Merger Benefits Diminished Under Existing JPX-TOCOM Plan

The current plan to keep crude oil and petroleum products on TOCOM will diminish the benefits of the planned merger with JPX.

Government authorities still do not see eye to eye over the planned consolidation of TOCOM (the Tokyo Commodity Exchange) into JPX (Japan Exchange Group), despite a recent agreement for the two to merge by October.

Under the agreement, the merger will enable the creation of a consolidated exchange for stocks, financial and commodity derivatives – a so-called ‘all-in-one-bourse’ – by September 2020. Most most of TOCOM’s futures products – precious metals, rubber, agricultural and sugar – will be integrated into JPX’s financial derivatives arm, Osaka Exchange.

According to a Nikkei report, concerns have been raised that the current plan to keep crude oil and petroleum products on TOCOM will diminish the benefits of the merger. The exchanges say they plan to consider listing new oil-related futures on the Osaka Exchange, which could mean energy products could still be traded on two separate marketplaces, post-merger.

Meanwhile, TOCOM has requested approval from the Ministry of Economy, Trade and Industry to list electricity and LNG futures on a trial basis, as it seeks to establish itself as a comprehensive energy market.

According to Nikkei, commodity futures brokers dealing in metals and agricultural products at Osaka Exchange will face multiple regulatory controls from various sector-level government authorities, in addition to supervision by the FSA (Financial Services Agency).

To create a truly consolidated, globally competitive marketplace, the convenience, efficiency and transparency must be improved, such as in the US, where oversight of the derivatives markets is centralised at the CFTC (Commodity Futures Trading Commission).

Similar authority should be granted to the FSA, the report says.

It also notes that there has been little discussion about how the planned merger will accommodate currency and interest rate derivatives, currently traded on the TFX (Tokyo Financial Exchange).

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