Japan's top commodities bourse sees upgrading its trading system and converting itself to a shareholder-owned entity as top priorities to bolster competitiveness, its new president said on Wednesday.
The Tokyo Commodity Exchange does not see a merger with other exchanges as a way to solve its problem of dwindling turnover or increase efficiency for investors, TOCOM President and Chief Operating Officer Umetaro Nagao told Reuters.
"I'm aware of the idea of a comprehensive market ... but the important thing for us to do first is to provide the best service in our area, because commodity trading plays an important role such as in setting benchmark prices," Nagao said.
"We have to work on things that need to be done in our area first before thinking what we can do next," he said. Nagao, a former trade ministry bureaucrat who became TOCOM president this month, does not believe merging all four domestic commodities exchanges - the Central Japan Commodity Exchange, Tokyo Grain Exchange, the Kansai Commodities Exchange and TOCOM - would necessarily cut costs or raise efficiency.
"I feel some kind of competition (among commodities exchanges) is necessary," Nagao said. "I'm not saying it's all right to have four commodities exchanges, but I don't simply think merging will provide all the answers."
Last month, a trade ministry panel report said domestic commodity exchanges will explore ways to compete more strongly against international rivals. In line with the report, TOCOM is preparing to upgrade its trading systems by March 2009 and relax regulations to match standards on overseas exchanges. The ministry report came shortly after the government's economic policy outline for this year.
The Council on Economic and Fiscal Policy's outline said Japan would explore measures to help domestic exchanges offer a wider range of financial instruments, including stocks, bonds, financial futures and commodities. Japan's commodity industry is struggling with dwindling turnover while the rest of the world is seeing a trading boom in commodities.
Turnover in TOCOM for the first six months of this year totalled 23.1 million contracts, down 34.4 percent from a year earlier. Still, of Japan's four commodities exchanges, TOCOM held a market share of 62 percent by volume in June. The exchange is also preparing to become a shareholder-owned entity by the end of 2008 in a bid to raise funds easily to invest in its new trading systems, as well as improve its own governance. "We understand the importance of becoming a share company when we are required to make decisions very quickly," Nagao said.
At an extraordinary board meeting on Tuesday, no members opposed the exchange's plan to become a shareholder-owned company, he said. Nagao said it is possible to install an existing package-trading system already used by other global exchanges, but it will not have enough time to develop its own system.
TOCOM will be able to invite more foreign and Japanese institutional investors into the market as the exchange upgrades its trading systems and relaxes rules to match standards on overseas commodities exchanges, he said.
Foreign entities have been joining TOCOM in recent years and more Japanese institutional investors are realising the importance of trading commodities, Nagao said. Barclays Capital Japan became the 10th non-Japanese company to acquire full membership in June. Global financial giants such as Credit Suisse, Goldman Sachs and Morgan Stanley are among TOCOM members and have increased their influence in recent years.