Tokyo Commodity Exchange, Inc.

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Tokyo Commodity Exchange, Inc.
Tocom logo.JPG
Founded 1984
Headquarters Tokyo
Key People Takamichi Hamada, President & CEO
Products Futures in precious metals, oils, rubber, indexes and agriculture, and options on gold futures
LinkedIn Profile
Website http://www.tocom.or.jp

The Tokyo Commodity Exchange, Inc. (TOCOM) is Japan's largest derivatives platform, offering futures contracts on precious metals, oil-related energy products, rubber and index (Nikkei-TOCOM Commodity Index) as well as options on gold futures.

On Dec. 1, 2008, TOCOM demutualized and transforming itself into a corporation and changed its name to Tokyo Commodity Exchange, Inc. It was one of the first commodity futures exchanges in Japan to undergo such a transformation.[1]

TOCOM acquired the Tokyo Grain Exchange in 2013 and on Feb. 12, 2013 launched the Agricultural Product & Sugar Market, offering products previously traded at the Grain Exchange. The exchange has also changed its Japanese corporate name to “Tokyo Shohin Torihikijo” to reflect the addition of agricultural products to its industrial commodities.[2]

The exchange will switch its electronic trading platform to the Japan Exchange Group's trading system in September 2016, and is looking to add OTC and physical contracts to its platform as well.[3]

TOCOM ranked 33rd among global derivatives exchanges by volume in 2016, with 26.9 million contracts traded, up from 24.3 million contracts a year earlier, according to Futures Industry Association annual volume figures.

History

TOCOM was established on Nov. 1, 1984 through the merger of the Tokyo Textile Exchange, (established 1951), the Tokyo Rubber Exchange (1952) and the Tokyo Gold Exchange (1982).[4]

Electronic trading was launched in 1991, and the energy complex was established in 1999, with connections to ISVs following in 2003 to provide access for overseas investors.

In 2005, TOCOM clearing operations were moved from an in-house clearing house to the Japan Commodity Clearing House (JCCH), an independent organization. In 2005, volume on TOCOM was about sixty-two million contracts.

On Feb. 9, 2006 the CFTC granted TOCOM a Part 30 Exemption.[5]

The electronic exchange announced in June 2007 that it planned to pursue demutualization and a possible initial public offering (IPO), but has also been linked to government-sponsored plans to create a single Japanese securities and derivatives platform centered around the Tokyo Stock Exchange. A task force was established in mid-2007 after members expressed support for demutualization and a possible IPO.[6]

In 2008, the Japan Commodity Futures Industry Association requested that the Tokyo Commodity Exchange and the Tokyo Grain Exchange merge to cut management costs.[7]

TOCOM introduced a new trading system to facilitate 24-hour trading in 2009.

On May 28, 2009, Trading Technologies, one of the largest providers of trading technology to exchanges, announced that it had connected its trading system to the TOCOM.[8]

On Apr. 15, 2010, RTS Realtime Systems Group (RTS), another leading global trading technology provider, announced that it would offer clients connectivity to TOCOM.[9]

On Apr. 23, 2010, Tokyo Commodity Exchange and the Singapore Mercantile Exchange (SMX) announced that they had signed a Memorandum of Understanding (MoU) to explore mechanisms to enhance market liquidity and efficiencies within each exchange, and jointly develop new business opportunities.[10]

In March of 2011, CQG expanded it's services to the Asian trading community by connecting its Hosted Exchange Gateways to the Tokyo Commodity Exchange (TOCOM). This followed CQG's provision of hosted Direct Market Access to the Osaka Securities Exchange and the Tokyo Stock Exchange. [11]

In March 2014, TOCOM and the Dubai Mercantile Exchange (DME) signed a Memorandum of Understanding to strengthen their cooperation in promoting the development of energy contracts, in particular crude oil, which is listed on both exchanges.[12]

In June 2014, TOCOM chose KVH’s Global Ether-WAN, a global ultra-low latency network, to connect the TOCOM Tokyo proximity data center and the Chicago Mercantile Exchange Group (CME) data centers in Aurora and Cermak, Illinois.[13]

On June 25, 2015, TOCOM signed a license agreement with the London Bullion Market Association (LBMA) to use the LBMA’s Good Delivery List as part of its own accreditation procedures for gold and silver. The LBMA Good Delivery List is the global industry standard for determining the quality of gold and silver bars. TOCOM will require Good Delivery status, granted by LBMA, to be met before designating deliverables for gold and silver.[14]

Key People

Structure and Regulation

TOCOM has 80 members and 54 member FCMs. Morgan Stanley became the first overseas member in 2005. Clearing was switched in 2006 from an in-house unit to the independent Japan Commodity Clearing House. The exchange is regulated by Japan's Ministry of Economy, Trade and Industry.

In early August 2010, the exchange began allowing foreign commodity brokers to participate in its market through intermediaries, expanding the ways through which a foreign market participant can trade on TOCOM. Until the change, foreign commodity brokers wishing to trade on TOCOM needed to either acquire membership or consign trades directly to a broker member. The rule change came about as several broker members converted their business category to "intermediary" and as some foreign commodity brokers newly entered the market as intermediaries, raising the number of intermediaries in Japan. Some of these intermediaries actively pursue overseas marketing activities and a number of companies wished to be allowed to intermediate trades from foreign commodity brokers.[15]

On June 26, 2014 TOCOM announced that the Monetary Authority of Singapore (MAS) had granted TOCOM with “Recognized Market Operator” (“RMO”) status, effective July 1st. The new status permits TOCOM to offer direct access to Singapore-based market participants.[16]

In January 2015 the CFTC granted TOCOM's application for registration as a Foreign Board of Trade (FBOT) under the U.S. Commodity Exchange Act on January 20. FBOT registration permits TOCOM to provide its members and market participants located in the U.S. with direct access to its electronic order entry and trade matching system.[17]

Product Development

Gold options were the single-largest product in 2006, accounting for a third of total contract volume, with gasoline futures ranked second at 22 percent, followed by platinum at 16 percent and rubber at 14 percent.

The merged exchange started with precious metals, rubber and textiles with the latter withdrawn in 1991. The complex was expanded with palladium futures in 1992, adding aluminum in 1997 and establishing the oil market - with futures in gasoline and kerosene - in 1999. An unsuccessful push into Middle East crude oil futures followed in 2001, and gas oil futures - now also suspended - followed in 2003.

Options on gold futures were launched in 2004 and the Tocom Index was started in 2006.

Contracts Listed

Members

There are membership types at TOCOM: broker member, trade member, affiliate member and associate member. As of March 2012, there were 85 members.

Broker members are granted direct access, voting rights, but there is a high initial entry cost. These are members accredited with a Futures Commission Merchant license. They can conduct both proprietary trading and brokerage business.

Market members are allowed direct access and voting rights and initial costs are lower than broker members. They are only allowed to conduct proprietary trading.

General members are not allowed direct access, but do have voting rights. Their initial costs are lower than both broker and market members. They can only conduct proprietary trading, but must trade through broker members to have access to the TOCOM markets.

Associate members have neither direct access nor voting rights. This is the lowest cost membership.

  • Futures Commission Merchants[18]
  • Trading Participants[19]

Annual Volumes

Year Total Annual Volume Percent Change
2016 26,917,289 10.3%
2015 24,399,068 11.6%
2014 21,856,063 (-)18.6%
2013 26,845,712 5.4%
2012 25,479,111 (-)19.5%
2011 ~31,700,000 (est) 17.9%
2010 26,875,977 2.6%
2009 26,201,383 --

Publications

References

  1. Tokyo Commodity Exchange Marks A New Beginning As A Corporation. MondoVisione.
  2. Message from the President. TOCOM.
  3. Message from the President. TOCOM.
  4. Tocom Pamphlet. TOCOM.
  5. CFTC Granted Part 30 Exemption effective on February 9, 2006. TOCOM.
  6. TOCOM members back demutualization for IPO. Financial Times.
  7. Industry Body to Request 2 Tokyo Commodity Exchanges to Merge. JCN.
  8. Trading Technologies Connects to Japan's Tocom. The Financial Times.
  9. RTS Offers High-Performance Access to Tokyo Commodity Exchange. RTS.
  10. TOCOM/SMX Sign MOU to advance derivatives trading. Commodities Now.
  11. CQG connects to TOCOM. Automated Trader.
  12. DME and Tocom to collaborate on energy products. Emirates 24-7.
  13. TOCOM Deploys KVH’s Industry Leading Ultra-Low Latency Networks Between Tokyo And CME’s Data Center. MondoVisione.
  14. TOCOM Signs LBMA Good Delivery List License Agreement. TOCOM.
  15. Press Release. Tokyo Commodity Exchange.
  16. TOCOM Receives Authorization from Singaporean Regulator as a Recognised Market Operator. TOCOM.
  17. CFTC approves TOCOM as an FBOT. Automated Trader.
  18. List of FCMs (Broker Trading Participants). TOCOM.
  19. List of Trading Participants. TOCOM.

Resources