Tokyo Grain Exchange Inc., operator of Japan’s second-largest commodity bourse, is under pressure from shareholders to cease operation and transfer trading of farm futures to rivals because of declining volumes.
The exchange may transfer trading of Japanese rice and azuki beans to the Kansai Commodities Exchange in Osaka, said Jitsuo Tatara, chairman of broker Yutaka Shoji Co., one of the Tokyo bourse’s 99 shareholders. Corn and soybean futures may be taken over by the Tokyo Commodity Exchange, which shares the same trading system, he said.
The grain exchange is losing about 40 million yen ($509,944) a month as retail investor participation shrank after the government tightened regulations covering sales of riskier financial assets to individuals, Tatara said. The bourse revived rice futures in August for the first time in seven decades to attract money from hedgers and investors. Concerns that rice tainted by radiation from Fukushima may be delivered depressed volumes, said Kazuhiko Saito, an analyst at broker Fujitomi Co.
“There are no other options for the exchange but to transfer its agricultural futures to other bourses,” said Hideaki Futaya, president of Unicom Group Holdings, which operates broker and exchange shareholder Nihon Unicom.
Exchange board members will meet on Feb. 21 to discuss the future of the bourse, spokesman Yuta Asai said, declining to say whether it was under pressure to cease operations and transfer futures contracts. Yutaka Shoji’s Tatara said he expects the members to decide on the transfer at the meeting.
The number of Japanese raw-material bourses has dropped to three from seven in 2005, when the government tightened regulations over retail sales of commodity futures, leading to a slump in volume. The regulation was meant to protect individual investors after complaints from consumer protection groups about aggressive sales activities by commodity brokers.
Tokyo Grain Exchange had an operating loss of 773.7 million yen in the year ended March 31, 2011, as trading volume plunged 25 percent on reduced participation by local investors.
The bourse trades corn, soybeans, coffee, raw sugar, rice and azuki beans. Trading volume dropped to 2.66 million lots last year from a record of more than 26.5 million lots in the year ended March 31, 2004.
Kansai Commodities Exchange manager for general affairs Katsuo Suzuki declined to comment on the transfer of rice and azuki futures. The bourse trades rice and azuki beans as well as corn, soybeans, raw sugar and frozen shrimp.
Tokyo Grain Exchange President Yoshiaki Watanabe said in an interview in July that listing of rice futures may boost trading volume and help it break even after three consecutive years of losses. In January, average trading volume for rice was 471 lots a day, far below the bourse’s target of 5,000 lots.
“Rice failed to draw money from individual investors as the government restricts sales activities by brokers,” said Takaki Shigemoto, an analyst at research company JSC Corp. in Tokyo. “Without speculators, producers and distributors are unable to use the market for hedging.”
The shrinking volume led the board members of the Tokyo Grain Exchange in 2010 to decide to transfer trading to the Tokyo Commodity Exchange, after integrating their systems in January last year. The grain exchange dropped the plan after it obtained approval to list rice from the Ministry of Agriculture, Forestry and Fisheries.
The ministry approved reviving rice futures as it introduced an income-support program for rice growers in 2010, replacing a price-control system that ensured farm incomes. Without government price support, volatility could increase the need for farmers and merchants to hedge.
“We have not received any new request yet” to take over trade from the grain exchange, Tocom President Tadashi Ezaki said Feb. 7. “We are not in a situation to take over what does not work as a business.”
Tocom trades gold, silver, platinum, palladium, rubber, gasoline, kerosene, gas oil and crude oil. It represented 92 percent of the total trading volume of the three Japanese raw-material bourses in 2011.