Tokyo Commodity Exchange Inc. needs an overseas alliance to survive as the transfer of farm futures from Tokyo Grain Exchange Inc. won’t boost trading enough to make the bourse profitable, its government supervisor said.
Japan’s biggest raw-material exchange, known as Tocom, will take over trading next month of corn, soybeans, raw sugar and azuki beans from the grain exchange, which will be dissolved because of losses and low trading volume. Atsushi Toyonaga, director general for commerce, distribution and industrial safety policy at the trade ministry, said Tocom must produce a plan to arrest its decline.
Tocom, once the world’s second-largest commodities bourse after the New York Mercantile Exchange, has been surpassed by China’s Shanghai and Dalian exchanges and hasn’t made a profit since the year ended March 2009 after a government crackdown to protect individual investors from losses. As of Feb. 12, it will account for more than 99 percent of raw-material exchange trade in Japan, an economy that had seven commodity bourses as recently as 2005.
“We don’t want to see commodity exchanges disappear from our country,” Toyonaga said in an interview in Tokyo on Jan. 28. “It is necessary for Tocom to raise participation of overseas investors through an alliance with foreign bourses.”
The exchange could approach bourses in Chicago, Singapore and Dubai, Toyonaga said. Tocom President Tadashi Ezaki said he would like to discuss a product-listing and trading-system alliance with Chicago Mercantile Exchange when he made an annual visit there in March last year.
More than $32 billion of exchange takeovers failed globally since October 2010 amid opposition from competition authorities. IntercontinentalExchange Inc. is vying to be an exception after agreeing last month to acquire NYSE Euronext, moving to take control of the world’s biggest equities market.
Taiki Obuchi, a spokesman for Tocom, said the exchange acknowledged views being expressed by different parties on its future and would examine them comprehensively.
A merger of Tocom with Japan Exchange Group Inc., created through the integration of Osaka Securities Exchange Group Inc. and Tokyo Stock Exchange Group Inc. this month, is another way forward, Jitsuo Tatara, chairman of Yutaka Shoji Co., a Tokyo-based commodity broker and Tocom shareholder, said in an interview yesterday.
Regulation was meant to protect individual investors after complaints from consumer protection groups about aggressive sales activities by commodity brokers, according to Tatara. He said the unintended consequence was reduced volume, cutting profitability.
With the exception of precious metals, Japan Exchange is reluctant to take over commodities from Tocom, said Tatara. Miwa Aonuma, a spokeswoman for Japan Exchange, declined to comment on how the bourse viewed any kind of alliance or merger with Tocom.
Shares of Japan Exchange advanced 31 percent from their debut on the Tokyo Stock Exchange on Jan. 4 to yesterday’s closing price of 5,220 yen. The biggest shareholders of Tocom, which is not listed, include Mitsubishi Corp., Nihon Unicom Inc., Yutaka Shoji, Sumitomo Corp. Nikkei Inc., Nomura Holdings Inc. and Mizuho Capital Co., according to a regulatory filing as at March 31, 2012.
Tocom now trades gold, silver, platinum, palladium, rubber, gasoline, kerosene, gas oil and crude oil. Volumes slumped to 25.5 million contracts last year from the peak in 2003 of 87.3 million.
The bourse accounted for 93 percent of the total trading volume of the three Japanese raw-material bourses in 2012. It will control 99 percent this year, with Kansai Commodities Exchange in Osaka, which mainly trades rice, handling the remainder.
Tokyo Grain Exchange had an operating loss of 773.7 million yen for the 12 months ended March 31, 2011, as trading volume plunged 25 percent on reduced participation by local investors.