Published On: Mon, Feb 7th, 2011

TOCOM Adopts Error Trade Policy to Enhance Market Reliability

Tokyo Commodity Exchange Inc. (“TOCOM” or the “Exchange” hereafter) announced February 7 that the Exchange has received approval from the Minister of Economy, Trade and Industry to adopt an error trade policy, to be implemented March 1, 2011.

As a matter of principle, TOCOM currently doesn’t allow cancellation of executed trades except in certain specific cases (e.g: the failure of a Member’s system) in order to maintain an orderly market. However, with the advancements and expansion of electronic trading, the Exchange is aware that there is now an increased risk of a contract being executed at an abnormal price following a possible operational or system failure of a market participant. If such a risk should materialize, it may significantly disrupt the market and thus damage the credibility of TOCOM.

For this reason, TOCOM is adopting a policy to be able to cancel executed trades resulting from erroneous orders placed by Trade Member, etc. (i.e: Broker, Trade and Remote Trade Members) when the Exchange deems that such trades could significantly disrupt the market and damage the credibility of the TOCOM market.

Concretely, in case of a trade executed at a contract price that significantly diverges from the last execution price* as a result of an erroneous order, a Trade Member, etc. can notify the Exchange to request its cancellation within 5 minutes after said trade has been executed.

*Only trades executed within a certain price range can be considered for cancellation (in principal, orders executed at a price above or below a range set at twice the Initial Circuit Breaker (CB) Trigger Level from the last executed price). For example, when the Initial CB Trigger Level for gold is 100 yen and the last execution price is 3,600 yen, a request for cancellation of error trades executed at and above 3,801 yen and at or below 3,399 yen can be made (i.e: the no-bust range is from 3,400 yen to 3,800 yen).

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