Mr. Ishizaki, president of Tokyo Commodity Exchange （TOCOM）

Mr. Ishizaki, president of Tokyo Commodity Exchange (TOCOM)： The number of the participating companies increased to 156 now. When the spot prices of Japan Electric Power Exchange (JEPX) soared in January, 2021, many Power Producers and Suppliers (PPSs) came to take part in the market for hedging purpose. After that, triggered by the permanent listing, seventy percent of the large electric power companies have taken part in it, leading to a virtuous cycle. Three years have passed since the trial listing of electricity futures . Since the status of TOCOM electricity futures was update from the trial listing to the permanent listing, having received regulatory approval by the Ministry of Economy, Trade Industry (METI) on January 28, 2022. The content of the transaction is becoming sophisticated and it has been utilized as spread trading of the electricity futures prices of the west area and the east area with different frequencies, and as hedging for off-peak hours by combination, etc.

 Ishizaki：We are discussing the possibility of linkage between physical trading and futures trading on electricity. From among the participants, we have received the following wishes: use of money including margin between the two markets makes efficient, management and operation of the physical market and the futures market are done integrally, etc. Therefore, based on them, the MOU is to discuss how we can work together. Also, as the trading volume of TOCOM electricity futures is increasing, linkage between the physical trading and the futures trading is very important. As the number of the participating companies is 160, there are many companies who are participating in both markets of JPX and JEPX. So, necessity of discussion for the both markets is increasing more and more.

 Ishizaki：As far as the news reports, I have heard that use of the electricity futures prices was considered positively in the discussion of price increase by the large electric power companies at the Electricity and Gas Market Surveillance Commission (EGC) under METI. Such a discussion was caused by shifting to the permanent listing of electricity futures. We think that the fair and clean formation of price at the public exchange is being recognized and evaluated to some extent in the electric power industry, so we feel that social role of the electricity futures is higher.

 Ishizaki：We are holding the electricity futures school on our website for domestic customers and if there is any wish, we carry out an attempt such as training, etc. to learn the futures transaction beginning from the basic knowledge for each electric power company according to order. By doing this, many PPSs are taking part in the trading. As another attempt, we visited Singapore for enlightenment to overseas enterprises last November and talked to large energy companies and large financial institutions. As we think that they are very interested in the trading, we would like to induce the overseas enterprises to take part in the trading. Overseas enterprises are more proficient than domestic enterprises on the energy trading.

 Ishizaki：As of the end of last year, all the general trading companies including the affiliate companies decided to take part in the LNG futures market and orders by large actual consumers are being placed a little from around last December. Unfortunately, Any contract hasn ’t been concluded yet. However, some companies among PPSs are expected to take part in the trading and in fact, ELX took part in it for the first time as electric power company. LNG futures is growing interest gradually and an issue to attempt now is promotion of off-floor trading. As to overseas LNG futures, about eighty percent of the total volume are being done at off-floor. TOCOM is supporting the market participation of the Inter Dealer Brokers (IDBs) that are intermediaries of off-floor trading, and the exchange is preparing to provide a promotion tool for off-floor trading working with IDBs. There is one important strategy for spread trading originally : sell at electricity futures transaction and buy at LNG futures transaction. If there is a correlation between the two transactions, there is a high possibility to decrease margin money and it leads to efficient use of money. So we are doing an attempt to make the transactions easier to use.

 Ishizaki：It is three years until April, 2025. Last year, after Russia’s invasion of Ukraine, margin money increased and resulted in 2 million yen for a while but it is decreasing to around 300 thousand yen now, so this year is the year to decide our fate. We would like to make an effort for activating the trading.

 Ishizaki：From now on, the large electric power companies are changing their electric power contracts to the enterprises especially into the contracts changing the electric power price in response to the market price of fuels mainly. If so, necessity of hedging on futures trading by not only suppliers but also by actual consumers will appear. We would like to work with METI for inducing to actual consumers.

 Ishizaki：As to gasoline and kerosene, the subsidies from the government have been given from January, 2022. With it, burden amount by the folk decreased but it is unknown how long the subsidies will last, so extreme difficulty to form market view causes drastic decreasing of the volume. Therefore, after the subsidy system finishes we will continue communication to enterprises to make them enter the futures market easily again.
Furthermore, although the circumstances of oil market are similar to those of electric power market, we would like induce end-users and enterprises belonging to the heavy consumption industry such as public transport. Since the electricity prices are getting high and the subsidies are given, risk hedging needs come to increase considerably. I think that risk hedging under futures markets is important after the subsidy system finishes.

 Ishizaki：The subsidies are given to the petroleum wholesalers for all petroleum products, gasoline, kerosene, etc. The subsidy system seems to continue till this September but it isn’t clear whether it continues or not after it. With the subsidy system, gasoline price is being suppressed to around 160 yen per liter. If the subsidies aren’t given, the price will be over 200 yen.

 Ishizaki：The transaction is used for risk hedge against Exchange Traded Note (ETN) published by a securities company mainly and against 60-70 percent of the volume of ETN, long positions are placed for risk hedge at the futures transaction, and the basic structure of the transaction is that domestic and overseas traders enter in it as selling side. That is the crude oil futures transaction isn’t influenced by the subsidy system. However, the price of Dubai crude oil dropped significantly during the coronavirus pandemic. As the result, a likelihood of higher quotation after this is appearing. In 2020, ETNs were sold explosively, so the volume of the crude oil futures transaction was record high. After that, as the price of the crude oil was rising gradually, the ETNs weren’t selling owing to disappearance of a likelihood of higher quotation.
On the contrary, as act of closing ETNs appears, it leads to decreasing of the volume at the futures transaction directly. Hedging period relating to ETNs is several days in a month but its trading concentrates during the period. This is the structure of TOCOM Dubai crude oil futures market. We would like to induce new comers to increase the number of the participants from now on.

 Ishizaki：Since TOCOM is closely related to energy, it is the emission trading platform “Carbon credit”that is for carbon neutral having done by Tokyo Stock Exchange, entrusted by METI. METI uses “GX league”to achieve carbon neutral and plans opening a carbon emission trading market relating to the GX league. After that, from the case of overseas, we expect there is a high possibility that futures transaction of the carbon emission trading will be established. If they are realized, energy and environment combine, and one-piece deal can be done, resulting in going toward most desirable direction. In Europe, carbon emission trading has been already done actively and its leading role is energy enterprises.

 Ishizaki：The former reduction target of greenhouse gas by Japanese government “Reduction by 26 percent by 2030”has changed to the new one“Reduction by 46 percent by 2030”because the former Suga Cabinet had treated it quite enthusiastically. So the government must strengthen measures fundamentally by making the market and by supporting with subsidy. Among such measures, carbon emission trading was placed as an important tool and the matter progressed rapidly inａfew years. The person responsible for the matter at Tokyo Stock Exchange in those days is still working now at the exchange and the investigation report at the time is left. After twenty years passed, I feel it is starting to move, so energy and carbon emission trading will move towards merging in 5-10 years from now on. However, it will be closely tied to regulation and system, so making a market in line with the government policy will be important.