Tokyo Commodity Exchange Inc., Japan’s largest raw-material bourse, is open to merger talks with other exchanges as the government considers creating a one- stop exchange for financial products, its president said.
The exchange, known as Tocom, once the second-largest commodities bourse after the New York Mercantile Exchange, ranked 11th last year and was surpassed by China’s Shanghai and Dalian exchanges. The government has started discussions on whether to combine securities, currencies and commodities bourses by 2013 to boost trade and remain competitive, Tocom President Tadashi Ezaki said in an interview in Tokyo.
“We welcome the government’s move,” Ezaki said. “I think nobody will oppose the integration if we become confident through the discussion that it will contribute to revitalizing trade.”
The value of China’s stock market surged above Japan’s to become the second-biggest last month, behind the U.S. China now has a capitalization of about $3.96 trillion compared with Japan’s $3.65 trillion. Hong Kong surpassed Japan for the first time as Asia’s most-lucrative market for stock lenders, boosted by investor demand for Chinese securities in short sales.
Vice ministers for financial services, trade and agriculture created a team on Oct. 28 to work on exchange- integration details proposed by Prime Minister Naoto Kan’s cabinet. They plan to compile an interim report by the end of this year after conducting hearings from related parties.
The ministers will hold the team’s next meeting tomorrow, according to the Ministry of Economy, Trade and Industry.
‘No Other Options’
“As shrinking trade in commodities futures is undermining earnings of domestic exchanges, and as there are no signs of recovery in the near future, they may have no other options but to merge with larger financial bourses,” said Shuji Sugata, research manager at Mitsubishi Corp. Futures Ltd. in Tokyo.
The Financial Services Agency supervises securities and financial futures bourses including Tokyo Financial Exchange Inc. Tocom is under the control of the trade ministry, while agricultural futures are supervised by the farm ministry.
Consolidation of Japan’s commodity markets is progressing as the number of raw-material bourses has dropped to four from seven in 2005, when the government tightened regulations over sales of riskier financial assets to individuals, leading to a slump in futures trading by retail investors, Sugata said.
The number will decline further as the Central Japan Commodity Exchange, the nation’s third-largest commodities bourse, will cease operations by the end of January after handing over energy futures trade to Tocom.
Slumping Volumes
Tocom may agree with the Tokyo Grain Exchange to take over agricultural futures trading next year as the two exchanges plan to integrate their trading systems in January, Ezaki said. The grain exchange lost 712 million yen ($8.8 million) last fiscal year after booking its first loss in 29 years in the year ended March 31, 2009, because of slumping volumes.
Tocom trades gold, silver, platinum, palladium, rubber, gasoline, kerosene, gas oil and crude oil. The grain exchange trades products including corn, soybeans, coffee and raw sugar. The Kansai Commodities Exchange, another agricultural commodity bourse based in the western Japanese city of Osaka, represented 0.2 percent of total volumes of the four exchanges last year.
Tocom had a 1.1 billion-yen loss last fiscal year after becoming unprofitable in the year ended March 31, 2009, for the first time since it began operating in 1984. The exchange may post a loss again this fiscal year, Ezaki said on Nov. 4.
“We are very concerned about the future of the market” as the government will further tighten regulations over the industry next year, said Jitsuo Tatara, the chairman of Tokyo- based commodity broker Yutaka Shoji Co.
Trading volumes may shrink further as the government will ban sales by brokers to individuals who have no intention to invest in commodities futures, he added.
Volumes at Tocom slumped by 30 percent from a year earlier to 28.9 million contracts in 2009, the fifth year of decline in six. From the peak in 2003, volumes tumbled by 67 percent.
In the first nine months of the year, volumes amounted to 20.5 million contracts, down from 21 million in the same period last year. Overseas participants represented 13.6 percent of total turnover, according to the exchange.
(bloomberg.com)
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