hard over the
last decade, since an amendment to the Commodity Exchange Law
in 2005 made it much harder for them to market to retail
investors. Each exchange has reported financial losses, and
trading at C-Com and TGE has dwindled to a fraction of its
The prime minister’s initiative has been
accompanied by a wave of moves toward consolidation among the
Most sensational was a report in the
newspaper on June 23 that the Osaka Securities Exchange was
discussing a possible merger with the Tokyo Commodity Exchange.
The OSE and Tocom denied the story.
However, an executive at a futures
commission merchant in Tokyo said he was not surprised by the
speculation, as the exchanges would make a good strategic
partnership, and the deal would provide "significant
advantages" to Japan.
In the same week, the Tokyo
Commodity Exchange agreed to the Central Japan Commodity
Exchange’s request that it take over its only two
products with substantial activity, the Gasoline and Kerosene
Futures. That appears likely to spell the end of C-Com,
although the exchange has denied this.
A week later, Tadashi Ezaki, chief
executive of Tocom, said his exchange would be interested in
listing three of Tokyo Grain Exchange’s most
active futures, on corn, soybeans and coffee. "We
wouldn’t make an approach ourselves because that
would mean taking over a negative legacy, so we are waiting for
things to unfold naturally," Ezaki said.
Several media sources in Japan
have speculated that TGE is seeking a merger with Tocom.
Spokespeople for both insisted no deal was being discussed.
Corn and Soybeans Futures are
TGE’s most successful products, with about 70,000
contracts traded a month recently; the next most active is Raw
Sugar Futures with about 20,000-30,000 and Azuki (Red Beans)
Futures with about 15,000-20,000.
Arabica Coffee trades about 3,000
contracts a month and Robusta Coffee around 200.
TGE’s overall volume
in 2009 was 4.83m contracts, a quarter of 2007’s
range is centred on precious metals, rubber and oil
TGE has already moved closer to
Tocom by agreeing to license its Nasdaq OMX-supplied trading
platform, set to be introduced between October 2010 and January
TGE will license the platform for
use by its members but will also "place exchange terminals and
operations staff and operate its markets within
Tocom’s building". Tocom IT staff will help with
An executive at a futures
commission merchant in Tokyo welcomed any move that would
reduce the fragmentation of the Japanese commodity derivatives
market, which he said has hindered it so badly.