The Tokyo Commodity Exchange (TOCOM) has today (June 25, 2007) received the approval from the Ministry of Economy, Trade and Industry (METI) to modify its rules and regulations, including the Articles of Incorporation and the Market Rules, with regards to the introduction of a cash-settled gold futures transaction (referred to as the “Gold Mini contract”). TOCOM has set July 17th, 2007 as the starting date for trading the Gold Mini contract.
The contract unit for TOCOM's existing physically delivered gold futures transaction (referred to as the “Gold Standard contract”) is 1 kilogram, or the equivalent of approximately JPY 2.6 million as of today. TOCOM will introduce the Gold Mini contract with a smaller contract unit for market participants with a lower tolerance for risk. The contract unit of the Gold Mini contract is 100 grams, or the equivalent of approximately JPY 260,000 as of today, which is one-tenth of the standard contract. TOCOM's gold futures transactions will now be done through 2 contracts: the standard contract and the mini contract.
A new "Loss Cut" system will be introduced with the Gold Mini contract. The customers will have the option to use this system. The purpose of the Loss Cut system is to try to prevent losses over a limit specified by each customer. Under the Loss Cut system, a Futures Commission Merchant will execute an order to offset a Gold Mini position, in accordance with a predefined procedure, if his customer's loss reached a certain limit specified by the customer in advance, based on the terms and conditions determined by the Futures Commission Merchant (the details of the Loss Cut system are different from one Futures Commission Merchant to the other).
Also, the contract specifications for the Gold Standard contract will be changed from July 1, 2007 (actual trading starts on July 2), in order to improve its function as a hedging tool against price fluctuation risks.
Please click here for the Comparison of the Gold Standard and Mini Contracts.
