Tokyo Commodity Exchange: FY2010 Business Plan

Tokyo Commodity Exchange, Inc. has formulated its FY2010 Business Plan based on the newly formulated Midterm Management Plan (April 2010–March 2013), and provides an overview as follows.

I. Management Policy

Despite the extremely challenging environment last year, we have managed to bring to a halt the downward trend in our trading volume, which had continued since fiscal 2004, by steadily implementing the initiatives set forth in our Business Plan, and an upward trend started to emerge.

In fiscal 2010, our objective is to consolidate the upward trend in our trading volume and to return to profitability in the next fiscal year by boosting market liquidity through initiatives such as increasing our marketing activities and improving our trading infrastructure..

II. Business Strategy

1. Trading Infrastructure

(1) Extend trading hours

Considering the exchange rate fluctuation and the overlap in trading hours with overseas markets, in order to improve the overall convenience of the market by offering trading opportunities beyond 23:00 and to promote new market entry by foreign players, plan to extend trading hours for the night session until 4:00 or 4:30 (JST) on the following morning in September 2010
Put in place reliable frameworks, such as a Business Continuity Plan and a Contingency Plan, in preparation for the extension of trading hours

(2) Adopt trading rules in line with global standards

Actively support the introduction of a SPAN margining system, which is now being planned by the Japan Commodity Clearing House (JCCH) for implementation in the second half of this year, as it is an indispensable measure for encouraging new liquidity providers to enter the market
Conduct a study on introducing crack spread trading and on measures to revitalize options trading in order to increase the effectiveness of the SPAN margining system
Expand block trading.
Prepare for the introduction of TAS (Trading at Settlement)

(3) Improve trading environment to encourage entry by new liquidity providers

Work closely with foreign regulatory authorities to gain approval for providing DMA (Direct Market Access), for which there is a strong demand among overseas investors who are considering entry into the TOCOM markets
Prepare rules for managing orders placed by Customers, in conjunction with the introduction of DMA

(4) Enhance trading platform

Conduct a study on capacity enhancement and take the necessary measures while focusing on initiatives including an assessment of the current performance, the future listing of commodities, the extension of trading hours, and the entry of new liquidity providers
Prepare the system for the extension of trading hours
Enhance the block trading function
Implement the necessary system preparations in the event that the Tokyo Grain Exchange uses the TOCOM system
Implement system preparations for the JCCH’s introduction of a SPAN margining system

(5 ) Enhance the reliability of clearing services

Continue to conduct studies for enhancing the reliability of our clearing services because it is indispensable for boosting TOCOM’s liquidity

2. Marketing

(1) Strengthen sales and marketing activities

Conduct marketing activities for each type of market participant such as commercial players (mainly oil commercials), financial institutions, institutional investors, and Futures Commission Merchants, which play important roles as market intermediaries
Promote overseas marketing activities aimed at overseas commercials, overseas funds, and proprietary trading houses
Conduct marketing activities aimed at retail investors including seminars co-hosted with Futures Commission Merchants and Webinars
Encourage market participation by market makers.
Promote the usage of the co-location service and Remote Membership.
Approach potential General Clearing Participants to facilitate the development of Remote Membership and to enable new business growth through Futures Commission Merchants, etc. At the same time, we will encourage JCCH to improve its business environment to attract new General Clearing Participants.
Approach asset management firms, securities companies and the like in order to expand the number of investment funds and ETFs linked to TOCOM’s listed commodities. In addition, we will provide assistance to support the development of investment funds and ETFs.

(2) Undertake public relations and educational activities

Hold seminars and other activities to promote usage of TOCOM markets by commercials.
Conduct co-hosted seminars with stock/financial exchanges and the Japan Commodity Futures Industry Association.
Boost our information dissemination capabilities by improving the TOCOM Website.
Further strengthen our communication capabilities in English in order to encourage market entry from overseas.

(3) Provide information and take into account the needs of Members

Keep our Members, such as Futures Commission Merchants, updated with the exchange’s information through the activities of the Market Management Advisory Committee and Member seminars, and actively take into account their needs.

3. Listed Commodities

(1) Re-open gas oil futures trading

Re-open gas oil futures trading in May 2010.
Get prepared for the re-opening by conducting activities such as educational activities and simulated trading.

(2) Re-design markets in accordance with the needs of Members

Consider re-designing the markets where necessary in order to further increase the convenience of the TOCOM markets, in accordance with the needs of market participants including commercials.

(3) Study emissions trading

Establish a preparatory company for setting up an emissions trading exchange in collaboration with the Tokyo Stock Exchange Group
Work with the Tokyo Stock Exchange Group to prepare for the establishment of an emissions trading exchange while assessing the external environment, including the state of domestic emissions trading.

(4) Link with the OTC market

Consider launching swap trading and study OTC clearing in order to establish a linkage with OTC markets including swap trading based on TOCOM prices.

(5) Survey and study the market rules

Study the effectiveness of the new market rules including the elimination of the price limits and the implementation of the night trading.
Conduct a study of the risk management framework including a review of the Default Insurance in conjunction with introducing the SPAN margining system.

4. Self-Regulation

(1) Audit Members

As appropriate, conduct audits and examinations of Members’ compliance with laws, regulations, and fair and equitable principles of transactions.

(2) Examine the details of transactions made by Members

Conduct appropriate market surveillance in view of the diversification and sophistication of trading methods.

5. Other Measures

(1) Revise the Exchange’s rules and regulations and provide the English versions

Thoroughly revise the Exchange’s rules and regulations that will be necessary in conjunction with the introduction of the SPAN margining system and enforcement of the amended Commodity Exchange Act.
Provide the Exchange’s English-language rules and regulations in order to further promote market entry from overseas

(2) Boost expertise of the human resources of the industry

Continue to provide financial support to graduate school courses in order to help educate students engaged in commodity futures trading and to help academic research in related fields.
Enhance the expertise of Futures Commission Merchants Sales Representatives by preparing textbooks to improve their knowledge and skills and by conducting examinations.
Foster improved expertise in the industry through the Commodity Exchange Study Committee.

6. Quantitative Targets

(1) Trading volume targets
In expectation of good results from initiatives such as the listing of the Nikkei-TOCOM Commodity Index, the re-opening of gas oil futures trading, and the extension of trading hours, our goal is to achieve an average daily trading volume of 170,000 contracts in the second half of fiscal 2010 (150,000 contracts on a full-year basis).

(2) Profit target
Our goal is to reduce the operating loss to roughly 500 million yen and to sustain that momentum for a return to profitability in fiscal 2011.