＜TOCOM Building＞

Three years has passed on July 27 since the integrated exchange led by Japan Exchange Group (JPX) was first-born in Japan. The points that were expected by launch of an integrated exchange in those days were improving convenience for investors and enhancing market liquidity. That was ideal it could be composed various portfolio and could strengthen creditworthiness by consolidation of clearing houses, and could involve the financial derivatives trading investors at Osaka Exchange in the commodity market. However, in fact, as to commodity futures transaction, trading volume hasn’t increased noticeably since the launch of the integrated exchange. Here I would like to look back the path to the launch of the integrated exchange.

The concept of integrated exchange that appeared in Japan for the first time will go back to “ The basic policy for economic and financial reform in 2007－the scenario to a beautiful country” decided by the first Shinzo Abe cabinet in 2007. It was named “A big-boned policy” and suggested “To draw a conclusion from considering a concrete plan to make possible wide range of products such as stock, bond, financial futures, commodity futures, etc. in an integrated manner at one exchange”.

But, after that, the administration changed to the old Democratic Party in August 2009 and the plan of a integrated exchange was officially shown as “The concept of an integrated exchange”of “National strategic project” in the government’s“New growth strategy”.

However, the government was busy to deal with the Great East Japan Earthquake that occurred in March 2011, so the discussion for the plan of an integrated exchange stopped.

The discussion reignited just after the second Shinzo Abe cabinet started. Its chance was that Tokyo Stock Exchange and Osaka Stock Exchange merged and JPX was launched in January 2013.

Meanwhile, in the commodity futures industry, there was a large-scale restructuring in February 2013, that has remained in history. Tokyo Commodity Exchange for Industry took over the agricultural market of Tokyo Grain Exchange and became Tokyo Commodity Exchange (TOCOM). At the same time, Kansai Commodity took over the rice futures market of Tokyo Grain Exchange and changed its name to Osaka Dojima Commodity Exchange (ODEX), and as a result, the present east and west two exchange system was established.

Based on a series of developments, as to the related law, the Financial Instruments and Exchange Law was amended in 2009 and 2012, and in the Revised Financial Instruments and Exchange Act enforced in 2014, the provision that anticipates the realization of an integrated exchange was stipulated. Preparation of the Act also increased momentum for realization of an integrated exchange. Furthermore, “The revision in 2014 of Japan Revitalization Strategy” decided by the cabinet in June 2014 stepped in “Realize an integrated exchange as soon as possible” and hinted at a big step forward, but stagnation of consideration began again.

The chance that it came to move again was the former Commissioner of Financial Services Agency (FSA), Toshihide Endo. FSA shifted to a new system, and it was the summer in 2018 shortly after Mr. Endo was inaugurated as the Commissioner. The chief executive officer(CEO) of JPX at that time, Akira Kiyota visited FSA and told a decision “I think that we would like to realize an integrated exchange” to Endo.

Endo had been long-served in the inspection bureau and the supervisory bureau that had interacted with financial institutions, and had served as the deputy director-general of the planning and coordination bureau for a year since June 2013 before he was inaugurated as the director-general of the inspection bureau. When he was the deputy director-general of the planning and coordination bureau, he was in charge of “A big-boned policy”　that included the plan of a integrated exchange , however, he had felt embarrassed because of no progress at all in spite of “Realize an integrated exchange as soon as possible”.

Therefore, he responded Kiyota’s decision immediately and put the fledgling financial market division of the policy and markets bureau in charge of it. Then, he continued contacting many concerned persons in MITI and the stock securities industry and tried to create a supportive environment for Kiyota. At the same time, Endo commanded “a beneficial method for MITI, too” and began to look for a realistic compromise.

After that, more tail wind toward realization of an integrated exchange blew because the Regulatory Reform Promotion Council of the Government became a strong supporter of FSA. As the policy and markets bureau had got the information that Ms. Hiroko Ota, the chairperson of the Regulatory Reform Promotion Council and the professor of National Graduate Institute for Policy Studies, seemed to be very interested in a general exchange, Hidenori Mitsui, the director general of the policy and markets bureau at that time, who was an old acquaintance with her, explained the stance of FSA to her. After Ota ascertained the attitude of MITI, she specified “Realization of an integrated exchange” as the third item in　“The third term ’s priority items of the Regulatory Reform Promotion Council－Towards a new era to come” issued in October 2018．Its　text was marked with “★”　and the mark meant emphasis of the item to be addressed urgently.

In November, the Council submitted “The recommendation to realize an integrated exchange”. It was the content that the Council, MITI and FSA negotiated in advance on the issue and resulted in being placed in the government’s view.　It listed advantages of an integrated exchange and had six items. Its fourth item stipulated a time limit to realize it, describing “Aiming for realization as early as possible. Concrete system design for that purpose should reach a conclusion by the end of this fiscal year (FY 2018) ”. Its fifth item stipulated possibility of changing the Financial Instruments and Exchange Law, describing“If negotiations between TOCOM and JPX don’t progress smoothly” and urged to accelerate negotiations with fewer obstacles. Along with those surrounding movements, the relationship between the two exchanges also progressed. In late September 2019, Takamichi Hamada, the president of TOCOM at that time, visited Kiyota, CEO of JPX, and they supposedly agreed to discuss from the trading systems together. Such subsurface adjustments can be said to have led to a basic agreement of an integrated exchange in March 2020.

Unfortunately, it cannot be said that the commodity futures market is enjoying the benefits of the integrated exchange, however, it can be said that the integrated exchange is worth it just to have got rid of harmful effects of the administrative sectionalism.

（to be continued）

（Futures Tribune・issued July 25, 2023 ・no.3229）