London, 8 January 2010

TOCOM is in talks with major brokerage firms about their plans to offer funds linked to its listed products, its president said, as Japan's biggest commodity exchange seeks to broaden its investor base and boost trading volume.

The Tokyo Commodity Exchange (TOCOM) is forecasting a 1.3 billion yen ($14 million) net loss this financial year, hit by slumping turnover as tighter regulations on commodity brokerages have caused liquidity to drop off in the past few years.

"We are in talks with about three or four leading stock brokerages that have specific plans to structure funds linked to our listed products," Tadashi Ezaki, president and CEO of the Tokyo Commodity Exchange, told Reuters in an interview on Thursday.

"Mutual funds using our index will be launched in the very near term," he said, though he declined to give details such as the timing, the type of funds or how many.

TOCOM, which is struggling to increase trading volume and return to profit, sees no merit now in seeking refuge through alliances with other exchanges, he said.

"We are in the red. There is no merit in merging with others. Organisational changes such as alliances with other exchanges are not in sight now," Ezaki said, adding that he doubted if such a move would help TOCOM right now.

TOCOM, which lists gold, platinum, rubber and other industrial commodity futures, does not plan to offer new listed products this year and instead will focus on resuming gas oil trading on May 6 and listing the Nikkei TOCOM commodity index, which tracks prices of listed futures, in March, Ezaki said. Ezaki said TOCOM is continuing to study the possibility of expanding its product line-up, including liquefied natural gas (LNG), coal, copper, zinc and lead, with copper being "a very important topic."

But he added that an increase in the number of listed products would not necessarily lead to a rise in trading volume, and the exchange will beef up efforts to lure more market players, broaden its investor base and improve the exchange's structure.

In a bid to boost sluggish commodities markets, TOCOM has signed a memorandum of understanding (MOU) with 14 exchanges in and outside Japan, including the Tokyo Stock Exchange (TSE) and the New York Mercantile Exchange.

"We hope to apply, by the end of the current fiscal year, for direct market access (DMA) approval from the United States," followed by similar arrangements with exchanges in Singapore and Europe in the first half of 2010, Ezaki said.

The tie-up with the TSE has already resulted in the exchanges agreeing in October to form a company aimed at setting up a marketplace for emissions allowances.

The talks with the brokerages houses on structuring TOCOM price-linked products are aimed at encouraging retail investors to invest in commodities, Esaki said.

"We want to encourage retail investors to participate in TOCOM by using as an intermediary such fund management professionals," Ezaki said.

Ezaki also said TOCOM will fully support the plan of the Japan Commodity Clearing House to change its margin requirement rules to match the global standard, called the Standard Portfolio Analysis of Risk, by the end of this year.

Ezaki said strengthening the financial conditions of the Japanese clearing system would be vital in order to bring more foreign investors into the Japanese marketplace.

Ends --

By Chikako Mogi and Chikafumi Hodo, Reuters