Tokyo Commodity Exchange, Inc. (TOCOM) and Japan Exchange Group, Inc. (JPX) (collectively, the “Companies”) hereby announce that we have resolved to agree to pursue the realization of a business combination (the “Business Combination”) at their respective Board of Directors meetings held today, and entered into a basic agreement (the “Basic Agreement”) today, as detailed below.
1. Background of Discussions toward the Business Combination and Objectives of the Realization of a Comprehensive Exchange
(1) Background of Discussions toward the Business Combination
As announced respectively in “JPX Concluded NDA with TOCOM” and “TOCOM Concluded NDA with JPX” on October 23, 2018, the Companies concluded a non-disclosure agreement, started and continued discussions toward the realization of a comprehensive exchange.
While one-stop exchanges that provide financial securities and commodity derivatives trading on a single platform, also known as “comprehensive exchanges”, have become mainstream in the world, in Japan, multiple exchanges are established based on different legal bases, which brought about a situation that impairs the convenience of investors and a challenge for securing the sustainability of Japan’s commodity derivatives market. Given such a situation, the Companies have discussed and examined, in good faith, ways to maintain and strengthen the competitiveness of Japan’s derivatives market from various perspectives. Accordingly, the Companies have come to share the perspective that the best solution would be to combine the Companies’ respective strengths to realize a comprehensive exchange. As such, the Companies entered into the Basic Agreement today in order to conduct further discussion of the Business Combination. For the realization of a comprehensive exchange, the Companies will give due consideration for existing trading participants of the commodity markets.
(2) Objectives of the Realization of a Comprehensive Exchange
The vision for the comprehensive exchange to be realized following the Business Combination is as detailed below. Following the realization of a comprehensive exchange, the Companies aim to improve the creditworthiness of TOCOM and invigorate Japan’s derivatives market, and thereby contribute to the further development of Japanese companies and the Japanese economy.
(3) Enhancement of the Global Presence of the Tokyo Market
Enabling one-stop trading of various derivatives products through the realization of a comprehensive exchange will enhance the convenience of the Tokyo market, strengthening its global competitiveness, and enhancing its presence as an economic hub in Asia and a highly transparent market that is open to the world.
(4) Invigoration of Commodity Markets by Facilitating Inflows from Financial Institutions
With the realization of a comprehensive exchange, the Companies aim to invigorate commodity markets by facilitating inflows from financial institutions, such as securities companies, banks, and other global investors, whose participation is currently limited. The Companies believe that doing so will further enhance the functions of Japan’s commodity markets (i.e., formation of price indicators, hedges against price fluctuation risks, physical delivery, and clearing).
2. Summary of the Business Combination
(1) Manner of the Business Combination
In order to realize the Business Combination, the Companies are considering having JPX conduct a tender offer for the issued shares (including non-voting shares) of TOCOM (hereinafter the “Tender Offer”) to convert TOCOM into a wholly-owned subsidiary of JPX. In the event that JPX fails to acquire all of TOCOM’s issued shares (including non-voting shares) through the Tender Offer, JPX will conduct a demand for share, etc. cash-out and a series of other procedures based on the Companies Act to make JPX the sole shareholder of TOCOM (hereinafter the “Squeeze-Out Procedure”).
The Companies will continue deliberations in good faith towards the realization of the Business Combination including the Tender Offer.
The detailed conditions and manner of the Tender Offer, including the purchase price, will be disclosed as soon as they are determined after deliberations between the Companies that take into account matters such as the results of the forthcoming due diligence process.
(2) Schedule of the Business Combination
– March 28, 2019 (today): Conclusion of the Basic Agreement
– End of June 2019 (tentative schedule): Conclusion of the Final Agreement, Commencement of the Tender Offer
– September 2019 (tentative schedule): Closing of the Tender Offer
– October 2019 (tentative schedule) : Settlement of the Tender Offer (In the case of any non-tendering shareholders, immediate commencement of the Squeeze-Out Procedure and completion of the Business Combination)
– Earliest possible date around FY2020 (tentative schedule) : Completion of Product Transfer, Consolidation of Clearing Organizations
The Business Combination is subject to the necessary approvals, etc. of the related regulatory authorities.
3. Policy, Structure, etc. after the Business Combination
(1) Transfer of Products to Osaka Exchange and other matters
The Companies confirmed that after the Business Combination, at the earliest possible date around FY2020, the handling of products, including the transfer of products from TOCOM to Osaka Exchange, Inc. (OSE) (hereinafter the “Product Transfer”), will be as described below.
- All listed commodity component products on the Precious Metals, Rubber, and Agricultural Product & Sugar Markets will be transferred from TOCOM to OSE.
- The listed commodity component products on the Oil and Chukyo Oil Markets will not be transferred for the time being. Listing of new oil-related listed commodity component products on OSE will be discussed between the Companies.
- The Companies aim to list and handle Electricity and LNG products in TOCOM’s markets.
- The handling of (a) listed commodity component products for which trading is suspended as well as (b) new listed commodity component products and new products underlying a listed commodity index will be separately discussed between the Companies.
The Product Transfer will be conducted based on premises, such as that each product is specified in public notice as products prescribed in Article 2, Paragraph 24, Item 3-2 of the Financial Instruments and Exchange Act.
(2) Consolidation of Clearing Organizations
The Companies agreed to consolidate Japan Commodity Clearing House Co., Ltd., a TOCOM subsidiary, into Japan Securities Clearing Corporation, a JPX subsidiary, after the Business Combination.
(3) Others
Matters other than the above, such as business policies and organization after the Business Combination, will be determined after deliberation between the Companies.
4. Future Outlook
The Companies will conduct prompt disclosure in the event where any matter requiring disclosure emerges.
