Published On: Fri, Feb 28th, 2014

TOCOM Starts Offering SCO On Inter-Commodity Spreads On March 24

Tadashi Ezaki CEO TOCOM

Tadashi Ezaki CEO TOCOM

The Tokyo Commodity Exchange, Inc, announced on 27 February that official launch date for implementing Standard Combination Orders (SCO) on Inter-Commodity Spreads in the Oil and Chukyo-Oil Markets is March 24, 2014. The Exchange has made its preliminary announcement on November 12, 2013.

Crack Spreads have been traded by placing separate orders and monitoring the price differences between crude oil and other oil products. It has been difficult to fix an expected spread without the simultaneous execution of multiple orders. The implementation of SCO on inter-commodity Spreads enables market participants trading crack spreads to simultaneously execute orders at the intended spread.

TOCOM expects offering SCO on Inter-Commodity Spread to improve convenience and to bring more liquidity to the markets.

Summary of SCO on Inter-Commodity Spread

1. Inter-Commodity Combinations Available for Trade

1. Oil Market Division

1) Gasoline-Crude Oil,
2) Kerosene-Crude Oil,
3) Gas Oil-Crude Oil,
4) Gasoline-Kerosene,
5) Gasoline-Gas Oil,
6) Kerosene-Gas Oil

2. Chukyo-Oil Market Division
7) Chukyo-Gasoline-Chukyo-Kerosene* SCOs on inter-commodity spreads are limited to a combination within the same market division, with the same price increment and contract unit, due to technical limitations.

2. Contract- Months Combination Series Available for Trade

Combinations are only allowed between the same contract month numbers(e.g., first contract month vs. first contract month second contract month vs. second contract month. There will be six series for each inter-commodity combination of 1. (1) and (2) above)

(1) Oil Market Division(six inter-commodity combinations)× 6 series = 36 series

(2) Chukyo-Oil Market Division(one inter-commodity combination)× 6 series = 6 series

3. Buy/Sell Rules for SCO on inter- commodity spread

SELL A-B SCO = sell product-A and buy product-B

BUY A-B SCO = buy product-A and sell product-B

Example 1: Gasoline December contract vs. Crude Oil November contract

  • SELL 1 SCO on inter-commodity spread = sell 1 Gasoline December contract and buy 1 Crude Oil November contract
  • BUY 1 SCO on inter-commodity spread = buy 1 Gasoline December contract and sell 1 Crude Oil November contract

Example 2: Gasoline December contract vs. Kerosene December contract

  • SELL 1 SCO on inter-commodity spread = sell 1 Gasoline December contract and buy 1 Kerosene December contract
  • BUY 1 SCO on inter-commodity spread = buy 1 Gasoline December contract and sell 1 Kerosene December contract

4. Spread Prices

SCO Spread Price = product-A price minus product-B price

Example 1: Gasoline December contract vs. Crude Oil November contract

  • When Gasoline price = JPY 77,000 and Crude Oil price = JPY 66,000,

    the spread price = JPY 11,000 (JPY 77,000 – JPY 66,000)

Example 2: Gasoline December contract vs. Kerosene December contract

  • When Gasoline price = JPY 77,000 and Kerosene price = JPY 80,000,

    the spread price = minus JPY 3,000 (JPY 77,000 – JPY 80,000)

5. First and Last Trading Days

Combination

First Trading Day

Last Trading Day

An Oil product in the Oil Market Division vs. Crude Oil

(e.g. Gasoline vs. Crude Oil)

First Trading Day of Crude Oil contract

Business day preceding Last Trading Day on Oil products

Combinations of two Oil products in the Oil Market Division, and combinations in Chukyo-Oil Market Division (e.g. Gasoline vs. Kerosene)

First Trading Day of Oil products

Business day preceding Last Trading Day on Oil products

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