For the betterment of the industry what futures can do Ryoichi Seki General Manager Global Business Development Tokyo Commodity Exchange, Inc. September 27, 2017 APPEC 2017
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Changing Nature of Commodity Derivatives The Lehman shock highlighted the risk of a bankruptcy chain-reaction where financial institutions are actively trading OTC products. Regulators reacted by introducing new OTC derivatives regulations so that they match those for exchangetraded products. < New Regulations for OTC Derivative Contracts> Centrally clear certain classes of OTC derivative contracts through CCPs, or apply risk mitigation techniques when they are not centrally cleared. Centrally collect and maintain the records at Trade Repositories. <Regulatory Authorities> Preference for transactions to occur on futures exchanges that have a robust regulatory framework, as opposed to OTC derivatives markets with less stringent oversight. <Financial Institutions> Preference towards trading on futures exchanges that come with lower risk weight under BIS capital requirements, as opposed to OTC derivatives markets that carry a higher risk weight. <Commercials/ Hedgers> Preference towards futures exchanges to reduce administrative burdens of executing ISDA agreements, etc. and reduce margin rates, etc. <Futures Exchanges> Futures exchanges shifted from offering OTC Clearing" to "Block Trades Futures. OTC derivatives are being absorbed into on-exchange products as the futurization of swaps proceeds 2
Role of the Commodity Futures Market I. Providing fair and transparent prices II. Providing hedging opportunities against price risk III. Providing investment opportunities for speculators IV. Supporting the conversion to cash, delivery of physicals and inventory adjustment 3
TOCOM Overview 1. Japan s largest commodity futures exchange and one of the most prominent in Asia, providing; (a) most liquid international gold market in Asia, (b) leading benchmark for Middle East Crude oil, and (c) global benchmark for natural rubber. 2. Promoting global participation, with more than half of trades originates outside of Japan. 3. Markets trades 19.5 hours/day - covers all global financial hubs. 4
TOCOM Refined Oil Products Physically-delivered Futures Spot Market Cash-settled Futures Barge Gasoline Barge Kerosene Barge Gas Oil Chukyo-Gasoline Chukyo-Kerosene [ January 2017 ] TOCOM started offering Physical Refined Oil Market (formerly OIL SPOT Market Transfer to TOCOM operated by JCRME). Waterborne and Rack Contracts for Gasoline, Kerosene, Gas Oil, LSA Volume Increase 20 contracts 2,260 kl (Jan 17) 64 contracts 9,240 kl (June 17) User Increase since launch (as of June 17) Trade User: 92 firms (up by 61) Viewer User: 100 firms (up by 54) [ May 2017 ] TOCOM launched Cash-settled Refined Oil Futures to meet the needs for a benchmark prices that reflect the physical market. Cash-settled Barge/Lorry Gasoline Platts Cash-settled Barge/Lorry Kerosene Platts Cash-settled Barge/Lorry Gas Oil Price Reporting Agencies (PRAs) PRAs changed their methodologies to add TOCOM s physical refined oil prices in their price assessment. Platts 5
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul TOCOM Platts Dubai Crude Oil ADV by month Month-end OI 40,000 200,000 35,000 180,000 160,000 30,000 140,000 25,000 120,000 20,000 100,000 15,000 80,000 60,000 10,000 40,000 5,000 20,000 TOCOM Dubai Futures and Platts MOC TOCOM Dubai Oil supply & demand Platts MOC (ewindow) Asian Benchmark for Middle East crude oil Other crude benchmarks 0 2014 2015 2016 2017 0 TOCOM Final Settlement Price 2014 2017 grew by ADV 3,677 22,117 (Jan-Aug 17) 6 times End-of-year OI 19,610 140,249 (end of Aug 17) 7 times (in contracts) JPY/KL 70,000 50,000 30,000 10,000 Correlation Coefficient: 0.9986 (Jan 11-Jan 17) TOCOM 2 nd Month Settlement Platts Dubai (in JPY) 6
TOCOM Business Plan Priorities for Fiscal Year 2017 1. Retail Investors 2. Comprehensive 3. Electric Power Market Commodity Market Increase participation of retail investors with TOCOM Square, a marketing center that provides customers with market information, managed with industry associations and exchange members. Expand into OTC and physical markets to create a Comprehensive Commodity Market and improve price transparency. Launch an electric power market to provide a risk hedging product to the Japanese power industry. This will encourage new participants from commercial sector and investors. Continue research into new energy products, such as LNG and coal, in preparation for a Comprehensive Energy Market. Grow the Commodity Futures Market in Japan and enhance profitability 7
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