TOCOM turnover slide sends it to H1 loss

TOKYO, Oct 17 - Falling turnover dragged the Tokyo Commodity Exchange (TOCOM) to a net loss of 270 million yen ($2.3 million) in the six months to September, excluding irregular factors -- as it faces its worst trading year in a decade. TOCOM's market turnover in Japan has slumped since a law change in 2005 that was designed to improve trading transparency and investor protection, but which has left the exchange stuck on the sidelines of the biggest global bull commodities run in decades. "Conditions are still severe in terms of our balance sheet, and we need to do more cost cuts," TOCOM President and Chief Operating Officer Umetaro Nagao said at a news conference. TOCOM, Japan's No.1 commodity exchange, currently owned by its members, plans to demutualise next year in a bid to raise funds to upgrade its trading systems and restore its fortunes. "We're making at most efforts to boost competition by pushing forward the reform plans," TOCOM Chairman Masaaki Nangaku said. Turnover on the exchange, where gold, platinum and gasoline futures are among those most heavily traded, fell a third from a year earlier to 23.15 million contracts between April and September. The slide was more than the exchange had forecast. The average daily turnover was 186,000 contracts, well below the exchange's estimated daily turnover for the fiscal year to next March of 202,000. If the current low level of trading continues for the rest of the year, TOCOM will have the lowest annual turnover since 1997/98, exchange data showed. To boost trading, the exchange has asked the government to allow it to trade new types of commodities, such as CO2 and electricity, and attract new investors among banks and other financial institutions. The exchange has also asked the government to allow investment trusts to buy commodity futures, Nangaku said. In Japan, laws limit investment trusts to buying conventional securities such as stocks and bonds. Despite the lower turnover, foreigners have increased their presence from a year earlier, CEO Nagao said. Proprietary trading by foreign entities based in Tokyo accounted for 8.28 percent of trading in the January-August period, more than double the 3.29 percent share foreigners had in 2006. There are now 11 foreign firms, such as Goldman Sachs and Standard Bank, among TOCOM's 104 members. Transactions by non-residents via omnibus accounts accounted to 27 percent of the total turnover during the same eight months, up from 17 percent in 2006, Nagao said. The exchange reported a net profit of 610 million yen in the year ended in March, 2007.