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FIA-ASIA DERIVATIVES CONFERENCEBEIJING CHINAAUGUST 11, 2005
JAPAN COMMODITY MARKET:
VISION FOR GLOBALIZATION
AND REORGANIZATION
Mitch R. FulscherChairman
FIA-Asia Committee
MAY DAY – 2005“BIG BANG” …FINALLY
NEW LAW ENACTED
ESTABLISH COMMON CLEARING HOUSE
INTERNATIONALIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
NEW LAW
Stronger Net Capital Rules for Brokers
Protection of Customer AssetsCustomer Sales Practices RulesModernize Exchange Structure
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
INTERNATIONALIZATION OF JAPAN
COMMODITY MARKET
FIA-ASIA DERIVATIVES CONFERENCEBEIJING CHINAAUGUST 11, 2005
Japan Commodity Clearing
HouseCo., Ltd.
NOGUCHI, Nobuya Executive Vice President, JCCH
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION ANDVISION FOR GLOBALIZATION AND REORGANIZATIONREORGANIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 1Page 1
TGE TOCOMY - COM C - COM KANEX OME FFE
JCCH
Clearing ParticipantsClearing Participants
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 2Page 2
1. A common clearing house for all the seven commodity futures exchanges.
No direct trading relationship between Sellers and Buyers.
No counterparty credit risk.
2. Clearing participants can net all the profits/losses by marking to the market.
3. Clearing processes as a whole become more speedy and simple.
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 3Page 3
4. JCCH collects margins from clearing participants. (Segregation of Funds)
(1) Clearing Participants deposit Customers’ margins with JCCH by cash or securities. Customers have a privilege to claim the credits of margins to JCCH when a Clearing Participant defaults.
(2) Substituted (Replacement) Deposit is also available for FCMs(clearing participants) with the written consent of customers.
Clearing Process
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
FCM A
FCM B
Trading
【EXCHANGE】
Commodity Market
【EXCHANGE】
FCM A
FCM B
Trading
Commodity Market
【CH】
JCCH
FCM A-60+40=-20
Clearing Member
-60
+50
-30
+40
-20
Clearing Member
FCM B-30+50=+20
+20
Trading ClearingNettingMatching
Page 4Page 4
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
JCCH OverviewDate of Incorporation: December 24, 2004Commencement of Operations: May 2, 2005Clearing Participants: 118 ParticipantsCapital: 600 million YenDeposit of Trading Margin: 368 billion Yen
Default Funds: 24 billion Yen
Fundamental Requirements to Attract
Institutional Investors :
The view from a financial intermediary
Francis Repka, Deputy CEO, SG Asia
Xuan Tran, Chief of Staff to the Head of SG CIB Asia Pacific
11th August 2005
Page 5Page 5
Fundamental Requirements to Attract
Institutional Investors :
The view from a financial intermediary
Francis Repka, Deputy CEO, SG Asia
Xuan Tran, Chief of Staff to the Head of SG CIB Asia Pacific
11th August 2005
Fundamental Requirements to Attract
Institutional Investors :
The view from a financial intermediary
Francis Repka, Deputy CEO, SG Asia
Xuan Tran, Chief of Staff to the Head of SG CIB Asia Pacific
11th August 2005
FIA-ASIA DERIVATIVES CONFERENCEBEIJING CHINAAUGUST 11, 2005
The Tokyo Commodity Exchange
HAMADA, Takamichi President
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION ANDVISION FOR GLOBALIZATION AND REORGANIZATIONREORGANIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 1Page 1
Diversity of product line (2004)
Platinum18.6%
Gold23.3%
Gasoline31.7%
Kerosene17.5%
Crude Oil3.1%
Gold Options0.1%
Aluminum0.4%
Gas Oil0.3%
Palladium0.6%Silver
2.0%Rubber
2.3%
Listed commoditiesListed commodities
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 2Page 2
Trading volume 2004
0
50
100
2000 2001 2002 2003 2004
(million lots)
Tra
din
g v
olu
me
by
com
mo
dity
gro
up
s
0
500
1,000
1,500
2,000
(billion USD)
To
tal n
om
ina
l tra
din
g v
alu
e
Metals volume Rubber volumeOil volume Textile volumeTotal Nominal Trading Value
High liquidityHigh liquidity
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 3Page 3
May 2004 Fimat became a general member.
March 2005 Morgan Stanley became a broker
member. May 2005 Amended Commodity Exchange Law was
enforced.
July 2005 Goldman Sachs became a market member.
New membersNew members
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Page 4Page 4
Trades from abroad* 2001-2004
0
1,000
2,000
3,000
4,000
5,000
(thousand lots)
2001 2002 2003 2004
Metals Rubber Oil
*Foreign trades are the amount of buy and sell by non-Japanese customers.
Foreign customer trade breakdown 2004
Foreign (lots)*% of foreignGasoline 686,392 12.22%Kerosene 460,007 14.94%Gas oil 514 9.68%
Crude oil 89,472 14.31%Rubber 486,086 22.80%Gold 500,140 13.67%Silver 28,907 9.33%
Platinum 364,907 14.42%Palladium 6,560 7.91%Aluminum 5,597 5.71%
TOTAL 2,628,582 12.50%
Foreign participationForeign participation
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Increase of ISVs trade
and % of foreign via ISVs
Page 5Page 5
0
100
200
300
400
11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05
(thousand lots)
0
10
20
30
40
50
60
(%)
ISV volume (buy and sell)
ISV / Foreign (%)
2003 2004 2005
Access via ISVsAccess via ISVs
FIA-ASIA DERIVATIVES CONFERENCEBEIJING CHINAAUGUST 11, 2005
Central Japan Commodity Exchange
MATSUI, KohsakuDirector, International Affairs
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND VISION FOR GLOBALIZATION AND REORGANIZATIONREORGANIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Established in 1996, when three commodity Exchanges in Aichi Prefecture were consolidated,
Only comprehensive Exchange in Japan licensed by both METI and MAFF
Listing Gasoline, Kerosene, Gas Oil and Eggs,
Providing the World’s Largest Itayose (Session Trading) Market.
Who We Are
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Over 33 millionOver 33 million Contracts Traded in 2004
2nd2nd Largest Commodity Exchange in Japan
4th4th among Energy Futures Exchanges in the world
8th8th Largest Commodity Exchange in the world
C-COM Offers Liquid Markets
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Ferrous ScrapFerrous Scrap to be listed on October 11, October 11, 20052005is a Perfect Futures is a Perfect Futures Commodity Commodity
Ferrous Scrap (Shindachi, Tokyo)
Gasoline Futures
Yen-denominated Gold Futures
31.615.1
4.0
High Volatility (Coefficient Variance, 2003-2004)
High Liquidity
Solution for High Cost Inventory
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Dollar-denominated Gold FuturesRice FuturesLPG (Liquefied Propane Gas)
FuturesCoal FuturesInternational Commodity Index Futures Weather Futures
Upcoming Products
Demutualization
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
International Affairs Division Created in 2004
Establishing Co-operative Relationship with Major Global Exchanges
Application for CFTC Part 30 Exemption
Associate Membership
Rapid Globalization
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Established in March 2005 for Foreign Brokers and Commercial Investors
Lower Margin Requirements Applied
23 Associate Members* (From 5 Different Countries)
Associate Membership
(*As of August 2005)
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Thank you for your attention
FIA-ASIA DERIVATIVES CONFERENCEBEIJING CHINAAUGUST 11, 2005
Views from a global broker
Lionel Ghouila-HouriFimat Tokyo
Business Development , Vice-President
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION ANDVISION FOR GLOBALIZATION AND REORGANIZATIONREORGANIZATION
Overview
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
2004 Commodities Exchange Law (“CEL”)
Sharp Decline in Trading Volume
How to attract Foreign Investors
Requests from Foreign Brokers
Conclusion
Major Achievements of CEL 2004
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Japan Commodity Clearing House (“JCCH”)
Solicitation/Sales rules modernized
Risk-based capital requirement
A reliable, integrated market place
Sharp Decline in Trading Volume
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Frequent Limit stop in energy market
Tighter rules for commercial solicitation
New capital requirements limits Japanese FCM prop trading
Sharp Decline in Trading Volume
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Volumes Japan Exchanges over the last 3 years
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
180,000,000
2002 2003 2004 E2005
years
nu
mb
er o
f lo
ts
Osaka
TOCOM
C-COM
YCE
Fukuoka
Kansai
TGE
Priority Actions to Attract Foreign Investors
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Number 1Promote liquidity and unleash volatility by broadening Price fluctuation limits
Number 2Implement “Give-up” mechanism
Number 3Continuous quotation and ISV connections
Number 4Align with international practice for Margining
Requests from Foreign Brokers
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Full broker-membership entrance fee too high
Transaction costs should be reduced further
Harmonious regulatory framework – Between Commodity and Financial regulations– Listed and OTC markets
Conclusion
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
From Regulatory view, the CEL 2004 moves in the right directionFrom a market perspective, some additional steps should be made to bring in more foreign interests:– Free price fluctuation– Continuous trading with ISV connection– Reduction of entrance fees for full membership– Reduction of transaction costs
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Thank You
FIA-ASIA DERIVATIVES CONFERENCEBEIJING CHINAAUGUST 11, 2005
Proposition for the market
development
Yasuo Mogi Senior Vice President & COO
Himawari CX, Inc.
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION ANDVISION FOR GLOBALIZATION AND REORGANIZATIONREORGANIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
To the Regulators (including SRO)
Understandings of International Standard
1 Account Documentation 2 Futures Transactions – Specific Identification method 3 Margin (customer clearing) accounting process 4 OTC vs. ETD (Exchange Traded Products) Consolidated account statement (Domestic and foreign ETD and regulated OTC) 5 English translation of Laws and Regulations
To the exchanges
1 Contract design Needs of market participants and customers Market condition and needs
2 Market design Option Spread Evening Session
3 Education
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
To the Clearing House
1 Margin Money Associate with market and portfolio risk Interest on Equity Intraday and Emergency Margin Call
2 Efficiency Position transfer (ex-pit) Simplified give-up process
3 OTC Clearing
FIA-ASIA DERIVATIVES CONFERENCE BEIJING CHINA
JAPAN COMMODITIES INDUSTRY: VISION FOR GLOBALIZATION AND REORGANIZATION
Market integrity and efficiency can be developed only by the synergy among the regulators and members of the industry i.e. exchanges, clearing house and intermediaries.
FCM s are required to develop & maintain high standard of commercial ethics