Japan’s biggest commodities exchange plans to introduce 24-hour electronic trading. The move by the Tokyo Commodities Exchange is an attempt to attract foreign investors and fend off criticism that it is slowing Tokyo’s drive to become Asia’s leading international financial centre.
The world’s largest commodity futures exchanges, such as the New York Mercantile Exchange and the Chicago Mercantile Exchange, offer internet-based trading virtually round the clock. Yet Tocom offers only five hours of trading.
Mitsuhiro Onosato, Tocom executive director, told the Financial Times the exchange “should provide” 24-hour electronic trading because “it is more attractive to foreigners and institutional investors”. He added that round-the-clock electronic trading would appeal to proprietary traders and Japan’s multinational trading houses.
Julien Le Noble, Japanese head at Fimat, which is about to become a Tocom broker member, warned that “simply extending trading hours” would “tend to dilute rather than attract liquidity”. He said “the answer to attracting foreign liquidity” was greater accessibility and “an efficient trading platform”. He suggested more foreigners would use Tocom if they were allowed the offshore membership offered by some foreign rivals. Companies need a physical presence in Japan to trade directly on the exchange.
But Colin Macfarlan, Japan director of listed derivatives at Credit Suisse Securities, a Tocom broker member, said 24-hour electronic trading was “probably a very good development” because “in the Tokyo night time the rest of the world is open”. Mr Macfarlan added that it would allow arbitrage trading between different exchanges’ contracts.
There is concern Tocom’s trading system is too antiquated to cope with heavier volumes, but the exchange says it will invest in a new one that would make 24-hour electronic trading technically possible by spring 2009.
Tocom is under pressure to reform. The Council for Economic and Fiscal Policy, the Japanese government’s main policymaking body, recently said the country’s “commodity exchanges were being totally left behind in terms of global money flows, and their leading role in price making is being lost to other countries”.
In 2005, Tocom was ranked fifth among the world’s top commodity futures exchanges in terms of trading volumes.
But the commodities exchange also faces a severe threat from the Tokyo Stock Exchange. Atsushi Saito, the TSE’s new head, said recently the bourse “will win out” over Japan’s commodity exchanges by launching commodity index futures.