Tokyo Grain Exchange Rejects Merger Push, Plans New Products

By Nobuyuki Akama

Feb. 26 (Bloomberg) -- The Tokyo Grain Exchange, which forecasts a net loss this year, is rejecting proposals to merge with other bourses and will boost product offerings to revive profit, Chairman Yoshiaki Watanabe said.

“We can share trading systems, but we won’t combine our organizations,” Watanabe said in an interview, referring to suggestions that the TGE merge with the Tokyo Commodity Exchange, known as Tocom. “A dedicated exchange for agricultural products is necessary,” he said.

Trading volumes at Japan’s four raw material bourses fell 28 percent in 2008, as prices fell from records amid the global recession, after a 21 percent drop the previous year, according to industry data. The country’s Financial Services Agency in December 2007 proposed steps to create a single venue for trading stocks, bonds and commodity derivatives to win a larger share of global investments.

“The TGE should delist futures for coffee, raw silk and other products that have low liquidity and list futures for attractive goods such as rice,” Kazuhiko Saito, chief analyst at Fujitomi Co. in Tokyo, said. The start of new contracts should be delayed because of the recession, he said.

The member-owned TGE which also trades soybeans, corn, coffee, sugar, non-genetically modified soybeans and azuki beans, is forecast to post a net loss of more than 1 billion yen ($10.3 million) for the year ending March 31 and could take two years to become profitable, Watanabe said on Feb. 23.

Rice, Wheat

The TGE may try to list rice, wheat and livestock futures and will focus on gaining business from individual investors, who account for more than 90 percent of trading at the exchange, to boost volumes, Watanabe said. The bourse will cut personnel and operating costs and is completing a draft business plan, he said.

The exchange in October cut margin requirements for trading soybeans. Next month it will revert to the itayose trading system for raw sugar, where prices are determined at several sessions during the day, after in 2008 starting continuous trading.

The Commodity Futures Industry Association this month said the TGE and the Tocom, which trades contracts including platinum, gold and crude oil, should combine as part of a wider overhaul of the exchanges. A merger was favored by 80 percent of brokers surveyed by the association.

Trading Volumes

Trading volumes at the Tokyo Commodity Exchange, TGE, Kansai Commodities Exchange and Central Japan Commodity Exchange dropped to 52.9 million contracts last year, according to the Japan Commodity Exchanges Committee. Volumes at the TGE, the second-largest, fell 57 percent to 8.4 million contracts.

China’s three commodity exchanges traded record volumes in 2008, according to the China Futures Association.

Volumes in Japan were reduced last year because of commodity market volatility amid wider global financial turmoil, Watanabe said. Laws introduced in 2005 to curb aggressive soliciting of retail investors also cut trading, Watanabe said.

“People say that the economy will pick up at the end of the year or next year,” he said. “Given the characteristics of the futures market, we expect to see bright signs this autumn.”

Japan’s economy shrank at an annual rate of 12.7 percent last quarter, the most since 1974, the government said.

The TGE would look at listing rice futures, which had the potential to lead global markets, after a request was rejected by the agriculture ministry in 2006, he said.

Japan, which started futures trading at the Dojima Rice Market in Osaka in 1730, “mustn’t fail to pass on the torch” and should preserve its heritage, he said.

To contact the reporter on this story: Nobuyuki Akama in Tokyo at nakama@bloomberg.net