Published On: Fri, Feb 18th, 2011

TOCOM to Change Nikkei-TOCOM Commodity Index Futures Contract Specification

TOCOM will revise the contract specification of Nikkei-TOCOM Commodity Index Futures contract (TOCOM NEXT) for the reasons outlined below:

Since the launch on March 23rd, 2010 on a trial basis(*) of the Nikkei-TOCOM Commodity Index Futures, the market price (closing price) and the Settlement Index Point based on the actual Index value (theoretical price) have been constantly diverging, resulting in frequent additional margin calls on the first mark-to-market when a new position is taken, or triggering loss-cut orders immediately after the opening of a Day Session where the market price diverged again from the daily Settlement Index Point.

These problems have deteriorated trading volume and market liquidity of the contract, and TOCOM concluded that if they were to be left unsolved, the risk of unforeseeable loss would continue to rise as liquidity further aggravates.

In order to ameliorate these problems, and to fulfill our function as a public utility to provide investment and hedging tools against inflation, TOCOM has concluded that a drastic reform is necessary for the Nikkei-TOCOM Commodity Index Futures contract.

To be more precise, the Contract Day Transaction (with no expiry date) shall be replaced by an ordinary style cash-settled futures contract with expiry dates on which all remaining positions are settled against the Final Settlement Index Point (i.e. The automatic roll over will NOT apply to outstanding positions as is the case with Contract Day Transactions) which will ensure that the market price and actual index value converge on the final settlement day.

To avoid any disruption, market participants will have ample time to prepare for this change and both Contract Day Transactions and the newly launched ordinary futures transaction will temporarily run in parallel to allow participants to move their outstanding positions in the Contract Day Transaction.

The reform will take effect on May 2nd 2011, when the March 2012 contract will be launched provided that the draft new contract specification stated below be duly approved by the Minister/Ministry of Economy, Trade and Industry of Japan.

With regard to the Contract Day Transaction, all remaining positions will automatically be closed as they are cash-settled against the Final Settlement Index Point based on the actual Index value on February 29th 2012.

* The trial listing period is until March 23rd 2013, as provided in Article 9-2, 4 of the TOCOM Market Rules.

Schedule(TBC)
May 2nd, 2011: Contract-month futures transaction will be launched (with March 2012 contract).
Feb. 29th, 2012: Contract Day Transaction will be terminated.

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