Feb. 17 (Bloomberg) — The Tokyo Commodity Exchange, the world’s second-largest energy and metals futures market, said it may get U.S. government approval by the end of March to sell its products in that country, boosting sales.
The U.S. may account for the biggest portion of trade by overseas customers, surpassing the U.K. and Australia, Chairman Masaaki Nangaku said in an interview at the exchange. The Washington-based Commodities Futures Trading Commission is assessing whether Tocom, as the exchange is known, meets its standards, he said.
Tocom wants a slice of the U.S. futures market, which handled contracts based on $467 trillion of assets in the first nine months of 2004, according to the Bank for International Settlements. Overseas traders tripled their share of Tocom’s turnover to 13 percent in July 2004 compared with 2000, spurred by the introduction of Internet trading systems.
“Our marketing will now be centered on U.S. traders, including hedge funds and pension funds,” Tocom’s President Takamichi Hamada said in a separate interview.
Tocom will step up sales of its metals and fuels contracts to U.S. investors once the Commodities Futures Trading Commission exempts Tocom’s members from the so-called Part 30.10 rule that requires them to register with the CFTC, Hamada said.
U.S. traders would have to overcome concern about the risk of changes in the Japanese currency’s exchange rate after they buy the yen-denominated Tocom contracts.
“I think it would be difficult” for the Tokyo exchange to increase its business in the U.S., said Michael McDougall, a commodities trader at Fimat USA LLC in New York. “You not only have to worry about the price risk of the commodity but also the exchange risk and the time difference is another complication.”
Tokyo is 14 hours ahead of New York. The Japanese exchange trades futures in gold, silver, platinum, crude oil, gasoline, kerosene and rubber.
Tocom’s bigger rival, the New York Mercantile Exchange, and London’s International Petroleum Exchange won Japanese government approval last year to sell futures to institutions in Japan.
Tocom last year explained changes to Japan’s commodities futures trading laws that come into effect in May and should meet the CFTC’s requirements, Nangaku said. Tocom had “extensive discussions with many queries already answered on the forthcoming changes,” he said.
“We’ve received an indication of interest in the filing of a 30.10 exemption from Tocom,” Dennis Holden, a spokesman for the CFTC in Washington, said on Feb. 10.
Japan’s Financial Services Agency is introducing changes to the commodity futures market that will reduce the possibility traders will lose funds and profits from transactions. The new rules would oblige brokerages to deposit all client funds for margin calls with exchanges; reinforce the separation of client and brokerage funds; and impose stricter financial criteria for brokers.
Access to the U.S. market will boost foreign participation on Tocom, coupled with increased use of Internet-based trading systems offered by companies such as GL Trade SA and Patsystems Plc, Tocom’s Nangaku said.
The U.S. accounted for 11.2 percent of foreign trading volume on the Tokyo exchange between January and July 2004, the U.K. 40.5 percent and Australia 28.3 percent, Tocom data shows.
Nymex and the London-based International Petroleum Exchange, Europe’s biggest energy market, plan to boost trading in Japan by offering products through their electronic systems during Asian hours.
After-hours Nymex trading is available in Japan, Hong Kong and Singapore through its Internet-based platform called Access. The IPE offers its flagship Brent crude oil contract in Japan, Singapore and China via its own electronic system.
Nymex last year started offering its contracts to banks, trading companies and other institutions in Japan in partnership with Tocom. The New York exchange seeks to more than double the number of its terminals in Japan to 125 from 47, Asia Director Thomas J. McMahon said last month. Trading volume in Japan grew to account for 8 percent of the total on Nymex’s electronic platform in 2004, he said.
Nymex lists energy futures such as crude oil, gasoline, heating oil and natural gas, and metals futures including gold, silver and copper.
To contact the reporters on this story:
Hector Forster in Tokyo at firstname.lastname@example.org;
Akira Matsui in Tokyo at email@example.com.